International construction arbitration: a commercial and investment treaty perspective
Out-Law Analysis | 02 Mar 2021 | 10:50 am | 7 min. read
Recent rulings by the Singapore courts provide guidance on how commercial arbitration awards are set aside due to breaches of natural justice.
The judgments highlight how arguments concerning the opportunity of parties to have their arguments heard in arbitration tie in to breach of natural justice claims. Two issues in this regard were pertinent in the two cases that the courts considered.
Firstly, in the case of CBS v CBP, the Court of Appeal dealt with the issue of whether a tribunal was procedurally entitled to "gate" witnesses. That is, whether the arbitrator had the power to decide to convene a hearing only for oral submissions where a party had requested for a hearing to submit oral evidence.
Secondly, in the case of CAI v CAJ, the High Court dealt with the issues of the tribunal having first, denied a party a right to respond to the counterparty's new arguments, introduced only at the very end of the arbitral proceedings, and second, relied on its own experience in reaching its decision without offering parties an opportunity to provide input.
The case of CBS v CBP involved a Singapore-incorporated bank and an India-incorporated company which purchased coal from a seller.
Disputes arose over the agreed coal price, and the Indian company (the buyer) refused to pay the seller for a coal shipment. The seller had assigned its trade debts to the Singapore bank. Subsequently, the bank commenced arbitration under the 2015 Rules of the Singapore Chamber of Maritime Arbitration (SCMA Rules) against the buyer for the outstanding payment.
Important among the disputed issues was what transpired at a December 2015 meeting between the buyer and the seller. The buyer requested a hearing for witnesses to give evidence on the discussions at this meeting. The bank disagreed, contending that the dispute turned on contractual interpretation which did not require oral evidence of witnesses.
The arbitrator directed the buyer to submit its proposed witness statements so that he could decide if they warranted a hearing. The buyer refused, insisting on calling witnesses without such a condition. The arbitrator then convened a hearing for oral submissions only – i.e. without any witnesses. The buyer withdrew from further participation in the arbitration.
After the arbitrator found in favour of the bank in its final award, the buyer applied to the Singapore High Court to set aside the award for breach of natural justice. The High Court ruled in the buyer's favour, and held that the company had not been given a "full opportunity" to present its case. Dissatisfied, the bank appealed. The Court of Appeal has now upheld the High Court decision, for two main reasons.
First, the SCMA Rules properly construed did not give a tribunal the power to choose what type of hearing to hold in the absence of parties' agreement. Clause 28.1 stated: "Unless the parties have agreed on a documents-only arbitration or that no hearing should be held, the Tribunal shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submissions".
This permitted only two situations where a hearing need not be held: first, where parties have agreed to a documents-only arbitration without witness evidence; and second, where parties agree that no hearing would be held at all.
The Court of Appeal determined that, as a result of this, the arbitrator was obliged to hold a hearing to receive oral evidence from witnesses where it was requested by a party and that the arbitrator had no power to decide to convene a hearing only for oral submissions instead.
Second, the tribunal's broad case management powers accorded under the SCMA Rules or generally are still subject to fundamental rules of natural justice. So, while tribunals have the power to limit the oral examination of witnesses, such as where witness are repetitive, or of little or no relevance to the issues presented – which the courts may "accord a margin of deference to" based on the specific facts of the case – it was beyond "the range of what a reasonable and fair-minded tribunal in those circumstances might have done" to have denied the entirety of witness evidence, or imposed a condition on the buyer to show that its evidence had "substantive value" before deciding whether to allow an evidential hearing. This therefore constituted a breach of natural justice, the court held.
The second case was that of CAI v CAJ where the High Court set aside part of an arbitral award by a three-member tribunal on the basis that CAI had been denied the opportunity to respond to a defence.
CAI had engaged CAJ to construct a polycrystalline silicon plant. However, CAI later commenced arbitration seeking liquidated damages, after the mechanical completion of the project was delayed 144 days which CAI blamed CAJ for.
In their written closing submissions, CAJ raised a new argument under the contract, which permitted a time extension for mechanical completion (the extension of time (EOT) defence). The tribunal accepted the EOT defence, despite CAI's objection, and extended time for completion by 25 days.
CAI applied to set aside the part of the award regarding the 25-day extension, for breach of natural justice. It argued in this respect that it did not have a fair and reasonable opportunity to respond to the EOT defence, and that the tribunal relied on its own experience, and not the submitted evidence, in reaching its decision without offering parties an opportunity to provide input.
The High Court ruled in favour of CAI. The court reached its verdict after considering a number of salient points.
First, the EOT defence was completely new, having been introduced only at the very end of the arbitral proceedings. As such, it held that CAI did not have the opportunity to adduce the relevant evidence and present submissions necessary to properly deal with it.
Second, the fact that CAJ had, in its EOT defence, used the same evidence already adduced in the proceedings for another defence did not assist them. This was because the real question was whether CAI, and not CAJ, had a reasonable opportunity to present its case on the EOT defence. The EOT defence was conceptually and factually distinct from the other defence, and each needed to be addressed differently.
Third, an opportunity to respond to the counterparty's legal submissions on a newly raised defence cannot constitute a reasonable opportunity to present one's case - if the supporting evidence had not been adduced during the arbitral proceedings. That was the case here. CAI were entitled to be given a reasonable opportunity to respond, not perfunctorily, but in a fulsome manner to the EOT defence.
Fourth, the court considered that CAI's conduct did not amount to "hedging" – i.e. a failure to object "forcefully and unequivocally rather than to hedge their bets by objecting half-heartedly". On the facts, it held that CAI had objected clearly and unequivocally to the EOT defence in its written closing submissions. CAI was not required to "proactively [seek] leave to adduce further evidence, test the evidence adduced by the defendants or tender further legal submissions", it said. This would, as the judge described, be "putting the cart before the horse", as the initial burden of seeking leave to introduce this new defence sat with CAJ. Only thereafter would CAI bear the burden of objecting to the EOT defence and/or to seek further relevant directions from the tribunal.
The judge went on to consider CAJ's further related argument that CAI could have raised further objections after their closing submissions, there being "ample time" to do so. While the judge acknowledged there was in fact time, he held that CAI were not required to do so. This was because it considered that CAI's duty to give fair intimation to the tribunal and/or to seek to suspend the arbitral proceedings had not yet arisen at that juncture. Such a duty only arises after the complaining party knew that the tribunal has taken a step which is considered a breach of procedural fairness.
Because CAI had already objected in their closing submissions, the "ball was in the tribunal's court to rule upon [CAI's] objection to the EOT defence", the court said. As a result, the breach of natural justice only occurred when the final award had been delivered, not when the proceedings were declared closed or at any point prior, as no one knew if the EOT defence had been allowed or not.
Fifth, a tribunal seeking to rely on its own experience in making a decision, in the absence of submitted evidence, must provide parties an opportunity to submit on its thinking. On the facts, there "was no elucidation in the award of what [the tribunal's] experience entailed or what it encompassed, and the parties were not given any opportunity to address the tribunal", the court said.
Although the principles establishing a breach of natural justice are settled, how these principles are applied in specific factual circumstances are likely to differ. The court will consider "the range of what a reasonable and fair-minded tribunal in those circumstances might have done".
In the case of CAI v CAJ for instance, "reasonable and fair-minded" conduct meant that a tribunal must provide parties the opportunity to submit on new arguments, no matter how late in the proceedings. In the case of CBS v CBP, that would entail avoiding witness "gating" in the absence of parties' agreement. The common theme underpinning these different contexts is ensuring that parties are given the full opportunity to be heard.
In addition, both rulings – despite their outcomes – do not dilute the Singapore courts' general deference to tribunals' discretion on procedural matters. It remains unlikely that the courts would intervene simply because things may have been differently done. However, a tribunal's discretion is not unfettered and will be closely scrutinised when it impacts a party's full opportunity to be heard.
Lastly, it is clear that the idea of "hedging" remains pertinent in arguments on natural justice. It is therefore imperative that parties intimate their objections to the tribunal timeously and unequivocally. Though the question of what constitutes such equivocality or whether further objections could have been made will turn on each case's unique facts, parties should consider making the necessary objections at every defined stage in the proceedings or sensible opportunity so as to address the risk that the objections were made too late or not sufficiently clearly.
Co-written by Charlotte Wang of Pinsent Masons.
International construction arbitration: a commercial and investment treaty perspective