Our Mr. Joseph Tan delivered a presentation about the current developments in the judicial oversight of arbitrations in Singapore at the IBA Maritime & Transport Committee Mid-Year Conference in Singapore on 7 June 2022. In this month’s edition of Notes from the Bar, we share the paper forming basis of Mr Tan’s presentation at the IBA conference.
Introduction
The current global trend, and indeed the way ahead in future, for dispute resolution in the maritime sphere is by way of arbitrations rather than to take the dispute to the national courts. There are several international hubs for maritime arbitration of which Singapore is one of them.
The benefits of maritime arbitration is well known. The current discussion is on one of the potential disadvantage of maritime arbitrations and how the Singapore courts have dealt with the problem.
While most maritime arbitrations are conducted properly and fairly, there may be instances where an arbitrator may have overstepped his boundaries or conducted the arbitration in a manner which is unfair to one of the parties. Since there are no appeals against an arbitral award under Singapore law, how should the Singapore courts balance the doctrine of party autonomy in choosing arbitration as the dispute resolution mechanism, and at the same time exercise its supervisory functions over a Singapore seated arbitration?
That balance is struck in Singapore by;
- Recognizing that the court is not sitting as an appellate court over an arbitral tribunal. The courts will not interfere with an arbitral award even if it is clear that the tribunal made a wrong finding of fact or a wrong application of the law.
- The court will not shy away from scrutinizing an arbitral award in detail, including reviewing the submissions, evidence submitted and arguments made, but for the very clear purpose of ascertaining if there was any breach of the rules of natural justice or if the tribunal exceeded its jurisdiction.
Between the High Court of Singapore and the Court of Appeal, in the period between January 2021 and May 2022, there were a total of 29 reported judgments arising from cases where applications were made to set aside arbitral awards. Of the 29 reported judgments, only 6 reported judgments ordered that the arbitral awards be set aside.
In the case of CAJ v. CAI [2021] SGCA 102, the Court of Appeal noted that in the past 20 years, approximately only 20% of applications to set aside arbitral awards were allowed and this attests to the fact that the Singapore courts will only set aside arbitral awards in exceptional cases.
It was also noted that typically, arbitral awards that were set aside were on the grounds of breach of natural justice or where the tribunal acted in excess of its jurisdiction.
Power to set aside an arbitral award under Singapore law
The court’s powers to set aside an arbitral award is limited to the circumstances set out in Section 24 of the International Arbitration Act 1994 (“IAA”) and Article 34 of the UNCITRAL Model Law which has force of law in Singapore.
Section 24 of the IAA provides that the court may set aside an arbitral award if it was induced by fraud or corruption, or where there is a breach of the rules of natural justice in connection with the making of the award.
Article 34 of the Model Law sets out several grounds by which an arbitral award may be set aside but the grounds most frequently relied on are when a party was unable to present its case, or when the award deals with a dispute that was not contemplated by or falling within the terms of the submission to arbitration.
Role of the courts
It has been held in numerous cases that the role of the courts when considering an application to set aside an award is not to hear it as though it was an appeal. Even if the tribunal made an error in its finding of fact or finding of law, the courts will not intervene to set aside the award.
The role of the courts is supervisory in nature, and its supervisory function is to ensure that arbitrations are properly conducted in the sense that tribunals do not go beyond the scope of their jurisdictions and that the decision making process is fair to both parties and there are no breaches of the rules of natural justice.
When exercising its supervisory function, there is a potentially a spectrum of the degree of scrutiny that may be taken by the courts. On one end of the spectrum, it is possible for the courts to adopt a more hands-off approach by merely reviewing the reasoned arbitral award on the face of the award, and to determine whether there was any breach of natural justice or acting in excess of the tribunal’s jurisdiction and to set aside the arbitral award only in cases where it appears on the face of it that there was an egregious breach of the rules of natural justice.
The other end of the spectrum would be where the courts adopt a more interventionist approach and scrutinize all documents and submissions made before the tribunal and effectively act as though it is hearing an appeal from the decision of the tribunal.
I would argue that the Singapore courts have adopted a more nuanced and balanced approach when it is exercising its supervisory function over arbitrations that are subject to Singapore’s jurisdiction.
In doing so, the Singapore courts recognized and gave effect to the doctrine of party autonomy where the parties are free to choose how they want to have their disputes adjudicated, who they want to appoint to adjudicate their disputes and the procedures that they have agreed upon.
At the same time, the Singapore courts are prepared to scrutinize an arbitral award very closely to ensure that there is proper conduct of the arbitration and to ensure that there is fair play between the two parties, while at the same time, not interfere with the Tribunal’s decision on the merits.
I will illustrate this by referring to three recent Singapore court decisions.
CAJ v. CAI [2021] SGCA 102
In the case of CAJ v. CAI [2021] SGCA 102, a dispute in relation to a construction project was referred to arbitration. The claimant in the arbitration claimed liquidated damages from the respondent for delay in the completion of the project.
The respondent’s pleaded defence was that the project was completed on time as the defects did not materially affect the operation of the project. Alternatively, the delay was due to the respondent acting on the instructions of the claimant and the claimant is estopped from making the claim for delay.
The contract between the parties contained a clause which provides that the time for completion could be extended if the delay was due to any act or omission by the claimant’s subsidiary company. Although this was a defence that was available to the respondent, for reasons unknown, the respondent did not at any time raise this as a defence in the pleadings or during the evidentiary hearing.
This defence, which was referred to as the extension of time defence (the “EOT Defence”) was raised for the first time in the respondent’s written closing submissions.
The claimant in its written closing submissions objected to the introduction of the EOT Defence on the basis that it was never pleaded nor raised previously. The tribunal however ruled in favour of the respondent and allowed the EOT Defence.
The Court of Appeal held that even though the claimant had made submissions regarding the EOT Defence in its closing submissions, it only falls within the scope of the parties’ submission to arbitration upon the introduction of the defence by way of an amendment to the pleadings. Unless and until this was done, this issue was simply not within the scope of the parties submission for arbitration. If a new issue is raised, the established process is to raise it in the form of an amended pleading so that the other party is able to properly respond to it, and to adduce additional evidence if necessary.
It was held that the making of an award on this issue exceeded the tribunal’s jurisdiction.
The Court of Appeal also held that the award based on the EOT Defence was also in breach of the rules of natural justice as the claimant was not given a fair and reasonable opportunity to respond to the EOT Defence. By merely allowing the claimant a right to respond in the closing submissions was insufficient as the claimant had lost its rights to lead further evidence or to test the respondent’s evidence.
Further, the tribunal had made the award on the EOT Defence based on its own experience which was not articulated by the tribunal. The Court of Appeal held that the tribunal’s own experience in other construction projects is immaterial in deciding on the appropriate time extension for this case. This is a matter for parties to adduce evidence on and by deciding based on its own prior experience, the tribunal had failed to afford the claimant any opportunity to address the tribunal on this issue.
BZW v. BZV [2022] SGCA 1
This case arose from a ship-building dispute. The claimant claimed against builder for liquidated damages arising from the delay in delivery (the “Delay Claim”), and for damages in the installation of contractually inadequate generators (the “Rating Claim”).
After reviewing the award, the court found it impossible on the face of the award to distinguish the findings which form part of the tribunal’s chain of reasoning on the Delay Claim and those which form part of its chain of reasoning for the Rating Claim. As a result, the court had to extract parts of the award and “… attempt with generosity to arrange those findings into a coherent chain of reasoning”.
It was argued before the Court of Appeal that the judge below was wrong to have pored over all the documents and submissions and to examine the merits of the case in order to identify the errors of fact that was made by the tribunal.
The Court of Appeal did not accept that argument. It was noted that the award and the chain of reasoning adopted by the tribunal had no nexus to the case that was actually presented to the tribunal. It was said by the Court of Appeal that:-
“If it takes time to make sense of an award to ascertain whether an important point was overlooked or addressed at all or whether the tribunal decided on a point that the parties did not have the opportunity to address, then the judge will have to look at the award, the pleadings, the submissions and any other documents that may throw light on what happened in the arbitral proceedings and what cases the parties were running. Then the judge will have to analyse the award in some depth in order to decide whether the allegations made by the party seeking to impugn the award on the basis of breach of natural justice have substance.”
The court took the view that the fair hearing rule requires the tribunal to pay attention to what is put before it and give its reasoned decision on the arguments and evidence presented. If its decision is manifestly incoherent, the requirement of the fair hearing rule is not met and it shows that the tribunal has not understood or dealt with the case at all. This meant that the parties have not been accorded a fair hearing.
The Court of Appeal took pains to clarify that if it can be shown that the tribunal applied its mind to the issues arising from the parties’ arguments but failed to comprehend the submissions, or comprehends them erroneously, that is simply an error of fact or law and the arbitral award will not be set aside.
The award will be set aside for a breach of the fair hearing rule only if it can be demonstrated that the tribunal did not apply its mind to the issues raised. One way of showing that the tribunal did not apply its mind is to look at the chain of reasoning adopted by the tribunal. The chain of reasoning must be one that (i) the parties had reasonable notice that the tribunal could adopt and (ii) one which has a sufficient nexus to the parties’ arguments.
Sai Wan Shipping Ltd v. Landmark Line Co., Ltd [2022] SGHC 8
The dispute in this case arose from a time charterparty on NYPE 1946 form as amended. The charterparty provides for arbitration in Singapore. The arbitrators are to be commercial men conversant with shipping knowledge, members of the LMAA or otherwise qualified by experience to deal with shipping disputes.
The owner nominated Mr Alan Oakley as the arbitrator but the charterer did not nominate any arbitrator. Mr Oakley became the sole arbitrator.
The owner served its claim submissions immediately and applied for a partial award for one part of its claim. The charterer did not participate in the arbitration and a partial award was issued in respect of that portion of the owner’s claim.
10 months later, the owner wrote to the arbitrator and intimated that they wished to proceed with the rest of their claim and served further submissions with a request that the charterer be directed to serve their defence submissions within 28 days failing which the owners will seek a further default award.
Without seeking any submissions from the charterer, the arbitrator directed that the charterer serve its defence submissions by 31 March 2021 and that if the charterer does not comply, the owners may seek a peremptory order.
The charterer’s representative corresponded with the owner’s representative and requested for a short extension of time. On 1 April 2021, the owner’s representative forwarded the email exchange to the arbitrator and requested that the arbitrator make whatever order he considers appropriate.
The arbitrator proceeded to make a peremptory order that the charterer is to file its defence submissions by 17:00 hours London time on 9 April 2021 failing which the charterer is barred from making any positive case in its defence.
The charterer only managed to file its defence submissions a few hours past the time stipulated and said that it was due to some trouble with its internet connection that caused the delay. The arbitrator however took the position that his order was clear and that the parties must abide by it. The arbitrator accordingly excluded the charterer’s defence submissions.
The arbitrator proceeded to invite the owner to file its further submissions and went on to issue a final award based solely on the owner’s submissions without considering the charterer’s defence submissions.
In the application to set aside the final award, the Singapore High Court held that the arbitrator breached the fair hearing rule and the equal treatment rule. The court also noted that the arbitrator applied the wrong lex arbitrii in coming to its decision.
As the arbitration clause provided that Singapore was the seat of the arbitration, the proper law of the arbitration was therefore Singapore law. However, the arbitrator in his award ruled that he was empowered by the UK Arbitration Act 1996 to issue the peremptory order.
The court noted that by invoking the wrong law and applying a power which may not be available to a Singapore-seated arbitrator, the decision of the arbitration is subject to challenge on the basis of Art 34(2)(a)(iv) of the Model Law, i.e. that the arbitrator was in excess of his jurisdiction by acting in a manner which was not agreed by the parties.
The court also noted that the arbitrator did not call for any procedural meetings or consult the parties on the appropriate time table or procedural steps to be taken. When considering the appropriate time lines, the arbitrator must consult both parties and not just one of them. Even in situations where the arbitrator did not consult the parties and fixes the time table by himself, he must be open to reconsidering the time fixed upon request by either party.
And when one party breaches the timelines set by the arbitrator, the arbitrator must hear both parties on the cause for the breaching of that time line and to decide after hearing both parties on the sufficiency of the cause of that breach.
An arbitrator’s decision on the sufficiency of the cause is not immune from the court’s review. It was held that in relation to the procedural decisions of an arbitral tribunal, the court can review the decision to ascertain if that procedural order falls within the range of what a reasonable and fair-minded tribunal in those circumstances might have done.
The court went on and held that the conduct of the arbitrator in this case was in breach of the rules of natural justice and the final award was set aside.
Is the balance adopted by the Singapore courts a boon or bane for maritime arbitrations in Singapore?
I will argue that this balance is beneficial to the maritime arbitration community. There is ample judicial guidance on what is required of an arbitrator and the standards that is required.
Anyone seeking to practice as an arbitrator in a Singapore-seated arbitration should take heed of the extent to which the Singapore courts will scrutinize an arbitral award in order to ensure that there is no breach of the rules of natural justice and that the arbitrator does not act beyond the scope of his jurisdiction.
The parties to a maritime arbitration will also be sure that the Singapore courts will not sit as an appellate court and there is no judicial intervention if the allegation made is that the award was based on any errors of fact or errors of law.
But the Singapore courts will not shy away from ensuring that there is procedural fairness adopted by the tribunal, and that both parties must be given their right to properly present their cases. It would also ensure that arbitrators properly consider the parties’ respective cases and come to a properly reasoned decision.
In my view, this will in time help to improve the quality and standard of maritime arbitrations in Singapore.
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.
