PTPrima International Development v Kempinski Hotels SA and other appeals

• Judgment Date: 19 July 2011
• Date: 19 July 2011
• Docket Number: Originating Summons No 766 of 2009,Originating Summons No 121 of 2009,Originating Summons No 903 of 2008
• Court: High Court (Singapore)

Kempinski Hotels SA

Plaintiff

and

PT Prima International Development

Defendant

[2011] SGHC 171

Judith Prakash J

Originating Summons No 903 of 2008

High Court

Arbitration—Arbitral tribunal—Jurisdiction—Doctrine of competence-competence—Whether court had power to set aside award if arbitrator decided that he had jurisdiction

Arbitration—Arbitral tribunal—Jurisdiction—Purpose and effect of arbitration agreement—Whether party was able to raise material and unpleaded points during arbitration proceedings

Arbitration—Arbitral tribunal—Jurisdiction—Respondent relying on unpleaded issue as defence—Whether arbitration was outside scope of submission to arbitration—Article 34 (2) (a) (iii) of First Schedule to International Arbitration Act (Cap 143 A, 2002 Rev Ed)

Arbitration—Award—Arbitrator deciding that government decisions did not exclude possibility of damages—Whether distinct from later decision that possibility of damages was extinguished by subsequent events

Arbitration—Award—Final award—Arbitrator deciding some issues on substance while not deciding others—Whether arbitrator could revisit decided issues

Arbitration—Award—Recourse against award—Remission—No evidence of apparent bias on part of arbitrator—Whether sensible to remit award to arbitrator

Arbitration—Conduct of arbitration—Estoppel—Whether court could set aside award on basis that arbitrator made mistake in law by allowing party to raise issue that had not, but should have, been raised earlier

Arbitration—Conduct of arbitration—Natural justice—Arbitrator requesting disclosure of information and making findings of Indonesian law—Whether apparent bias was proven

Arbitration—Conduct of arbitration—Natural justice—Whether arbitrator failed to comply with requirement of natural justice that both parties be heard

In 1994, the applicant and respondent entered into a contract which obliged the applicant to market, operate and manage a hotel owned by the respondent. Between November 1996 and May 2000, three decisions of the Indonesian Ministry of Tourism (‘the Three Decisions’) were issued, making it compulsory for the contract to be carried out by a company incorporated in Indonesia. After the first two decisions were issued, the applicant's lawyers suggested that the formation of an Indonesian company was not necessary and that certain amendments should be made to the contract to ensure compliance. No amendments were effected and an Indonesian company was not incorporated.

In October 2001, the respondent gave the applicant notice of material breach of the contract. Subsequently, the respondent purported to terminate the contract. The applicant commenced arbitration proceedings in May 2002, claiming wrongful termination of the contract. The respondent's defence was that the termination was valid under Indonesian law. In April 2003, the respondent was granted leave to amend its defence to include a plea of supervening illegality.

The arbitrator's first award held that the Three Decisions did not prevent performance of the contract but only prescribed a manner for its performance. There were certain steps which had to be taken to comply with the decisions but which had not been taken by the applicant. Thus, the continued performance of the contract had become impossible. The contract remained valid though incapable of performance.

In the second award, the arbitrator held that, because there were alternative modes of performing the contract that were consistent with the Three Decisions, the possibility of damages was still available to the applicant if it could show that the contract had been wrongfully terminated.

The respondent then wrote to the arbitrator, seeking ‘clarifications’ of the first and second awards in the light of its discovery that the applicant had, before the issue of the second award, entered into a contract to provide hotel management services to another hotel. In the third award, the arbitrator held that this new venture, which was entered into on 26 April 2006, was inconsistent with the obligations under the contract, and that therefore the methods of performance of the contract that remained open after the Three Decisions were no longer possible. He stated that the possibility of damages for the period between the date of termination and 26 April 2006 still remained.

In the fourth award, the arbitrator held that because no steps were taken to make the performance of the contract lawful, any award of damages for the period between the date of termination and 26 April 2006 would be contrary to the public policy of Indonesia. Six months later, the costs award was issued.

The applicant applied to the court to set aside the third, fourth and costs awards pursuant to the International Arbitration Act (Cap 143 A, 2002 Rev Ed) (‘the Act’) on the basis of the following grounds: (a) that the arbitrator was functus officio when he issued the awards; (b) that the respondent should have been barred by issue estoppel from raising the new venture in the proceedings after the second award was issued; (c) that the awards dealt with the new venture which was an issue that had not been formally pleaded; and (d) that there was a breach of natural justice.

Held, allowing the application and remitting the award to the arbitrator:

(1) A valid award once made was final and binding. An arbitrator had no power to re-visit the issues decided and could not vary, amend, correct, review, add to or revoke the award except as provided in Arts 33 and 34 (4) of the Model Law. In the case of an interim award the arbitrator became functus in respect of issues disposed in the interim award although not functus officio in relation to such matters as might remain outstanding for determination in the arbitration: at [30] to [32].

(2) What the second award decided was that the Three Decisions did not exclude the possibility of damages being awarded to the applicant because there were three alternative methods of performance of the contract. The tribunal clearly drew a distinction between, on the one hand, the availability of future claims of damages, which was decided in the second award, and, on the other hand, the applicant's legal entitlement to damages, which was not decided and which could not be decided at that stage without proof of breach and loss. In the third award, the tribunal went on to decide that the availability of a future claim of damages which remained despite the Three Decisions was now extinguished by the fact that the applicant had entered into the new management venture. This decision was distinct from its earlier decision: at [38] and [39].

(3) No issue estoppel could have arisen because the issues decided in the first and second awards were distinct from those decided in the third and fourth awards. In any event, the applicant did not put forward any basis existing in the Act which would allow the court to set aside an arbitral award because the arbitrator had made a mistake in law and allowed a party to belatedly raise an issue that had not, but should have, been raised during earlier proceedings. The court's power under the Act to set aside an award was a limited one and could not be exercised on the basis that the arbitrator had made a mistake of law: at [50] and [51].

(4) An arbitrator's ability to determine his own jurisdiction did not make all such decisions as to jurisdiction final and binding. A court could still reverse an affirmative decision on jurisdiction if it considered that the arbitrator was mistaken on the issue: at [58].

(5) The arbitration agreement was of the widest possible construction and would cover the relevant facts of the new management venture in relation to the continuing availability (or otherwise) of a claim to damages. The purpose of the arbitration agreement was to bind parties to submit the disputes arising under the contract to determination by arbitration. It did not imply that parties would be free to raise material and unpleaded points without having first made an application to amend their pleadings. To determine whether matters in an award were within or outside the scope of the submission to arbitration, a reference to the pleadings would usually have to be made. An arbitrator had to be guided by the pleadings when considering what it was that had been placed before him for decision by the parties. Pleadings were an essential component of a procedurally fair hearing both before a court and before a tribunal: at [54] to [56].

(6) The respondent's amended defence and counterclaim did not, was not intended to, and could not, cover the issue of the effect of the new venture on the possibility of performing the contract. This failure to plead the new venture resulted in the tribunal making a decision that was beyond the scope of the matters submitted to it: at [60] and [64].

(7) There was no apparent bias on the arbitrator's part. He did not initiate the inquiry into the new venture or take the initiative in any questionable way. Furthermore, he did not have a closed mind since he had reached his conclusions on the basis of submissions and evidence and was willing to consider further evidence on issues arising from those decisions: at [70], [75], [82] and [90].

(8) The tribunal should have, at the least, asked the parties whether they wished to cross-examine each other's experts on the new opinions submitted before it proceeded to issue the third award. There was an expectation that new expert evidence would not be accepted or rejected without giving the experts the opportunity to defend their views on cross-examination. Nonetheless, the failure to invite parties to cross-examine each other's experts could not have prejudiced their rights: at [96]and [97].

(9) Natural justice required that the parties should be heard. It did not require that they be given responses on all submissions made, provided that the tribunal at least considered those...