Introduction

In a 2021 international arbitration survey conducted by Queen Mary University of London and White & Case, Singapore tied for first place with London as the top seat of arbitration in the world. This is a significant improvement from the previous survey conducted in 2018 where Singapore ranked third behind London and Paris.

This result is perhaps no surprise as Singapore is known for its “arbitration-friendly” courts that have affirmed the principle of minimal court interference in arbitration. Indeed, the Singapore Court of Appeal (SGCA) in CAJ and another v CAI and another appeal [2021] SGCA 102 observed that a review of the published decisions of the Singapore Courts would show that over the past 20 years, only about 20% of applications to set aside arbitral awards have been allowed, and the Courts have only done so in exceptional cases when the grounds for setting aside such awards (under section 24 of the International Arbitration Act 1994) are clearly made out.

Nonetheless, this decision by the SGCA was one such case where the Court allowed a partial setting aside of an arbitral award on the grounds that the award was in excess of the Tribunal’s jurisdiction and was in breach of natural justice.

This article examines the SGCA’s decision and provides some key takeaways.

CAJ and another v CAI and another appeal

Background

The Appellants, CAJ and CAK, were engaged by a subsidiary of the Respondent, CAI, to construct a polycrystalline silicon plant (Plant). The Appellants failed to complete the construction by the contractual deadline due to, inter alia, excessive vibrations in the compressors of the Plant in spite of the Respondent’s instructions to carry out rectification works in a piecemeal fashion.

The Respondent subsequently commenced arbitration (seated and conducted in Singapore under the auspices of the International Chamber of Commerce), claiming liquidated damages of approximately S$80 million and alleging that the Appellants had caused a 144-day delay in the completion of the Plant. The Appellants in turn argued that any delay was a result of the Respondent’s instructions for the rectification works to be carried out in a piecemeal fashion and therefore the Respondent had waived its rights to seek liquidated damages or, alternatively, was estopped from doing so (Estoppel Defence).

Significantly, it was only in the Appellants’ written closing submissions where they raised, for the very first time, the argument that they were contractually entitled to an extension of time of 71 days (EOT Defence). In its written closing submissions, the Respondent objected to the EOT Defence on the basis that it was not pleaded by the Appellants and thus should not be considered by the Tribunal as this would cause procedural unfairness. The Tribunal closed the proceedings without ruling on the issue of the admissibility of the EOT Defence.

The Arbitral Award

In its Award, the Tribunal found that the Appellants had failed to achieve completion by the stipulated date and had caused a delay of 99 days. While the Tribunal rejected the Estoppel Defence, it nevertheless allowed the EOT Defence and found that the Respondent’s instructions to carry out rectification works in a piecemeal fashion had contributed to the delay.

As the Tribunal held that it had a wide discretion to determine the length of any extension of time, taking into account “all the evidence and its experience in these matters”, the Tribunal determined that it was fair and reasonable to grant an extension of time of 25 days to the Appellants. In the circumstances, the Respondent was awarded liquidated damages for a delay of 74 days instead of 99 days, which resulted in a significant reduction of about S$20 million in the liquidated damages payable by the Appellants.

The decision in the High Court

The Respondent applied to set aside the part of the Award which allowed the EOT Defence and the 25-day extension of time. The Respondent advanced two arguments:

1. First, the Award was tainted by two breaches of natural justice, namely (a) that the Tribunal allowed and ruled on the EOT Defence without giving the Respondent a fair and reasonable opportunity to respond (Primary NJ Breach), and (b) that the Tribunal relied substantially on its purported experience (as opposed to the available evidence) to ground its decision to grant a 25-day EOT without intimating to the parties what its experience or expertise was in that regard (Secondary NJ Breach).
2. Second, the Tribunal exceeded its jurisdiction by ruling on and allowing the EOT Defence which was never pleaded.

The High Court agreed with the Respondent’s arguments. In the circumstances, the High Court set aside the Tribunal’s decision to grant the Appellants the 25-day extension of time and made a consequential order that the number of days of delay in the Award for which liquidated damages are payable is to read as 99 days.

The SGCA’s decision

The SGCA dismissed the appeal and upheld the High Court’s findings.

The SGCA noted that the Appellants had conceded that they did not plead the EOT Defence and only raised it for the first time in their written closing submissions. Given the fact-sensitive nature of the EOT Defence, the correct procedure would have been for the Tribunal to invite submissions from parties as to whether an amendment to the pleadings to include the EOT Defence should be allowed. This was not done at any stage of the arbitration.

The SGCA held that the High Court Judge was right in holding that the Tribunal’s decision to allow the extension of time was in excess of its jurisdiction and in breach of natural justice.

1. Excess of jurisdiction

The SGCA emphasised the importance of pleadings and held that it was impermissible for the Appellants to invite the Court to adopt a broad reading of the pleadings, Lists of Issues, and the Terms of Reference in order to read into them a defence which was not pleaded.

Further, as the Appellants did not plead the EOT Defence, it would have been obvious that until then, the Respondent had no prior notice that it had to respond to the EOT Defence. The EOT Defence thus did not fall under the scope of the parties’ submission to arbitration as it was never introduced and raised to the Respondent until it appeared in the Appellants’ written closing submissions.

2. Breach of natural justice

The SGCA held that the Primary NJ Breach was a “classic case of a breach of natural justice” as the Respondent did not have a fair and reasonable opportunity to respond to the EOT Defence. In this regard, the EOT Defence was a completely new defence which was factually and conceptually distinct from the Estoppel Defence. The Respondent did not have reasonable notice that it was necessary to engage with the EOT Defence until it belatedly appeared in the Appellants’ written closing submissions. Had the Respondent been given the opportunity to lead further evidence, test the Appellants’ evidence and tender further submissions, this could have reasonably made a difference to the Tribunal’s determination. The SGCA also agreed with the High Court that the fact that the Respondent had responded to the EOT Defence in its written closing submissions cannot constitute a reasonable opportunity to present its case.

In relation to the Secondary NJ Breach, the SGCA agreed that there was a breach of natural justice because the Tribunal’s decision was based in part on its “unarticulated experience” of which the Respondent had not been afforded any opportunity to address. The Tribunal’s prior experience in dealing with extension of time claims for other construction projects would be immaterial in deciding on the appropriate extension of time in this case without the benefit of pleadings, specific evidence (factual and expert) and arguments.

3. The Appellants’ “hedging” argument

The Appellants contended that the Respondent was precluded from seeking to set aside the Award because its conduct in arbitration amounted to “hedging”. Typically, where one party intends to argue that there has been a fatal failure in the arbitration process, that party must raise its objections in “real time” to the Tribunal. The complaining party cannot “hedge” or reserve its position until after the Tribunal’s decision, and decide to pursue the point only after knowing whether the Tribunal’s award is “palatable” to it.

The Appellants argued that although the Respondent had asked the Tribunal not to consider the EOT Defence, it had nonetheless “hedged” its position by making substantive submissions on the merits of the EOT Defence. The SGCA rejected this argument.

The SGCA held that as the alleged breach of justice had occurred at a late stage of the arbitration proceedings, it was not necessary for the Respondent to specifically intimate to the Tribunal that it intended to commence setting aside proceedings. It was sufficient for the Respondent to set out clearly the substance of the reasons for its objections, which the Respondent had done so in its written closing submissions. In the circumstances, the fact that the Respondent had raised threshold arguments in response to issues raised by the Appellants at the eleventh hour did not amount to “hedging”.  

4. The appropriate recourse

Given the SGCA’s finding that the Tribunal had exceeded its jurisdiction, it was not possible to remit the award to the Tribunal. Furthermore, even if the breach had been limited to one of natural justice, this was still not an appropriate case for the Award to be remitted to the Tribunal as it would be manifestly unfair to the Respondent to allow the Appellants to amend their pleadings to include the EOT Defence at this late stage.

The SGCA thus upheld the consequential orders made by the High Court Judge.

Key takeaways

The SGCA’s decision in CAJ and another v CAI and another appeal serves as a timely reminder to parties in arbitration that pleadings represent the cornerstone of any case. Parties in arbitration proceedings should ensure that they have pleaded all intended arguments in a timely manner and if necessary, and apply to amend their pleadings at the earliest possible juncture.

Relatedly, the decision also reaffirms the importance of providing opposing parties with a fair and reasonable opportunity to respond to one’s case, or risk having their arguments disregarded if raised at a late stage of arbitration proceedings.

Parties who intend to contend that there has been some fatal failure in the arbitration proceedings, such as a breach of natural justice, should also take heed from this decision to raise any such objections to the Tribunal at the earliest opportunity possible. Otherwise, they risk being precluded from setting aside the award if their conduct at arbitration had suggested that they were ready, able and willing to proceed with the arbitration notwithstanding the alleged failure in the proceedings.

Finally, this decision confirms that the Singapore Courts may make consequential orders when setting aside an award.