CDM & anor v CDP

• Jurisdiction: Singapore
• Judge: Judith Prakash JCA
• Judgment Date: 05 May 2021
• Neutral Citation: [2021] SGCA 45
• Published date: 08 May 2021
• Docket Number: Civil Appeal No 53 of 2020
• Year: 2021
• Hearing Date: 08 April 2021
• Plaintiff Counsel: Navinder Singh and Farah Nazura Binte Zainudin (KSCGP Juris LLP)
• Citation: [2021] SGCA 45
• Defendant Counsel: Daniel Chia Hsiung Wen and Ker Yanguang (Ke Yanguang) (Morgan Lewis Stamford LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Civil Procedure,Recourse against award,Costs,Indemnity costs,Arbitration,Setting aside,Award

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

It is axiomatic that the jurisdiction of an arbitral tribunal is, for the most part, defined by the pleadings filed in the arbitration. The arbitral process, generally speaking, commences with a Notice of Arbitration setting out the nature and scope of the dispute. This would typically be followed by the Statement of Claim shortly after the constitution of the tribunal. While the Notice of Arbitration and the Statement of Claim lay out the dispute from the claimant’s perspective, it would be incorrect to treat them as exhaustively defining the jurisdiction of the tribunal.

Whether the scope of the dispute and hence the jurisdiction of the tribunal extends beyond the matters referred to in the Notice of Arbitration and the Statement of Claim must depend on the subsequent pleadings. Indeed, this was precisely brought to the fore by the arbitration between the parties to this appeal (the “Arbitration”). While the respondent, which was the claimant in the Arbitration, had not raised arguments in relation to the “second launch” of a vessel, the appellants, in anticipation that the point might subsequently be raised, referred to the “second launch” and expressly denied it in their Defence and Counterclaim. Thereafter, the issue in relation to the “second launch” was featured in the subsequent pleadings, the agreed list of issues (“ALOI”), the evidence in the Arbitration, and the parties’ respective submissions.

Proceeding on the flawed premise that the jurisdiction of the arbitral tribunal (the “Tribunal”) was somehow defined only by the Notice of Arbitration and the Statement of Claim, the appellants applied to set aside the arbitral award on, inter alia, the basis that the Tribunal had acted in excess of its jurisdiction when it ruled on the “second launch” in favour of the respondent. The appellants might have had a case had they not introduced the “second launch” in their pleadings such that the “second launch” featured prominently in the proceedings thereafter. In that way, ironically, it was the appellants’ own pleadings which vested jurisdiction on the Tribunal to rule on the “second launch”. The mere fact that the respondent’s principal case in the Arbitration was not based on the “second launch” is a non-sequitur. As long as the issue of the “second launch” was properly before the Tribunal, that would suffice to confer jurisdiction on it.

We heard and dismissed the appeal on 8 April 2021 with brief grounds. In our detailed grounds below, we also take the opportunity to address the point as to whether we should adopt the position of the Hong Kong courts in awarding costs on an indemnity basis as the default position where an application to set aside an arbitral award has been unsuccessful. For the reasons set out below, we decline to do so.

Background

The facts have already been eloquently set out in the decision of the Judge below (the “Judge”), and we do not propose to repeat them in any great detail. Briefly, the appellants and the respondent entered into the following agreements on 9 June 2013: A contract (“the Contract”) between the first appellant and the respondent where the respondent agreed to design, build, launch, equip, commission, test, complete, sell, and deliver to the first appellant a Self-Erected Tender Rig and a Derrick Equipment Set (collectively, the “Hull”); and A company guarantee by the second appellant in favour of the respondent in respect of the Contract (the “Guarantee”).

After having entered into the Contract, the parties entered into a number of addenda to the contract. Addendum No. 2 was entered into on 24 September 2014. Of central importance to the present appeal is Article 6(d) of Addendum No. 2, which varied the payment term in the Contract such that 10% of the total contract sum (the “Fourth Instalment”) would become payable upon “launching and receipt of [the] invoice issued by the [builder, ie, the respondent]”. A further stipulation in Addendum No. 2 provided that “launching [was] subject to prior approval by the [ship classification society], [the first appellant], and [the respondent] collectively”.

On 20 January 2015, the respondent purported to launch the Hull into the water for the purposes of Art 6(d) of Addendum No. 2. That same day, the first appellant’s project manager emailed the respondent stating, inter alia, that it “[did] not consider the floating as launching”. Following the disputed launch on 20 January, various meetings involving the parties’ representatives were held on 21 January, 7 April, and 28 April 2015 (collectively, the “Construction and Progress Meetings”). The purpose of the Construction and Progress Meetings was, among other things, to iron out and update various outstanding items or deficiencies in the construction of the Hull that the first appellant required the respondent to remedy. It was the respondent’s position that by 28 April 2015, all outstanding issues and/or deficiencies in relation to the Hull had been resolved.

On 3 May 2015, the Hull was launched (the “second launch”). On 5 May 2015, the respondent demanded payment of the Fourth Instalment. As payment continued to be withheld, the respondent issued a default notice on 3 August 2016 pursuant to the terms of the Guarantee requesting that the appellants pay the Fourth Instalment. As payment was still not forthcoming, the respondent commenced the Arbitration against the appellants. The Notice of Arbitration was filed on 26 September 2016. Following the usual exchange of pleadings, an oral hearing took place between 21 and 25 May 2018, where both sides called factual and expert witnesses. Thereafter, detailed written closing and reply submissions were exchanged.

The central issue in question at the Arbitration was, for present purposes, whether the respondent (the claimant in the Arbitration) was entitled to the Fourth Instalment. The Tribunal found that the respondent, first appellant, and the relevant ship classification society had collectively given their approval for the launch of the Hull, with the first appellant having given its approval on 28 April 2015 for the second launch on 3 May 2015. The Tribunal found that the minutes of the Construction and Progress Meetings that took place on 7 and 28 April 2015 recorded that the respondent had resolved all the remaining items which the first appellant required the respondent to remedy before the Hull was considered to be in “[l]aunching condition”. The Tribunal also found that the minutes recorded the first appellant’s clear acceptance that the outstanding requirements had been met. By its acceptance that the outstanding issues had been resolved, the Tribunal found that the first appellant had also given its approval for the second launch. Even if the minutes did not show that the first appellant had given its express approval for the second launch of the Hull, the Tribunal was prepared to conclude that the first appellant ought to be treated as having approved it.

The Tribunal thus found that there was no valid reason for the appellants to withhold payment of the Fourth Instalment. Accordingly, in its award (the “Award”), the Tribunal ordered the appellants to, inter alia, pay the respondent the sum of US$13.9m (ie, the Fourth Instalment) with interest.

The appellants then applied to set aside the part of the Award relating to the respondent’s claim for the Fourth Instalment under the Contract. The grounds the appellants relied on were twofold.

First, relying on Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) as set out in the First Schedule to the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”), the appellants argued that the Award had been made in excess of the Tribunal’s jurisdiction: The appellants submitted that the Tribunal had exceeded its jurisdiction in finding that the first appellant had, on 28 April 2015, approved the second launch of the Hull, thereby fulfilling the condition precedent that the respondent needed to satisfy prior to the second launch on 3 May 2015. It was also contended by the appellants that the Tribunal had transposed approval which had been given for the second launch in May 2015 retrospectively as consent for the earlier launch on 20 January 2015.

Second, the appellants alleged that the Award had been made in breach of the right to present their case, in violation of Article 34(2)(a)(ii) of the Model Law and/or in breach of the rules of natural justice, in violation of s 24(b) of the IAA: The appellants complained that the Tribunal had acted in breach of natural justice by deviating from the parties’ pleaded cases when it determined that the Hull had been properly launched in the second launch, and that the respondent had thus satisfied the conditions for payment of the Fourth Instalment. The appellants also asserted that the Tribunal had acted in breach of natural justice by “disallowing the cross-examination of the [respondent’s] expert witness regarding the Contract … contrary to his Witness Statement and Responsive Report”.

The Judge dismissed all of the appellants’ attempts to impugn the Award in their entirety, finding that they were not borne out by the record from the Arbitration. Dissatisfied, the appellants appealed.

On appeal, the appellants abandoned most of their arguments below. Instead, the appellants’ remaining submissions were twofold: First, that the Tribunal had acted in excess of its jurisdiction in finding that there had been the requisite approval in April 2015 for the second launch of the Hull in May 2015. Accordingly, the Tribunal had also exceeded its jurisdiction in finding that the Fourth Instalment had fallen due. Second, that the Tribunal had acted in breach of natural justice and the appellants’ rights to be heard because the ground...