December 1, 2015
In dismissing AMZ’s application to set aside portions of an international arbitration award, for alleged procedural defects, including an alleged breach of natural justice, the Singapore High Court had the opportunity to comment on the law pertaining to several interesting issues. In particular, the High Court considered the applicable natural justice considerations when a party complains that it was not given the opportunity to present a case it did not plead and where there is an issue as to whether the complaint would ultimately make any difference to the final outcome.
Rodyk represented AXX in the international arbitration conducted under the SIAC Rules and in the setting aside proceedings before the High Court. AMZ has now filed an appeal against the High Court’s decision, which is pending before the Court of Appeal, the apex court of Singapore.
In AMZ v AXX, the Singapore High Court dismissed AMZ’s application to set aside parts of the arbitral award rendered under the Rules of the Singapore International Arbitration Centre (SIAC). The case reinforces the principle that the High Court will not set aside international arbitral awards, which under the International Arbitration Act (Chapter 143A, 2002 Rev. Ed.) (IAA) are final and binding, except where the matter properly falls within section 24 of the IAA and/or Article 34 (2) of the UNCITRAL Model Law on International Commercial Arbitration (as adopted by the United Nations Commission on International Trade Law on 21 June 1985) (Model Law).
AMZ had relied on multiple grounds in its setting aside application, alleging various procedural defects including breaches of natural justice, breach of the allegedly agreed arbitration procedure and bias on the part of a member of the Tribunal. The High Court rejected all of AMZ’s arguments.
AMZ, the Seller of crude oil, commenced arbitration proceedings under the SIAC Rules against AXX, the Buyer, for breach of contract. The Seller claimed that the Buyer failed to take delivery of the oil under the contract, for the supply of a type of crude oil known as Dar Blend (Supply Contract”). The Seller alleged that by reason of the cumulative effect of three breaches committed by the Buyer (including failing to take delivery), the Buyer was in repudiatory breach of Supply Contract (i.e. a very serious breach going to the root of the contract). Notably, the Seller did not claim for damages arising out of each individual breach alleged. It was also the Seller’s evidence that the parties had entered into a contingency arrangement if the Dar Blend could not be legally imported by the Buyer, in the form of a Buyback Contract (Buyback Contract), entitling AXX to sell the Dar Blend back to AMZ for a profit.
The Seller sought damages of some US$13.48 million, arising out of the Buyer’s alleged repudiatory breach. The bulk of the damages sought, comprised “hedging losses” which the Seller claimed to have suffered as a result of the futures contracts that the Seller’s parent had entered into to hedge the Seller’s exposure under the Supply Contract. The rest of the damages sought included claims for demurrage, heating costs, financing and insurance costs.
The Buyer denied the breaches alleged and contended that the Seller, in any event, suffered no recoverable loss. As the Seller had chosen not to even attempt delivery of the oil, the Buyer also contended that the Seller’s non-delivery would in fact itself constitute a repudiatory breach.
The three-man arbitral tribunal (Tribunal) dismissed the Seller’s claim. The Tribunal held that the Buyer was not in repudiatory breach. Out of the three breaches claimed, two alleged breaches did not constitute breaches at all and the lone breach did not amount to a repudiatory breach. In the absence of a claim for damages for each individual breach, the Seller’s claim was dismissed in its entirety. The Tribunal’s finding that the Buyer did not commit a repudiatory breach of the Supply Contract, rendered it unnecessary for the Tribunal to determine the issue of damages. The Tribunal nevertheless went on to consider whether the Seller could have recovered any damages even if the Buyer was in repudiatory breach (which it was not) and opined that the damages claimed, would in any event, have not been recoverable.
In the round, the Buyer succeeded in defending the Seller’s claim before the Tribunal.
The High Court proceedings
Dissatisfied with the Tribunal’s decision, the Seller commenced legal proceedings in the Singapore High Court to set aside the arbitration award on the grounds that there were alleged procedural defects, namely:
- The Tribunal breached the rules of natural justice in making its award. The Seller claimed that it was unable to present its case in the arbitration, and the Tribunal failed to accord equality of treatment to it in the arbitration;
- The arbitral procedure was not in accordance with the parties’ agreement;
- The Tribunal’s award deals with a dispute outside the scope of submission to arbitration; and
- There is a reasonable suspicion that the arbitrator nominated by the Buyer was biased against the Seller and that his bias influenced the other two members of the Tribunal against the Seller.
Findings of the Court
This case summary discusses only the first three grounds. The Seller’s allegation of bias was quickly dismissed by the Court as the Seller had not put forward any basis to support its allegation.
In short, Justice Vinodh Coomaraswamy dismissed the Seller’s application largely on the ground that there were no procedural defects (including no breach of natural justice). Even if there were, they caused the Seller no prejudice because they touched on findings which were not necessary for the Tribunal’s ultimate decision. Accordingly, the High Court’s decision focused on where the Seller’s allegations pertained to the issue of breach; in so far as they pertained to the issue of damages, they would make no difference to the final outcome since the Tribunal’s comments on the issue of damages came after it had already rejected the Seller’s contention that the Buyer was in repudiatory breach.
Alleged breach of natural justice
The Seller alleged multiple breaches of natural justice. In respect of the lone breach of contract that the Seller was able to establish during the arbitration proceedings, namely that the Buyer had not given a payment undertaking to the Seller by the deadline stipulated in Clause 6 of the Supply Contract, the Seller sought to set aside the Tribunal’s declaration that it has suffered no recoverable loss from the breach of Clause 6. Interestingly, as stated above, the Seller had not claimed any damages for a breach of Clause 6 per se; it instead limited itself to a damages claim for a repudiatory breach.
In the event, the Tribunal noted that as the Seller had proceeded with the early stage of the delivery of the Dar Blend, even if a breach of Clause 6 amounted to a repudiatory breach, the Seller had therefore affirmed the contract by continuing with its performance. The Tribunal also observed that the Seller did not have any adequate basis to anticipate that the Buyer would not accept delivery of the Dar Blend.
At the setting aside proceedings before the High Court, the Seller contended that:-
- The Tribunal’s finding that the Seller had affirmed the Supply Contract as it continued to perform the Supply Contract after the Buyer’s breach of Clause 6 flew in the face of the Seller’s evidence and submissions.
- The Seller was not given any opportunity to address the Tribunal on the issue of damages caused by the particular breach of Clause 6.
- The Seller was not given any opportunity to address the Tribunal on whether the Buyer was in anticipatory breach of contract, latching on to the Tribunal’s observation that the Seller did not have any adequate basis to anticipate that the Buyer would not accept delivery of the Dar Blend. The Seller argued that if the Tribunal thought that the Seller’s claim would be better considered as a claim for anticipatory breach, the Tribunal should have given the Seller the opportunity todeal with this improved case.
Justice Coomaraswamy rejected all of the Seller’s contentions.
Justice Coomaraswamy was of the view that contrary to the Seller’s contention, the Tribunal did properly consider the Seller’s case and had come to the decision that the Seller had part performed the Supply Contract, based on the evidence before it. What the Tribunal had before it were two conflicting cases presented by the parties. The Tribunal rightfully exercised its prerogative of preferring the Buyer’s case over the Seller’s case. The Tribunal therefore was entitled to find on the evidence before it, that the Seller had in fact proceeded with the initial stages of performance, after Clause 6 had not been complied with.
In respect of the issue of damages in relation to Clause 6, Justice Coomaraswamy pointed out that the Seller had not claimed damages in the first place. The Seller’s claim rested solely on the basis that the Buyer was allegedly in repudiatory breach of contract. The Seller did not present any alternative middle ground – that the Seller would still be entitled to damages for the breach even if the breach was not repudiatory in nature. In essence, the Seller’s case was an all-or-nothing case. Having not claimed damages for the breach of Clause 6, the Seller could not complain that it was awarded no damages.
As for the Seller’s third contention, on the facts, Justice Coomaraswamy had noted that in view of the Tribunal’s findings that the Buyer was found not liable on all pleaded points, the Tribunal did not even need to consider the issue of anticipatory breach and the fact that the Buyer was also not liable on an unpleaded point, could not be a cause for the Seller to complain. As for the Seller’s argument that the Tribunal had failed to invite the Seller to present an improved case, Justice Coomaraswamy found that there was no obligation on the Tribunal in the present case to give the Seller an opportunity to do so.
The Court also did not accept the Seller’s allegations of breach of natural justice in respect of the portion of the Tribunal’s award dealing with the Seller’s quantification of damages. Justice Coomaraswamy observed that given that the Tribunal’s finding on liability was not tainted by any procedural defects complained of, any procedural defects on the portion of the award on the issue of damages would not have made a difference to the Tribunal’s decision and the final outcome.
Allegation that the arbitral procedure was not in accordance with the parties’ agreement
The Seller also contended that the arbitral procedure was not carried out in accordance with the parties’ agreement.
The arbitration was carried out in two phases – the first being the jurisdictional phase (where the Tribunal ruled in favour of its own jurisdiction), and the second was the merits phase. “Owen” (the name given by the Court to one of the Seller’s main witnesses at the hearing on jurisdiction) was not recalled by the Seller to give evidence at the merits hearing. Evidence given by Owen at the jurisdictional phase was contradictory to the evidence given by another of the Seller’s witnesses (which the Court called “Beru”) at the merits phase. The Tribunal preferred Owen’s evidence from the jurisdictional phase over Beru’s evidence at the merits phase. This was the subject of criticism by the Seller on the ground that the Tribunal allegedly failed to accord equal weight to the evidence given at both the jurisdictional and merits hearing.
Justice Coomaraswamy did not accept the Seller’s submission and found that the Tribunal did not deviate from any agreed arbitral procedure. The Tribunal had legitimately preferred the evidence of Owen over Beru’s evidence since Owen was speaking from personal knowledge on the subject while Beru was not. Justice Coomaraswamy also pointed out the irony in the Seller’s argument that the Tribunal, in preferring Owen’s evidence, had in fact given his evidence greater weight than Beru’s, even though his evidence was given during the jurisdictional phase. Justice Coomaraswamy noted that it was not the function of the Tribunal to settle the witness list of each party and that it was for each party to the arbitration to decide for itself which witnesses it intended to put forward. If it failed to call a material witness, it cannot blame the Tribunal for it and much less is it a breach of natural justice on the Tribunal’s part.
Dispute outside the scope of the submission to arbitration
Another contention raised by the Seller was that the Tribunal went outside the scope of submission to arbitration by considering issues pertaining to the Buyback Contract, which was distinct and separate from the Supply Contract, and which had its own arbitration clause.
This contention too was rejected.
Justice Coomaraswamy noted that the Tribunal considered the existence and effect of the Buyback Contract as the backdrop against which the Supply Contract was to be interpreted. The Tribunal’s consideration of the Buyback Contract was therefore wholly permissible. Further, Justice Coomaraswamy also observed that the Tribunal had expressly invited parties to address the Tribunal in their written closing submissions on the relevance of the Buyback Contract. The Seller made submissions on those issues without objection and therefore cannot be said to have been taken by surprise.
Further, it was also noted that the Tribunal’s reliance on the existence and effect of the Buyback Contract caused no actual prejudice to the Seller as it would have made no difference to the outcome of the Tribunal’s decision.
The High Court’s decision, which is currently pending an appeal by the Seller, re-affirms the principles pertaining to the grounds for setting aside an arbitration award. In particular, a common theme central to the High Court’s decision is that at the setting aside stage, the parties are confined to their respective cases submitted at the arbitration and will stand or fall by it. An attempt by a party to use setting aside proceedings as a platform for a second bite at the cherry will be scrutinised with care. In summary, Justice Coomaraswamy’s decision is a timely reminder of the importance of framing one’s case at the first instance, and the finality of arbitration proceedings.