Quarella SpA v Scelta Marble Australia Pty Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 14 August 2012
• Neutral Citation: [2012] SGHC 166
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 122 of 2012
• Published date: 30 August 2012
• Year: 2012
• Hearing Date: 27 June 2012
• Plaintiff Counsel: Ang Wee Tiong (Chris Chong & CT Ho Partnership)
• Defendant Counsel: Cavinder Bull SC, Woo Shu Yan and Colin Liew (Drew & Napier LLC)
• Subject Matter: Arbitration,Award,Recourse against award,Setting aside
• Citation: [2012] SGHC 166

Judith Prakash J: Introduction

I had before me an application to set aside two arbitration awards made in an international arbitration conducted under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”). The first award dealt substantively with the dispute whilst the second dealt with costs.

The central issue the plaintiff, Quarella SpA (“Quarella”), wanted me to decide was this: Does a purportedly wrong interpretation of the choice of law clause (chosen by the parties to govern their distributorship agreement) by a tribunal justify a setting aside of an award under Articles 34(2)(a)(iii)-34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration ("the Model Law")? The basis of the plaintiff’s application was that the tribunal had failed to apply the rules of law that were agreed upon by the parties to govern the merits of the dispute.

In its Originating Summons, Quarella had also alleged that the rules of natural justice were breached in connection with the making of the first award and that its rights had been prejudiced thereby. This ground for setting aside the first award was, however, abandoned at the start of the hearing.

At the conclusion of the hearing I dismissed the application. I now set out my grounds.

Facts Parties to the dispute

Quarella is a company incorporated in Italy which manufactures and exports composite stone products.

The defendant, Scelta Marble Australia Pty Ltd (“Scelta”), is a company incorporated in Australia which supplies composite stone products in Australia.

In the proceedings before me, the President of Quarella, Giuseppe Godi (“Mr Godi”), filed two affidavits. The Managing Director of Scelta, Stewart Macciolli (“Mr Macciolli”), filed one affidavit. There was also a legal opinion from Professor Marco Torsello, a professor at the Department of Law of the University of Verona in Italy.

Background to the dispute

Quarella and Scelta entered into a distributorship agreement (“the Agreement”) dated 27 January 2000 for the distribution of Quarella’s products in Australia. The Agreement provided, inter alia:

Clause 25

This Agreement shall be governed by the Uniform Law for International Sales under the United Nations Convention of April 11, 1980 (Vienna) and where not applicable by Italian law.

Clause 26

Any dispute which might arise shall be decided by arbitration to be carried out in Singapore in English according to the rules of the International Chamber of Commerce of Paris.

A dispute subsequently arose. Scelta filed a Request for Arbitration dated 19 October 2009 with the Paris Secretariat of the International Chamber of Commerce (“ICC”) International Court of Arbitration.

On 10 December 2009, Associate Professor Gary F Bell was nominated jointly by Quarella and Scelta to be the sole arbitrator. On 17 February 2010, the Secretary General of the ICC International Court of Arbitration, pursuant to Article 9(2) of the ICC Rules of Arbitration, confirmed Associate Professor Gary Bell as the sole arbitrator (“the Tribunal”). The parties and the Tribunal subsequently agreed on the Terms of Reference.

On 11 November 2011, the Tribunal issued a Partial Award on All Substantive Issues in Dispute (Final as to All Matters Except Costs) (“the Award”). The Award was in Scelta’s favour and Quarella was ordered to, inter alia, pay A$1,075,964.25 to Scelta as damages for Quarella’s wrongful termination and breach of the Agreement. On 22 December 2011, the Tribunal issued a Final Award (on Costs) (“the Costs Award”) which awarded Scelta costs fixed at A$824,917.50.

As at the date of the hearing before me, Quarella had not made any payment towards settlement of the Award or the Costs Award. Scelta was attempting to enforce the Award in Italy but this attempt was resisted by Quarella on the basis that it was seeking to set aside the Award in Singapore, the supervisory jurisdiction.

The Tribunal’s decision on the applicable law

The question as to what the law applicable to the arbitration was, did not at first appear to be in doubt. Scelta took the position that Italian law applied rather than the Uniform Law for International Sales (“CISG”) under the 1980 UN Vienna Convention and Quarella seemed to agree. In Quarella’s Answer to the Request for Arbitration, it stated:

In fact the [CISG] has a limited application, as it does not govern expressly distributorship agreements, which is a framework agreement, but the sales to which it refers to. In this arbitration therefore we shall mostly refer to (and rely on) Italian law.

Scelta pointed out in its submissions that Quarella had, from a very early stage of the arbitration, accepted that Italian law was the law applicable to the merits of the dispute. Scelta argued that it was clear from the excerpt that Quarella considered and accepted that the CISG did not apply to the Agreement, which was described as a “Distributorship Agreement”. Scelta also argued that Quarella exclusively referred to and relied on Italian law in its subsequent submissions.

But Quarella changed its stand. In a letter dated 15 April 2011, Quarella’s Australian solicitors, Baker & McKenzie stated:

Clause 25 of the Agreement constitutes a direct choice by the parties of CISG as the “rules of law” to determine the dispute between the parties pursuant to Article 28 of the Model Law.

By virtue of that agreement between the parties, relevant provisions of CISG (including Articles 7-8 and Articles 74 and 77) apply consistently with the parties’ express choice of CISG as the primary rules of law applicable to the [Agreement].

This change of position took place three weeks before the re-scheduled hearing of the arbitration. As a result, Scelta objected to Quarella raising the application of the CISG at such a late stage in the arbitration proceedings.

The Tribunal decided three preliminary issues prior to determining the main issue of whether the CISG applied to the Agreement.

The first was whether arguments that the CISG applied should be heard at such a late stage. On this, the Tribunal allowed Quarella to raise the new argument on the applicable law and gave Scelta an opportunity to reply.

The second preliminary issue was whether the agreement of the parties on the applicable law found in Clause 25 of the Agreement was modified by mutual agreement so that the CISG did not apply. On this, the Tribunal found that there was no modification of Clause 25 to completely exclude the application of the CISG.

The third preliminary issue was whether Clause 25 of the Agreement should be interpreted as a direct choice of the substantive rules of the CISG by the parties so that the CISG applied even if the conditions for the application of the CISG stated in the CISG were not met. On this, the Tribunal decided that the correct interpretation of Clause 25 was that the parties intended the CISG to apply to the extent that the CISG was applicable according to its own rules on applicability, and if it did not apply in part or in whole, then Italian law applied.

Having decided the above, the Tribunal then considered the issue of whether the CISG, according to its own internal criteria, applied to the Agreement. On this, the Tribunal decided that the CISG was not applicable because the Agreement did not contain a contract of sale but was a framework agreement.

Quarella’s case

Quarella’s counsel, Mr Ang Wee Tiong (“Mr Ang”) submitted that the Tribunal’s decision on the applicable law was wrong, and that the Tribunal failed to apply the law chosen by the parties. Quarella’s submission on this contained three points. First, Quarella noted that by cl 26 of the Agreement, the parties had agreed that:

Any dispute which might arise shall be decided by arbitration to be carried out in Singapore in English according to the rules of the International Chamber of Commerce of Paris.

Quarella pointed out that Art 17 of the ICC Rules provides that:

The parties shall be free to agree upon the rules of law to be applied by the Arbitral Tribunal to the merits of the dispute. In the absence of any such agreement, the Arbitral Tribunal shall apply the rules of law which it determines to be appropriate.

Quarella then went on to argue that the option given to parties was not limited to the election of a national law, and that parties could also use a different set of rules, including otherwise non-binding principles (such as the UNIDROIT Principles of International Commercial Contracts), or otherwise non-applicable conventions, such as the CISG in cases where it would not apply on the basis of the rules on its applicability.

Second, Quarella submitted that it was a well established principle of contractual interpretation that a construction which entailed that a contract and its performance was lawful and effective was to be preferred, and referred to Sheng Siong Supermarket Pte Ltd v Carilla Pte Ltd [2011] 4 SLR 1094 at [40]. Quarella argued that the Tribunal had, in deciding that the CISG was not applicable because the Agreement did not contain a contract of sale but was instead a framework agreement, deprived Clause 25 of any effect.

Third, Quarella argued that Italian law was to be used to supplement the CISG when there was a lacuna, and was not intended to replace the CISG.

These three arguments appeared to me to be arguments that invited this court to review the merits of the Award and come to a different conclusion from that of the Tribunal. Professor Torsello’s instructions, given to him by Quarella, also sought answers that went to the findings of the Tribunal. In his affidavit, Professor Torsello stated:

I have been asked by the Plaintiff to consider and give my opinion on the following issues: (a) Whether the Tribunal’s finding on the issue of the applicable law is correct. (b) If the Tribunal’s finding is incorrect, what provision(s) of the CISG...