Challenges of arbitral awards in the Singapore courts on the basis of a breach of natural justice are on the rise – while success rates are notoriously low. So what does and doesn’t work in setting aside an arbitral award on this ground?
Challenges of arbitral awards in the Singapore courts on the basis of a breach of natural justice are on the rise. There have been at least seven in the past 18 months (compared with a total of just 19 in the period 1985–2005) and the Chief Justice of Singapore, Sundaresh Menon, made some astute observations on this topic at an arbitration conference in London in July this year.
The success rates for such challenges are notoriously low – so what motivates arbitrating parties to rush to court? In this article, we explore what does and what does not work in setting aside an arbitral award on this ground.
Breach of natural justice
In international arbitration, a breach of natural justice is a ground on which an aggrieved party may rely to set aside an arbitral award in the Singapore courts. Natural justice is an administrative law concept that encapsulates two famous maxims:
- No one shall be a judge in his own cause (nemo iudex in causa sua).
- Each party is to be given the opportunity to be heard (audi alteram partem).
Unlike administrative law cases, in international arbitration the arbitrating parties submit their disputes to an arbitral tribunal for resolution, and agree to accept the finality of an award. This caveat emptor approach, buyer beware, underlies the principles to which the Singapore courts adhere in applying this deceptively simple test for a breach of natural justice under section 24(b) of the International Arbitration Act (IAA).
Test for breach of natural justice
Under section 24(b) of the IAA, a court can set aside an award if there has been a breach of the rules of natural justice in the making of an award which has then prejudiced the rights of the aggrieved party.1
In a 2001 case,2 the Singapore High Court set out the elements that need to be established to set aside an arbitral award for breach of natural justice:
- which rule of natural justice was breached
- how that particular rule of natural justice was breached
- in what way the breach of natural justice connected with the making of the award
- how the breach prejudiced the rights of the party concerned.
This test has been applied and approved in subsequent cases.3
The Singapore courts adopt a test of actual or real prejudice to the aggrieved party in the making of the arbitral award – a lower threshold than the test of ‘substantial prejudice’ in the English Arbitration Act 1996, for example.
The application of the test for breach of natural justice is best enunciated by the Court of Appeal in L W Infrastructure (at ):
‘the real inquiry is whether the breach of natural justice was merely technical and inconsequential or whether as a result of the breach, the arbitrator was denied the benefit of arguments or evidence that had a real as opposed to a fanciful chance of making a difference to his deliberations. Put another way, the issue is whether the material could reasonably have made a difference to the arbitrator, rather than whether it would necessarily have done so.’
Principles in the application of the test
Party autonomy is sacrosanct in international arbitration, but runs the attendant risk that parties, having chosen their arbitrators, accept the finality of an arbitral award (good or bad) with no avenue for appeal.
The Singapore courts respect the choice of parties to resolve their disputes in arbitration and adhere to a policy of minimal court intervention in the challenges of arbitral awards. However, they also attempt to uphold fairness in deciding a challenge on the basis of breach of natural justice.
- There is equality of treatment of the arbitrating parties.
- A successful party should not be deprived of the fruits of their labour – and put to greater expense – because of arid technical challenges brought by a dissatisfied party.
Arguments which failed
Common arguments which failed in support of breach of natural justice challenges include the following:
- The arbitral tribunal misunderstood the case presented and so did not apply its mind to the actual case of the aggrieved party.
- The arbitral tribunal did not mention the arguments raised by the aggrieved party and so must have failed to consider that party’s actual case.
- The arbitral tribunal must have overlooked a part of the aggrieved party’s case because it did not engage with the merits of that part of the party’s case.
Some of these are technical challenges and usually disguise the true nature of the compliant – that the arbitral tribunal made errors of law and/or fact in the arbitral award.
Arguments which succeeded
The following are examples which have succeeded in supporting a challenge of an arbitral award for breach of natural justice:
- The arbitral tribunal failed to consider an important issue that had been pleaded in an arbitration (Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd  SGHC 80).
- The arbitral tribunal failed to give an opportunity to the aggrieved party to address the tribunal on a claim raised at the eleventh hour before rendering the award and was aware that the aggrieved party had not addressed the claim (AKN v ALC).
- The arbitral tribunal failed to give an opportunity to the aggrieved party to address the tribunal on issues to be decided in an additional award to be rendered under article 33 of the Model Law (L W Infrastructure).
The arbitral tribunal’s finding(s) must demonstrate a dramatic departure from the submissions of the parties, e.g.:
- receiving extraneous evidence
- adopting a view wholly at odds with the established evidence adduced by the parties
- arriving at a conclusion which was unequivocally rejected by the parties as being trivial or irrelevant (Soh Beng Tee at ).
It is equally important, if not more so, to show that there is a causal nexus between the breach of natural justice and the arbitral award, and whether the breach prejudiced the aggrieved party’s rights (AKN v ALC at ).
While an aggrieved party may go to the Singapore courts to set aside an arbitral award for breach of natural justice, arbitrating parties must also accept the risk that the arbitral tribunal may well make errors of law and/or fact which are not within the remit of a challenge of an award.
To avoid having to rely on this tenuous ground, parties should exercise great care in their choice of arbitrator. At every point of the arbitration proceedings, parties should ensure that the tribunal is aware of the essential issues that need to be addressed in an arbitral award.