DFI v DFJ

• Jurisdiction: Singapore
• Judge: Sir Vivian Ramsey IJ
• Judgment Date: 01 February 2024
• Neutral Citation: [2024] SGHC(I) 4
• Hearing Date: 04 December 2023
• Docket Number: Originating Application No 5 of 2023
• Citation: [2024] SGHC(I) 4
• Court: International Commercial Court (Singapore)
• Year: 2024
• Published date: 02 February 2024

[LawNet Admin Note: The following judgment is displayed as received from source]

Sir Vivian Ramsey IJ:

This case concerns an application by the claimant to set aside the Partial Award dated 10 February 2023 (the “Award”) made in an arbitration (the “Arbitration”) under the auspices of the International Chamber of Commerce (the “ICC”), pursuant to s 24(b) of the International Arbitration Act 1994 (2020 Rev Ed) (“IAA”) and/or Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), as incorporated under s 3 of the IAA, on the ground that the arbitral process that led to the Award was in breach of the rules of natural justice.

For the reasons that follow, I find that there was no breach of natural justice in the process that led to the making of the Award and so dismiss the application.

Introduction

On 15 March 2017, at the request of the claimant, the defendant provided the claimant with a technical proposal (the “Technical Proposal”) for the design, engineering and supply of a 300 “tonnes crushed per day” (“TCD”) raw sugar plant (the “Sugar Plant”).

On 30 April 2017, the claimant entered into two agreements. First, a contract with a third-party company, hereinafter referred to as “X Company”, for the “design engineering and supply” of the Sugar Plant (the “Sugar Plant Contract”). Secondly, a contract with the defendant (the “Agreement”) for the supply, amongst other things, of a 0.5MW turbine (the “0.5MW Turbine”).

On 26 August 2020, the claimant commenced the Arbitration against the defendant. In the Arbitration, the claimant contended that, pursuant to the Agreement, the defendant was required to supply a turbine that was sufficient to meet the power required for the running and operation of the Sugar Plant and/or to supply what it had contracted to supply, that is, a turbine capable of generating 500KW (or 0.5MW) of power. The claimant’s case in the Arbitration was that, in breach of the Agreement, the defendant failed to do so.

The jurisdiction of the tribunal (the “Tribunal”) was challenged by the defendant, and, on 16 July 2021, the Tribunal issued a Jurisdiction Award (the “Jurisdiction Award”) determining that it had the jurisdiction to continue with the Arbitration. Thereafter, between August 2021 and September 2021, the parties submitted their respective cases. The hearing took place over seven days between 27 June 2022 and 1 July 2022. Four witnesses were called by the claimant, one of whom was its expert. The defendant called two to testify: its witness and an expert.

On 10 February 2023, the Tribunal rendered the Award dismissing all of the claimant’s claims. Thereafter, on 15 May 2023, the claimant commenced this present application. The claimant submits that the Tribunal acted in breach of the fair hearing rule of the rules of natural justice, as it had disregarded a substantial portion of the evidence, submissions and arguments raised by the claimant in finding that: The defendant had not undertaken to provide sufficient power for all the electrical needs of a 300 TCD sugar plant but just the sugar-producing operations (Award at [70]); There was “no doubt” that the defendant did supply the equipment it had contracted to supply, ie, the 0.5MW Turbine (Award at [90]); The defendant had provided sufficient evidence to show that the equipment supplied was actually reasonably fit for purpose (Award at [122(11)]); The claimant had not produced reliable technical data or documents to support its allegations of inadequacies in the design or supply of the 0.5MW Co-Generation Plant (ie, the 0.5MW Turbine) (Award at [122(11)]); and The claimant has not produced any scientific or technical evidence that the Sugar Plant had not been running satisfactorily and/or could not have been doing so if there were no additional works and no upgrading or expansion (Award at [122(14)]).

Principles to be applied

Article 34(2)(a)(ii) of the Model Law provides that an arbitral award may be set aside where “the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case”.

In BZW and another v BZV [2022] 1 SLR 1080 (“BZW”), the Court of Appeal stated that in order for the court to set aside an arbitral award on grounds of breach of natural justice, the following four elements must be present (at [59]): First, the specific rule of natural justice that was breached. Second, how it was breached. Third, how the breach was connected to the making of the award. Fourth, how the breach prejudiced the respondent’s rights.

In relation to the fair hearing rule, the Court of Appeal in BZW explained (at [60]) that there were two ways in which this rule can be breached:

(a) One, a breach of the fair hearing rule can arise from a tribunal’s failure to apply its mind to the essential issues arising from the parties’ arguments. …

(b) Two, a breach of the fair hearing rule can also arise from the chain of reasoning which the tribunal adopts in its award. To comply with the fair hearing rule, the tribunal’s chain of reasoning must be: (i) one which the parties had reasonable notice that the tribunal could adopt; and (ii) one which has a sufficient nexus to the parties’ arguments (JVL Agro Industries ([29] supra) at [149]). A party has reasonable notice of a particular chain of reasoning (and of the issues forming the links in that chain) if: (i) it arose from the parties’ pleadings; (ii) it arose by reasonable implication from their pleadings; (iii) it is unpleaded but arose in some other way in the arbitration and was reasonably brought to the party’s actual notice; or (iv) it flows reasonably from the arguments actually advanced by either party or is related to those arguments (JVL Agro Industries at [150], [152], [154] and [156]). To set aside an award on the basis of a defect in the chain of reasoning, a party must establish that the tribunal conducted itself either irrationally or capriciously such that “a reasonable litigant in his shoes could not have foreseen the possibility of reasoning of the type revealed in the award” (Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [65(d)]).

[emphasis in original]

On the requirements that the breach must be connected to the making of the award and that the breach must have caused prejudice, it was stated in Bagadiya Brothers (Singapore) Pte Ltd v Ghanashyam Misra & Sons Pte Ltd [2023] 4 SLR 984 (at [42]) that the applicant must demonstrate that, as a result of the breach, “the arbitrator was denied the benefit of arguments or evidence that had a real as opposed to a fanciful chance of making a difference to his deliberations”; or put another way, that “the material could reasonably have made a difference to the arbitrator” (JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] 4 SLR 768 at [194], citing L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 at [54]).

I also observe that, as regards the requirement of prejudice, the Court of Appeal in BZW said (at [63]):

… A breach of natural justice causes a party to suffer actual or real prejudice if complying with the rules of natural justice could reasonably have made a difference to the outcome of the arbitration (see L W Infrastructure ([35] supra) at [54]) ... It is not necessary for us to hold that giving proper consideration would have caused the Tribunal to find in the respondent’s favour on both claims. The prejudice arising from the failure to consider the submissions which arguably could have succeeded is sufficient.

The claimant’s case

The claimant submits that, whilst the Tribunal stated in the Award that it had considered all “submissions, documents and evidence” from the parties, the Tribunal did not in fact do so, given the various documentary and witness evidence which the Tribunal failed to address and which arguably would have led the Tribunal to reach a different outcome in the Award, particularly in relation to the following issues: whether the 0.5MW Turbine was to provide all the power needs for the Sugar Plant; whether the defendant had supplied what it had contracted to do; and the spare parts claim.

Whether the 0.5MW Turbine was to provide all the power needs for the Sugar Plant

The Tribunal found that the defendant had not undertaken to provide for all the electrical needs of the entire Sugar Plant other than for the sugar-producing (and/or jaggery-producing) operations of the Sugar Plant (Award at [57]–[71]).

In doing so, the claimant contends that the Tribunal failed to address the following documents, evidence and arguments raised by it. First, it says that the Tribunal failed to address the Technical Proposal which set out the technical specifications of the Sugar Plant and was created and put forward by the defendant. The claimant says that the Technical Proposal was incorporated into the Agreement, and it refers to the recital which states:

WHEREAS, the SELLER has agreed to supply and the CLIENT has agreed to purchase from the former, the Machinery 0.5 mw Co-generation Plaint [sic] and balance of Plant, as per the specifications mentioned in the Technical Proposal with all the necessary procurement, fabrication, assembly supervision, testing at workshop, at CIF … basis, as per terms and conditions, which follow and form part of this Contract.

It also refers to the part of the Technical Proposal which stipulated that the 0.5MW Turbine was to have a maximum continuous rating of 6 tons per hour (“TPH”) and that the turbo alternator set was to have a power capacity of 0.5MW at 0.8 power factor. If the 0.5MW Turbine was not intended to meet the full needs of the entire Sugar Plant, the claimant says that the Technical Proposal would have identified the potential...