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Nature of Matter

Setting aside of Arbitral Award; Breach of Natural Justice 

Case Summary

1. The first Appellant entered into a contract with the Respondent’s parent company to provide various equipment and services for the development of a steel-making plant (the “Plant”) on a site owned by the Respondent’s parent company (the “Contract”). The Respondent’s parent company subsequently assigned its rights, title, interest and liabilities under the Contract to the Respondent.
2. The Appellants and the Respondent subsequently entered into a Service Agreement under which the first Appellant assigned to the second Appellant the first Appellant’s obligations under the Contract to provide various services to the Respondent.
3. Unfortunately, the construction of the Plant was delayed, and the Plant never achieved its production target of 600,000 tonnes of hot rolled steel coils per year. The Respondent consequently purported to terminate the Contract.
4. Arbitration proceedings were subsequently commenced in August 2016 by both parties, and the arbitrations were consolidated by consent in October 2016.
5. In 2019, the majority of the Tribunal found that the Respondent had been induced to enter into the Contract by the Appellants’ misrepresentations, and was therefore entitled to rescind both the Contract and Service Agreement.
6. The Tribunal made various orders including that:
   1. The Appellants were to repay the Respondent the Contract price less various sums including the diminution in value of the Plant (the “Repayment Order”);
   2. The Respondent was to transfer title to the Plant, including the additional equipment installed, to the Appellants in return for payment under the Repayment Order (the “Transfer Order”); and
   3. The Appellants were to pay the Respondent damages to compensate the Respondent for five heads of loss and/or expenses which it would not have incurred but for the first Appellant’s misrepresentations (the “Damages Order”). The Tribunal permitted the Respondent to only recover 25% of its damages claimed under each of the five heads, as it found the Respondent’s evidence of the quantum of loss suffered to be deficient.
7. The Appellants sought to set aside the Tribunal’s award on the following grounds:
   1. The Transfer Order should be set aside:
      1. under Art 34(2)(a)(iv) of the Model Law, on the basis that it is uncertain, ambiguous, impossible and/or unenforceable and therefore not in accordance with the parties’ agreement, the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”) and/or the Model Law;
      2. under Art 34(2)(a)(iii) of the Model Law, on the basis that it contains decisions on matters beyond the scope of the submission to the arbitration; and
      3. under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”) on the basis that it was obtained in breach of natural justice and/or without giving the Appellants an opportunity to present their case on the same;
   2. The Repayment Order should be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice;
   3. In the event that either the Transfer Order or Repayment Order is set aside, the other Order should also be set aside on the basis that the two Orders are “reciprocal, interdependent and necessarily contingent on each other”;
   4. The Damages Order should be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice; and
   5. The award (or part thereof) should be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the award.
8. The HC dismissed the Appellants’ application to set aside the award: 
   1. It rejected the Appellants’ argument that the Transfer Order could be set aside under Art 34(2)(a)(iv) of the Model Law because:
      1. Art 34(2)(a)(iv) could only apply to a breach of arbitral procedure, and the Appellants’ complaints about the Transfer Order were in effect complaints about the substance of the Transfer Order; and
      2. the Appellants had waived their right to rely on Art 34(2)(a)(iv) to challenge the Transfer Order.
   2. Even if the above-stated points were incorrect, the Appellants’ challenge under Art 34(2)(a)(iv) would still fail because:
      1. There was no authority, and nothing in the Model Law or ICC Rules, which supported the proposition that an arbitral award could be set aside merely on the basis that it was unenforceable or unworkable; and
      2. In any event, the award was not unworkable.
   3. As to the issue of whether the Transfer Order was beyond the scope of the parties’ submission to arbitration under Art 34(2)(a)(iii) of the Model Law: 
      1. the HC rejected the Appellants’ contention that Art 23 of the ICC Rules required the Terms of Reference to state in detail every single head of claim that was advanced in the arbitration;
      2. Further, even if Art 23 imposed such a requirement on the parties, paragraph 78 of the Terms of Reference was broad enough to bring counter-restitution of the Plant in specie within the scope of the submission to arbitration; and
      3. The Appellants had waived their rights to rely on Art 34(2)(a)(iii) of the Model Law to challenge the Transfer Order.
   4. Finally, the HC declined to set aside the Transfer Order on the basis that it was tainted by a breach of natural justice because the issue of counter-restitution in specie had been live throughout the arbitration.
   5. In relation to the Repayment Order, the HC held that:
      1. The Tribunal did not breach the fair hearing rule in making the Repayment Order. The diminution in value of the Plant had been a live issue in the Arbitration from the very outset and the Appellants could well have presented their case on the same if they had so desired; and
      2. The “no evidence rule” should not be accepted as part of Singapore law. Even if it were to be accepted as a free-standing rule of natural justice, it could not apply to a situation where, as in the present case, the Tribunal had no evidence before it on a material issue of fact simply because the party who bore the burden of proof on that issue had failed to adduce such evidence. 
   6. In relation to the Damages Order, the HC held that:
      1. the fair hearing rule had not been breached as the Appellants could have advanced an alternative case on the quantum of the Respondent’s reliance loss, but had refused to do so; and
      2. Even if the “no evidence rule” were accepted as a free-standing rule of natural justice, the Tribunal did have evidence before it to justify the Damages Order. 
   7. Finally, the HC rejected the Appellants’ contention that the award and its contents were inadequately reasoned. As far as the Transfer Order was concerned, it was clear that the Transfer Order was enforceable and workable, and no further explanation was required on the Tribunal’s part. Taken as a whole, the award did provide sufficient reasons to inform the parties of the bases on which the Tribunal had reached its decision on the essential issues.

9. On appeal, the Court of Appeal (“CA”) upheld the HC’s decision save in respect of the Damages Order, which was set aside.

Whether the Transfer Order should be set aside on the basis that it was “uncertain, ambiguous, impossible and/or unenforceable”

10. As regards the Appellants’ contention that the Transfer Order was unenforceable, the CA considered that:
    1. this did not form any basis to set aside the Transfer Order under s 24 of the IAA or Art 34 of the Model Law;
    2. the Appellants’ reliance on Art 41 of the ICC Rules (“Art 41”) was misplaced, because a tribunal’s primary duty under Art 41 is to ensure that the procedural requirements for enforcement are satisfied. Insofar as the substantive requirements for enforcement are concerned, the tribunal will be found to have discharged its duty under Art 41 as long as it can show that it has used “every effort” to ensure the enforceability of the award in the jurisdictions where the award can reasonably be expected to be enforced. It woulAwad be unreasonable to impose on the tribunal a duty to accurately predict or guarantee the outcome of such a discretionary exercise; and
    3. there is no implied term in every arbitration agreement that the resulting award shall be in a form which is capable of being enforced in the same manner as a judgment.
11. The CA also considered that uncertainty and/or ambiguity do not form any basis to set aside an award under Art 34(2)(a)(iv) of the Model Law. In any event, the Transfer Order was not in fact uncertain or ambiguous.
12. The CA further rejected the Appellants’ contention that the Transfer Order should be set aside because it is impossible or unworkable, as this was unsupported by any legal authority. In any event, the CA considered that the Transfer Order was not in fact impossible or unworkable.
13. The Appellants also failed to show that the Transfer Order violated the parties’ agreement as to the arbitral procedure for the award, which would have justified setting aside the award under Art 34(2)(a)(iv) of the Model Law. This was because the Appellants’ complaints were aimed at the substance of the award, and not about the arbitral procedure adopted by the Tribunal.
14. Further, since the issue of the Respondent making counter-restitution to the Appellants in specie was a live issue throughout the arbitration, the Appellants’ failure to raise their complaints in relation to the Transfer Order during the arbitration meant that they had waived their right to rely on these grounds in the setting aside application.

Whether the Transfer Order contained decisions on matters beyond the scope of the submission to the arbitration

15. The CA agreed, citing the case of TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972, that an issue which surfaces in the course of an arbitration, which is ancillary to the dispute submitted for arbitration and which is known to all the parties, is within the scope of the submission to arbitration, even if it is not part of any memorandum of issues or pleading.
16. On the facts, the Transfer Order did not contain decisions on matters beyond the scope of the submission to the arbitration, since the issue of the Respondent’s counter-restitution of the Plant in specie was one of the factual or legal issues resulting from the parties’ submissions. It was the natural legal consequence of the Respondent’s counterclaim for rescission, as set out both in the Terms of Reference and in the Respondent’s pleadings.

Whether the Transfer Order was obtained in breach of natural justice and/or without giving the Appellants an opportunity to present their case

17. The CA considered, upon its review of the Terms of Reference, pleadings, lists of issues, and submissions, that the Appellants knew that counter-restitution of the Plant in specie was a live issue in the arbitration. The Appellants were therefore afforded a reasonable opportunity to submit on the issue.

Whether the Repayment Order should be set aside

18. The CA declined to set aside the Repayment Order, pertinently because:
    1. the issue of the diminution in the value of the Plant was a live issue in the arbitration. Having failed to adduce any evidence on this respect, the Appellants could not now argue that they had been denied a fair hearing; and
    2. the “no evidence rule” should not be adopted as part of Singapore law, as to do so would run contrary to the policy of minimal curial intervention in arbitral proceedings. Even if the “no evidence rule” were to be applied in the present case, it cannot apply to the present situation where the tribunal has no evidence before it on a material issue of fact because the party (i.e. the Appellant) who bears the burden of proof on that issue has failed to adduce any such evidence.

Whether the Damages Order should be set aside

19. The CA held that to comply with the fair hearing rule, the tribunal’s chain of reasoning must be (i) one which the parties had reasonable notice that the tribunal could adopt; and (ii) one which has a sufficient nexus to the parties’ arguments.
20. The CA held that the Damages Order should be set aside because the fair hearing rule had been breached in this case:
    1. A reasonable litigant in the Appellants’ shoes could not have foreseen that the Tribunal, having noted all the deficiencies in the Respondent’s evidence, would then go on to adopt a figure of 25% of the amount claimed as being the loss incurred. Instead, the parties would have expected the Tribunal to dismiss the Respondent’s claim for reliance loss in its entirety;
    2. the Tribunal’s chain of reasoning did not have a sufficient nexus to the parties’ arguments. The Respondent had acknowledged in its submissions that, even if the Tribunal were to adopt a “flexible approach” to award some damages to the Respondent, the Tribunal had to first be satisfied that the Respondent’s evidence was “more likely to be true than not”. The Tribunal’s reliance on the “flexible approach” to award damages to the Respondent despite there being no evidence of the Respondent’s loss therefore had no connection to the issue before the Tribunal of what the appropriate award of damages to the Respondent should be; and
    3. this breach of natural justice was connected to the making of the award, as the Tribunal awarded the Respondent 25% of its claimed reliance loss based on the “flexible approach”. This breach of natural justice prejudiced the Appellants’ rights.
21. The CA rejected the Respondent’s request to remit the award back to the Tribunal, as a reasonable person would not have the confidence that the Tribunal would be able to reconsider the issue remitted in a fair and balanced manner, after having assessed how the impugned decision had been arrived at. Accordingly, the Damages Order should be set aside.

Whether the award (or part thereof) be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the award

22. The CA re-stated the principle that whether a given decision is sufficiently reasoned is a matter of degree and must be considered in the circumstances of each case – even if no reasons were given in an arbitral award, this would not invariably cause the award to be set aside for breach of natural justice.
23. On the facts, the CA did not agree that the award should be set aside on the basis that it does not contain sufficient reasons for the Tribunal’s decision.