Losing parties in arbitrations sometimes attempt to have adverse arbitral awards set aside on the basis of alleged breaches of natural justice and/or public policy. In Singapore, widely considered an arbitration friendly jurisdiction, the courts have consistently set an extremely high threshold for setting aside an arbitral award on those grounds. A recent example is found in Coal & Oil Co LLC v GHCL Ltd1, which has also clarified the meaning of Rule 27.1 of the 2007 SIAC Rules (Rule 27.1).
The parties had entered into an agreement for the supply of coal (the Agreement) which included an arbitration clause. A dispute arose and arbitration proceedings began in May 2009. Oral hearings closed and reply submissions were filed on 17 August 2012. On 14 March 2014, 19 months after the plaintiff had made its reply submissions, the tribunal issued its award (the Award) in favour of the defendant.
The plaintiff made an application to set aside the Award on the following grounds:
- The issuance of the Award was in breach of the parties’ agreed procedure (Art. 34 (2)(a)(iv) of the UNCITRAL Model Law (the Model Law)).
- The Award was in conflict with public policy (Art. 34(2)(b)(ii) of the Model Law).
- There was a breach of natural justice (S. 24(b) International Arbitration Act).
The grounds of the application all rested on the same two factual premises:
- The tribunal’s alleged failure to comply with Rule 27.1.
- That the 19 month delay constituted an “inordinate delay”.
Breach of agreed procedure
Rule 27.1 provides that “the Tribunal shall submit the draft award to the Registrar within 45 days from the date on which the Tribunal declares the proceedings closed”.
The tribunal in this case had not declared the proceedings closed. The key question was whether Rule 27.1 should be construed as imposing a duty on the tribunal to declare the proceedings closed, or as conferring a mere power. The plaintiff’s argument was that Rule 27.1 obliges the tribunal to first declare the proceedings closed before issuing a draft award. Since the tribunal had failed to declare the proceedings closed, the Award must be set aside.
The court found that Rule 27.1 conferred on the tribunal a power and not a duty to declare the proceedings closed, for the following reasons:
- First, such an interpretation would be consistent with the drafting history of the SIAC Rules. Further, the imposition of such a duty might encourage hasty tribunals to close proceedings prematurely, thereby denying parties of adequate opportunity to present their case.
- Second, the declaration of closure is essentially a case management tool. Imposing a duty on the tribunal to declare proceedings closed would therefore “elevate a case-management tool into a condition precedent for the release of an Award”.
- Third, the plaintiff’s construction of Rule 27.1 was “not commercially sensible” given that the drafters of the SIAC Rules were mindful of the need to avoid impeding the arbitration process with pointless formalities.
- Fourth, the construction that Rule 27.1 imposes a duty to close proceedings would render Rule 21.5 superfluous.
In considering whether a breach of an agreed procedure would warrant the setting aside of an award, the court found that the procedural breach complained of must be a material breach and not of an “arid, technical or trifling nature”. The plaintiff’s complaint was “precisely the sort of arid procedural objection that would not occasion the setting aside of an award”. The court’s particular difficulty with the complaint was that the plaintiff had not demonstrated why the failure to declare closure was of such critical importance that non-compliance justified the setting aside of the Award.
Turning to the 19 month delay, the court noted that the 2007 SIAC rules do not provide for any time limits for the release of arbitral awards apart from those in Rule 27.1. Therefore, the assertion that the Award was out of time was untenable as the 45-day time limit under Rule 27.1 did not begin to run until the tribunal declared the proceedings closed - which it did not do.
Conflict with public policy
The plaintiff argued that an act of the tribunal which is contrary to the agreement of the parties and/or the 19 month delay were in direct conflict with public policy. The court disagreed. The alleged procedural breach governs only the conduct of the arbitration and does not have wider public ramifications. In relation to the delay, the court cited the case of Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd2where a 10 year delay in issuing an arbitration award was not a sufficient basis for setting aside the award. It followed that a 19 month delay could not possibly be a sufficient basis. The court added that if it found the delay intolerable, the plaintiff ought to have applied under Art 14 of the Model Law for the mandate of the arbitrator to be terminated (before release of the Award).
Breach of natural justice
The plaintiff argued that a breach of natural justice had occurred as the plaintiff was not given the chance before the Award was issued to submit that it should not be issued, and that the “inordinate” delay of 19 months in issuing the Award was an obvious “procedural irregularity”.
Again, the court rejected the plaintiff’s arguments. It found that the first argument was “seriously misconceived” as there could not have been any breach of Rule 27.1 prior to the release of the Award. Further, contrary to the case cited by the plaintiff, the 2007 SIAC Rules do not contain any right for the parties to appear before the tribunal on the issue of an alleged breach of Rule 27.1.
With regard to the delay, the court found that the delay did not impair the plaintiff’s right to a fair hearing given that the Award was based on the submissions tendered by August 2012.
This case clarifies the interpretation of Rule 27.1, it imposes a power and not a duty on an arbitral tribunal to declare proceedings closed before issuing an award. This clarification, and the court’s comments generally about procedural objections, should discourage those hoping to challenge enforcement of an award on the basis of a breach of Rule 27.1, or non-material procedural breaches.
Further, it underlines the extremely high threshold required before the Singapore courts will set aside an arbitral award on the grounds of a breach of natural justice and/or public policy. It will do so only in egregious cases where the error is “clear on the face of the record”.
Parties can continue to feel confident of the pro-arbitration stance of the courts when arbitrating in Singapore.