Introduction

In AQZ v ARA [2015] SGHC 49, the Singapore High Court declined to set aside an arbitral award. This case provides important and useful guidance on how the Court’s power to hear questions of jurisdiction de novo should be exercised.

Facts

The Plaintiff-Supplier is a mining and commodity trading company incorporated in Singapore and the Defendant-Buyer is the Singapore subsidiary of an Indian trading and shipping conglomerate.

In or around November 2009, the parties discussed the possibility of entering into two separate sale and purchase agreements under each of which the Supplier would sell and the Buyer would buy 50,000 metric tonnes (±10%) of Indonesian non-coking coal. The negotiations were carried out concurrently.

By 7 December 2009, these discussions culminated in a contract for the First Shipment. The dispute between the parties was whether the discussions also resulted in a further contract for a second shipment of the same quantity of coal (“the Second Shipment”). The Buyer’s position was that the Second Shipment was concluded and the Supplier subsequently breached the contract. The Supplier maintained that the contract for the Second Shipment never came into existence.

On 20 March 2013, the Buyer issued a Notice of Arbitration, commencing arbitration proceedings in the Singapore International Arbitration Centre (“SIAC”), against the Supplier. The following day, the Buyer applied to the SIAC for the arbitration to be conducted under the Expedited Procedure pursuant to rule 5 of the SIAC Rules 2010. On 18 April 2013, the Supplier’s solicitors wrote to the SIAC and challenged the existence of an arbitration agreement. The Supplier also objected to the Expedited Procedure.

The SIAC wrote back, allowing the Buyer’s application for the Expedited Procedure. In further exchange of correspondence, the parties agreed to jointly nominate a sole arbitrator, with the Supplier reserving its rights accordingly. Subsequently, the SIAC President appointed the Arbitrator.

The preliminary hearing on jurisdiction and liability was conducted. The Arbitrator issued the Award which found that the tribunal had jurisdiction and that the Supplier was liable to the Buyer for breach of contract.

Thereafter, the Supplier filed an application to have the Award reversed and/or wholly set aside on grounds that the Arbitrator lacked jurisdiction to hear the dispute.

Issues

The three substantive issues arising in this application were as follows:

  1. Whether, in light of the fact that the Arbitrator’s decision on jurisdiction was contained in an award which also deals with the merits of the dispute, the Supplier can apply for relief under s 10(3) of the International Arbitration Act (Cap 143A) (“IAA”) and Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration set out in the First Schedule of the IAA (“Model Law”).
  2. Whether the Arbitrator’s decision on jurisdiction can be impeached under Art 34(2)(a)(i) of the Model Law in that there was no valid arbitration agreement.
  3. Whether the Award can be set aside under Art 34(2)(a)(iv) of the Model Law in that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties.

The Court’s Decision

The applicability of s 10(3) of the IAA and Art 16(3) of the Model Law

The Court considered the travaux preparatories of the Model Law. It concluded that relief under Art 16(3) is not available when a party seeks to set aside a ruling which is predominantly on jurisdiction but also marginally touches on the merits, because that is simply not the purpose that the drafters intended Art 16(3) to serve1. In such situations, the losing party can seek to set aside the award pursuant to s 3(1) of the IAA read with the relevant limbs of Art 34(2) of the Model Law. That would be the obvious and more appropriate remedy. As such, the Court held that Supplier could not rely on s 10(3) of the IAA and/or Art 16(3) of the Model Law to set aside an award that also deals with the merits of the dispute

Whether there was a valid arbitration agreement?

Having considered all the evidence, the Court concluded that the parties had arrived at a verbal agreement on 8 December 2009 for the Second Shipment. From that date onwards both parties acted as if there was a binding contract in place, even though they had not yet signed a formal document. It was not until about mid-January 2010 that the Supplier denied the existence of such a contract.

As such there was a valid and binding contract in respect of the Second Shipment, which other than the shipment period, contained terms that were identical to terms of the First Shipment contract.

The Supplier also tried to argue that even if parties had entered into an oral contract, the arbitration agreement was invalid because it was not in writing as required by s 2(1) of the IAA 2009. On the other hand, the Buyer argued that s 2A of the current version of the IAA governs the issue of the validity of the arbitration agreement. Section 2A was added when the IAA was amended by the 2012 Amendment Act. The definition of “arbitration agreement” contained in s 2(1) of the IAA 2009 was amended to expand the definition of “in writing” to refer to the content of the arbitration agreement being recorded in any form so that if this requirement was met, it would not matter if the contract itself was oral. The Court agreed with the Buyer that the current IAA applies to all arbitral proceedings commenced on or after 1 June 2012.

The Court also held that s 2A(4) of the IAA would be satisfied if one party to the agreement unilaterally records it in writing. It would not matter that the written version of the agreement is neither signed nor confirmed by all the parties involved. In this regard the Court found, inter alia, that the draft Second Shipment also served as a record of the arbitration agreement.

Was the procedure followed by the arbitral tribunal in accordance with the parties’ agreement?

In the alternative to its primary position that there was no valid arbitration agreement, the Supplier argued that the arbitral procedure was not in accordance with the agreement of the parties because it was erroneously conducted under the Expedited Procedure contained in r 5 of the SIAC Rules 2010. According to the Supplier, the 2007 SIAC Rules which did not provide for the Expedited Procedure were the applicable rules. The Supplier also argued that even if the SIAC Rules 2010 was applicable, the composition of the arbitral tribunal comprising of a sole arbitrator was not in accordance with the parties’ agreement since they had expressly agreed to appoint three arbitrators.

The Court applied the presumption that reference to rules of a particular tribunal in an arbitration clause refers to such rules as applicable at the date of commencement of arbitration and not at the date of contract, provided that the rules contain mainly procedural provisions. On the basis of this presumption, the SIAC Rules 2010, which provide for the Expedited Procedure, were the applicable rules. Rule 5 of the SIAC Rules 2010 specifies that under the Expedited Procedure, arbitration before a sole arbitrator is the default position. The Court was of the view that the Expedited Procedure provision can override parties’ agreement for arbitration before three arbitrators even when the contract was entered into before the Expedited Procedure provision came into force.

Even if the Supplier was correct in its submission that the arbitration should not have been conducted before a sole arbitrator, the Supplier had not discharged its burden of explaining the materiality or the seriousness of the breach; nor had it demonstrated that it suffered any prejudice as a result of the arbitral procedure that was adopted.

The Court’s Views on Scope of De Novo Hearing

The Supplier withdrew its submissions on this issue. However given that the parties had made submissions on the scope of de novo hearing in the context of an application to set aside an arbitral award for lack of jurisdiction, and because guidance on this matter will be useful for future cases, the Court gave its brief views on this issue.

Essentially, the Court will undertake a de novo hearing of the arbitral tribunal’s decision on its jurisdiction in an application to set aside an arbitral award on the ground of lack of jurisdiction to hear the dispute. But that does not mean that oral evidence and cross-examination will be allowed in every application which, if allowed, will in effect turn every challenge into a complete rehearing of all that had occurred before the arbitral tribunal. Rather O 69A r 2 of the Rules of Court (Cap 322) (“ROC”) contemplates that generally the matter will be resolved by way of affidavit evidence. It is likely that in most cases the court will have before it material such as the official transcripts and the documents the parties relied on at the arbitration. If that is so, the Court will not in most cases be in any worse a position than the arbitral tribunal to make findings of fact and/or law and reach a conclusion as to the tribunal’s jurisdiction.

Pursuant to O 28 r 4(3) of the ROC, the court may allow oral evidence and/or cross-examination when it considers (a) that there is or may be a dispute as to fact; and (b) that to do so would secure the “just, expeditious and economical” disposal of the application. However the Court should be mindful that parties would have already examined the witnesses fully once before the tribunal. Whilst the view of the arbitrator is of no legal or evidential value to the court, this does not mean that the court cannot assess and rely on the evidence that was given before the tribunal. There must be a reason beyond the existence of factual disputes to allow oral examination and cross-examination.

Commentary

The Court’s comments on its power to hear questions of jurisdiction are instructive. We note that the Court declined to follow the suggestion, in the English decision Azov Shipping Co v Baltic Shipping Co [1999] 1 Lloyd’s Rep 68 (“Azov”), that the existence of substantial disputes of fact as to whether a party has made the relevant arbitration agreement is alone a sufficient reason to allow oral evidence and/or cross-examination. Azov, which is the leading authority on section 67 of the English Arbitration Act 1996 pertaining to jurisdiction, is not without its critics for being too pro-supervision2.

In this regard, the Singapore Court’s approach in AQZ v ARA, strikes a calibrated balance between acceptable judicial oversight of the international arbitral process on one hand, and the interests of party autonomy and an efficient and flexible dispute resolution process on the other.