American Home Assurance Co v Hong Lam Marine Pte Ltd

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 20 July 1999
• Neutral Citation: [1999] SGCA 55
• Docket Number: Civil Appeal No 309 of 1998
• Date: 20 July 1999
• Year: 1999
• Published date: 19 September 2003
• Plaintiff Counsel: Prem Gurbani and Melissa Goh (Gurbani & Co)
• Citation: [1999] SGCA 55
• Defendant Counsel: Scott Thillagaratnam and Robert Phua (Ramdas & Wong)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether variation of agreement discharges the appellant's liability under the bonds,Whether scope and effect of bonds characterised as 'one-off' or 'standard',Contractual terms,Recourse against award,Whether bonds independent of agreement,Conditions for grant of leave to appeal against arbitrator's award,General principles,Leave to appeal against award under s 28 of the Arbitration Act (Cap 10),Scope and effect of performance bonds,Contract,Award,Uberrimae fidei,Arbitration,Principle of non-disclosure not applicable to performance bonds,Insurance,Variation of agreement between party procuring the bonds and respondent,s28 Arbitration Act (Cap 10),Variation

Judgment:

YONG PUNG HOW CJ

(delivering the judgment of the court): This is an appeal against the decision of the learned judge to disallow the appellants` application for leave to appeal against the award of the arbitrator made in arbitration proceedings between the appellants and the respondents. The appellants, who are insurers and underwriters, had referred their dispute with the respondents over the ambit of four bonds issued by them in favour of the respondents to the arbitrator. When the application was first heard, both the appellants and the respondents agreed to request the arbitrator to reconsider his position. The arbitrator did so and in his revised award, confirmed his findings in the original award. The appellants, being dissatisfied with the revised award, sought leave to appeal against it.

2. Background

The respondents carry on business, inter alia, as shipowners and charterers. In December 1994, they entered into an agreement (`the shipbuilding agreement`) with Siong Huat Shipyard Pte Ltd (`the shipyard`) by which the shipyard contracted to construct and complete a bunkering vessel of 6,000 DWT for the respondents. The agreed price for the construction of the vessel was $10,275,000 and the contractual date for completion and delivery of the vessel was `on or about 28 December 1995`.

3.By an addendum to the shipbuilding agreement dated 16 February 1995 (`the first addendum`), the shipyard agreed to procure four performance bonds in favour of the respondents for a total of 65% of the agreed price of the vessel. This varied the requirement in cl 8(5) of the shipbuilding agreement for performance bonds in favour of the respondents for a total of 15% of the agreed price. By another addendum dated 7 November 1995 (`the second addendum`), the delivery date of the vessel was extended to 12 January 1996 and the respondents agreed to make an advance payment of 20% of the agreed price of the vessel.

4.The four bonds issued by the appellants in favour of the respondents were as follows:

Bond number	Date	Amount
(1)	1000029962	10.02.95	S$1,541,250
(2)	1000029981	10.02.95	S$1,541,250
(3)	1000029982	10.02.95	S$2,055,000
(4)	1000035688	28.09.95	S$1,541,250

By way of assistance to the shipyard, the respondents paid the premia for the bonds.

5.The shipyard failed to complete and deliver the vessel by 12 January 1996. By this time, the respondents had paid the shipyard a total of $9,247,500, amounting to 90% of the contract price. Under cl 14 of the shipbuilding agreement, the respondents had two options. The first was to take possession of the uncompleted vessel and claim damages from the shipyard. The second was to seek recovery of the progress payments made to the shipyard, together with interest. On 13 January 1996, the respondents gave notice to the shipyard that they intended to take possession of the vessel. Following legal proceedings in the High Court, the respondents took possession of the uncompleted vessel. The construction of the vessel was completed in another shipyard.

6.Thereafter, the shipyard commenced arbitration proceedings against the respondents for damages and other relief in Arbitration No 6 of 1996 (`the first arbitration`). The respondents counterclaimed. In the meantime, they made four separate demands against the appellants under the bonds, one under each bond. The appellants declined to make payment to the respondents under the bonds on the ground, inter alia, that the liability of the shipyard had yet to be determined in the first arbitration between the respondents and the shipyard. The arbitrators published their award in the first arbitration on 2 April 1997. They found, inter alia, that the shipyard was in breach of the shipbuilding agreement as it had failed to deliver the vessel to the respondents by 12 January 1996, and that the respondents were entitled to terminate the agreement as they did on 12 February 1996. The arbitrators awarded the respondents the sum of $4,452,631.89. In the arbitration between the respondents and the appellants, the respondents claimed that they were entitled to be paid the full amount of the bonds, or alternatively that they were entitled to recover the amount of the award in the first arbitration, or alternatively damages together with expenses and interest.

7.The arbitrator held that the respondents were entitled to recover from the appellants the amount expended in completing the vessel. The appellants were ordered to pay the respondents the total sum of $3,242,449.06, which included towing charges and a number of other miscellaneous charges, as well as interest thereon at the rate of 6% pa from 12 February 1996 until date of payment.

8. The decision below

Before the learned judge, the appellants raised six issues. These were as follows: first, whether the bonds issued by the appellants answered a claim for damages by the respondents against the shipyard; second, whether the respondents had made a claim under the bonds within the expiry dates stated therein; third, whether the respondents had misrepresented on 24 November 1994 that the shipyard was obliged to provide bonds for a total of 65% of the contract price; fourth, whether the variation agreements between the respondents and the shipyard discharged the appellants from their obligations under the bonds; fifth, whether the bonds should not be enforced for the reason that the shipbuilding agreement was used by the respondents to deceive the Registrar of Ships; and sixth, whether the respondents were under a duty to disclose the fact that the shipbuilding agreement had been backdated and that there had been variations to it.

9.The learned judge considered the general principles governing the granting of leave to appeal against an award made on an arbitration agreement under s 28 of the Arbitration Act (Cap 10) (`the Act`), as spelt out in the House of Lords decisions in The Nema [1982] AC 724 and The Antaios [1985] 1 AC 191. In the former case, Lord Diplock referred to the provisions in the English Arbitration Act 1979 which correspond to the provisions of the local Act and laid down the guidelines to be applied in the exercise of judicial discretion. He said at pp 742-743 :

Where, as in the instant case, a question of law involved is the construction of a `one-off` clause the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong. But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave; the parties should be left to accept, for better or for worse, the decision of the tribunal that they had chosen to decide the matter in the first instance ... .

[R]ather less strict criteria are ... appropriate where questions of construction of contracts in standard terms are concerned ... . But leave should not be given even in such a case, unless the judge considered that a `strong prima facie case` had been made out that the arbitrator had been wrong in his construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves `one-off` events, stricter criteria should be applied on the same lines as those ... suggested as appropriate to `one-off` clauses ... .

10.Predictably, the appellants contended that the relevant clauses in the bonds were standard clauses whereas the respondents asserted that they were `one-off` clauses. In the view of the learned judge, whether the appellants or the respondents were correct was immaterial because on either of the tests enunciated in The Nema in relation to `one-off` clauses or standard clauses, his conclusions would be the same. He then went on to hold that he saw no reason why leave should be granted for an appeal against the award of the arbitrator on all the issues enumerated above, save one - that of misrepresentation - in relation to which the learned judge made no finding. In conclusion, bearing in mind the raison d`tre of the Act - to `promote speedy finality in arbitral awards` - and the comment of Lord Diplock in The Nema that the question a judge should normally ask himself was not whether he agreed with the decision reached by the arbitrator but whether it appeared upon perusal of the award that the arbitrator had misdirected himself in law or that his decision was one that no reasonable arbitrator could reach, and taking all the circumstances into account, the learned judge held that the parties should be left to accept the decision of the arbitrator. Leave to appeal against the award of the arbitrator was accordingly refused with costs. The appellants appealed.

11. The appeal

The appellants repeated the issues raised before the learned judge. They essentially contended first, that the bonds issued by them did not answer a claim for damages by the respondents against the shipyard; second, that the bonds were not on demand performance bonds but merely simple default-based guarantees; third, that the respondents had not made a claim under the bonds within the expiry dates stated therein; fourth, that the respondents had through their brokers misrepresented that the shipyard was obliged to provide bonds for a total of 65% of the contract price, and that such misrepresentation entitled the appellants to rescind the contract evidenced by the bonds; fifth, that the variation agreements concluded between the respondents and the shipyard had the effect of discharging the appellants from their obligations under the bonds; sixth, that the bonds should have been held unenforceable for the reason that the shipbuilding agreement had been used by the respondents to deceive the...