The Oriental Insurance Company Ltd v Reliance National Asia Re Pte Ltd

CourtHigh Court (Singapore)
Judgment Date22 December 2008
Docket NumberOriginating Summons No 986 of 2006 (Summons No 2450 of 2008)
Date22 December 2008

[2008] SGHC 236

High Court

Chan Seng Onn J

Originating Summons No 986 of 2006 (Summons No 2450 of 2008)

The Oriental Insurance Co Ltd
Reliance National Asia Re Pte Ltd

N Sreenivasan and Palaniappan S (Straits Law Practice LLC) for the applicant

Michael Hwang SC (Michael Hwang), Muthu Arusu and Tay Yong Seng (Allen & Gledhill LLP) for the respondent.

Alliance v Regent Holdings Incorporated [1999] EWCA Civ 1953 (distd)

Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd [2004] 2 Lloyd's Rep 352 (refd)

Chia Ah Sng v Hong Leong Finance Ltd [2000] 3 SLR (R) 941; [2001] 1 SLR 591 (refd)

Commercial Union Assurance Co Plc v Mander [1996] 2 Lloyd's Rep 640 (refd)

Evergreat Construction Co Pte Ltd v Presscrete Engineering Pte Ltd [2006] 1 SLR (R) 634; [2006] 1 SLR 634 (refd)

Geowin Construction Pte Ltd v MCST Plan No 1256 [2007] 1 SLR (R) 1004; [2007] 1 SLR 1004 (refd)

Holt v Cox (1997) 23 ACSR 590 (refd)

Jones v Sherwood Computer Services Plc [1992] 1 WLR 277 (refd)

Jones (M) v Jones (RR) [1971] 1 WLR 840 (refd)

JSI Shipping (S) Pte Ltd v Teofoongwonglcloong [2007] 4 SLR (R) 460; [2007] 4 SLR 460 (refd)

Nikko Hotels (UK) Ltd v MEPC plc [1991] 2 EGLR 103 (refd)

N M Rothschild and Sons (Singapore) Ltd v Rumah Nanas Rubber Estate Sdn Bhd [1994] 1 SLR (R) 697; [1994] 2 SLR 160 (refd)

Oriental Insurance Co Ltd, The v Reliance National Asia Re Pte Ltd [2008] 3 SLR (R) 121; [2008] 3 SLR 121 (refd)

PlanAssure PAC v Gaelic Inns Pte Ltd [2007] 4 SLR (R) 513; [2007] 4 SLR 513 (refd)

Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 EGLR 148 (refd)

Riduan bin Yusof v Khng Thian Huat [2005] 2 SLR (R) 188; [2005] 2 SLR 188 (refd)

Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v Inland Revenue Commissioners [2008] 1 AC 561 (refd)

Shell UK Ltd v Enterprise Oil plc [1999] 2 Lloyd's Rep 456 (refd)

Tan Yeow Khoon v Tan Yeow Tat [2003] 3 SLR (R) 486; [2003] 3 SLR 486 (refd)

Trans Elite Equipment Rental Sdn Bhd v PSC-Naval Dockyard Sdn Bhd [2003] 4 MLJ 30 (refd)

Veba Oil Supply & Trading GmbH v Petrotrade Inc [2002] 1 All ER 703 (refd)

Winterthur Swiss Insurance Company v AG (Manchester) Limited (in liquidation) [2006] EWHC 839 (Comm) (refd)

Arbitration Act (Cap 10,2002Rev Ed)s 35 (1)

Civil Law Act (Cap 43,1999Rev Ed)s 12

Companies Act (Cap 50,2006Rev Ed)s 210

International Arbitration Act (Cap 143A, 2002Rev Ed)s 12 (5) (b)

Rules of Court (Cap 322, R 5, 2006Rev Ed)O 42r 12

Supreme Court of Judicature Act (Cap 322, 2007Rev Ed)First Schedulepara 6

Civil Procedure–Damages–Interest–Whether court could award compound interest as damages–Whether independent adjudicator applied discount correctly–Civil Procedure–Experts–Setting aside expert's decision–Whether grounds existed for setting aside determination made by independent adjudicator–Whether independent adjudicator bound by rules of natural justice–Contract–Contractual terms–Parties agreeing to resolve differences through independent adjudicator–Whether terms of reference appointing independent adjudicator was for process of expert determination

This was an application filed by Oriental Insurance Co Ltd (“OIC”) to set aside the determination made by an Independent Adjudicator (“IA”) appointed pursuant to a Scheme of Compromise and Arrangement (“Scheme”) undertaken by the respondent, Reliance National Asia Re Pte Ltd, (“RNA”) and for the matter to be remitted to the IA for re-adjudication.

OIC issued a US$20m insurance policy in 1998 covering a Single Point Mooring Buoy (“SPM”) owned and operated by Reliance Industry Limited (“RIL”). OIC retained 6.35% of the risk and reinsured the remaining to several reinsurers, of which RNA took 38.35% of the risk. The SPM was struck in October 1998 and in 1999 RIL commenced an action under the insurance contract against OIC in Surat, India. In 2001, RNA entered into a run-off of its business and entered into a Scheme under s 210 of the Companies Act (Cap 50, 2006 Rev Ed) with its creditors. Pursuant to the Scheme, OIC submitted a proof of debt worth some US$24m plus interest of US$1.95m per annum from 15 May 2007 till payment in respect of its reinsurance with RNA of 38.35% of RIL's insured loss. The Scheme Manager determined the debt to be only worth US$1,964,000. Dissatisfied with the result, OIC referred its proof of debt to the process of Independent Adjudication under the Scheme and the IA ascertained OIC's Scheme claim to be US$3,840,584, comprising the principal amount of US$3,176,168 plus interest of US$664,416 at 13.5% per annum for an allowed discounted period of only 1.5 years. OIC was dissatisfied with that outcome and sought to set aside the IA's determination.

OIC contended that the mode of dispute resolution under the Scheme was not one of expert determination but that of adjudication. OIC further contended that even if the mode of dispute resolution was expert determination, that determination ought to be set aside because: (a) the IA departed from his instructions by asking the wrong questions; (b) there were manifest errors in the determination that required judicial intervention; and (c) the IA's failure to order the production of certain documents and disclosure of certain information prevented OIC from properly presenting its case. The two areas in which OIC alleged manifest errors had been made were: (a) the IA's ruling that the SPM was not a Constructive Total Loss (“CTL”); and (b) the IA's basis for awarding interest for 4.5 years and then discounting it by 3 years.

Held, allowing the application in part:

(1) The mode of dispute resolution under the Scheme was broadly a process of expert determination with an express caveat that the IA “shall act in good faith and with due care and diligence in the interests of the Scheme Creditors as a whole”. The Scheme provided considerable flexibility and latitude for the IA to apply his own expertise. The IA was not required to issue a reasoned decision and that decision was to be final and binding. The nature of the arrangements between the parties was highly specialised and the IA was chosen for his expertise in that field. The imposition of a duty of due care and diligence did not change the basic character of the expert determination process to be undertaken by the IA: at [32] to [43].

(2) The IA had carried out his mandate in accordance with the Scheme, viz, to make a best estimate of the quantum of OIC's liability based on what the Surat court in India might likely award as the total judgment sum on RIL's claim. The IA had adopted the interest rate of 13.5% per annum for the interest and discount computations when valuing the Scheme claim of OIC, which was the average of the in-trend interest rates of between 12% to 15% per annum reported by OIC's legal counsel in India to be reflective of the typical interest rates used by the Indian courts. The IA also had in mind all the while whether to allow the starting point of the interest payment to commence “from the date of court filing by RIL” in India. The date of the court filing in India could only be relevant if the IA had in mind the valuation of RIL's claim as filed in India. Further, the record of the IA's deliberations showed that he was clearly mindful of the effect and relevance of those proceedings to the valuation of OIC's Scheme claim: at [62]to [65].

(3) The relevant date to value all claims was the valuation date of 19 September 2006. The IA's valuation of the Scheme claim as at the claim cut-off date of 14 May 2007 constituted a material departure from instructions. On a proper interpretation of the Scheme documents, it is beyond peradventure that that was not what the parties to the Scheme had intended and contractually tasked the IA to perform: at [68] to [71].

(4) Generally, the court would not proceed to determine whether the material departure, once established, would affect the outcome or would affect the outcome in a material way as an additional criteria to be satisfied before setting aside the IA's determination on the ground of a material departure from instructions. Unless the departure could truly be characterised as trivial or de minimis when analysed with respect to the instructions, a departure from instructions had to generally be regarded as material, and that end result, even if shown not to be significantly different, had to still be set aside as it was a nullity and was not binding: at [74], [75], [84], and [85].

(5) On the other hand, in determining whether a manifest error had occurred, the materiality and impact of the error in answering the right question in the wrong way on the ultimate outcome would become relevant: at [86].

(6) The IA's ruling that the SPM was not a CTL was not a manifest error. The IA was fully cognisant of the fact that the experts had diametrically opposed views as to whether the repairs could be done in India. It was not the court's role to decide whether, on the evidence, the IA was justified in relying on the estimates provided by two of the experts. Further, the fact that the IA had taken an average of the four repair estimates provided by the two experts could not be regarded as a manifest error since the process of averaging suggested that the IA was ascribing equal probability to each repair estimate: at [92] to [100].

(7) There was no manifest error in the IA's decision to deduct a total of 3 years of pre-award interest and fixing a later starting date for the accrual of interest on 14 November 2002. There was sound basis for the IA to take the view that RIL had contributed to delays and that the Indian court might also exercise its discretion to penalise RIL by reducing the period of interest: at [104] to [114].

(8) There was no manifest error in the IA's decision to apply compound interest instead of simple interest in his interest computation. Section 12 of the Civil Law Act (Cap 43, 1999 Rev Ed) did not expressly prohibit the...

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