CAJ and another v CAI and another appeal

• Jurisdiction: Singapore
• Judge: Andrew Phang Boon Leong JCA
• Judgment Date: 11 November 2021
• Neutral Citation: [2021] SGCA 102
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeals Nos 11 and 43 of 2021
• Published date: 16 November 2021
• Year: 2021
• Hearing Date: 22 September 2021
• Plaintiff Counsel: Thio Shen Yi SC, Neo Zhi Wei Eugene and Uday Duggal (TSMP Law Corporation)
• Defendant Counsel: Cavinder Bull SC, Lin Shumin and Amadeus Huang Zhen (Drew & Napier LLC) (instructed), Nicholas Jeyaraj s/o Narayanan (Nicholas & Tan Partnership LLP)
• Subject Matter: Arbitration,Award,Recourse against award
• Citation: [2021] SGCA 102

Steven Chong JCA (delivering the grounds of decision of the court): Introduction

Under Singapore law, the scope for judicial intervention in arbitration proceedings is narrowly circumscribed. In the context of applications to set aside arbitral awards, this is borne out by the fact that a party seeking to challenge an award may only do so on limited statutorily-prescribed grounds. Even then, the court will exercise its power with restraint, setting aside awards only when there is good reason to do so. This strikes a balance between the need to respect the autonomy of arbitration proceedings and to give effect to the principle of minimal curial intervention, while ensuring that meritorious challenges are properly ventilated.

A perusal of the published decisions of the Singapore court would show that, over the past 20 years, approximately only 20% of applications to set aside arbitral awards have been allowed. This attests to the fact that it is not common in Singapore for awards to be set aside, and the courts have only done so in exceptional cases when the grounds are clearly made out. In these cases, the awards were typically set aside on grounds of breach of natural justice and/or excess of jurisdiction. In this case, the High Court judge below (“the Judge”) found that both these grounds were satisfied and accordingly set aside the offending portion of the tribunal’s award. CA/CA 11/2021 (“CA 11”) is the appeal against the Judge’s decision on the merits, and CA/CA 43/2021 (“CA 43”) is the appeal against the Judge’s decision on costs.

The heart of these appeals concerns the tribunal’s decision to allow an extension of time to the appellants in respect of a construction project, which had the effect of cutting down the quantum of the liquidated damages for the delay which were otherwise payable to the respondent in full. However, it was undisputed that the issue of an extension of time was not raised in the parties’ pleadings and consequently it did not feature in the Terms of Reference for the arbitration or in the parties’ respective List of Issues. We heard and dismissed the appeals on 22 September 2021. In our view, the Judge was eminently right in holding that the tribunal’s decision to allow the extension of time was in excess of its jurisdiction and in breach of natural justice. We now furnish the full grounds of our decision.

The facts

The material facts are comprehensively set out in the Judge’s decision in CAI v CAJ and another [2021] SGHC 21 (“the Judgment”). It suffices for us to highlight the salient facts, as follows.

The parties’ dispute arose from two contracts (“the Agreements”) for the construction of a polycrystalline silicon plant (“the Plant”). The respondent’s subsidiary was the owner of the Plant and the appellants were the contractors responsible for the construction of the Plant. During the construction of the Plant, issues arose in connection with excessive vibrations in the compressors which were located in the hydrogen unit of the Plant, which remained unresolved as at the contractual date of mechanical completion. Rectification works were eventually carried out in a piecemeal fashion pursuant to the instructions of the respondent’s subsidiary (“the Admitted Instruction”).

Subsequently, the respondent’s subsidiary commenced an arbitration (“the Arbitration”) against the appellants. The Arbitration was seated and conducted in Singapore under the auspices of the International Chamber of Commerce (“ICC”), pursuant to the 2012 ICC Rules (“ICC Rules”). It was heard by a three-member arbitral tribunal consisting of Professor Colin Ong QC (the presiding arbitrator), Professor Doug Jones AO and Dr Reinhard Neumann (collectively, “the Tribunal”). The respondent was subsequently joined to the Arbitration, as the assignee of its subsidiary’s claim against the appellants.

In the Arbitration, the respondent sought liquidated damages from the appellants, alleging that the appellants had caused a 144-day delay in the mechanical completion of the Plant due to the excessive vibrations in the compressors within the hydrogen unit. The appellants’ defence in the Arbitration was two-fold. First, the appellants argued that mechanical completion had been achieved on time, as the vibrations did not materially affect the operation or safety of the Plant. Second, the appellants also contended that any delay was a result of the Admitted Instruction, such that the respondent had waived its right to claim liquidated damages or, alternatively, was estopped from doing so (“the Estoppel Defence”).

It bears emphasis that the appellants’ pleadings did not contain any assertion that they were contractually entitled to an extension of time so as to reduce the amount of liquidated damages payable. Indeed, the respondent expressly pointed out in its pleadings in the Arbitration that the appellants had not advanced any such argument. Conspicuously, this was not disputed by the appellants at any point in time. In fact, the appellants conceded both in the proceedings below and at the hearing before us that their defence claiming an extension of time (“the EOT Defence”) had been raised for the first time in their written closing submissions in the Arbitration (see the Judgment at [193]). The EOT Defence was based on General Condition 40 (“GC 40”) of the Agreements, which we shall explain in greater detail below. It suffices for now to note that pursuant to GC 40, the time for mechanical completion could be extended if the delay was by reason of any act or omission of or any default or breach of the Agreements by the respondent’s subsidiary.

In the respondent’s written closing submissions in the Arbitration, the respondent objected to the appellants’ raising of the EOT Defence, in the following terms: 94. [The appellants] assert several new arguments for the first time in their Written Closing. On the basis of procedural fairness alone, when each of these points would turn on detailed issues of fact that were not addressed at the hearing, and in particular where [the appellants] have made no application to amend, each of these new arguments should be dismissed by the Tribunal. Each is dealt with briefly below.

…

97. [The appellants’] third new argument advances a claim for a retrospective order for an extension of time pursuant to GC 40 to complete these works. This argument was never pleaded, nor raised at any point during the 8-day hearing, until it appeared in the Written Closing. For that reason alone, it should not be considered by the Tribunal. The procedural unfairness point is particularly acute with this final new claim, as [the appellants] attempt to put more and more emphasis on discussions or alleged agreements which have not been the subject of pleadings, focused document production, witness evidence or cross-examination. This includes the fact that not only [was the respondent] denied the opportunity in this regard, but also the fact that [the appellants] did not subject [the respondent’s] witnesses to any cross-examination to give them a chance to explain their positions (on the unpled issues). This approach runs entirely contrary to the purpose of the detailed Procedural Orders. 98. In any event, this new GC 40 claim has three insurmountable flaws:

…

[emphasis in original]

In its final award and the addendum to the final award (collectively, “the Award”), the Tribunal found that the appellants had failed to achieve mechanical completion on time. The Tribunal also rejected the Estoppel Defence. However, the Tribunal accepted the EOT Defence, finding that the EOT Defence was “perfectly capable of consideration by the Tribunal” because the respondent had been given the opportunity to make submissions in response to the appellants’ arguments in its written closing submissions. The Tribunal further observed that the appellants were entitled to make use of the existing evidence in the Arbitration to make good the EOT Defence. The Tribunal thus went on to consider the substance of the EOT Defence and eventually decided to extend the time for mechanical completion by a period of 25 days, such that the respondent was only entitled to receive liquidated damages for 74 days instead of 99 days.

Subsequently, the respondent applied to the High Court to partially set aside the Award on the basis that (a) by ruling upon and allowing the EOT Defence, the Tribunal had exceeded the scope of the parties’ submission to arbitration; and/or (b) the Award had been made in breach of natural justice.

The decision below

In the proceedings below, the Judge allowed the respondent’s setting aside application. As the Judgment itself is quite comprehensive, we highlight only those findings which are relevant to the present appeals.

First, the Judge found that the respondent did not have a fair and reasonable opportunity to respond to the EOT Defence. This was referred to by the Judge as the “Primary NJ Breach”. In the Judge’s view, the EOT Defence was a completely new defence, which was factually and conceptually distinct from the Estoppel Defence. Although the appellants had raised some facts, evidence and arguments as to the time that rectification works would have taken but for the Admitted Instruction, the respondent’s decision not to engage with these points could not be faulted as it did not have to do so in the context of the Estoppel Defence (see the Judgment at [90]–[100]).

Second, the Judge found that the Tribunal had relied substantially on its professed experience in reaching its decision on the EOT Defence (see the Judgment at [167]–[168]). However, the Tribunal did not explain what its experience entailed or what it encompassed, and the parties were not given any opportunity to address the Tribunal on the same. This affected the Award and occasioned prejudice to the respondent, constituting what the Judge termed as the “Secondary NJ...