Singapore Court of Appeal Sets Aside Part of International Arbitral Award for Breach of Fair Hearing Rule

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The Court of Appeal of Singapore considered that a “manifestly incoherent” arbitral award would mean parties have not been accorded a fair hearing and a remission would not be appropriate where it is objectively assessed that there is a loss of confidence in the tribunal’s ability to come to a fair and balanced conclusion on the issues if remitted, together with the procedural requirements for a setting aside application to be made in time.

It is well recognised that Singapore courts adopt a pro-arbitration stance and there are high bars to meet to justify curial intervention in setting aside or remitting arbitral awards.

In BZW and another v BZV [2022] SGCA 1, where the arbitral award was set aside, the Singapore Court of Appeal (CA) considered that the fair hearing principle requires that a tribunal pay attention to what is put before it and give its reasoned decision on the arguments and evidence presented, and this requirement would not be met if the decision is “manifestly incoherent.” In coming to its decision, the appellate court reiterated the well-established rule that it does not look into findings of fact or law and it will not interfere if the tribunal has made mistakes of fact or law or both.

BACKGROUND

The respondent in the appeal was the claimant, and the appellants were the respondents in an international arbitration seated in Singapore administered by the Singapore International Arbitration Centre (SIAC). The arbitration arose from a dispute between the parties under a shipbuilding contract between the respondent (buyer) and the appellants (builders).

The arbitral tribunal (tribunal) delivered its award on 25 October 2018, which was subsequently corrected on 16 January 2019 pursuant to both parties’ respective requests (Award). Both the buyer’s claims and the builders’ counterclaim were dismissed, with each party to bear their own legal costs and other costs in the arbitration. There is a brief dissenting opinion by one of the arbitrators disagreeing with the majority’s decision to dismiss one (out of two) of the builders’ claims.

The buyer filed an application on 15 April 2019 to the Singapore High Court to set aside part of the Award dismissing its claims under s 24(b) of the International Arbitration Act (IAA) and/or Art 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The application was made by way of an originating summons as provided for under O 69A of the Rules of Court (Rules). In granting the order, the judge found that there was a breach of the fair hearing rule on two grounds: (1) that the tribunal adopted a chain of reasoning which had no nexus to the parties’ cases; and (2) that the tribunal failed to apply its mind to an essential issue arising from the parties’ arguments (BZV v BZW and another [2021] SGHC 60).

Apart from contesting the grounds of the buyer’s application, the builders argued that the application had been filed out of time under Art 34(3) of the Model Law (which provides for a three-month time limit) and that, in any event, the judge ought to suspend the setting aside proceedings and remit the award to the tribunal pursuant to Art 34(4) of the Model Law.

DECISION OF THE APPELLATE COURT

There were three main issues to be determined by the appellate court:

  1. Did the buyer file its setting-aside application in time?
  2. Did the tribunal breach rules of natural justice in the way it dealt with the buyer’s claims (described as the Delay Claim and the Rating Claim)?
  3. If the first and second questions are answered in the affirmative, was the judge correct in refusing to remit the Award to the tribunal?

As to the timeliness of the application, the builders contended that the buyer’s supporting affidavit was filed after the expiry of the three-month limit and that it was the affidavit that contained the grounds of the application.

In rejecting the builders’ contention, the CA affirmed that what amounts to an “application” within the meaning of Art 34(3) is a matter outside the scope of the Model Law. The drafters of the Model Law left the nature of an application to be governed by the procedural law of each Model Law jurisdiction. Accordingly, it held that the judge was correct to have focused on O 69A of the Rules, which prescribed how applications to the court under the IAA and the Model Law were to be made.

O 69A r 2 requires a setting-aside application under s 24 of the IAA or Art 34(2) of the Model Law to be made by an originating summons within three months from the date of receipt by the applicant of the award or the corrected award. There is no requirement for an affidavit to be filed at the same time as the originating summons, albeit rule 2(4A)(d) provides that the affidavit must be served with the originating summons. By other sub-rules, it is provided that the affidavit must “state the grounds in support of the application” (r 2(4A)(a)) and “set out any evidence relied on by the plaintiff” (r 2(4A)(c)). This, however, does not preclude grounds from being stated in the originating summons as well if this is a requirement of Art 34(3), which is what the buyer had done in this case.

In response to the builders’ reliance on the statement in ABC Co v XYZ Co Ltd [2003] 3 SLR(R) 546 at [16] that “proper interpretation of art 34(3) must be, therefore, that a party seeking to set aside an award must, within the three-month period, file an application which states the ground or grounds he intends to rely on”, the CA pointed out that the “grounds” referred to in Art 34(2) of the Model Law and s 24 of the IAA constituted causes of action. Accordingly, a brief statement of the sub-articles and sub-sections of Art 34(2) and s 24 of the IAA which are relied on to justify the setting aside application is all that an applicant needs to state in the originating summons as grounds.

On substance, the CA agreed with the judge that the tribunal was in breach of the rules of natural justice in the way it dealt with the buyer’s claims. The fair hearing principle requires that a tribunal pays attention to what is put before it and gives its reasoned decision on the arguments and evidence presented. If its decision is “manifestly incoherent”, this requirement would not be met. A manifestly incoherent decision shows that the tribunal has not understood or dealt with the case at all and that would mean that parties have not been accorded a fair hearing.

In this case, while the tribunal did make factual findings, the CA observed that these findings were often mere assertions rather than the apparent result of examining documentary evidence and considering the credibility of witnesses, adding that what makes the Award difficult to understand is also the fact that the tribunal did very little, if anything, to connect the proverbial dots. The CA endorsed the judge’s comments that it is “impossible on the face of the award to distinguish between those findings which form part of the tribunal’s chain of reasoning” on the builders’ claims and “it is exceedingly difficult to map those findings to the essential issues arising from the parties’ cases on both claims.” The CA held that the breach of the fair hearing rule arose because the tribunal failed to apply its mind to the essential issues in respect of the Delay Claim, and it also adopted, with regard to the Rating Claim, a chain of reasoning that had no nexus with the parties’ submissions.

As for the remission issue, the CA found that this was a case where it was inappropriate to remit the Award to the tribunal. In its view, the breach by the tribunal did not involve only a single isolated or standalone issue or point—rather, the tribunal failed entirely to appreciate the correct questions it had to pose to itself, let alone apply its mind to determining those questions. The CA also accepted the buyer’s argument that there was a real risk, judged objectively, that even a competent and respectable arbitral tribunal whose acts or omissions have been held to amount to serious irregularity causing substantial injustice may subconsciously be tempted to achieve the same result as before.

TAKEAWAYS

The decision makes clear what the procedural requirements are for a valid setting-aside application under the IAA to be made. In determining whether the fair hearing rule was breached, a “manifestly incoherent” decision would show that the tribunal has not understood or dealt with the case at all and would mean that the parties have not been accorded a fair hearing. Further, in determining the appropriateness of a remission in lieu of a setting aside, it is a relevant consideration whether a reasonable person would no longer have confidence in the tribunal’s ability to come to a fair and balanced conclusion on the issues if remitted.

Morgan Lewis Stamford represented the buyer in the appeal.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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