Pleading with care: the limits of a tribunal’s jurisdiction

A recent decision of the Singapore High Court in CIZ v CJA¹ is a useful reminder that the primary instruments for demarcating matters in dispute in an arbitration are the parties’ own written submissions. Tribunals must decide cases that parties put before them, not cases that parties could (or should) have made.

Parties’ dispute

CIZ was respondent in an SIAC arbitration commenced by CJA under a Consultancy Agreement (Agreement) with Z Co. Z Co was to provide information and advice to CIZ on opportunities (referred to as Opportunities in the case) to acquire interests in oil and gas fields, in return for which CIZ would pay Z Co a “Success Fee” if stipulated conditions were met. The Agreement expired on 31 December 2012. Z Co asked for an extension of the Agreement on 28 February 2013, as well as assignment of the Agreement to CJA (Z Co’s sister company). A Deed of Novation was entered into on 21 October 2013, and the Agreement was extended to 31 December 2013.

In 2012, Z Co presented CIZ with an opportunity to acquire shares in X Co (the X Opportunity). X Co owned a subsidiary that held interests in oil fields in Africa. The deal failed to complete due to unresolved tax and production sharing issues, and CIZ abandoned the X Opportunity in mid-2014. By late 2015, however, the X Opportunity had re-emerged once more. This time, the tax and production sharing issues were resolved. CIZ thus acquired interests in X Co in August 2016 and February 2017 without involving CJA.

CJA commenced arbitration against CIZ in April 2018 claiming entitlement to the Success Fee in connection with the X Co transaction. In its written submissions, CJA accepted the Agreement had expired but alleged the existence of: (i) an oral contract with CIZ to extend the term of the Agreement; (ii) alternatively, an implied contract between CIZ and CJA on the same terms as the Agreement; and (iii) in any event, contended that CIZ was estopped from asserting that the Agreement was no longer valid. CIZ denied all claims.

The tribunal rejected CJA’s claims as to an oral contract or an implied contract, and did not address CJA’s estoppel argument at all. Nevertheless, it found the Success Fee was payable to CJA “as long as a clear link to the successful completion of the [X Opportunity]” could be made out. It did not matter if a transaction following CJA’s presentation of an “Opportunity” to CIZ completed before or after expiry of the Agreement. Neither of these grounds for the tribunal’s decision formed part CJA’s arguments made in the arbitration.

CIZ’s annulment application

CIZ applied to set aside the award under Section 24(b) of the International Arbitration Act (IAA) and Article 34(2)(a)(iii) of the Model Law (which forms part of the IAA), on the basis that the tribunal had exceeded its jurisdiction. Section 24(b) of the IAA provides that the High Court may set aside an award if “a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced”. Article 34(2)(a)(iii) of the Model Law provides that an award may be set aside if it, “…deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not submitted, only that party of the award which contains decisions on matters not submitted to arbitration may be set aside”.

In surveying relevant case law, Chua Lee Ming J in the High Court made the following observations. Article 34(2)(a)(iii) applies where a tribunal improperly decides matters not submitted to it, or fails to decide matters that have been submitted to it.² An arbitral tribunal has no jurisdiction to decide an issue not referred to it for determination.³ The parties’ pleadings have an important role in determining the scope of the matters submitted to the tribunal.⁴ That being said, the tribunal should not construe the proceedings excessively narrowly.⁵ In particular, “an issue which surfaces in the course of the arbitration and is known to all the parties would be considered to have been submitted to the arbitral tribunal, even if it is not part of any memorandum of issues or pleadings” – provided it concerns an ancillary matter, such as a change in law or a new fact that emerges in the case.⁶ But an arbitral tribunal may not depart from the pleadings to the extent of making its decision based on a ground that has not been pleaded at all, and which cannot be said to be ancillary.⁷ Accordingly, there must be some reference in the pleadings to the claim, defence, or issue that the tribunal eventually decided upon.⁸ Finally, if the tribunal has exceeded its jurisdiction, there is no requirement for the applicant to go further and show that it has suffered “real or actual prejudice”.⁹

Applying the law to the facts, the High Court noted that the tribunal’s interpretation of provisions of the Agreement “were inconsistent with the positions taken by the defendant on those Articles”,¹⁰that “[i]t was never the defendant’s case in the arbitration proceedings that it had a valid claim if there was no subsisting agreement after the Amended Agreement expired”,¹¹ and that “[n]owhere in the defendant’s Notice of Arbitration, pleadings or submissions in the arbitration proceedings did the defendant claim it was entitled to the Success Fee on the [grounds identified by the tribunal]”.¹²The grounds on which the tribunal found in favour of CJA “were entirely different from the defendant’s case in the arbitration proceedings”.¹³It was therefore “not possible to describe the tribunal’s findings as being ancillary to the matter submitted to arbitration”.¹⁴

For these reasons, the High Court set aside the award relating to the X Opportunity under Article 34(2)(a)(iii) of the Model Law on the basis that the tribunal had exceeded its jurisdiction. Having made that determination, the High Court did not consider it necessary to address Section 24(b) of the IAA.

Moral of the story? Frame your case carefully, as tribunals may not save parties from themselves

One striking feature of the arbitration in CIZ v CJA is that the tribunal specifically asked the parties to consider what the position would be if CJA presented an “Opportunity” to CIZ that was not completed before the Agreement expired. This may indicate the tribunal had spotted a potential weakness in CJA’s defence as presented. Despite this, CJA decided not to modify its defence. As the High Court put it, “[t]he Tribunal should have respected the decision as to how to frame its case”.¹⁵ Prima facie at least, this approach is consistent with established doctrine. Arbitration is a creature of parties’ consent. The primary role of arbitral tribunals is to determine the cases that parties put before them. While a tribunal should not consider itself strictly corralled by the parties’ submissions, and may take into account – or even decide cases upon – matters ancillary to the issues submitted for arbitration, a tribunal risks exceeding its jurisdiction if it makes an award for reasons unrelated to the parties’ submissions.

This case is currently on appeal to the Singapore Court of Appeal.