CAI v CAJ & CAK

From DMC
Jump to: navigation, search

DMC//2021Arbn/07

Singapore

CAI v CAJ & CAK

Singapore High Court: S Mohan JC: [2021] SGHC 21: 29 January 2021

Cavinder Bull SC, Lin Shumin and Amadeus Huang Zhen instructed by Drew & Napier LLC and Nicholas Jeyaraj s/o Narayanan and Chik Hui Rong Crystal (Nicholas and Tan Partnership LLP) for the plaintiff

Thio Shen Yi SC, Md Noor E Adnaan and Neo Zhi Wei, Eugene (TSMP Law Corporation) for the defendants

CHALLENGE TO ARBITRATION AWARD: EXTENSION OF TIME (EOT) DEFENCE: NATURAL JUSTICE: PROPER ARBITRATION PROCEDURES: MODEL LAW ARTICLE 18: ICC RULES ARTICLE 23(4): DOCTRINE OF APPROBATION AND REPROBATION

Summary

This case concerned an award against the plaintiff which was alleged to be in breach of natural justice (natural justice refers to principles, procedures or treatment felt instinctively to be morally right and fair) arising out of an arbitration with the defendants in relation to a dispute on liability for claims for delay in the mechanical completion of a plant. The plaintiff applied to the High Court to set aside the award on the grounds that it had been denied a reasonable opportunity to be heard in the arbitration, specifically in presenting its case and in responding fully to the Extension of Time (EOT) defence which the defendants had raised belatedly in the arbitration. The High Court allowed the appeal.

Case Note contributed by Sri Azali BB (Human Resource Management & Business Law), Paralegal at Penningtons Manches Cooper LLP Singapore

Background

In the underlying arbitration which gave rise to the present application, CAI was the first claimant. B, who owned a polycrystalline silicon plant (“the Plant”) and who initiated the arbitration, was a subsidiary of CAI and had assigned its rights to claim in the arbitration to CAI. CAI and B were collectively known as the Arbitration Claimants. CAJ was a company which specialized in the construction and engineering of large industrial facilities and the second defendant, CAK, was a wholly owned subsidiary of CAJ. Both defendants were the contractors responsible for constructing the Plant under two connected contracts entered into with B. During construction of the plant, there were excessive vibrations in certain compressors, six in all. Despite acknowledging this issue, CAK had requested B to issue a Notice of Mechanical Completion. B had rejected this request and had instead given certain instructions in an email dated 1 March 2013, which resulted in the defendants carrying out rectification of the compressors piecemeal, that is, two at a time, rather than all six concurrently. This resulted in a delay in the Mechanical Completion. It was an undisputed fact that the defendants never requested an extension from B of the deadline for Mechanical Completion nor complied with the notice provision in GC (General Conditions of the Agreements between the parties) 40.2 (footnote 1)

B commenced the arbitration claiming liquidated damages arising from the delay in Mechanical Completion. The defendants contested the claim. In their written closing submissions, for the first time ever, the defendants raised GC 40 and sought an extension of time for Completion of 71 days (“EOT Defence”). The defendants alleged that, if it had not been for B’s instructions, they would have completed rectification work in around 30 days for all compressors, if done simultaneously. The defendants argued that B’s instructions delayed the completion of the repairs by 71 days and submitted that they would if at all, be liable for only 28 days’ worth of liquidated damages.

In their written closing submissions, the Arbitration Claimants objected to the EOT Defence, on the grounds that it had not been pleaded nor was it the subject of focused document production. The Arbitration Claimants also addressed briefly the requirements and the context under which GC 40 would have applied, pointing out that these had not been satisfied. The Tribunal found in favour of the Arbitration Claimants in respect of liability on the vibration issue. However, the Tribunal considered the EOT defence and granted a 25-day EOT, with the result that the Arbitration Claimants were only entitled to liquidated damages for 74 days (being 99 days less an extension of time of 25 days). This resulted in an approximately SGD20 million reduction in the amount of liquidated damages awarded to the Arbitration Claimants.

The Appeal

The Arbitration Claimants filed the present application to set aside the Tribunal’s decision to grant the defendants a 25-day EOT and increase the period for which liquidated damages were payable by the defendants to 99 days.

Issues of Law

a. Whether there was any breach of natural justice in the making of the final award (the “Award”) such that it ought to be set aside.

b. Whether the Tribunal had acted in excess of its jurisdiction or decided a matter beyond the scope of parties’ submission to arbitration when it allowed and ruled upon the EOT Defence, such that the Award ought to be set aside.

c. Whether the doctrine of approbation and reprobation (footnote 2) was applicable to prevent the Arbitration Claimants from challenging the Tribunal’s decision to allow the 25-day EOT.

Decision of the High Court

The High Court considered the three issues of law in the application and allowed the appeal, granting the Arbitration Claimants’ application to set aside the Tribunal’s decision on the 25-day EOT.

The court found that there was a breach of natural justice in the making of the Award as there had been no fair and reasonable opportunity for the Arbitration Claimants to respond to the EOT Defence, which was an entirely new defence, introduced only at an extremely late stage in the arbitration. By that point of time, the Arbitration Claimants were deprived of an opportunity to adduce factual and expert evidence and respond fully to the defendants’ EOT Defence. For their part, the defendants had argued that the evidence supporting the Tribunal’s decision on the EOT Defence had been on record by way of an estoppel defence which they had raised earlier in the case, which had relied on the exact same facts and evidence as the EOT Defence. It is important to note that the estoppel defence was conceptually and factually different from the EOT Defence under GC 40. The court held that the defendants’ evidence was insufficient to ground the EOT defence and under Article 18 of the Model Law (footnote 3), the Arbitration Claimants were required to have a reasonable opportunity to present their case and respond to the defendants’ EOT defence with solid legal arguments.

On the facts of the case, the High Court found that if the Arbitration Claimants had been given the opportunity to respond to the EOT defence, this could have reasonably made a difference to the Tribunal’s determination. As the Arbitration Claimants did not have a reasonable opportunity to be heard, there had been, therefore, a material prejudice to their rights by reason of a breach of natural justice.

The High Court found that the Tribunal had arrived at the figure of 25 days’ delay without explaining how and on what evidential basis it came to that finding. The defendants submitted that the EOT defence was within the scope of the parties’ submission to arbitration because:

a) it fell within the substance of the dispute in the Terms of Reference;

b) the Tribunal had expressly invited the parties to deal with alternate bases of relief from liquidated damages;

c) the procedure set down in the Terms of Reference permitted the EOT defence to be introduced and considered, and

d) the Arbitration Claimants had failed to raise the scope of submission objection before the Tribunal and should not be allowed to raise it before the court.

The court rejected the defendants’ submissions. It held that the EOT defence was not among the issues that the parties had referred to the Tribunal for determination and the Tribunal had not invited submissions on the EOT defence. Under the ICC Rules, Article 23(4) – see footnote 4 - the Tribunal must first authorize a “new claim” which falls outside the limits of the Terms of Reference. On the facts of the case, the Tribunal had not stated that it was authorising the EOT Defence at any point during the oral hearing or in any correspondence afterwards. The court also found that the Arbitration Claimants had raised the jurisdiction objection before the Tribunal and were accordingly not precluded from raising it before the court.

The court found that the doctrine of approbation and reprobation did not apply to the facts of the case. There was no issue in the Arbitration Claimants accepting payment in relation to the part of the Award that they did not dispute and seeking to challenge the part of the Award that they did. Accordingly, the court granted the Arbitration Claimants’ application to set aside the Tribunal’s decision on the 25-day EOT and held that the number of days of delay for which liquidated damages were payable was 99 days.

Comment

This case highlights the importance of following proper procedures in an Arbitration, especially in determining the scope of issues to be decided by the Tribunal and the proper way of submitting and responding to defence submissions – as outlined by the relevant provisions in the Model Law. Apart from determining its scope of jurisdiction, the Tribunal needs to ensure that the appropriate steps are taken in the course of the arbitration, leading up to the production of the final Award. If not followed accordingly, the Award - be it in whole or in part - may not be valid and may be set aside upon application to the High Court.

Footnotes

1. GC40.1 The Time for Completion specified in Article 5.1 of the Agreement shall be extended if [CAJ or CAK] shall be delayed or impeded in the performance of any of its obligations under the Contract by reason of any of the following: … (e) any act or omission of or any default or breach of the Contract by [B] or any activity, act or omission of any other contractors employed by [B] (excluding [CAJ or CAK]); or

by such period as shall be fair and reasonable in all the circumstances and as shall fairly reflect the delay or impediment sustained by [CAJ or CAK].

40.2 Except where otherwise specifically provided elsewhere in the Contract, [CAJ or CAK] shall submit to [B] a notice of a claim for an extension of the Time for Completion, together with particulars of the event or circumstance justifying such extension as soon as reasonably practicable after the commencement of such event or circumstance.

2. To approbate and reprobate simply means to approve and disapprove something. The law does not permit a person to both approbate and reprobate something at one time – in this case, to accept part of the Award and to reject another – as alleged by the defendants.

3. Model Law, Article 18: Equal Treatment of Parties

“The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”

4. ICC Rules, Article 23(4):

“After the Terms of Reference have been signed or approved by the Court, no party shall make new claims which fall outside the limits of the Terms of Reference unless it has been authorized to do so by the arbitral tribunal, which shall consider the nature of such new claims, the stage of the arbitration and other relevant circumstances.”