Singapore: Keeping To The Straight And Narrow: Justice Is Not Served When Tribunals Stray Beyond Their Remit

In JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] SGHC 126, the High Court set aside an international arbitration award because the tribunal had breached natural justice by dismissing JVL's claim on an issue that Agritrade never advanced. Instead, it originated from the tribunal.

Background

Briefly, JVL entered into contracts to purchase palm oil from Agritrade at certain prices. As the market price for palm oil fell, JVL sought to find a way out. Agritrade agreed to defer delivery of the "high-price" contracts and JVL would enter into new contracts at the lower market price. Palm oil delivered by Agritrade to JVL would be apportioned to a "high-price" contract and "market-price" contract, in effect, averaging down the "high-price" contracts.

Under this arrangement, all the palm oil under the "high-price" contracts was eventually delivered.  However, palm oil under five "market-price" contracts remained undelivered when the market price for palm oil rose significantly. For the arrangement to continue, JVL and Agritrade had to enter into fresh contracts but due to the recovery in palm oil prices, the fresh contracts would average up, instead of down, the price of palm oil purchased by JVL. JVL was unwilling to do so.

Therefore, JVL insisted that Agritrade deliver the palm oil under the "market-price" contracts. When Agritrade did not do so, JVL purchased the palm oil from the market and claimed the increased sum it had to pay.

Court's finding

The Court observed that JVL's case was "a most unattractive case". Agritrade had acceded to JVL's requests not to be held to the bad bargains struck by JVL; yet when the tide turned, JVL insisted that Agritrade performed the bad bargains struck by Agritrade. It was "an unattractive outcome which many tribunals would undoubtedly and understandably struggle to countenance."

Perhaps this was the reason why the tribunal was unfortunately tempted into dismissing JVL's claim based on an issue that Agritrade never advanced despite having five separate opportunities to do so.

In doing so, the tribunal strayed beyond its remit, which fundamentally is to decide the issues selected by the parties. It does not matter "how ineptly one party may have formulated its case, no matter how strongly a judge may be tempted to reformulate that party's case for it and no matter how unattractive a judge may find the outcome of resisting that temptation." The party should only have to do battle with his adversary, not with the tribunal.

However, this is not to say that a tribunal errs every time a tribunal addresses a matter not directly raised by a party in its reasoning. The Court makes it clear that if an issue is raised by a party's case unless it is expressly withdrawn, it remains in contention even if the party advances it weakly and a tribunal can adopt it in its reasoning. A tribunal can also rely in its reasoning matters that are raised by reasonable implication from a party's case. Further, a tribunal can adopt in its reasoning matters that it brings to the actual notice of parties and parties have the opportunity to address the issue. Finally, a tribunal can adopt in its reasoning arguments that flow reasonably from that actually made or are related to those made by a party. The Court summed up these situations as those where there is a "nexus" or connection between a tribunal's reasoning and a party's case.

Takeaways

The lesson to be drawn from this case for arbitrators is that if there is any issue that has not been dealt with by a party but the arbitrator feels should be dealt with (especially if it is decisive to the arbitrator), the arbitrator should raise it early so that parties have "the opportunity to adduce evidence or to make arguments on that issue." If the chance to pose it to the parties has passed, for example, the issue only becomes clear after the evidential phase of the hearing, then, the arbitrator should confine himself solely to the issues identified by the parties however unattractive it may seem.

As for the lesson to be drawn for parties, they should be alive to issues that appear to trouble the tribunal and try, as far as possible, to address those issues; unless, of course, the omission of those issues was a deliberate tactical choice. Parties should also note that the courts will "guard against unmeritorious attempts by disappointed parties to set aside unimpeachable awards" and that the earlier caution in Coal & Oil Co LLC v GHCL Ltd [2015] 3 SLR 154 stands:

"an accusation against a tribunal for committing a breach of natural justice is a serious matter. The tribunal is not able to defend itself and the accusation can have an adverse impact on the arbitrator's reputation and standing in the arbitration community. The courts take a serious view of such challenges and that is why those which have succeeded are few and far between and limited only to egregious cases where the error is "clear on the face of the record"

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