CBS v CBP

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 20 January 2021
• Neutral Citation: [2021] SGCA 4
• Published date: 22 January 2021
• Docket Number: Civil Appeal No 30 of 2020
• Year: 2021
• Hearing Date: 26 August 2020,05 August 2020
• Plaintiff Counsel: Peh Aik Hin, Lee May Ling, Rebecca Chia Su Min and Sampson Lim Jie Hao (Allen & Gledhill LLP)
• Defendant Counsel: Clarence Lun Yaodong, Samuel Lim Jie Bin, Leng Ting Kun, Ammani Mathivanan and Charles Ho Jun Ji (Foxwood LLC)
• Court: Court of Appeal (Singapore)
• Citation: [2021] SGCA 4
• Subject Matter: Setting aside,Arbitration,Witness gating,Breach of natural justice,Recourse against award,Award,Remission

Quentin Loh JAD (delivering the judgment of the court): Introduction

This is an appeal by an award creditor, against the decision of the High Court judge (“the Judge”) in CBP v CBS [2020] SGHC 23 (“the Judgment”) to set aside the arbitral award (“the Final Award”), chiefly on the ground of a breach of natural justice.

Facts Background to the dispute

The appellant, CBS, is a bank incorporated in Singapore (“the Bank”). The respondent, CBP, is a company incorporated in India, which is engaged in the business of steel manufacturing and power generation (“the Buyer”).

By an email dated 19 November 2014, the Buyer entered into an agreement with a third party, (“the Seller”), to purchase 50,000 metric tonnes (“MT”) of coal from the Seller at a price of US$74 per MT. The coal from Australia was to be delivered in two tranches: the first 30,000 MT to be delivered in December 2014 and the second 20,000 MT to be delivered in January 2015. This came to be recorded in two separate sale and purchase agreements for the respective tranches. We refer to these as “the First Agreement” and “the Second Agreement”. Both agreements were executed on 7 January 2015 but backdated to 24 November 2014 and 20 December 2014 respectively.

Both agreements contained an arbitration clause which stipulated arbitration under the Rules of the Singapore Chamber of Maritime Arbitration (3rd Edition, 2015) (“SCMA Rules”) in the event of a dispute:

Any dispute arising out of or in connection with this contract including any question regarding the existence, interpretation, validity, frustration, novation, scope of the contract:, performance of the contract, breach of contract, termination and consequences of termination of this contract shall be referred to and finally resolved by arbitration under the Rules of Singapore Chamber of Maritime Arbitration (‘SCMA Rules’) as amended and in force, from time to time.

As is not unusual in these cases, sometime earlier, on or around 8 October 2014, the Seller had entered into an Accounts Receivable Purchase Facility with the Bank. The facility agreement provided for the assignment of the Seller’s trade debts to the Bank. Pursuant to this facility agreement, the Seller wrote to the Buyer on 19 January 2015 that it had assigned all of its trade debts so that “all amounts due both now and in the future, in respect of invoices, must be paid only to [the Bank]”. The Second Agreement contains an assignment clause, cl 22, which provides as follows:

… The Seller is permitted to assign any receivables due under the Agreement to any bank or other Institution as part of its financing agreement. The Buyer hereby agrees to execute any deeds, documents or letters or do such other things as may be reasonable [sic] be required by the Seller to give effect to or recognise any such assignment.

…

The first tranche of 30,000 MT of coal was duly delivered by the Seller to the Buyer in India and there are no disputes over this shipment. The dispute arises over the delivery of the second shipment of coal. This 20,000 MT of coal was shipped by the Seller to the Buyer on 21 December 2014.

On 22 January 2015, the Bank sent a bill of exchange drawn by the Seller to the Buyer for the payment of US$1,480,400 by 22 June 2015 (“the Bill of Exchange”).¹ On 12 February 2015, the Buyer’s bank sent a “SWIFT” message to the Bank stating unequivocally that the Buyer “has accepted the [Bill of Exchange] and will make payment on due date” (“the SWIFT message”).² The SWIFT message also made clear that the “Amt Accepted” was US$1,480,400. It appears this Bill of Exchange was never given to the Bank as it did not feature in its claim against the Buyer.

The Buyer contends that upon arrival of the coal on 14 January 2015 at Gangavaram, India, it was unable to lift 5,000 MT of coal from the port because the Seller had only procured the issuance of delivery orders for 15,000 MT of coal.³ The Buyer failed to make any payment on the Bill of Exchange by 22 June 2015. Between 6 July 2015 and 20 October 2015, the Bank sent a number of emails to the Buyer seeking payment. The Buyer responded twice via email explaining that it was “trying [its] level best to arrange maximum funds so that [the] liabilities can be paid at the earliest” and that the delay was the result of temporary cash flow issues. In the correspondence, the Buyer also alluded to the unfavourable market conditions which had apparently softened demand for the Buyer’s finished goods and depressed its prices.⁴

However, sometime in October 2015, in a notable volte-face from its foregoing admissions of debt, the Buyer raised two issues in an email to the Bank. First, as mentioned earlier, the Buyer averred that only 15,000 MT of the 20,000 MT of coal had been supplied to it and that it had to procure the remainder from elsewhere. Secondly, the Buyer stated that there had been a “steep decline in the prices of coal” and that it was “not inclined” to pay the US$74 per MT under the Second Agreement.⁵ Instead, it offered to bear some of the price fluctuation and pay US$61 per MT.

It is not disputed that on 2 December 2015 the Seller met with the Buyer’s representatives to discuss the outstanding payment and the alleged shortfall in delivery (“the December 2015 meeting”). The Buyer alleges it had four representatives and the Seller had two representatives who were accompanied by a third person from a trade credit entity. However, what transpired at that meeting is disputed.

According to the Buyer, the parties reached an oral agreement for the global settlement of their disputes during the December 2015 meeting. Specifically, both parties agreed that the price of the coal would be revised to US$61 per MT for all 50,000 MT of coal contracted under the two sale and purchase agreements; however, the Seller refused to honour this agreement. Whilst the Seller does not dispute that the December 2015 meeting took place, it contends that they did not agree to any new price at the meeting.⁶

The arbitration

On 21 October 2016, not having received any payment, the Bank commenced arbitration against the Buyer claiming the outstanding sum of US$1,480,400 and interest. A sole arbitrator was appointed on 25 April 2017 under the SCMA Rules.

The Buyer raised a jurisdictional objection to the arbitration on the basis that there was no arbitration agreement between it and the Bank because the Seller’s assignment was only for its receivables. This was heard by the arbitrator as a preliminary issue and on 6 December 2017 the arbitrator issued a partial award concluding that the assignment of receivables by the Seller included the assignment of the entire Second Agreement including the arbitration clause (“the Partial Award”). The arbitrator therefore found that he had jurisdiction over the dispute.

Late filing of defence and counterclaim

After the issuance of the Partial Award, the Buyer was directed to file its defence to the Bank’s statement of case by 8 January 2018. It failed to do so. On 9 January 2018, the arbitrator stated that unless he was otherwise advised, he would “conclude that [the Buyer] has elected not to file a Defence and/or Counterclaim and the arbitration will proceed accordingly”. The Buyer replied stating that it was challenging the Partial Award in the Indian courts and requested that the arbitrator await the outcome of that challenge before proceeding.⁷

On 16 March 2018, shortly before the scheduled final oral hearing, the Buyer suddenly informed the arbitrator that it intended to contest the claim on its merits, albeit under protest as to his jurisdiction, and asked for eight weeks to file its statement of defence.⁸ On 20 March 2018, the arbitrator granted the Buyer 14 calendar days to file its defence and counterclaim together with a list of witnesses, if any. Notably, the arbitrator directed in his email that:⁹

Once all submission [sic] have been completed I would ask the parties to review and agree on the necessity of an oral hearing. Should the parties not be able to agree that the decision should be based on documents only then pursuant to SCMA Rule 28 we will schedule a hearing. [emphasis added]

On 8 April 2018, one day before the Buyer’s pleadings were due, it sought a further extension. The arbitrator denied the Buyer’s request but allowed an extension for the submission of the Buyer’s list of witnesses. On 10 April 2018, the Buyer submitted its defence and counterclaim, which was entitled “reply on merits”, along with a list of seven named witnesses. Six of the witnesses were persons which the Buyer claimed were present at the December 2015 meeting where, according to the Buyer, the parties had agreed to a reduction of the coal price for the entire 50,000 MT of coal from US$74 per MT to US$61 per MT. Furthermore, the Buyer claimed in its pleadings that the Seller had failed to deliver 5,000 MT of coal and thus, the Buyer counterclaimed for the cost of procuring that balance from the open market.

Need for witness testimony

Once the Buyer’s “reply on merits” was submitted, the parties were, as directed, to consider whether an oral hearing was necessary. As shall be seen, the particular question of whether the Buyer’s witnesses should be permitted to give oral testimony at a hearing formed the crux of the setting aside application below and the appeal before us.

The Bank filed its reply and defence to the Buyer’s “reply on merits” on 24 April 2018. In its cover email, the Bank informed the arbitrator that it did not intend to call any witnesses or submit any witness statements. The Bank provided a list of reasons for this, which included its view that the dispute turned “primarily on the contractual interpretation” of the Second Agreement and that the Buyer had not explained its reasons for calling the seven witnesses in its list. Therefore, the Bank submitted that the arbitration should proceed on a...