Singapore: Sanctity Of An Arbitration Award: When Does A Breach Of Natural Justice Tip The Balance?

Overview

The plaintiff applied to set aside three arbitral awards. The first was awarded on the merits which was challenged on the basis that the arbitrator had totally failed to consider or understand the plaintiff's evidence and submissions and therefore, there was a breach of natural justice which prejudiced the plaintiff. The second and third arbitral awards were challenged on the basis that both had been made functus officio – the arbitrator had dealt with the issue of costs in the first arbitral award, but realised he had mistakenly done so and therefore withdrew it in the second arbitral award, and later issued a third arbitral award to deal with costs.

The Singapore High Court refused the plaintiff's application to set aside the first arbitral award but allowed the second and third arbitral awards to be set aside because they were issued functus officio. In doing so, the Singapore High Court once again emphasised that a generous approach must be taken towards reading arbitration awards to avoid undermining the purpose of arbitration as an alternative dispute resolution mechanism.

Relevant facts

The defendant was a developer undertaking a substantial construction project. The plaintiff was the contractor engaged by the defendant to construct the foundations for the same project. Under the contract, the plaintiff was obliged to complete the works within six months, i.e. on or before 23 June 2008, failing which it would be liable to pay the defendant liquidated damages at a rate of S$135,000 per day.

On 27 December 2007, the plaintiff submitted a baseline programme to architects and engineers, and was required to wait for their approval before commencing construction. Although approval was given by email on 6 February 2008, the final stamp of approval was only given on 18 February 2008. The plaintiffs argued they were entitled to a 12-day extension based on this (the First Extension). On 22 December 2008, the architects granted the plaintiff a 75-day extension of time in total. On 1 April 2009, the plaintiff issued a formal notice of dispute to the architects, taking the position that it was entitled to a further 14-day extension based on the additional rock excavations required (the Second Extension).

The defendant later imposed liquidated damages on the plaintiff in the sum of approximately S$3.5 million in view of the late completion of works after taking into account the extension of time granted to the plaintiff. The parties subsequently resorted to arbitration, where the plaintiff sought relief, among others, that it was entitled to an extension of time of a further 26 days (comprising the First Extension and the Second Extension).

The arbitrator dismissed the plaintiff's claim of the First and Second Extensions (the Award). In doing so, the arbitrator also made an order on costs despite both parties having agreed during the oral closing submissions to address the issue of costs separately. On objections being made to the costs order, the arbitrator withdrew his earlier order on costs by issuing a second arbitral award (the Correction Arbitral Award). The arbitrator directed the parties to file and serve written submissions on the costs of the arbitration and following this, issued a further award on costs (the Costs Award). 

Issues before the High Court

The plaintiff applied to set aside the Award on the grounds of a breach of the rules of natural justice in connection with the making of the award which prejudiced the plaintiff's rights. The plaintiff argued that the arbitrator had failed to understand the plaintiff's evidence and submissions on this issue, especially with regard to the Second Extension. This resulted in prejudice suffered by the plaintiff because, if the arbitrator had considered the issue, he would have awarded the plaintiff an additional 21-day extension of time.

The plaintiff's arguments for a dismissal of the Correction Award and the Costs Award were based on the fact that the arbitrator had become functus officio upon giving his verdict on costs and therefore did not have the jurisdiction to issue further decisions in this respect.

The High Court's decision

The High Court allowed the plaintiff's application in respect of the Correction Award and the Costs Award but dismissed the plaintiff's application to set aside the Award. In making its decision, the court reviewed the importance of balancing the integrity of the arbitral process and the rules of natural justice.

The Award

The High Court held that there was no breach of natural justice. In coming to its decision, the court relied on the principle in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 that to challenge an arbitration award as having contravened the rules of natural justice, a party must establish the following:

  1. the rule of natural justice breached;
  2. how it was breached;
  3. causal link between the breach and award; and
  4. prejudice of the party's rights.

The High Court affirmed that courts will generally not readily accede to an application to set aside an award for breach of natural justice. Underpinning this rationale is the policy of minimal curial intervention, which is characterised by a desire to "support, and not to displace, the arbitral process" (Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732).

The High Court also reiterated the importance of recognising that parties have chosen arbitration as their dispute resolution process, and within that process, have chosen their own adjudicators. Just as they accept the benefits of the party autonomy bargained for, so must they accept their consequences (AKN and another v ALC and others and other appeals [2015] 3 SLR 488 (AKN)). Thus, the courts will not interfere in the merits of an award to rescue parties who have made forensic choices that they might regret, or offer them a second chance to canvass the merits of their cases.

The arbitrator's duties to deal with arguments presented and attempt to understand the parties' submissions were also discussed. It was emphasised that a tribunal does not have to deal with every issue raised by the party. In doing so, the High Court considered Prakash J's observations in SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733: Natural justice requires that the parties are heard; it does not require that they be given responses on all submissions made. The court also distinguished between an arbitral tribunal's decision to reject an argument (regardless of the reasons) and its failure to consider that argument. Only the latter amounts to a breach of natural justice; the former is an error of law (which is not ground to set aside the decision). Therefore, the award need only show that the tribunal applied its mind to the critical issues and arguments. Even if the tribunal comes to an inexplicable decision because it comprehended the issue erroneously, it does not necessarily indicate a breach of natural justice. Thus, the court will only infer that a tribunal has failed to consider an important issue if the inference is "clear and virtually inescapable" (AKN).

The High Court disagreed that the arbitrator had failed to consider the issue of the Second Extension despite extensive submissions tendered by the plaintiff.

Essentially, the plaintiff's case was that the arbitrator had totally misunderstood the thrust of its case on the Second Extension. The plaintiff's argument wasthat the total extension of time granted before the commencement of arbitration was 15 days, and the plaintiff was seeking a further 14 days of extension of time, making a total of 29 days. In the Award, the arbitrator rejected the plaintiff's claim on the basis that the plaintiff had already been granted a total of 39 days of extension of time before the arbitration started, and this was more than what he thought the plaintiff was entitled to; therefore he rejected the claim for further extension of time. As can be seen, there was a difference between the plaintiff and the arbitrator on the number of days of extension of time that had been granted before the arbitration started. The arbitrator's position was what had been the common position between the parties until the closing submission stage when the plaintiff changed its position. The arbitrator was entitled to reject the plaintiff's late change in position and had arrived at the decision he made. However, this was not explained  in the Award which in turn gave the impression that he had not even considered the plaintiff's arguments on this point.

As mentioned above concerning the AKN case, the court will only infer that a tribunal has failed to consider an important issue if the inference is "clear and virtually inescapable". Here, although the arbitrator had not set out his reasoning on the issue, the High Court found that the evidence was not incontrovertibly indicative of the arbitrator failing to consider the plaintiff's submissions. There were several plausible reasons to explain the arbitrator's lack of reasoning, some of which were not based on a failure to consider the issue. These included the arbitrator finding that the plaintiff's submissions were so unconvincing that analysis of it was unnecessary. Consequently, the conclusion that there was a failure to consider the issue was not clear and virtually inescapable. The plaintiff therefore failed to persuade the court to set aside the Award on this ground.

Prejudice

Additionally, the High Court found that the plaintiff had not suffered any actual or real injustice if indeed the arbitrator had filed to consider the plaintiff's submission on the Second Extension. The plaintiff must show that the breach of natural justice (ie the failure to consider) could reasonably have made a difference to the arbitrator's reasoning (L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125). Therefore, the crucial matter for the court was whether the material could reasonably have made a difference to the arbitrator, rather than whether it would necessarily have done so.

On the facts, the High Court found that even if the arbitrator had failed to apply his mind to the plaintiff's case on this issue, the correspondence between the plaintiff and the architects were so overwhelmingly against the plaintiff that the arbitrator would not have decided differently had he indeed applied his mind. Therefore, the outcome would not have differed in any manner. The High Court therefore refused to set aside the Award.

The Correction Award and the Costs Award

In respect of the Correction Award and the Costs Award, the High Court held that the arbitrator was prohibited from withdrawing the costs orders in the Award, much less to issue fresh costs orders. This is because upon rendering a comprehensive decision on all matters relating to the costs of arbitration, the arbitrator became functus officio. Thus, he could not revisit the issue of costs as he no longer had the jurisdiction to do so. The plaintiff's application to set aside the Correction Award and the Costs Award was therefore allowed.

Conclusion

The High Court's decision clarifies the generous manner in which courts read an award so as to remedy only meaningful breaches of rules of natural justice which actually cause prejudice. It also further demonstrates the need to recognise the autonomy of the arbitral process by encouraging finality, and that parties who opt for arbitration acknowledge the risk of having a limited right of recourse to the courts. Parties must therefore be aware of the high bar they must overcome in seeking to set aside an arbitration award.

Dentons Rodyk acknowledges and thanks Amanda Loh for her contribution in the writing of this article.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
27 Oct 2017, Seminar, New York, United States

Please join us for a milestone event, our 10th annual CLE Seminar for In-House Counsel.

24 Jan 2018, Seminar, San Francisco, United States

Dentons will host our Fourth Annual Courageous Counsel Leadership Institute in January, centered on the theme "Cultivating Innovation."

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.