Since the introduction of case management, the courts and arbitration tribunals are focusing more on efficiency and how to expedite the resolution of disputes. One tool that is often used is the making of a peremptory order, which is an order to fix the deadline for certain acts to be done failing which sanctions will be applied. What happens if an over-zealous arbitrator tilts the balance too far in favour of efficiency?
In the Singapore High Court case of Sai Wan Shipping Ltd v. Landmark Line Co Ltd [2022] SGHC 8, the Court had to set aside an arbitration award because the arbitrator went too far in pushing for an expeditious resolution of the claim.
Facts of the case
The Plaintiff in the Singapore proceedings was the charterer of a vessel owned by the Defendant. The charterparty was a time charter on an amended NYPE 1946 form. The arbitration clause in the charterparty provides for arbitration in Singapore and the arbitrators shall be commercial men conversant with shipping knowledge, members of the LMAA or otherwise qualified by experience to deal with shipping disputes.
A dispute arose over charter hire and whether there was any period of off-hire.
The Owner appointed Mr Alan Oakley as its nominated arbitrator. As the Charterer did not nominate any arbitrator, Mr Alan Oakley became the sole arbitrator.
The Owner served claim submissions for an amount of US$248,338.24 and applied for an interim award for US$48,658.74 which was said to be undisputed. The arbitrator found in favour of the Owner and issued a Partial Award on 13 May 2020. It was noted in the Partial Award that the Charterer was not represented and did not participate in the proceedings.
It appears that no further steps were taken in the arbitration until ten months later when the Owner indicated that they wanted to proceed with the rest of the claim and ask that the Charterer serve its defence submissions within 28 days failing which the Owners will seek a further default award.
Without inviting any submissions from the Charterers on the time needed to prepare the defence submissions, the sole arbitrator directed on 4 March 2021 that the Charterer must provide its defence submissions by 4 pm London time on 31 March 2021 and directed that if the Charterer fails to respond to the order, the Owners may apply for a short final and peremptory order against the Charterer.
The Charterer had by then appointed a law firm in Dubai to act on its behalf. The Charterer’s lawyers wrote to the Owner’s representatives asking for an extension of up to 9 April 2021 to file its defence submissions.
On 1 April 2021, one day after the expiry of the initial period set for the Charterer to file its defence submissions, the Owner’s representative wrote to the sole arbitrator and asked that the arbitrator makes whatever order he considers appropriate. On the same day, the arbitrator made a final and peremptory order that the Charterer is to file its defence submissions by 17:00 hours London time on 9 Aril 2021 and if the Charterer failed to do so, the Charterer will be barred from advancing any positive case by way of defence or counterclaim, and shall be barred from adducing any evidence in this matter.
The Charterer’s Dubai lawyers submitted its defence submissions on 9 April 2021 after 17:00 hours London time and explained that the slight delay was due to some trouble with their internet connection.
On 10 April 2021, the sole arbitrator responded and said that the terms of his peremptory order was clear and must be abided. He proceeded to exclude the Charterer’s defence submissions. The arbitrator went on to invite the Owners to submit its further submissions and evidence to prove its case but did not permit the Charterer any chance to respond.
On 27 May 2021, the arbitrator proceeded to issue the Final Award on a documents-only basis in favour of the Owner. The Charterer then applied to the Singapore High Court for an order to set aside the Final Award on the basis that there was a breach of the rules of natural justice.
The discussion
The first issue that the Court considered was whether an arbitrator in an ad hoc arbitration seated in Singapore has the power to make and enforce such a final and peremptory order.
The Court held that in an ad hoc arbitration seated in Singapore where there were no agreed rules to be applied, the UNCITRAL Model Law would apply. To determine what powers an arbitrator has, one would need to look at the provisions of the Model Law.
Art 23 read with Art 25 of the Model Law provides that if the respondent fails to communicate his statement of defence, without showing sufficient cause, the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegation.
The Court observed that Art 25 does not mandate general peremptory or unless orders. Continuing with the proceedings in the absence of a defence but without any admission of the claim is a simple and necessary provision to enable claimants to obtain an arbitration award where the respondent does not participate in the proceedings and there was no requirement that the arbitrator must first find that there was any intentional, contumelious or contumacious breach of any orders or directions by the respondent.
On the facts of this case, the Court held that the peremptory order made by Mr Alan Oakeley exceeded his powers under Art 25 of the Model Law. Not only was the Charterer barred from relying on its defence submissions, when the Owner filed further submissions and evidence, the Charterer was also barred from responding to those further submissions and evidence.
For the above reason, the Court considered that the peremptory order not only operated to exclude the Charterer from running a positive defence against the claim, it effectively excluded the Charterer from running a negative defence as well.
Further, the arbitrator did not allow the Charterer to address him on the reasons for the delay in its defence submission. The Court thus held that the arbitrator was in breach of the fair hearing rule.
Apart from the breach of the fair hearing rule, the Court went on to consider if the arbitrator acted in breach of the equal treatment rule.
It was observed that the Owner took more than 10 months from the Partial Award before it submitted its claim submissions. However, when fixing the original timeline for the defence submissions, the arbitrator only gave the Charterer 28 days to file its defence submissions.
When the arbitrator made the peremptory order on 10 April 2021, the arbitrator did not invite any submissions from the Charterer either. After he applied the sanctions set out in his peremptory order, he refused to hear or consider any reasons from the Charterer for the non-compliance and whether the sanctions ought to be applied.
The Court held that the conduct of the sole arbitrator in this case showed a lack of even-handedness between the Owner and the Charterer and was in breach of the equal treatment rule as well.
In conclusion, the Court decided to set aside the Final Award. The Court declined to exercise its powers to remit the case back to the arbitrator as this was not a case where there was a mere oversight in failing to give a party a reasonable opportunity to be heard. There was significant haste by the arbitrator in keeping with the timelines asked for by the Owner without seeking any input from the Charterer. It was thus reasonable that the Charterer would not have any confidence in the arbitrator being able to adjudicate this matter fairly had the case been remitted back to the arbitrator.
Our Comments
One point of interest is that the charterparty provided for the arbitration to be seated in Singapore and that the arbitrators may be members of the LMAA. Since Singapore is the seat of the arbitration, Singapore law would be the applicable procedural law of the arbitration.
It was noted by the High Court that instead of applying Singapore law, the sole arbitrator went on the basis that he was empowered by the UK Arbitration Act to make the peremptory order. The High Court held that the arbitrator had adopted the wrong procedural law and that would be something that is amenable to challenge under Art 34(2)(a)(iv) of the Model Law that is applicable under Singapore law.
Justice Jeyaratnam noted as follows:-
“It is not clear why he referred to the position under the UK Arbitration Act. I would presume in the arbitrator’s favour that this was simply a mistaken assumption on his part that flowed from his practice being principally in London-seated arbitrations.”
This does bring home the point that when one is nominating an arbitrator, the nominated arbitrator must be someone who is not only well versed in the law governing the substantive dispute, he or she must also be familiar with the procedural laws of the seat of the arbitration.
The Court also noted that an arbitrator ought to raise with the parties at an appropriate stage of the arbitration the possible adoption of arbitral rules or to construct a bespoke procedure for the parties’ agreement. This is particularly important for an ad hoc arbitration where there were no arbitral rules chosen by the parties at the time the arbitration agreement was entered into.
This case is a good reminder that while fast and efficient delivery of justice may be preferred in some cases, too much haste in delivering justice may end up delivering injustice instead.
Disclaimer: This article is for general information only and not intended to constitute legal advice. We shall not be liable for any errors or omissions, nor shall we be liable for reliance on the contents of this article.
Photo by Vuitton Lim on Unsplash