Setting aside of part of Arbitral Award – breach of natural justice and excess of jurisdiction
Recourse against Award
Case Summary
CBS v CBP is an appeal against the decision of the High Court judge in CBP v CBS [2020] SGHC 23 (“CBS v CBP”). The High Court had set aside the arbitral award in its entirety, primarily on the basis that the rules of natural justice had been breached. The relevant facts of the case can be found in the case report prepared for CBP v CBS at this link: https://www.siarb.org.sg/resources/newsletters/416-case-digests. Unless otherwise indicated, the definitions set out in the case report for CBP v CBS are adopted.
The key issue before the Court of Appeal (“CA”) is whether the grounds for setting aside the arbitral award for breach of natural justice were made out. The breach in question was the failure of the arbitrator to allow an oral hearing of the Respondent Buyer’s witnesses in relation to an oral agreement that was a pillar of the Buyer’s defence.
Ruling
The Appellant Bank submitted that the Judge erred in concluding that there had been a breach of natural justice because it could not be said that the arbitrator had acted “irrationally or capriciously” or that his decision fell outside the “range or what a reasonable and fair-minded tribunal in those circumstances might have done.” The Respondent Buyer, on the other hand, supported the judgement below which decided that there was a breach of natural justice, on the basis that the arbitrator’s request for the witness statements before deciding whether the proceeding should be documents-only or an oral hearing was ultra vires, made in contravention of rule 28.1 of the SCMA Rules.
The CA agreed with the Buyer’s arguments and affirmed the High Court Judge’s holistic interpretation of rule 28.1 of the SCMA Rules. Unless parties have agreed on a documents-only arbitration or that no hearing shall be held, a hearing must be held to allow the presentation of evidence by witnesses. The tribunal’s case management powers under rule 25 of the SCMA Rules are not unfettered powers that override the rules of natural justice. The arbitrator’s directions in this case to exclude the entirety of the Buyer’s witness’s evidence was a material breach of the rules of natural justice.
The CA held that the breach of the fair hearing rule directly affected the Final Award. The breach resulted in the arbitrator gating of all seven of the Buyer’s witnesses, and consequently finding the Buyer liable for the entire sum claimed by the Bank on the original contract price.
The CA further held that the breach of natural justice resulted in prejudice to the Buyer, as it shut out all witness evidence of the Buyer in relation to the alleged oral agreement which was a critical component of the Buyer’s defence against the Bank’s claim.
The CA was therefore satisfied that all requirements for setting aside the arbitral award for a breach of natural justice have been met.
The Bank also raised two fresh points of contention on appeal. First, the Bank submitted that the arbitral award should only have been set aside in part since the Buyer’s defence is only a partial defence, limited to the price payable and not the liability to pay. Second, the Bank submitted that the CA should remit the arbitral award back to the tribunal under Article 34(4) of the Model Law instead of setting aside the arbitral award.
The CA rejected both points of contention. First, the CA held that it is not the role of the Court to apply a pro tanto reduction to the sum awarded by the arbitrator. Further, the doctrine of merger may operate to obviate the Bank from pursuing another claim for the difference in price payable.
The CA also held that the power to remit an arbitral award back to the same tribunal lies with the High Court. The role of the CA is limited to reviewing the High Court’s decision on the issue, and has no (original) jurisdiction to deal with an abinitio application.
The CA therefore made no order on remittal and affirmed the decision of the Judge to set aside the arbitral award entirely on the grounds of breach of natural justice.
