In COD v COE,(1) the Singapore High Court opined that it is was not a breach of agreed procedure or natural justice for an arbitrator to seek further submissions from parties if doing so might help them adjudicate fairly and justly.
The applicant, COD, applied to set aside a final award against the respondent, COE, under section 48 of the Arbitration Act.
COE contracted to make and deliver to COD two identical fibre rope cranes (the cranes). COD terminated the contracts, however, for non-compliance with contractual specifications and requirements.
COE commenced arbitration, alleging breach of contract for wrongful refusal to take delivery of the cranes and seeking specific performance and payment of the balance contract price, with damages in the alternative. In this regard, damages were pleaded generally, with no measure identified.
Pertinently, in the witness statement of COE's consultant, it was briefly explained that the quantum of damages would still match the full price of the cranes because there was no second-hand market for them. The purchase price would therefore be a fair and reasonable reflection of COE's loss and damage.
In its interim award, the arbitrator found that there was non-compliance with specifications for weight, but that this was not sufficiently material to justify COD's termination. The arbitrator held that COD's termination was thus wrongful and in breach of the contract. Specific performance, however, was not the appropriate remedy as this would absolve COE from liability to pay damages flowing from the excess weight. Damages were thus the just and appropriate remedy. The arbitrator invited further submissions on the quantum of damages, and particularly on the question of whether there should be a deduction made for excess weight from any damages to be awarded.
In his final award, the arbitrator awarded damages to COE based on the purchase price of the cranes together, minus the scrap value.
COD applied to set aside the final award under:
- sections 48(1)(a)(iii) and (vii) of the Arbitration Act, on the ground that it had been unable to present its case and/or there was a breach of natural justice in connection with the making of the award because in relation to the question of damages, the measure of damages adopted by the arbitrator had not been pleaded or otherwise properly introduced into the proceedings and/or COD was not given the opportunity to put in evidence in relation to it; and
- section 48(1)(a)(v) of the Arbitration Act on the ground that the arbitrator had proceeded contrary to the arbitral procedure agreed by parties – namely, to have only one tranche of hearing without bifurcation of liability and quantum.
No breach of agreed arbitral procedure
The Court found that the arbitrator had not bifurcated the hearing. There had only been one evidentiary hearing and no further evidence had been adduced after that hearing. The arbitrator had only sought further submissions on the question of damages.
So long as an arbitrator behaves in an even-handed fashion, there is generally no bar to an arbitrator asking for further submissions, including after making an interim award and with a view to making a further award. Moreover, the parties had agreed to an arbitral procedure where even after proceedings were declared closed, the tribunal was empowered on its own motion to reopen proceedings – this power extended even to further evidence and not just submissions.
COE did not advance new claim for damages after interim award
While COE may not have specifically pleaded its method for calculating damages, it was sufficiently set out in the consultant's statement.
Even from the plea in COE's statements of claim, COD knew it had to address COE's claim for damages. In this case, the factual basis for the decision, including the uniqueness of the cranes and the difficulty of finding an alternative buyer, were fully in play. COD had ample opportunity to consider whether it wanted to challenge that COE was not able to find buyers for the cranes or to contend for a higher scrap value – but did not do so.
No breach of natural justice
Given that COE's measure of damages was introduced prior to the evidentiary hearing, COD was given a fair and reasonable opportunity to respond to it.
Further, the arbitrator did not fail to consider COD's arguments concerning the availability of a market for the cranes. The question of whether there was no available market for the cranes was put in issue by COE in its primary claim for specific performance. If it was disputed by COD, this should have been canvassed in its submissions made prior to the interim award, but it was not.
The Court made the following observations, which future applicants seeking to set aside an award for breach of natural justice and/or agreed procedure should bear in mind:
- Awards are not meant to be read microscopically, but generously and as a whole.
- An arbitrator is generally entitled to invite further submissions from counsel before making a final decision on an issue, and while so doing may decide other issues while reserving their decision concerning that issue for a further award.
- The Court must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award but that is disguised and presented as a challenge to process failures during the arbitration.
- Formal court pleading rules are not necessarily applicable to arbitrations, except to the extent that parties expressly or impliedly adopt them by virtue of their agreement on arbitral procedure.
- Ultimately, the cause of doing justice depends on the adjudicator having the flexibility to adapt procedure to the needs of the case, while bearing in mind the requirements of natural justice. It would be both ironic and wrong if arbitration, intended originally to have the advantages of relative informality and flexibility, were to become a minefield of procedural obstacles, necessitating arbitrators to armour up and adopt formulaic defensive practices at the expense of doing justice reasonably and efficiently.
The above makes clear that an arbitral tribunal is entitled to take a holistic and pragmatic approach in adjudicating disputes – especially in terms of pleadings and providing notice to the other party of the relevant cases to meet in the arbitration.
For further information on this topic please contact Christian Teo or Esther Yong at Helmsman LLC by telephone (+65 6816 6660) or email ([email protected] or [email protected]). The Helmsman LLC website can be accessed at www.helmsmanlaw.com.
Endnotes