Auf v Aug and Other Matters

• Jurisdiction: Singapore
• Judgment Date: 26 November 2015
• Date: 26 November 2015
• Docket Number: Originating Summonses Nos 790 and 791 of 2014 and Originating Summons No 789 of 2014 (Summons No 4899 of 2014)
• Court: High Court (Singapore)

AUF

Plaintiff

and

AUG and other matters

Defendant

[2015] SGHC 305

Belinda Ang Saw Ean J

Originating Summonses Nos 790 and 791 of 2014 and Originating Summons No 789 of 2014 (Summons No 4899 of 2014)

High Court

Arbitration — Award — Recourse against award — Appeal under Arbitration Act — Whether questions of law arising out of award

Arbitration — Award — Recourse against award — Misconduct under Arbitration Act — Respondent in arbitration arguing that award made against it was made in excess of jurisdiction and in breach of natural justice — Whether there had been breach of due process at arbitration — Section 17(2) Arbitration Act (Cap 10, 1985 Rev Ed)

Arbitration — Enforcement — Whether applicant applying to enforce arbitral award required to inform court of pending applications to set aside award and for leave to appeal on questions of law

Facts

The dispute between AUG (“the Owner” and the claimant in the arbitration) and AUF (“the Contractor” and the respondent in the arbitration) arose out of the development of a building in a premier shopping district in Singapore (“the Building”). The design and installation of the external wall system of the Building (“the Subcontract Works”) had been carried out by a nominated subcontractor. The final agreed sum for the Subcontract Works was

$8,503,649.05 (“the Final Subcontract Sum”). When the arbitration commenced

in 2000, the Owner’s primary claim against the Contractor was for a recladding of the Building. Damages for costs of rectification and diminution in value were pleaded as alternatives. In 2007, the Owner withdrew its claim for recladding, but maintained its claims for loss and damage arising from the defects. Liability for the Contractor’s counterclaim against the Owner for payment of retention moneys was admitted.

Subsequently in 2009, an independent expert was appointed to assist in determining the nature and extent of the 64 pleaded defects in the Subcontract Works and he rendered his opinion in a report in November 2010 and January 2011. In 2012, the Owner called a tender for works to rectify the external wall system of the Building based on the pleaded defects and repair procedures prepared by its expert. Two tenders were received, and the Owner relied on the lower of the two tenders which was for $7.7m (“Tender 1”) as part of its claim for costs of rectification in its submissions. A price breakdown of Tender 1 as it related to the specific defects was presented to the sole arbitrator in a series of PowerPoint slides at an oral hearing in July 2013 (“the Slides”).

At the oral hearing in July 2013, the arbitrator raised the possibility of diminution in value as a measure of damages. Counsel for the Owner and the Contractor agreed to address the appropriateness of this measure of damages in written submissions that were duly tendered after the oral hearing. In February 2014, the arbitrator wrote to the parties requesting further submissions on the issue of diminished value and written submissions were also duly tendered. In April 2014, the arbitrator met the parties and he thereafter wrote to the parties to confirm that the Contractor was to revert to him on a number of specific points concerning the issue of diminished value and that the Owner was to file its reply submissions thereafter. After the Owner filed and served its reply submissions, the Contractor sought an opportunity to respond to what it saw as a “new case” presented by the Owner on the doctrine of abatement. The arbitrator replied that he did not require further submissions unless it was by mutual consent.

In his award handed down on 29 July 2014 (“the Award”), the arbitrator found the Contractor liable for the defects in the Subcontract Works. Damages were, however, assessed on 31 items of defects. While he was of the view that cost of rectification was not the appropriate measure of damage, he awarded the Owner 40% of the Final Subcontract Sum as damages for diminution in value of the Building (“the DIV Award”). The arbitrator also awarded costs and interest to each party on the respective claims and counterclaims, and held that 60% of the costs and expenses of the Award was to be borne by the Contractor with the remaining 40% to be borne by the Owner.

Three applications were brought before the court. Originating Summons No 790 (“OS 790”) and 791 (“OS 791”) were the Contractor’s applications to set aside the Award and for leave to appeal on questions of law respectively. Summons No 4899 of 2014 (“SUM 4899”) in Originating Summons No 789 was the Contractor’s application to set aside the ex parte order of court for the enforcement of the Award as a judgment of the High Court.

OS 790

The application to set aside the Award in OS 790 was founded on two main allegations:

(a) that the DIV Award was made in excess of jurisdiction as diminution in the value of the Building which had been pleaded or referred to the arbitrator for determination was subsequently abandoned by the Owner; and

(b) that the DIV Award was made in breach of natural justice because there was no evidence to support an award based on diminution in the value of the Building, and furthermore, the Contractor had been deprived of the opportunity to present its case on the matter. The Contractor also argued that the award of costs, interest and expenses of the Award were made in breach of natural justice, and relied, inter alia, on the existence of Calderbank letters to contend that a different result on costs including the arbitrator’s fees might have been reached if it had been given an opportunity to be heard. The arbitrator did not hold over the costs hearing contrary to the parties’ request.

OS 791

In respect of OS 791, the two questions raised by the Contractor in seeking leave to appeal were:

(a) whether the arbitrator was entitled to make the DIV Award without any evidence to support it; and

(b) whether interest is payable on an award for damages based on diminution in value.

SUM 4899

Finally, the Contractor also argued that the Owner had, in applying ex parte for the enforcement of the Award, failed to give full and frank disclosure which related to the Owner’s knowledge that the Contractor had intended to apply and had applied to court in OS 790 and OS 791 to set aside the Award and appeal on a question of law respectively.

Held, dismissing the applications in OS 790, OS 791 and SUM 4899:

OS 790

(1) Section 17(2) of the Arbitration Act (Cap 10, 1985 Rev Ed) (“1985 Act”) was about due process and not whether the tribunal reached the right conclusions. The section was only available in cases where the tribunal had gone so far wrong in its conduct of the arbitration that the court would be expected to take action to correct the injustice. Errors of fact or law did not qualify as “misconduct” under s 17(2) of the 1985 Act: at [67] and [68].

(2) For breach of natural justice to constitute misconduct, the Contractor was required to show that the breach of natural justice prejudiced its rights in that the material which the Contractor was denied from presenting could reasonably have made a difference to the arbitrator and that the breaches were not merely technical or inconsequential: at [81] to [83] and [115].

(3) The Owner had not on the evidence unequivocally abandoned its pleaded alternative claim for damages based on diminution in value of the Building. While the Owner saw evidential difficulty with the claim for diminution in value, this claim was left open in case the arbitrator was not minded to award damages based on cost of cure. Furthermore, the history of the arbitral proceedings showed that:

(a) the arbitrator wanted submissions on diminution in value and the parties agreed at the oral hearing to deal with it in their written submissions;

(b) the arbitrator was not satisfied with the submissions received after the oral hearing; and

(c) the arbitrator sought further submissions on diminution in value in February 2014. Viewed in this context, an arbitral tribunal would not be acting in excess of jurisdiction by requesting further submissions where the matter had not been satisfactorily addressed: at [94], [97] and [100].

(4) The Contractor’s criticism that the arbitrator exceeded his jurisdiction in making the DIV Award in the manner and on the basis which he did was a submission that went to the substance of the Award. The contention was that the arbitrator made an error by making use of the Final Subcontract Sum. Such an error, assuming there was one, was plainly not misconduct. Analysing the Award as a whole, the DIV Award was not out of line with legal principle. Besides, the Final Subcontract Sum was not a figure that came from the arbitrator; it was the Contractor who had placed the Final Subcontract Sum explicitly before the Arbitrator: at [101], [105] and [107].

(5) The arbitrator’s decision in June 2014 not to allow further submissions from the Contractor was a case management decision that had nothing to do with breach of natural justice. The fact that he did not preclude the parties from agreeing between themselves to make further submissions did not controvert this decision. Even if this case management decision could be characterised as a breach of natural justice, the Contractor did not suffer any prejudice. The Contractor had ample opportunity to make the submissions that it argued it had been deprived of the opportunity to make. The fact that the arbitrator preferred and decided to adopt the Owner’s submissions instead could not be said to be a breach of natural justice, and a contrary finding would be an unwarranted and impermissible intrusion into the merits of the decision. The essence of the Owner’s submissions on the doctrine of abatement remained consistent with its earlier submissions which the Contractor had been given a full opportunity to respond to. From this perspective, there was no “new case”: at [114], [115], [119] to [123] and [125].

(6) There was no...