In a recent decision in JVL Agro Industries v Agritrade International Pte Ltd [2016] SGHC 126, the Singapore High Court has set aside an arbitral award for the Tribunal’s failure to grant the plaintiff a fair hearing. The defendant is now appealing against the High Court’s decision.

Background

The parties entered into 29 contracts for sale of palm oil in 2008. When the market price collapsed they negotiated a price-averaging arrangement to permit deferment of delivery and average down the overall unit price. In 2010 the market price rose again but the parties could not agree on prices so as to allow the averaging arrangement to continue for the 5 remaining contracts. The plaintiff then commenced arbitration for breach of delivery obligations under those 5 contracts.

Tribunal’s award

The majority of the Tribunal rejected the claims. In short, they found that the price averaging arrangement – which had not been followed for the 5 contracts in dispute – was a collateral contract. The parol evidence rule did not prevent them from reaching this conclusion because of the recognised exception to the rule for collateral contracts.

The collateral contract argument had been initiated by the Tribunal and only raised briefly, 10 minutes before the end of oral closing. The Tribunal had not directed submissions on it. Nor had it been pleaded or otherwise adopted by the defendant.

The plaintiff applied to the Singapore High Court under section 24 of the International Arbitration Act (Cap 143A) to set aside the award on the grounds that it was unable to present its case on the collateral contract point in breach of natural justice which prejudiced the plaintiff’s rights.

(Two other grounds for challenging the award – that it contained decisions on matters beyond the scope of the submission to arbitration and apparent bias – were ultimately rejected).

Court’s decision

Initially the Court suspended the setting-aside proceedings for 6 months under article 34(4) of the Model Law to allow the Tribunal an opportunity to consider whether it should receive further evidence or submissions on the collateral contract point.

However, in an addendum the Tribunal concluded that it “does not consider it necessary or desirable to receive further evidence or submissions on the three issues.”

The setting-aside proceedings resumed thereafter and the Court set aside the award on the grounds of breach of natural justice:

  1. The majority of the Tribunal exercised “unreasonable initiative” to unilaterally decide that the price-averaging arrangement was a collateral contract;
  2. The decision on that point was determinative; and
  3. The dissenting conclusion that the price-averaging arrangement was not a collateral contract “suggests very strongly” that the plaintiff suffered prejudice.

While the point had been raised by the Tribunal it was clear from the transcript that this was done in a way which was “couched in the language of hypothesis for comment rather than that of thesis for proof or disproof“. The Tribunal never directed the parties to address it, even though it had directed the parties to address it on other points. Arbitrators have inquisitorial powers but the arbitration process is fundamentally adversarial and it was significant that the point was never adopted as part of the defendant’s case formally or informally; indeed the defendant implicitly rejected it. Accordingly the plaintiff could not be faulted for not dealing with it in submissions.

Our comments

International arbitration, by its nature, involves civil and common law customs and traditions, combining civil law’s inquisitorial and common law’s adversarial models.

This case is a good reminder to arbitrators that tribunals should exercise its inquisitorial powers carefully, ensuring both parties can fairly present their cases and respond to the cases against them. Arbitrators should perhaps be less reticent about sharing their thinking on arguments they consider may be important where it is not absolutely clear that the parties have addressed them. In practice the Tribunal’s thinking sometimes evolves relatively late in the hearing or during deliberations afterwards and the risk is that by that point arbitrators might be reluctant to go back to the parties to direct more submissions on reasoning it considers important. This is particularly so in cases like this one with a long procedural history (the arbitration was started in 2011).

Similarly, arbitration counsel must remain alert at hearings to any indications from the Tribunal as to its line of thinking and ensure that there is clarity about whether particular arguments are being pursued.

This decision is unlikely to open the floodgates. The Court noted the ‘fine lines’ involved and that warned that courts must “guard against unmeritorious attempts by disappointed parties to set aside unimpeachable awards“. Arbitrators are afforded some degree of robustness and can safely rely on a chain of reasoning even if it is not formally pleaded and is raised only by implication or flowing from the arguments advanced. In its 94 page decision the Court was also at pains to examine the procedural history in forensic detail, noting the defendant had five separate opportunities to adopt the collateral contract point but these were implicitly rejected. It also emphasised that the point at issue proved central to the reasoning.

These strong facts – coupled with the unusual procedural history in that the matter had already been remitted to the Tribunal – suggest that successful challenges on natural justice grounds will remain rare.