In brief

An arbitral award may be set aside by the Singapore Court for breach of natural justice, where the tribunal allows the introduction of an unpleaded issue for determination at a late stage in the proceedings without the parties’ agreement. 

In Convexity Ltd v. Phoenixfin Pte Ltd. and others [2021] SGHC 88, the tribunal erroneously found that parties had agreed on the introduction of an unpleaded issue for determination in an arbitration, although a party had clearly articulated its objection to the late introduction of the issue. While the tribunal gave the objecting party an opportunity to adduce further evidence by recalling its witnesses, the objecting party maintained its objection and did not adduce any further evidence. The court found that the objecting party had not been given a reasonable opportunity to keep that issue out of the arbitration, and the award was set aside.

Contents

  1. Key takeaways
  2. Briefbackground
  3. The Singapore Courts findings
    1. Penalty Issue was a mixed question of fact and law
    2. Breach of natural justice
    3. Public policy
    4. Outside of the scope of arbitration
  4. Concluding remarks

Key takeaways

Parties to an arbitration should take caution before seeking to introduce new issues at a late stage of arbitral proceedings, to avoid the risk that the arbitral award may be set aside for a breach of natural justice or for being in excess of the scope of the tribunal’s jurisdiction. Some key considerations for parties to take into account would include whether the opposing party has had an opportunity to adduce all the necessary evidence in relation to the new issue, and whether the issue concerns a mixed question of fact and law.

Conversely, if an opposing party raises an unpleaded issue at a late stage of arbitral proceedings, a party must take care to clearly articulate its objection to the same and consider the effect of adducing further evidence in the arbitration in relation to such unpleaded issue.

Brief background

  • The claimant brought arbitral proceedings to claim fees payable under a services agreement from the first respondent.
  • Less than a month before the evidentiary hearing, the first respondent sought to call an expert witness to give evidence on whether certain clauses in the services agreement would be penalty clauses under English law (“Penalty Issue”). The claimant’s counsel responded that any issues involving English law could be addressed through submissions. The tribunal agreed with the claimant that the expert witness could be co-counsel and make submissions on English law.
  • Nine days before the evidentiary hearing, the first respondent applied to amend its defense and counterclaim to plead the Penalty Issue. The claimant objected to the amendment application because it was made late in the day, and would cause irreparable prejudice to the claimant if allowed. During the evidentiary hearing, the tribunal decided not to allow the first respondent’s proposed amendments.
  • The parties submitted their written closing submissions and the tribunal scheduled an oral hearing for reply submissions. At the hearing of the oral reply submissions on 17 June 2020, the tribunal asked that the claimant’s counsel address the Penalty Issue.
  • Subsequently, the tribunal issued its final award, which dismissed the claimant’s claims on the sole basis of the Penalty Issue. The tribunal held that the parties had agreed that the Penalty Issue would be an issue in the arbitration, irrespective of the pleadings. The claimant applied to set aside the award.

The Singapore Court’s findings

Penalty Issue was a mixed question of fact and law

  • The General Division of the Singapore High Court found that the Penalty Issue was a mixed question of fact and law, and therefore needed to be pleaded. This was also recognized by the first respondent, who had applied to amend its defense and counterclaim, although its application was rejected by the tribunal.

Breach of natural justice

  • The Singapore Court found that the introduction of the Penalty Issue was a breach of natural justice. The tribunal erroneously thought that the claimant had agreed to the late introduction of the Penalty Issue into the arbitration and failed to consider the claimant’s clearly articulated objections to the same. The tribunal did not bring its mind to bear on an important aspect of the dispute before it.
  • The Singapore Court also found that the breach of natural justice caused the claimant real prejudice, as the introduction of the Penalty Issue would reasonably have made a difference to the outcome.
  • The first respondent also sought to argue that the claimant had been given an opportunity to recall its witnesses for questioning before the final award was issued. This was held to be "cold comfort": the relevant prejudice was that the claimant lost the reasonable opportunity to keep the Penalty Issue out of the arbitration because the tribunal failed to consider the claimant’s objection.
  • Furthermore, the claimant did not put in further evidence, recall its witnesses, or waive its rights in relation to the tribunal’s breach of natural justice. Instead, the claimant reiterated its objections to the Penalty Issue. Importantly, the Singapore Court observed that, had the claimant put in further evidence or recalled its witnesses, it may have waived its rights in relation to the tribunal’s breach of natural justice.

Public policy

  • In accordance with the case of PT Prima International Development v. Kempinski Hotels SA and other appeals [2012] 4 SLR 98, the Singapore Court acknowledged that a tribunal can take cognizance of public policy as a question of law, if it becomes aware of the issue in the course of hearing the arbitral proceedings, and has all the evidence it needs to make its decision. This did not apply in the present case as the Penalty Issue was a mixed question of fact and law, and the claimant had not adduced further evidence on the Penalty Issue.
  • Furthermore, the first respondent’s argument that the tribunal had the power to introduce the Penalty Issue of its own initiative was rejected, because, on the facts, the tribunal had regarded the Penalty Issue as having been introduced by the agreement of the parties and not of its own initiative.

Outside of the scope of arbitration

  • For the above reasons, the award was held to be outside the scope of the arbitration as the Penalty Issue was never properly introduced into the arbitration.
  • The court also observed that the proceedings had been conducted in a manner that was contrary to the parties’ agreed procedure. The parties had expected for oral reply submissions to be the last stage of proceedings before the issuance of the award. Instead, on that date, the tribunal informed parties that the Penalty Issue was an issue in the arbitration, and required the claimant to recall its witnesses for questioning on that issue.

Concluding remarks

The outcome of arbitrations are often of great significance to commercial parties. Parties should take care to ensure that material issues are raised and pleaded at an early stage of proceedings, to mitigate the risk of any successful award being set aside by the tribunal.