BLC & Ors v BLB & Anor [2014] SGCA 40

The Singapore Court of Appeal in BLC & Ors v BLB & Anor considered an appeal against the decision of the High Court in relation to an application to set aside part of an arbitral award on the ground of a breach of natural justice. The Court of Appeal reversed the decision of the High Court, finding that the arbitral tribunal had considered all the relevant issues and there was no breach of natural justice. The court also considered the utility of Articles 33 and 34 of the Model Law in similar circumstances.

The parties

The dispute arose out of an unsuccessful joint venture in Malaysia between the parties, two groups of companies. The appellants commenced arbitration proceedings against the respondents, alleging that the respondents had breached the terms of various agreements, in particular clause 4.1 of a Licence Agreement (the “LA”), by manufacturing goods that were not in accordance with the applicable quality standards. The respondents in turn counterclaimed for various amounts, including monies allegedly owing for goods delivered to the appellants (the “Counterclaim”).

The sole arbitrator directed the parties to submit an agreed framework of issues or their own list of issues if an agreement could not be reached. The parties were unable to agree on a common list of issues and submitted separate lists. In the award, the arbitrator found in favour of the appellants in respect of some of their claims, but dismissed their other claims and all of the respondents’ Counterclaim. The respondents applied to set aside the entire award on three bases, in particular that the arbitrator failed to deal with the Counterclaim because he had extensively adopted the appellants’ list of issues over the respondents’ list, and had thereby breached the rules of natural justice contrary to section 24(b) of the International Arbitration Act, thereby causing a breach of natural justice.

High Court decision

The High Court found that it was common ground that the defective goods which were the subject of the appellant’s claims (which the court termed the “Group A Goods”) were different from the goods that were the subject of the Counterclaim (which the court termed the “Group B Goods”), a distinction the court found that the arbitrator had failed to appreciate. According to the court, this was likely due to the arbitrator extensively adopting the appellant’s list of issues over the respondents’ list. The court concluded that the failure of the arbitrator to deal with a discrete head of counterclaim which, if considered could have made a material difference in the award, constituted a breach of natural justice. On this basis, the court remitted the issue of the respondents’ Counterclaim to a new tribunal to be constituted.

The court noted that this would have been the type of case that Article 33(3) of the UNCITRAL Model Law (“Model Law”), which permits parties to request (within a specified time period) the arbitrator to make an additional award as to claims presented in the proceedings but omitted from the award, would have been intended to provide redress for.

On appeal

The Court of Appeal identified the main issue before it to be whether the High Court was right to find that the arbitrator had not addressed his mind to the Counterclaim and had therefore not dealt with key issues in the dispute.

The respondents’ entire case rested on the premise that it was common ground before the arbitrator that there was no allegation whatsoever in the arbitral proceedings that the Group B Goods were defective. The Court of Appeal disagreed, noting that the pleadings demonstrated that it was not only the appellants’ case but also the respondents’ own case that the issue as to whether the appellants were liable for the Counterclaim was directly linked to the issue of defectiveness in the goods (in general and not only in relation to the Group B Goods).

In considering whether the arbitrator had addressed his mind to the Counterclaim, the Court of Appeal looked at the award as a whole and with regard to the source documents. It was clear to the court that the arbitrator had in fact addressed his mind to the Counterclaim and did render a decision in that respect.

The Court of Appeal came to this conclusion for several reasons. It was determined that all the issues identified by the arbitrator as relating to the claim appeared in both parties’ separate list of issues. There was no need for the arbitrator to expressly identify the legal basis of the Counterclaim if he took the view, as the Court of Appeal determined he had, that the question as to who was responsible for the alleged defects in the goods in general was directly linked to the issue of payment for any goods delivered. That is, that the arbitrator did not make a distinction between Group A Goods and Group B Goods because such a distinction was irrelevant. When the arbitrator found that the respondents were in breach of clause 4.1 of the LA, he had also determined the Counterclaim on the respondents’ own case.

Judgment

Given the findings above, the court found that there was no breach of natural justice and reversed the High Court’s judgment, reinstating the arbitral award.

Reaffirmation of principle of minimum curial intervention

The judgment of the Court of Appeal in this matter is clear in its commitment to minimal curial intervention in arbitration. The court noted that it could only interfere with the arbitral award if there had been a denial of natural justice. The court could not interfere if there was, instead, an error (even a serious error) of law and/or fact on the part of the arbitrator. The substantive merits of the arbitral award are outside the remit of the court.

Article 33 of the Model Law

The High Court had noted that this case would be the type of case that Article 33(3) of the Model Law was intended to provide redress for. Article 33 concerns correction of an arbitral award and the issuance of an additional arbitral award. The Court of Appeal noted that Article 33(3) is a non-mandatory provision in the sense that parties can agree that the article does not apply to their arbitration. Further, the court found that the wording of Article 33(3) meant that the provision can only be invoked if the arbitrator omitted to make a determination on a claim which had been presented toit. It deals with a situation where the tribunal had acted infra petita (i.e. the tribunal failed to adjudicate issue(s) with which it was seized) and did not therefore entirely fulfill its mandate. Considering the finding that the arbitrator had dealt with the issues before him, Article 33(3) would not have been invoked in this situation.

The court went on to caution that in future cases, the applicant’s reasons for failing to resort to Article 33(3) (where applicable) might have an impact upon whether the courts will exercise its discretion to set aside an award under Article 34. As for Article 34(4), which essentially allows the court to remit the matter instead of setting aside an arbitral award, the Court of Appeal noted that the clear language of the provision does not permit remission of an arbitral award to a newly constituted tribunal but requires remission to the original tribunal. Accordingly, the Court of Appeal disagreed with the High Court’s ruling that the court had the power to remit part of the award back to a new tribunal without more.

The comments by the Singapore Court of Appeal in relation to Article 34(4) provide a welcomed clarification to the said provision. It is also efficient from a time and cost perspective for the matter to be remitted to the same tribunal, who would already be familiar with the case. However, there may be an exception to this rule if the arbitrator decided to withdraw from the matter on his own initiative (for example, because he felt that it was improper or impossible for him to continue to sit as the arbitrator). In such a case, the Court of Appeal noted that the parties would need to appoint a substitute arbitrator.