CUW and others v CUZ

• Jurisdiction: Singapore
• Judge: Vivian Ramsey IJ
• Judgment Date: 06 February 2023
• Neutral Citation: [2023] SGHC(I) 2
• Court: International Commercial Court (Singapore)
• Docket Number: Originating Application No 1 of 2022
• Hearing Date: 27 October 2022
• Citation: [2023] SGHC(I) 2
• Year: 2023
• Plaintiff Counsel: Lee Wei Han Shaun and Ng Khim Loong Mark (Bird & Bird ATMD LLP), Nakul Dewan SA (Twenty Essex) (instructed counsel)
• Defendant Counsel: Daniel Chia, Pardeep Singh Khosa and Jeanette Wong (Morgan Lewis Stamford LLC)
• Published date: 09 February 2023

Vivian Ramsey IJ:

This case concerns an application by the claimants, CUW, CUX and CUY, to set aside the Final Award dated 11 February 2022 (the “Award”) made in an arbitration under the auspices of the Singapore International Arbitration Centre (the “SIAC”) (the “Arbitration”), pursuant to s 24 of the International Arbitration Act 1994 (2020 Rev Ed) (“IAA”) and/or Art 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), as incorporated under s 3 of the IAA on the ground that breaches of natural justice had occurred in connection with the making of the Award.

Background

The dispute arose out of two agreements entered into by the parties concerning arrangements for providing two power plants in India (the “Project”).

On or around 15 January 2013, CUX entered into a Term Sheet with CUZ. On 25 February 2013, two agreements were executed between the claimants and the respondent, with the respondent replacing another company as the claimants’ partner in the Project.

Those agreements (the “Agreements”) were: A Share Subscription Agreement dated 25 February 2013 (the “SSA”) under which CUW was the “Promoter”, CUX was the “Company”, and the respondent was the “Investor”. Under the SSA, CUX agreed to issue and allot equity shares to the respondent and the respondent agreed to subscribe to those equity shares. A Shareholders’ Agreement dated 25 February 2013 (the “SHA”) which set out the rights and obligations of the parties as shareholders in CUX.

Pursuant to the SSA, the respondent was to invest INR5.64b into the Project as a subscription to equity shares in CUX in three tranches: INR210m (the “First Tranche Investment”); INR270m (the “Second Tranche Investment”); and INR 2.41b (the “Third Tranche Investment”).

The respondent made the First Tranche Investment on 7 June 2013 and obtained certain management rights in CUX, including the right to nominate one director to CUX’s board of directors. The Second Tranche Investment was made on 16 August 2013.

Under the SSA, there was a condition precedent that CUX would enter into a Common Loan Agreement (the “CLA”) with certain finance companies (collectively, the “Lenders”) in relation to the debt financing for the Project, prior to the Third Tranche Investment from the respondent.

The respondent raised objections to the terms of the draft CLA and, in particular, contended that those terms requested amendments which were contrary to the terms of the respondent’s investment in the Project, including a “no guarantee” provision in cl 19 of the SHA. The claimants contended that despite their attempts in 2014 and 2015 to address and resolve the respondent’s alleged concerns and objections to the draft CLA, the respondent refused to agree to the terms of the CLA.

On 17 December 2015, the respondent issued a letter alleging that the Project cost had increased by more than 20% and that the expected commercial operation date had been delayed by more than 24 months.

On 18 April 2016, the respondent issued to CUW and CUY a Material Adverse Change Notice (“MAC Notice”) under the SSA on the basis that a material adverse change on the Project had occurred and was still subsisting and calling on CUW to cure the MAC.

In addition, the respondent also objected to awarding [VVV] the contract for the works which formed the balance of project (“BOP” works) on the basis that a sole engineering, procurement, construction (“EPC”) contractor should be appointed to carry out both the boiler, turbine and generator work (“BTG”) and the BOP works.

On 30 May 2016, CUW, on behalf of itself, CUX and CUY issued a letter to the respondent in which it sought to terminate the Agreements (the “May 2016 Letter”) on the basis that the respondent had committed a repudiatory breach of the Agreements and that the repudiation was accepted with effect from 18 April 2016, the date of the MAC Notice.

On 22 December 2017, the respondent (as claimant) commenced the Arbitration against the claimants (as respondents) by filing a notice of arbitration (the “Notice of Arbitration”) referring disputes under the SSA and SHA to arbitration. Under the SIAC Rules, the Notice of Arbitration was treated as commencing two arbitrations which were then consolidated under the SIAC Rules (6th edition, 1 August 2016) (“SIAC Rules”). The appointment of the arbitral tribunal (the “Tribunal”) was completed on 4 May 2018.

On 25 July 2018, the respondent sent a written notice to the claimants (the “July 2018 Letter”) stating that the issuance of the purported termination letter of 30 May 2016, as well as the allegations in it, cumulatively or otherwise amounted to a repudiation of the Agreements, which the respondent accepted.

In the Arbitration, the claimants submitted that they had validly terminated the Agreements by way of the May 2016 Letter due to the respondent’s conduct in obstructing the CLA. They also contended that even if their termination on 30 May 2016 was wrongful, the respondent affirmed the Agreements. The respondent’s position in the Arbitration was that its conduct in relation to the CLA was not a breach of the Agreements. Further, it contended that it did not affirm the Agreements after the May 2016 Letter. It also contended that, even if it did affirm the Agreements, the claimants committed a continuing repudiatory breach by treating the Agreements as terminated after 30 May 2016 so that it was entitled to terminate the Agreements on 25 July 2018.

During the course of the Arbitration, the claimants filed an “Application for Early Dismissal of Claims” dated 26 October 2018 (“EDA Application”). That Application was heard on 31 January 2019 and the Tribunal’s Partial Award deciding the EDA Application was issued on 20 September 2019 (the “Partial Award”).

Directions were given by the Tribunal which led to a final oral hearing on 28 July 2021. The Tribunal then made the Award on 11 February 2022.

The claimants commenced these proceedings by way of an Originating Application in the High Court on 10 May 2022. The proceedings were then transferred to the Singapore International Commercial Court on 28 July 2022. Following a virtual case management conference on 20 September 2022, the virtual hearing took place on 27 October 2022.

The Application to set aside the Award

The claimants seek to set aside the Award on the following grounds: That the Tribunal, in breach of natural justice, failed to consider the claimants’ arguments that the respondent had, by its conduct, affirmed the Agreements following the issuance of the May 2016 Letter, thereby disentitling the respondent from subsequently terminating the Agreements for the same breach (the “Affirmation Defence Ground”). That the Tribunal, in breach of natural justice, in considering whether the respondent’s conduct in relation to the CLA was reasonable, failed to consider the claimants’ arguments that the respondent’s objection to being classified as a “promoter” in the CLA was only an afterthought (the “Afterthought Argument Ground”). That the Tribunal, in breach of natural justice, failed to consider the claimants’ argument that the respondent had breached cl 16.5 of the SHA (the “Clause 16.5 Breach Ground”) and had thereby committed a repudiatory breach of the Agreements, which breach the claimants accepted in their May 2016 Letter. That the Tribunal, in breach of natural justice, having made a finding in the Partial Award that it would not make any ruling that CUY would be jointly and severally liable with CUW and CUX for any breach of the Agreements and having made findings at paragraphs 215 to 225 of the Partial Award, ruled in the Award that CUY is jointly and severally liable with CUW and CUX which is inconsistent with the Partial Award and CUY was deprived of an opportunity to be heard on cl 14.1 of the SSA ( the “Inconsistency Ground”).

The legal basis for setting aside an award for breach of natural justice

The relevant grounds for setting aside an arbitral award are contained in s 24(b) of the IAA which provides that:

Court may set aside award

24. Despite 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.

It is common ground that, as set out in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”), a party challenging an arbitration award as having contravened the rules of natural justice has to establish the following: (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights (at [29]).

Soh Beng Tee is also authority for the following propositions: The threshold for a finding of breach of natural justice is a high one and it is only in an “exceptional case” that a court will find that threshold crossed (at [54]). The setting aside application cannot be a stage where a dissatisfied party can have a second bite at the cherry (at [65(b)]). The failure of an arbitrator to refer every point for decision to the parties for submissions is not invariably a valid ground for challenge. Only in instances such as where the impugned decision reveals a dramatic departure from the submissions, or involves an arbitrator receiving extraneous evidence, or adopts a view wholly at odds with the established evidence adduced by the parties, or arrives at a conclusion unequivocally rejected by the parties as being trivial or irrelevant, might it be appropriate for a court to intervene. In short, there must be a real basis for alleging that the...