Clarifications provided on Setting Aside an Arbitral Award under Singapore Law

Clarifications Provided on Setting Aside an Arbitral Award under Singapore Law. A party dissatisfied with an arbitration award can apply to court to set aside the award.

The recent Singapore High Court decision in CAI v CAJ [2021] SGHC 21 dealt with two of the grounds for setting aside an award: (1) there was a breach of the rules of natural justice in the way the arbitration was conducted, and (2) the tribunal acted without jurisdiction. This article considers the implications of this decision.

Background

The arbitration at issue concerned a claim for liquidated damages against contractors engaged to build a polycrystalline silicon plant. Rectification works were needed, and the plant’s owners claimed the contractors failed to complete on time as a result. The contractors’ put forward a defence that the owners were not entitled to any liquidated damages.

However, after the arbitration hearing had concluded, the contractors’ raised their entitlement for a contractual extension of time in their closing written submissions. The owners objected to the extension of time issue being raised at that late stage, pointing out (i) that it was not part of the contractors’ original case and (ii) that consequently the owner’s did not have the opportunity to respond to it during the hearing.

The award and the extension of time issue

The arbitral tribunal decided there had been a 99- day delay in completion, but that the contractors were entitled to a 25-day extension of time. Accordingly, the tribunal awarded the owner liquidated damages for 74 days. This amounted to about a £10.7 million reduction in the liquidated damages payable to the owner.

In making its award, the tribunal noted that further evidence ought to have been provided concerning the extension of time issue. However, it stated that it could nevertheless decide that issue based on the evidence that was provided, and its own experience in dealing with such matters.

The owner applied to set aside that part of the award granting the contractors an extension of time, arguing it had been denied natural justice, and the tribunal acted without jurisdiction.

Setting aside arbitral awards for breach of natural justice

The court’s power to set aside an award for breach of the rules of natural justice is provided in section 24(b) of Singapore’s International Arbitration Act 1994 and Article 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’). The threshold for proving a breach of natural justice is high and Singapore’s courts have indicated that only in exceptional cases will such a breach be found.

Under Singapore law, the party seeking to set aside an award for breach of natural justice must show:

1. Which rule of natural justice had been breached
2. How the rule was breached
3. How the breach related to the making of the award
4. How the breach prejudiced its rights

Further, the alleged breach must be made known to the tribunal at the time it was thought to occur. The court’s assessment of that allegation will be based on: (1) what the tribunal knew at that time, and (2) whether, given the circumstances of the arbitration, the tribunal conducted the proceedings in a reasonable and fair-minded manner.

A party’s right to fully put forward its case, and respond to the case against it is provided under Article 18 of the Model Law. The owner claimed it was not given an opportunity to fully respond to the extension of time issue. Specifically, it argued that because the extension of time issue was only raised in the contractors’ closing submissions, it had been denied the opportunity to (1) seek the relevant disclosure, (2) present its own evidence, and (3) cross-examine the contractors’ evidence on this issue.

The court agreed, concluding that the extension of time was a completely new issue raised by the contractors. The court noted that on receiving the owner’s objection to this issue being raised very late, the tribunal could have ordered the parties to present their respective evidence on the extension of time issue. Instead, the tribunal proceeded to issue an award in which it decided a 25-day extension should be granted. In doing so, the court found that the tribunal did not act in a reasonable and fair-minded manner.

The court further noted, that by deciding the extension of time issue on the basis of its own experience, without informing the parties beforehand, neither party was able to review and address that experience. The court held that this constituted another instance of the parties not being given a reasonable opportunity to be heard, and of the tribunal not acting in a reasonable and fair-minded manner.

Setting aside the award for want of jurisdiction

The court’s power to set aside an award where the tribunal exceeds its jurisdiction is provided in Article 34(2)(a)(iii) of the Model Law.

The court found that the extension of time issue was not raised in the parties’ pleaded cases, the tribunal’s terms of reference, or the list of issues submitted for the tribunal’s decision. Accordingly, it was not an issue the parties had submitted to the tribunal for determination, and the tribunal lacked jurisdiction to decide it.

In making this ruling the court acknowledged that the owners had not specifically stated to the tribunal that it was acting in ‘excess of jurisdiction’. However, the court clarified that a party was not required any particular words in pointing out to the tribunal that it was acting beyond its scope. Instead, it was the substance of the party’s objection that counted.

The effect of setting aside the award

In setting aside an award, the court renders it null and without effect. Alternatively, the court could remit the award back to the tribunal for its decision. The court does not however, have the power to vary the award, i.e. substitute its ruling for a tribunal’s decision. In this case, the court noted that the award could not be remitted since the decision on the extension of time issue had exceeded the scope of the tribunal’s jurisdiction, i.e. it was not an issue that the tribunal had the power to determine in any case.

With just having the award of 74 days of liquidated damages set aside, the owner would have had to return those damages to the contractors and seek new arbitration proceedings. The judge noted (1) this would be not be commercially attractive, and (2) because of the passage of time, new proceedings might not have been possible.

The judge however, concluded that the court had the power to make ancillary or consequential orders so as give effect to the award’s setting aside. Accordingly, in setting aside that part of the award that permitted the 25-day extension of time, the court ordered that as a consequence, “the number of days of delay set out in the Award for which liquidated damages are payable is to read as 99 days.” As noted earlier, the tribunal had found the delay was for 99 days. Thus, the court noted that in making its order, it was not interfering with the tribunal’s finding of this fact.

Implications

This case is noteworthy for the clarification and guidance it provides on Singapore’s law on setting aside arbitral awards.

1. To start with it re-iterates the duty of arbitrators to ensure the parties are made aware of matters being taken into consideration in deciding a case. Here the arbitrators’ failure to explain they were taking into account their own experience in deciding an issue put their award at risk of not being enforced. Parties should be alive to such a risk, especially where, as here, the issue being ruled on was raised very late, and the evidence already taken proved insufficient.
2. As noted above, the party alleging a breach of natural justice must clearly bring that to the tribunal’s attention at the time of the alleged breach. Here the alleged breach of natural justice occurred when the tribunal made its ruling on the extension of time issue in its award. The court felt that up to that point, it remained uncertain how the tribunal was going to deal with the extension of time issue. However, by the time the tribunal issued the award, it was too late for the owner to raise the allegation of a breach of natural justice. Accordingly, parties who find themselves in the owner’s position in this case, can likely take comfort that they can still seek to have such awards set aside where there was no other opportunity to first complain to the tribunal.
3. Finally, this case provides the possibility that the court can make a consequential order to give effect to the award’s setting aside. This means for instance, that in successfully setting aside an award, a party need not bear the expense of commencing a new arbitration to obtain the remedy they were seeking. Such a possibility will only exist however, where the court can rely on facts already determined by the tribunal. The court will not substitute its own views for the findings of the tribunal.