China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another

• Jurisdiction: Singapore
• Judge: Kannan Ramesh J
• Judgment Date: 26 April 2018
• Neutral Citation: [2018] SGHC 101
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 185 of 2016
• Year: 2018
• Published date: 05 March 2020
• Hearing Date: 15 December 2017,16 November 2017,06 December 2017,06 November 2017,14 November 2017,15 November 2017
• Plaintiff Counsel: Toby Landau QC (instructed), Paul Tan Beng Hwee, Rachel Low Tze-Lynn, Alessa Pang Yi Ching and Ching Meng Hang (Rajah & Tann Singapore LLP)
• Defendant Counsel: Michael Hwang SC and Lim Si Cheng (instructed), Germaine Chia Yijuan and Denise Chong (Virtus Law LLP)
• Subject Matter: Arbitration,Award,Recourse against award,Setting aside
• Citation: [2018] SGHC 101

Kannan Ramesh J:

By this originating summons, the applicant, China Machine New Energy Corporation (“CMNC”), applies to set aside an arbitral award (“the Award”). The central issue in this application is whether the imposition of an attorney-eyes only (“AEO”) order by the arbitral tribunal (“the Tribunal”), the scope of which the Tribunal then limited before lifting the order altogether, amounts to a breach of natural justice that justifies setting aside the Award. The application also raises novel points concerning “guerrilla tactics” in arbitration and the duty of a tribunal to investigate allegations of corruption. These matters arise against the backdrop of an arbitration agreement which provided for an expedited arbitration, and which therefore required a swift determination of the complex dispute concerning the construction of a coal-fired power plant in Guatemala that arose here. The Tribunal was of course constrained to uphold and give effect to this agreement between the parties for a swift determination of the dispute.

Facts The parties

The applicant, CMNC, is a company incorporated under the laws of the People’s Republic of China. The business of CMNC is the construction of power plants in China and abroad.

The first respondent, Jaguar Energy Guatemala LLC (“Jaguar Energy”), is a company incorporated under the laws of Delaware in the US. The second respondent, AEI Guatemala Jaguar Ltd (“AEI Guatemala”), is a company incorporated under the laws of the Cayman Islands. AEI Guatemala is the sole shareholder of Jaguar Energy. I will refer to Jaguar Energy and AEI Guatemala collectively as “Jaguar”. At the material time, Jaguar was managed and controlled by AEI Services LLC (“AEI”), a company based in Houston.

The background to the dispute

The dispute between the parties arose from a project (“the Project”) for the engineering, procurement, equipment and construction of a coal-fired power generation plant located near Puerto Quetzal, Guatemala (“the Plant”).

In October 2007, Distribuidora de Electricidad de Occidente, SA and Distribuidora de Electricidad de Oriente, SA (“the Offtakers”), two Guatemala-based companies in the business of supplying electricity in Guatemala, issued bid documents for the Project. In preparing its bid, AEI began negotiations with CMNC. AEI and CMNC entered into a memorandum of understanding which envisioned the conclusion of an Engineering, Procurement and Construction Contract (“the EPC Contract”) and the formation of a special purpose vehicle by AEI (“the SPV”). It was contemplated that the SPV would own the Plant and enter into the EPC Contract with CMNC for the Project and power purchase agreements with the Offtakers (“the PPAs”) for the sale of the power generated by the Plant. On 22 February 2008, Jaguar Energy was formed as the SPV for the Project.

On 29 March 2008, CMNC and Jaguar Energy executed the EPC Contract. Under this contract, CMNC agreed to construct the Plant for Jaguar Energy, as the owner, for the approximate sum of US$450m, which was to be paid progressively to CMNC in milestone payments.

The EPC Contract provided for disputes arising out of the contract to be resolved by arbitration in Singapore, under the 1998 Rules of Arbitration of the International Chamber of Commerce (“the ICC” and “the 1998 ICC Rules”). Critically, the EPC Contract provided for an expedited arbitration. Clause 20.2 of the EPC Contract stated as follows:

… The arbitrators shall have ninety (90) Days after the selection of the third arbitrator within which to allow examination of evidence, hear evidence and issue their decision or award and shall in good faith attempt to comply with such time limits; provided, however, if two (2) of the three (3) arbitrators believe additional time is necessary to reach a decision, they may notify the Parties and extend the time … but in no event to exceed an additional ninety (90) Days. … In determining the extent of examination of evidence and all other pre-hearing matters, the arbitrators shall endeavor to the extent possible to streamline the proceedings and minimize the time and cost of the proceedings. …

It is the intent of the Parties that the arbitration shall be conducted expeditiously, without initial recourse to the courts and without interlocutory appeals of the tribunal’s decisions to the courts. …

[emphasis added in italics and bold italics]

In other words, the arbitration agreement required the award to be issued 90 days after the selection of the third arbitrator; or if the majority of the arbitrators agreed, within a further 90 days.

Clause 20.2 of the EPC Contract also identified New York law as the governing law of the contract.

On 30 May 2008, Jaguar Energy entered into the PPAs with the Offtakers. The PPAs provided for the Plant to start commercial operations by 1 May 2012, failing which the Offtakers were entitled to impose liquidated damages for delay.

On 13 November 2009, CMNC, Jaguar Energy and AEI Guatemala executed a deferred payment security agreement (“the DPSA”). At the time of the EPC Contract, the parties had anticipated that Jaguar would obtain external financing for the Project from a consortium of banks. When it became clear that this was no longer possible, the parties agreed on vendor financing. To this end, the DPSA provided Jaguar Energy with the option of issuing debit notes (“the Notes”) to CMNC instead of making certain milestone payments under the EPC Contract. This enabled Jaguar Energy to defer certain cash payments due under the EPC Contract. The Notes were to be secured by security interests over assets of Jaguar (“the Security Interests”). In substance, in the event Jaguar Energy exercised the option, CMNC would provide financing for the Project by deferring collection of its milestone payments on the terms of the DPSA. The governing law of the DPSA was also New York law; and the DPSA provided for disputes arising thereunder to be resolved by the same dispute resolution mechanism under the EPC Contract, that is, arbitration in Singapore under the 1998 ICC Rules.

Section 3 of the DPSA provided that the EPC Contract was one of the Security Interests. Section 13(b) of the DPSA, which is material, also stated:

… CMNC shall have the right to receive any and all proceeds with respect to the Collateral and exercise any other rights and remedies available to it as a secured party or otherwise, until all of CMNC’s obligations under this Agreement have been paid in full. … [emphasis added]

Section 20(a) of the DPSA provided as follows:

The Parties agree to take all necessary steps and enter into all necessary documentation to evidence and perfect the Security Interests on the Effective Date of this Agreement and, as and requested or as previously agreed, take all necessary steps to release the Security Interests. [emphasis added]

On 29 March 2010, Jaguar Energy authorised CMNC to commence works under the EPC Contract by issuing the Full Notice to Commence. The works comprised two phases, Phase 1 and Phase 2. Under the Full Notice to Commence as varied by subsequent variation orders, the “Scheduled Taking-Over Date” for Phase 1 and Phase 2 were 21 March and 19 June 2013 respectively.

In the course of the Project, the parties uploaded documents pertaining to the Project onto a shared online document platform called Project Solve. These documents included communications between CMNC and Jaguar regarding the Project, design drawings, technical specifications for construction equipment and project management documents. It would appear that the parties retained their own sets of some of these documents nonetheless.

On 15 November 2010, Jaguar Energy exercised the option of using the payment scheme under the DPSA by issuing the relevant notice thereunder. Thus, the DPSA became operational and Jaguar Energy began issuing the Notes in place of milestone payments. In total, Jaguar Energy issued 61 Notes for the total value of approximately US$129m.

The breakdown in relations

In around 2013, disputes arose between the parties. Jaguar’s complaint concerned the delay in completion of the Project. CMNC’s grievance related to Jaguar’s alleged failure to evidence and perfect the Security Interests in breach of s 20(a) of the DPSA (see [12] above). The key events in the breakdown in the relations were as follows.

CMNC did not meet the Scheduled Taking-Over Dates for Phase 1 and Phase 2 of the works. On 29 March and 28 June 2013, Jaguar Energy issued notices to CMNC stating that the Scheduled Taking-Over Dates for Phases 1 and 2 respectively had passed, and reserved its rights under the EPC Contract.

On 11 October and 26 October 2013, Jaguar Energy issued two notices to CMNC under the EPC Contract. In these notices, Jaguar Energy stated that CMNC was in material breach of its obligations under the EPC Contract for being in delay of the works. Jaguar Energy required CMNC to take corrective measures to remedy specified items by 29 October and 1 November 2013 respectively, and reserved its right to terminate the EPC Contract for CMNC’s default.

On 30 October 2013, Jaguar Energy issued a notice to CMNC stating that CMNC had failed to take the corrective measures specified by Jaguar Energy in its notice dated 11 October 2013, and that it intended to undertake those corrective steps itself, deducting the cost of doing so from sums due to CMNC. Jaguar Energy reserved its right to terminate the EPC Contract for CMNC’s default and to assess liquidated damages for CMNC’s delay.

In October 2013, additional security guards were deployed to the site (“the Site”). The Site comprised the area where the Plant was being constructed (“the Construction Area”) and the living quarters of CMNC’s employees (“the Living Quarters”). The Tribunal found that the increase in security in October 2013 was consensual.

On 4 and 19 November 2013, Jaguar Energy...