May 1, 2015
When contracting parties consider dispute resolution options, one attractive feature of arbitration, as opposed to litigation, is finality of the arbitral award. In jurisdictions which are supportive of arbitration, such as Singapore and England & Wales, the courts will intervene in limited circumstances, for example, where the award is tainted by fraud or corruption, where there has been a breach of natural justice, or where the award has been made beyond the jurisdiction of the arbitral tribunal.
The Singapore case of Coal & Oil Co. LLC v GHCL Ltd  SGHC 65 involved a 2007 supply agreement for between 180,000 and 190,000 MT of coal. Following a rise in the market price for coal, the plaintiff (C&O) as Dubai-based trader, attempted to renegotiate the contractual price and informed the defendant (GHCL) that a third shipment of 70,000 MT of coal under the supply agreement would not be delivered unless a price increase was agreed. GHCL initially agreed to the price increase, however, after payment of the increased price and delivery of the shipment was made, it demanded repayment from C&O of the price increase. It argued that the addendum to the agreement was illegal as it had been procured through coercion. C&O refused to repay the demanded sum and therefore, in accordance with the arbitration clause in the agreement, GHCL submitted the dispute to arbitration in Singapore under the 2007 SIAC Rules.
The dispute was heard by a sole arbitrator in May 2012 and post-hearing submissions were delivered in August 2012. The final award, which as rendered 19 months after the post-hearing submissions, found in favour of the defendant, GHCL. In June 2014, C&O applied to set aside the award, under provisions of the International Arbitration Act1, on the following bases:
- Issuance of the award was in breach of the parties’ agreed procedure (Article 34(2)(a)(iv) of the Model Law2 )
- The award was in conflict with the public policy of Singapore (Article 34(2)(b)(ii) of the Model Law)
- There was a breach of natural justice (Section 24(b) of the International Arbitration Act)
The bases for setting aside the award rested on two factual premises, as argued by C&O:
- The tribunal had breached its duty under Rule 27.1 of the 2007 SIAC Rules as it had failed to declare the arbitral proceedings closed before it released its award.
- There was an "inordinate" delay of 19 months between the parties' post-hearing submissions and the date of the release of the award. This delay justified the setting aside of the award.
The first basis - breach of the parties' agreed procedure
The key question was whether Rule 27.1 should be construed as imposing a 'duty' on the Tribunal to declare the proceedings close, or as conferring a mere 'power'. Having analysed the wording and drafting history of the Rule, the Court concluded that the Tribunal had the power, and not to duty, to declare the proceedings closed before releasing the award. The Court held that the function and purpose of the Rule was case management and therefore C&O’s construction was inconsistent with the same. It therefore followed that the Tribunal was not in breach of the Rule when it elected not to make such a declaration before releasing its award. In addition, the Court found that C&O had not advanced any satisfactory explanation as to why the declaration of closure was so important to the arbitral process.
Concerning the argument on delay, the Court observed that apart from Rule 27.1, the 2007 SIAC Rules do not provide for any time limits for the release of international arbitral awards. Further, since the 45-day time limit provided under that Rule did not begin to run until the Tribunal declared the proceedings closed, which it did not, C&O’s argument on delay was therefore unsustainable.
The second basis - conflict with public policy
The Court observed that "despite the very high threshold that has been set, public policy, together with the rules of natural justice, still appear to be the last refuge of the desperate". The Court dismissed C&O’s allegations that the breaches of the parties’ agreed procedure and delay in the issuance of the award constituted breaches of public policy. It found that the alleged procedural breaches were not of interest to the wider community nor did they rise to "the level of gravity that the notion of public policy contemplates".
Concerning the argument on delay, and referring to the Court of Appeal decision in Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd  1 SLR(R) 5103, the Court held that a 19-month delay cannot be a sufficient basis for setting aside the award. Were the delay truly intolerable, C&O ought to have applied under Article 14 of the Model Law for the mandate of the arbitrator to be terminated before the award was released. It did not do so, which indicated that C&O had raised the argument because the award was adverse to it and not because of any delay.
The third basis - breach of natural justice
C&O argued that the Tribunal's failure to invite the parties to make submissions on the alleged breach of Rule 27.1 amounted to a denial of its right to be heard. The Court found C&O’s arguments to be "seriously misconceived":
- Before the award was issued there could not, by definition, have been any breach of Rule 27.1. The Tribunal had no reason to believe at the time it issued the award that there was anything procedurally improper over which it ought to have invited submissions.
- C&O does not have a right under the 2007 SIAC Rules to be heard before the Tribunal makes a decision on whether it ought to declare the proceedings closed before releasing the award.
Concerning the argument on delay, the Court found that C&O had failed to identify which particular rule of natural justice had been infringed and therefore could not see how the rules of natural justice had been breached in this case. Further, the Court noted that it could not see how the delay could have impaired C&O’s right to a fair hearing, or how an inference of bias could be drawn against a tribunal on the basis of dilatoriness in the release of an award.
The decision underlines the very high evidential threshold to prove breaches of natural justice and/or public policy as grounds to set aside arbitral awards. Commensurate with its support of arbitration, it also confirms the reluctance of the Singapore High Court to set aside arbitral awards except in egregious cases where the error is "clear on the face of the record".
1 Including the UNCITRAL Model Law on International Commercial Arbitration 1985 (the “Model Law”) as set out in the First Schedule to the IAA.
2 Under the English Arbitration Act 1996 an English award can be set aside under section 68 of the Act on grounds similar to those set out in Article 34 of the Model Law.
3 The Court of Appeal held that a delay in releasing an award of more than ten years after the hearings had concluded was not, per se, a sufficient basis for setting aside an award which had already been rendered.