CKG v CKH

• Court: International Commercial Court (Singapore)
• Judge: Jeremy Lionel Cooke IJ
• Judgment Date: 18 June 2021
• Neutral Citation: [2021] SGHC(I) 5
• Citation: [2021] SGHC(I) 5
• Plaintiff Counsel: Paul Tan (Cavenagh Law LLP) (instructed), Ong Tun Wei Danny, Yam Wern Jhien, Lai Tze Ren, Jonathan and Mark Teo Tzeh Hao (Rajah & Tann Singapore LLP)
• Defendant Counsel: Hee Theng Fong, Toh Wei Yi, Poon Pui Yee and Leong Shan Wei Jaclyn (Harry Elias Partnership LLP)
• Published date: 23 June 2021
• Hearing Date: 08 June 2021
• Docket Number: Originating Summons 3 of 2021
• Subject Matter: Award,Setting aside,Remission,Arbitration,Recourse against award

Jeremy Lionel Cooke IJ: Introduction

By an Originating Summons dated 25 November 2020, the plaintiff, which was the Respondent in the arbitration to which the Originating Summons relates (“the Arbitration”), sought the setting aside of paragraphs 491–492 and 519–524, together with the dispositive section (“the Dispositive Section”), or parts of it, of a Final Arbitral Award dated 21 August 2020, corrected by two Memoranda of Corrections to the Final Award dated 2 October 2020 and 5 November 2020 (“the Award”) in which the arbitral tribunal (“the Tribunal”) found that the plaintiff was liable to the defendant in damages amounting to US$8,512,789.88 and IDR15,126,969,785 whilst the defendant was liable in damages to the plaintiff in the lesser sum of IDR29,918,809,545.86. Interest was awarded on the sums in question and the plaintiff was ordered to pay the defendant’s costs and the defendant’s costs of the Arbitration. The application is made on the basis that the Tribunal failed to consider and take into account a debt owed by the defendant to the plaintiff in relation to freight and taxes for logs already supplied (“the Principal Debt”) which, it is said, when put into the equation constituted by the claims, set-offs and cross claims asserted by the parties, would have resulted in a net sum being owed by the defendant to the plaintiff, and which would then have impacted on the interest and costs figures set out in the paragraphs of the Award to which reference has been made. The plaintiff also submits that, not only did the Tribunal fail to determine the amount of the Principal Debt (“the Principal Debt Issue”) but it also failed to decide an issue as to the rate of interest to be awarded on the plaintiff’s counterclaim for freight due after 21 December 2011(“the Freight Interest Issue”).

The basis of the application for the setting aside of the Award is that the Tribunal failed to exercise the authority that the parties had granted to it pursuant to Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Arbitration (“the Model Law”) read with section 3 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) (which provides that the Model Law shall have the force of law in Singapore) and/or that a breach of natural justice occurred in connection with the making of the Award by which the rights of the plaintiff had been prejudiced, in breach of section 24(b) of the IAA. It is said that the Tribunal failed to consider the issues (namely the Principal Debt Issue and the Freight Interest Issue) which had been submitted to it for determination infra petita under Art 34(2)(a)(iii) of the Model Law and/or went against the agreed position of the parties, which also constituted a breach of natural justice.

The terms of Article 34 of the Model Law, so far as relevant, read thus: (2) An arbitral award may be set aside by the court specified in article 6 only if: (a) the party making the application furnishes proof that:

…..

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;

…

(4) The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal and opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

Section 24(b) of the IAA reads thus: 24. Notwithstanding Article 34 (1) of the Model Law, the General Division of the High Court may, in addition to the grounds set out in Article 34(2) of the Model Law, set aside the award of the arbitral tribunal if —……… (b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.

The defendant’s position is that the application is in substance a disguised appeal against the substantive findings of the Tribunal which the court should not countenance: The defendant also submits that the Principal Debt Issue was raised by the plaintiff only as a defence to the defendant’s claim for the breach of outstanding log supply obligations, as part of the Debt-to-Log Conversion which enabled the plaintiff, in defined circumstances (which on the Tribunal’s finding, did not apply here), to set off the Principal Debt against its obligations to supply logs, on an agreed Debt-to-Log Conversion ratio. The basis of the Debt-to-Log Conversion and the parties’ respective rights for the supply of logs and payment were set out in the agreed Minutes of a Meeting on 8 April 2011 (“the 8 April Meeting Minutes”), signed by the parties and which was accepted as an enforceable agreement between them. The defendant contended that the Principal Debt issue was not raised as a defence to any claim for damages for undersupply of logs as opposed to a defence on the Debt-to-Log Conversion. There was no pleaded counterclaim for the Principal Debt, which in itself was said to be a requirement for a set-off. The defendant submitted that in those circumstances, it was not possible for the Tribunal to consider whether there could be an equitable set-off of the Principal Debt against damages for breach of the supply obligation and that therefore there was no failure by the Tribunal to consider an issue and no breach of natural justice. The defendant further submits that there was no sufficient evidence to support the Principal Debt and that, as the defence would have failed, there was no prejudice to the plaintiff in the matter not being decided. The Freight Interest Issue was determined by the Tribunal with a grant of interest, albeit not at the contractual rate, which was the plaintiff’s primary case, but at the alternative rate which it sought.

Court’s approach to an application to set aside an award

The parties referred to a number of authorities, but there was no real difference in the submissions as to the principles to be applied in an application of this kind, although there was a difference of emphasis, as might be expected.

The authorities are clear in saying that there is no room for the court to interfere with an award on the basis of mistakes made by the arbitrators, whether in determining issues of law or in their function as finders of fact. When parties agree to go to arbitration, they accept, for better or worse, the appointed tribunal and the limitations to the right of challenge that are imposed by the particular law or rules which govern the arbitration in question. The policy which the court adopts is one of minimal curial intervention, and an essentially pro-arbitration approach which reads awards without seeking to construe them as a statute or adopting an overly technical stance, with a view to according them the finality that an arbitration is intended to bring about: see TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [125], Soh Beng Tee & Co Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [91].

It is common ground that, where a party challenges an award on the ground of a breach of natural justice, four questions arise, namely: which rule of natural justice was breached; how that rule was breached; the connection between the breach and the making of the award; and how the breach prejudiced the challenging party’s rights: Soh Beng Tee at [29] affirming John Holland Pty Ltd v Toyo Engineering Corp [2001] 1 SLR(R) 443. Counsel for the defendant emphasised the need for “actual or real prejudice” as a result of any apparent breach as meaning that it “must, at the very least, have actually altered the final outcome of the arbitral proceedings in some meaningful way” (Soh Beng Tee at [91]). Serious errors of law and/or fact do not of themselves amount to a breach of the rules of natural justice.

Whereas Article 34(2)(a)(iii) of the Model Law refers to awards which deal with matters outside the scope of the arbitration, it is also common ground that a tribunal is bound to consider all the issues that are raised by the parties in the reference. To fail to consider an important issue that has been pleaded is a breach of natural justice because, in such a case, the arbitrator would not bring his or her mind to bear on an important aspect of the dispute before the tribunal (AKN v ALC [2015] 3 SLR 488 (“AKN”) at [46]). In CRW Joint Operation v PT Perusahan Gas Negara (Persero) TBK [2011] 4 SLR 305 (“CRW”), the Singapore Court of Appeal expressly stated that a failure on the part of a tribunal to decide matters submitted to it, was a failure to exercise the authority that the parties had granted and could therefore be a breach of Article 34(2)(a)(iii). This does not mean a failure by an arbitral tribunal to deal with every issue referred it will render the award liable to be set aside. The significance of the issue that was not decided has to be considered in relation to the award as a whole and the question of prejudice to the complaining party.

The defendant emphasised the reference made by the Singapore Court of Appeal in AKN to the need for a consideration of the pleaded issues as an essential feature of the rule of natural justice enshrined in the Latin adage, audi alteram partem. The primary places in which to ascertain what was in issue are the pleadings and the list of issues. Whilst the Court of Appeal in AKN stated that it would usually be a matter of inference, rather than of explicit indication, that the...