Case Note

• Author: KOO Zhi Xuan LLB (Hons) (National University of Singapore); State Counsel, Attorney-General's Chambers, Singapore. Attorney-General's Chambers, Singapore. LLB, BBM (Singapore Management University); Advocate and Solicitor (Singapore); Associate, Michael Hwang Chambers.
• Date: 01 December 2013
• Published date: 01 December 2013

THE INTRICACIES INVOLVED IN THE PURSUIT OF NATURAL JUSTICE IN ARBITRATION

L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd

This case note explores the intricacies behind the Singapore Court of Appeal decision in L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd[2013] 1 SLR 125, where an additional arbitral award was set aside for breach of natural justice. The court's views of the level of prejudice required to set aside an award for breach of natural justice and its first ever pronouncement on s 43(4) of the Arbitration Act (Cap 10, 2002 Rev Ed) are carefully analysed. The case note also discusses two important, practical questions arising from the court's decision: (a) the consequences of an award being set aside; and (b) the applicability of the “remission” provision in s 48(3) of the Arbitration Act.

I. Introduction and factual background

1 The case of L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd (“Lim Chin San”)1 presented yet another opportunity for the Singapore Court of Appeal to discuss the rules of natural justice in so far as they relate to arbitration, and specifically— for the first time—additional awards. It is also the first arbitration-related judgment delivered by the current Chief Justice Sundaresh Menon sitting in the Court of Appeal. Although the result—that parties must be given an opportunity to be heard before an additional award is made—is uncontroversial, a careful study of the judgment would reveal some

jurisprudential developments in: (a) the pursuit of natural justice in arbitration, and (b) the construction of the statutory provision governing additional awards in the Arbitration Act2 in Singapore that are worth highlighting. The judgment also raises challenging and practical questions in relation to the consequences that follow upon a setting aside of an additional award and the possibility of remission in lieu of setting aside an award.

2 This case involved an arbitrator who issued an additional award on the application by one party, pursuant to s 43(4) of the Arbitration Act,3 without giving the other party an opportunity to respond to the application. Section 43(4) of the Arbitration Act, which is “modelled” on Art 33(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), provides:4“Unless otherwise agreed by the parties, a party may, within 30 days of receipt of the award and upon notice to the other party, request the arbitral tribunal to make an additional award as to claims presented during the arbitral proceedings but omitted from the award.” Having rendered an initial award providing only for post-award interest, the arbitrator was requested by the successful party (“the defendant”) to award it pre-award interest as well. Three days passed. The other party (“the plaintiff”) did not respond to the request. The arbitrator then decided to render the additional award providing for pre-award interest in favour of the defendant. The aggrieved plaintiff objected and subsequently sought, inter alia,5 to set aside the additional award on the ground that it had been made in breach of natural justice.

3 The High Court judge set aside the additional award,6 holding that the plaintiff's right to be heard had not been observed and that it was unreasonable for the arbitrator to have inferred from the inactivity during the three days that the plaintiff did not intend to object to the request for an additional award by the defendant. The judge found that the requisite prejudice had been made out because the plaintiff had

been denied the very opportunity to submit on the applicability of s 43(4).

4 The Court of Appeal dismissed the defendant's appeal and agreed with the judge that the short time given for the plaintiff to respond was unreasonable and a breach of natural justice had occurred.7 In reaching its decision, the Court of Appeal drew a distinction between two different questions in respect of which the plaintiff was deprived of the opportunity to be heard:8 (a) the jurisdictional question9—whether pre-award interest was a presented claim (“the first limb”) which had been omitted from the initial award (“the second limb”); and (b) the substantive question—whether pre-award interest should be awarded, and if so, to what extent. The court eventually determined that the plaintiff was not given the opportunity to be heard on both the jurisdictional and substantive questions, and had suffered prejudice.10 While dismissing the appeal, the Court of Appeal took the opportunity to set out its disagreements with the High Court judge's analysis, and also touched on various issues which are of general importance to counsel seeking to challenge awards on the ground of breach of natural justice.

II. The level of “prejudice” recalibrated

5 What immediately strikes the reader of the judgment is how the test of requisite prejudice has been relooked in Lim Chin San. Prior to this case, the case of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd (“Soh Beng Tee”)11 had set out the elements required for the setting aside of an award for breach of natural justice.12 One of the elements was that the party challenging an arbitration award as having contravened the rules of natural justice must establish how the breach prejudiced its rights.13 The court in Soh Beng Tee then articulated the requisite level of prejudice which had to be shown: it had to be one where the breach of natural justice “must, at the very least, have actually altered the final outcome of the arbitral proceedings in some meaningful

way” [emphasis added].14 The seeming need for an actual alteration in the final outcome before prejudice could be established can also be detected in an earlier paragraph of that judgment, where the court explained that “[i]t may well be that though a breach has preceded the making of an award, the same result could ensue even if the arbitrator had acted properly” [emphasis added].15 This test of prejudice appears to allow for the argument that no prejudice can be said to result if the arbitral tribunal reaches a decision which could have been reached16 if the breach of natural justice did not occur.17

6 With the decision in Lim Chin San, the required level of prejudice before an award can be set aside has been reconsidered. As the Court of Appeal stated in no uncertain terms:18

These passages [at [86] and [91] of Soh Beng Tee] should not be understood as requiring the applicant for relief to demonstrate affirmatively that a different outcome would have ensued but for the breach of natural justice. Nor conversely do they mean that the application for relief is bound to fail if there is a possibility that the same result might have been arrived at even if the breach of natural justice had not occurred.

…

… the real inquiry is whether the breach of natural justice was merely technical and inconsequential or whether as a result of the breach, the arbitrator was denied the benefit of arguments or evidence that had a

real as opposed to a fanciful chance of making a difference to his deliberations… Where it is evident that there is no prospect whatsoever that the material if presented would have made any difference because it wholly lacked any legal or factual weight, then it could not seriously be said that the complainant has suffered actual or real prejudice in not having had the opportunity to present this to the arbitrator.

[emphasis added]

7 From the passages above, it can be observed that the level of prejudice which has to be established has been “recalibrated”in favour of the complainant, as the complainant merely needs to show (to establish prejudice) that the argument it was deprived of making “could reasonably have made a difference to the arbitrator; rather than [that] it

would necessarily have done so”.19 This relatively bright line approach is helpful in so far as it provides a practical guideline for courts to ascertain whether a “prejudicial breach” has occurred without straying too far into the realm of assessing the merits of the case in the arbitration, which properly belongs in the domain of the arbitral tribunal.

8 While the Court of Appeal declared its willingness to hold that there can be prejudice suffered even if the complainant can only show that its argument “could reasonably have made a difference to the arbitrator”, this requirement (of having to show “prejudice”) continues to remain a robust gatekeeper against unmeritorious and inconsequential claims of breaches of natural justice. The Court of Appeal's approach to the question of prejudice in relation to the first limb of the jurisdictional question makes this clear when contrasted with the High Court's approach. At the High Court, the judge had determined that there was prejudice in the following manner:20

The plaintiff argued strenuously on the issues of whether pre-award interest had been presented during the main arbitral proceedings and whether it had been omitted from the final award [that is, the two limbs of the jurisdictional question]. The answers to those questions turned on the meaning of ‘interest’ as it had been presented by the parties before the arbitrator, and were not questions that I could decide. Those were the two questions of fact which the arbitrator had to answer before he could decide if at law he was empowered to make an additional award. It bears repeating that judicial review of arbitral awards does not lie for alleged errors of law or fact made by the tribunal.

…

I shall now address the defendant's contention that the plaintiff had not suffered prejudice because the Arbitrator would have awarded pre-award interest to the defendant anyway, even if the plaintiff had been allowed to make submissions on s 43(4). … In my view, [the defendant's] contention was without merit, because as a result of the breach of [natural justice], the plaintiff was denied an opportunity to submit on the...