CKH v CKG and another matter

• Court: Court of Appeal (Singapore)
• Judge: Sundaresh Menon CJ
• Judgment Date: 08 April 2022
• Neutral Citation: [2022] SGCA(I) 4
• Citation: [2022] SGCA(I) 4
• Docket Number: Civil Appeal No 42 of 2021 and Summons No 91 of 2021
• Hearing Date: 22 November 2021
• Plaintiff Counsel: Hee Theng Fong, Toh Wei Yi, Poon Pui Yee, Leong Shan Wei Jaclyn and Cherrilynn Chia (Harry Elias Partnership LLP)
• Defendant Counsel: Tan Beng Hwee Paul and Victor Yao Lida (Cavenagh Law LLP)
• Subject Matter: Arbitration,Award,Recourse against award,Remission,Setting aside
• Published date: 13 April 2022

Jonathan Hugh Mance IJ (delivering the judgment of the court):

This is an appeal against the judgment in CKG v CKH [2021] SGHC(I) 5 (“the Judgment”) by which the High Court judge (“the Judge”), pursuant to Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) scheduled to the International Arbitration Act (Cap 143A, 2002 Rev Ed), ordered the suspension for a period of proceedings to set aside an arbitration award made in Singapore dated 21 August 2020 (“the Award”) so as to enable the arbitral tribunal (“the Tribunal”) to eliminate the grounds for setting aside certain parts of the Award. The grounds referred to are that the Tribunal had in its Award failed to determine and take into account an outstanding debt (described as “the Principal Debt”) relating to taxes, levies and freight claimed by the respondent (“CKG”) as owed by the appellant (“CKH”), and interest thereon.

The background is complex, and there is a very substantial history of litigation and arbitration on matters including the scope of the Tribunal’s jurisdiction, but for present purposes this is very largely irrelevant. CKH sold its timber concession interests in Indonesia to CKG in exchange for US$8 million and a three-year supply of round logs for use in CKH’s plywood factory in Sumatra. On 18 September 2009, the parties concluded a Master Agreement to this effect,¹ to which were annexed various further agreements. One such agreement was a Round Logs Supply Memorandum of Agreement (“RLMOA”) also dated 18 September 2009 providing for the supply of specified quantities of round logs “FOB” alongside jetties in Sumatra, with CKH being responsible for bearing all freight and local, national or other taxes initially payable by CKG at the point of logging or export.²

The Master Agreement, the RLMOA and any other presently relevant agreements provided for any dispute arising out of or in connection with it to be referred to Singapore arbitration in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“the SIAC Rules”) for the time being in force. There was also a later Merchantability Wood Agreement (“MWA”) dated 10 December 2009 made between CKH and a company which we refer to as “the Company”.³ In material put before the court by CKH, the Company was described as an affiliate of CKG entrusted by CKG with the timber log deliveries due under the RLMOA.⁴ The MWA was subject to Indonesian law and contained an Indonesian National Board of Arbitration (“BANI”) clause. However, the present Tribunal determined in a jurisdictional ruling that the MWA did not supersede the RLMOA. We introduce the MWA at this stage only as a prelude to [32] below. The present appeal was conducted on the basis that there was a single arbitration and Award addressing all the issues raised on either side. The single issue before the court was whether the Tribunal should, in the light of its other conclusions, have gone on to take into account the existence and amount of the Principal Debt and interest on it.

By April 2011 CKH had accumulated a substantial outstanding debt, and the parties reached the following agreement recorded in signed meeting minutes dated 8 April 2011 (“the April 2011 Minutes”), which stated as follows:⁵

Both parties agree as follows:-

1. [CKH] undertake to pay [the Company] the sum of IDR 75 Billion for of its outstanding debt (PSDH/DR, Freight) and future shipment’s PSDH/DR and freight: in the following manner:-

2. Payments will be closely monitored for the next five months. If the payments fall below the stipulated due sum for each respective month above, [the Company] will charge 2% net per month late penalty of shortfalls at the end of each month and the charges shall be cumulative until all amounts due is fully paid. Any unpaid shortfall will be imposed the interest charges at 2% net per month. 3. Starting 01 September 2011, [CKH] is fully committed to pay on time and without any delay to settle all outstanding debt arises. Any shortfall will be also imposed the interest charges at 2% net per month. 4. By 15 November 2011, if there is still outstanding payment from [CKH] arises from the delivery of Round Logs, [CKG]/[the Company] and/or its affiliates reserve the right to initiate the following action(s): · To cease round logs shipment; [CKH] and its affiliates will fully indemnify [CKG] … [the Company], … and its affiliates for not delivering any outstanding Round logs as stated in the Master Agreement and [RLMOA] dated 18 September 2009 and Reconciliation and Settlement Deed in December 2009. · To reduce round logs volume commitments by all [CKH’s] outstanding debts. The roundlog volume reduction will be derived from dividing the outstanding debt by IDR320,000/m3 [“the debt-to-log conversion”]. · Both parties will attempt to settle all or any outstanding matters in an amicable manner.

Over the ensuing months, CKH failed to make payments as agreed and CKG made reduced deliveries of timber logs. Each side attributed its own failure to the other’s. On 20 December 2011 CKG wrote to CKH claiming to treat CKH’s outstanding indebtedness as a basis, under clause 4 of the April 2011 Minutes, for eliminating both any shortfall in log deliveries up to that date and any future obligation to deliver logs after that date (see the Judgment at [15]).

On 6 April 2015 CKH commenced the Singapore arbitration, claiming, inter alia, substantial damages for CKG’s failure to supply it with timber logs under the RLMOA.⁶ In its Statement of Defence and Counterclaim dated 30 October 2018, CKG maintained its claim to treat CKH’s outstanding indebtedness as discharging it from all past and future liability to deliver logs.⁷ CKH then took issue with this in its Reply to Statement of Defence and Defence to Counterclaims dated 22 February 2019 (“RSDDC”), maintaining that CKG’s obligation to deliver quantities of logs operated independently of any payments it might or might not make in the period up to 15 November 2011, and that, even thereafter, it was incumbent on CKG to have attempted (as it did not) to settle any outstanding claim in an amicable manner under the third point in clause 4 of the April 2011 Minutes, before ceasing or reducing any round log supply.⁸

The Tribunal in its Award accepted CKH’s submissions on the point mentioned in this last sentence. It held CKG liable accordingly for damages for failure to supply the logs in appropriate quantities.⁹ However, it did not give CKG credit for or make any award in relation to the Principal Debt on which CKG had relied when invoking clause 4 and which no one suggested could or would disappear if clause 4 did not apply to justify a complete cessation of or a reduction in log deliveries by CKG. On this basis, on 24 September 2020, CKG applied to the Tribunal for an “additional award” in its favour in respect of the Principal Debt under rule 29.3 of the 2013 SIAC Rules, which governed the arbitration.¹⁰

The Tribunal in a letter of decision dated 5 November 2020 refused to make an additional award. It considered that CKG had made no “claim” in the arbitration for the Principal Debt as required by rule 29.3. Its reasoning was this:¹¹

… Although [CKG] did raise the issue of its entitlement to the Principal Debt for pre-December 2011 taxes and freight as a defence to [CKH’s] claim for failure of log supply obligations, and sought a set off against any damages awarded in substitution of log supply to [CKH], [CKG] did not plead a counterclaim for the Principal Debt. This contrasts with [CKG’s] pleaded counterclaim for post-2011 taxes and freight. In this respect, the Request is more in the nature of an appeal of the Tribunal’s merits decisions than an application for an additional award on a claim not dealt with in the Award. …

What constitutes a “claim” which might justify an additional award under rule 29.3 of the SIAC Rules is, as the Judge correctly said (at [36] of the Judgment), presently irrelevant. The appeal before the court raised a different question, namely, whether the Tribunal omitted to address a matter before it for adjudication; and whether or not the omission could have been corrected to any extent under rule 29.3 was unimportant.

The Tribunal went on to add that, even if CKG had made a “claim” within rule 29.3, “the record contains no evidence that [CKG] made the necessary underlying payments, subject to reimbursement from [CKH]”, and drew attention to its separate finding that there was a lack of such evidence in respect of post-2011 taxes.¹² It was not, and could not in any event be, suggested that this comment had any binding force, and it was, as the Judge noted (at [58] of the Judgment), also inaccurate, in the light of the April 2011 Minutes themselves, the evidence and submissions before the Tribunal and the Tribunal’s own findings in its Award (see in particular [247], [348], [353] and [378] of the Award).¹³ The position in and after April 2011 was not the same as that post-2011.

Section 24(b) of the International Arbitration Act provides that, notwithstanding Article 34(1) of the Model Law, an arbitral award may be set aside if “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”. As the authorities cited in the next paragraph of this judgment confirm, failure by an arbitral tribunal to address an issue submitted to it for adjudication may constitute a breach of the rules of natural justice within the meaning of s 24(b). Article 34(2)(a)(iii) of the Model Law empowers the court to set aside an award upon proof that “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”....