A case study of Mount Eastern Holdings Resources Co., Limited v H&C S Holdings Pte Ltd and another matter[2016] SGHC 01

Introduction

The Singapore High Court’s recent decision in Mount Eastern Holdings Resources Co., Limited v H&C S Holdings Pte Ltd and another matter [2016] SGHC 01 demonstrates that the court takes great care not to overstep its boundaries when faced with applications to set aside arbitral awards. The grounds upon which the court will set aside an arbitral award are limited and are set out in Section 24 of the International Arbitration Act (IAA) and/or Article 34 (2) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law). The court remains careful to distinguish between cases which properly fall within the scope of Section 24 of the IAA read with Article 34 (2) of the Model Law, and cases which have been packaged to attract the application of those provisions, but in reality fall outside their four corners. The case is a reflection of the court’s respect for the finality of arbitral awards.

Brief facts

Pursuant to the terms of a supply contract between Mount Eastern Holdings Resources Co., Limited (Mount Eastern) and H&C S Holdings Pte Ltd (H&C), H&C was obliged to deliver 90,000 wet metric tonnes of iron ore to Mount Eastern. It was undisputed that H&C never effected delivery of the iron ore. Mount Eastern therefore commenced arbitration proceedings against H&C claiming damages for seller’s deficiency (on the basis of non-delivery) under clause 13.1.1 of the supply contract.

The material defence raised by H&C during the arbitration proceedings was that Mount Eastern could only claim damages by alleging anticipatory breach and termination of the contract, which it had not done. Anticipatory breach of contract occurs where a contracting party declares to the other party (by words or conduct) that it no longer intends to fulfil its side of the bargain before the time for performance arrives. Clause 14 of the supply contract sets out the mechanism for termination of the supply contract and also entitles the innocent party to claim a termination amount.

Therefore, the structure of the supply contract seemed to give Mount Eastern several options of remedy upon H&C’s failure to deliver the iron ore. Mount Eastern claimed damages under clause 13.1.1 while H&C’s case was that Mount Eastern had to terminate the contract pursuant to H&C’s anticipatory breach of contract and according to the termination mechanism in Clause 14, before Mount Eastern would be able to claim damages.

The tribunal decided in favour of Mount Eastern, holding that the question of termination was not crucial to Mount Eastern’s claim for damages under Clause 13.1.1 of the supply contract. Mount Eastern therefore commenced ex parte proceedings in the High Court (i.e. as a single party) and successfully obtained leave to enforce the tribunal’s award as a judgment.

The rules of court stipulate a certain time frame within which H&C could apply to set aside the High Court’s order granting leave. H&C applied for an extension of time for its application – however, this was refused by the Assistant Registrar (AR) of the High Court. H&C appealed against the AR’s decision and concurrently commenced proceedings to set aside the tribunal’s award on the grounds of breach of natural justice.

This article is primarily concerned with H&C’s application to set aside the tribunal’s award and focuses on the High Court’s decision as regards H&C’s allegation of a breach of natural justice.

H&C contended that either of the following constituted a breach of natural justice by the tribunal:

  1. the tribunal had granted damages to Mount Eastern even though Mount Eastern had not pleaded anticipatory breach of contract and that the supply contract was terminated under Clause 14 of the supply contract (the Pleadings Issue); or
  2. the tribunal had failed to give H&C a fair hearing.

Mount Eastern’s response was as follows:

  1. On the Pleadings Issue, Mount Eastern’s claim for damages was fully pleaded and based on clause 13.1.1 of the supply contract; its claim did not depend on termination of the supply contract.
  2. The tribunal had given H&C a fair opportunity to be heard and had duly considered H&C’s arguments before concluding that the issue of termination was not crucial to Mount Eastern’s claim for damages.

Findings of the court

Justice Quentin Loh (Loh J) dismissed H&C’s application to set aside the tribunal’s award, finding that there was no breach of natural justice. In doing so, Loh J reaffirmed the principles in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 i.e. that a party challenging an arbitral award as contravening the rules of natural justice must establish:-

  1. which rule of natural justice was breached;
  2. how it was breached;
  3. in what way the breach was connected to the making of the award; and
  4. how the breach prejudiced that party’s rights.

Loh J noted that H&C’s challenge on the basis of breach of natural justice was mounted on the principle that a party must be given adequate notice and an opportunity to be heard.

The pleadings issue

In relation to the Pleadings Issue, Loh J considered H&C’s contention and found it to be without merit. Mount Eastern’s claim in damages relied solely on clause 13.1.1 of the supply contract instead of the termination mechanism under clause 14 of the supply contract. This was adequately pleaded in Mount Eastern’s statement of case.

After reviewing the tribunal’s award, Loh J noted that the tribunal had already considered and disagreed with H&C’s contention that Mount Eastern had not pleaded anticipatory breach and termination, and should not be entitled to damages. The tribunal specifically found that it was not necessary for Mount Eastern to plead anticipatory breach or termination of the supply contract in order to claim for damages under clause 13.1.1 of the supply contract.

The tribunal therefore had not considered or rendered an award on an issue falling outside the scope of pleadings.

Fair opportunity to be heard

Loh J found H&C’s allegations to be wholly unmeritorious in light of the fact that the tribunal’s reasoning showed that it had given due consideration to H&C’s contentions. Further, parties were also given the opportunity to make oral and written submissions in closing.

In arriving at his decision, Loh J took pains to point out that the real reason behind H&C’s dissatisfaction with the award was its view that the tribunal had erred in reaching its conclusion. Loh J noted that this was a question on the merits of the tribunal’s decision and not something the court will be entitled to scrutinise.

In view of the fact that H&C’s application to set aside the tribunal’s award lacked merits, Loh J similarly dismissed H&C’s appeal against the AR’s decision to disallow an extension of time.

H&C has since appealed the High Court’s decision to the Court of Appeal.

Commentary

The High Court’s decision is another recent demonstration of the guiding principles for setting aside arbitral awards. The court will take a judicious review of the application to prevent appeals on the merits from masquerading as applications to set aside awards. A common theme runs through this decision and the earlier decision of AMZ v AXX [2015] SGHC 283, where the High Court had also dismissed a party’s attempts at using the setting aside proceedings as a platform for a second bite of the cherry (You may read the article here.). Parties should therefore avoid liberally bandying about allegations of breach of natural justice as such allegations will be scrutinised with the utmost care at setting aside proceedings. It seems clear that it is only in deserving cases where a breach of natural justice – a serious allegation – has indeed been made out, that the Singapore court will be willing to set aside arbitral awards on that basis.

The author acknowledges and thanks Geraldine Yeong for her contribution in the writing of this article.