Coal and Oil Co v GHCL
DMC/Arbn/15/02
Singapore
Coal & Oil Co LLC v GHCL Ltd
High Court of Singapore; Chong J; [2015] SGHC 65; 20 January 2014
ARBITRATION: SETTING ASIDE: WHETHER THE TRIBUNAL’S FAILURE TO CLOSE THE PROCEEDINGS AS REQUIRED BY THE RULES OF THE SINGAPORE INTERNATIONAL ARBITRATION CENTRE (SIAC) WAS A BREACH OF THE PARTIES’ AGREED PROCEDURE OR A BREACH OF NATURAL JUSTICE: WHETHER THE RELEASE OF AN AWARD 19 MONTHS AFTER CLOSING SUBMISSIONS WAS CONTRARY TO THE PUBLIC POLICY OF SINGAPORE
Gabriel Peter and Chong En Lai (Gabriel Law Corporation) for Coal & Oil
Joseph Lopez, Khushboo Hashu Shahdadpuri and Chong Li Tang (Joseph Lopez LLP) for GHCL
Summary
The Singapore High Court dismissed an application by plaintiff, Coal & Oil, to set aside an arbitral award. In doing so, the Singapore High Court found that the 2007 Rules of the Singapore International Arbitration Centre (the “2007 SIAC Rules”) conferred a mere power, rather than imposed a duty, on the Tribunal to declare proceedings closed. Accordingly, the absence of a declaration that the proceedings were closed did not amount to a breach of natural justice or a breach of the Parties’ agreed procedure. Further, the High Court also held that a 19-month delay was not, without more, a violation of public policy, and was not a sufficient basis to set aside an arbitral award.
Case Note contributed by Ervin Tan, B.A. (First Class) Oxon., based in Singapore.
Background
Coal & Oil agreed to supply coal to GHCL. Coal & Oil entered into a subsequent contract with a third party (the “Third Party Contract”) to obtain some of the coal it required to fulfil its contract with GHCL. However, the third party subsequently re-negotiated the price of coal that Coal & Oil had to pay under the Third Party Contract due to the rising price of coal. Coal & Oil in turn sought to re-negotiate the price payable by GHCL under its contract with the latter. GHCL agreed by way of an addendum to pay an additional sum, but subsequently demanded that Coal & Oil repay that sum on the basis that the addendum was procured by coercion and was therefore illegal.
Coal & Oil refused, and the parties referred their dispute to a sole arbitrator pursuant to an arbitration agreement between them. The arbitration was governed by the 2007 SIAC Rules. After Coal & Oil filed its reply closing submissions on 17 August 2012, the SIAC on 5 July 2013 informed the parties that the Arbitrator was in the process of drafting the award. On 17 January 2014, the SIAC wrote to the parties to inform them that it had received the draft award from the Arbitrator. The Award was issued on 14 March 2014. The parties received the Award on 17 March 2014, exactly 19 months after they made their final reply submissions on 17 August 2012.
In its Award, the Arbitrator found in favour of GHCL and held that the addendum was vitiated by duress and ought to be side aside. The Arbitrator awarded GHCL the sum of SGD1,295,888, with interest. Coal & Oil thereafter applied to set aside the Award.
Judgment
Coal & Oil’s grounds for setting aside
Coal & Oil sought to set aside the Award under the following grounds:
First, under Art 34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (“the Model Law”) as set out in the First Schedule to the International Arbitration Act of Singapore, in that the issuance of the Award was in breach of the parties’ agreed procedure (the “Agreed Procedure Ground”).
Second, under Art 34(2)(b)(ii) of the Model Law in that the Award was in conflict with the public policy of Singapore (the “Public Policy Ground”).
Third, under s 24(b) of the IAA in that there was a breach of natural justice (the “Natural Justice Ground”).
These three grounds in turn rest on rested on the same two factual premises, each of which Coal & Oil asserted was a sufficient basis for invoking any one of the three grounds for setting aside.
The first factual premise was the Tribunal’s purported failure to comply with rule 27.1 of the SIAC Rules 2007 (the “Failure to Close Proceedings”).
The second was the 19-month gap of time between the final submissions tendered by the parties and the date of the release of the Award (the “Lapse of Time”).
The High Court considered each of these facts in turn, and whether or not they could have the legal effect asserted by Coal & Oil.
Whether the Arbitrator’s alleged Failure to Close Proceedings satisfied any of the three grounds for setting aside
Chong J first considered the question of whether the alleged Failure to Close Proceedings was a breach of rule 27.1 of the SIAC Rules 2007. Rule 27.1 provided as follows.
"27.1 Before issuing any award, the Tribunal shall submit it in draft form to the Registrar. Unless the Registrar extends time or the parties agree otherwise, the Tribunal shall submit the draft award to the Registrar within 45 days from the date on which the Tribunal declares the proceedings closed. The Registrar may suggest modifications as to the form of the award and, without affecting the Tribunal’s liberty of decision, may also draw its attention to points of substance. No award shall be issued by the Tribunal until it has been approved by the Registrar as to its form."
It was not in dispute that the Arbitrator had never declared the proceedings closed. The key question was whether the Tribunal was obliged, or merely empowered, to declare the closure of proceedings. Chong J held that rule 27.1 granted the Tribunal a mere power to close the proceedings for the following reasons.
First, Chong J considered the historical development and the drafting history of the SIAC Rules. He had regard to the careful balance the drafters wanted to strike between tribunal autonomy (in the conduct of the arbitration) and institutional oversight (through the supervisory role of the SIAC Registrar), and concluded that there was a “clear trajectory” towards the imposition of stricter timelines for the release of arbitral awards through a decrease in tribunal autonomy and a concomitant increase in the supervisory role of the Registrar and the parties. In so doing, Chong J considered the evolution of the predecessor and successor of rule 27.1 of the SIAC Rules 2007 as well as rule 21.5 of the SIAC Rules 2007 (which dealt specifically with the Tribunal’s closure of proceedings). Rule 25.1 read:
“The Tribunal may declare the hearings closed if it is satisfied that the parties have no further evidence to produce or submissions to make. The Tribunal may on its own motion or upon the application of a party but before any award is made, reopen the hearings
As a result of his analysis, Chong J decided that to interpret the 2007 Rules as imposing a duty to close the hearings would mean it was stricter than its equivalent in the 2010/2013 Rules, which was contrary to the “clear trajectory” that he had discerned.
Further, it would be unsafe to impose a duty on tribunals to issue a declaration of closure of the proceedings without a predicate duty of prior consultation with the parties (which is present in the 2010/2013 SIAC Rules).
Second, Chong J considered the raison d'être of rule 27.1, and found the declaration of closure functions to be a case-management tool.
Accordingly, imposing a duty on the tribunal to declare proceedings closed was inconsistent with the case-management function of a declaration of closure, since a duty of declaration would effectively limit a tribunal’s freedom of action, which is the very opposite of what case-management powers are intended for.
Third, Chong J held that there was no satisfactory explanation as to why the declaration of closure was so important in the arbitration process that such a duty should be imposed; it made no commercial sense to imply such a duty given the lack of express words in rule 27.1 imposing such a duty on the Tribunal.
Further, if there were an obligation, then when did the Tribunal’s obligation to issue a declaration of closure arise - the date on which Coal & Oil filed its final reply submissions? When the SIAC informed the parties that the Tribunal was in the process of drafting the award? The first expected completion date of the award? The fact that there was no clear answer to these questions suggested that there was no obligation to close the proceedings; it would be unworkable within the framework of the SIAC Rules 2007.
Finally, if rule 27.1 were interpreted as containing a duty on the Tribunal to close proceedings, then that would render rule 21.5 superfluous. If a tribunal already had a duty to close proceedings under rule 27.1 (thereby closing hearings in the process), rule 21.5 would be rendered otiose since tribunals would never need to exercise their power to close hearings if they are already duty bound to declare closure of proceedings.
The judge further held that, in any event, the Arbitrator’s failure to issue a declaration of the closure of proceedings was merely a technical, arid breach which was not a material breach of procedure compelling the court to exercise its discretion to set aside the award.
Whether the Lapse of Time in the issuance of the Award satisfied any of the three grounds for setting aside
In dismissing Coal & Oil’s second factual ground for setting aside, Chong J relied on Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd [2000] 1 SLR(R) 510 (“Hong Huat”), where the Singapore Court of Appeal held that an award that was released more than ten years after the hearings had concluded was not to be set aside simply on the ground of that delay itself. The Court of Appeal held that the delay, while “grossly inordinate” and apt to “undermine faith in arbitration”, was not, per se, a sufficient basis for setting aside an award which had already been rendered.
The Court of Appeal observed that the aggrieved party ought to have taken action – prior to the issuance of the award – to remove the arbitrator pursuant to s.18 of Singapore’s International Arbitration Act (Cap 10, 1985 Rev Ed). The current version of s.18 is found in s. 16(1)(b) of the Singapore’s Arbitration Act (Cap 10, 2012 Rev Ed.), which provides as follows.
16(1) A party may request the Court to remove an arbitrator –
(a) …
(b) Who has refused or failed –
(i) To properly conduct the proceedings; or
(ii) To use all reasonable dispatch in conducting the proceedings or making an award.
However, if an aggrieved party had elected not to do anything, it had to live by its decision.
If a ten year gap between the end of the hearings and the release of the award was not a sufficient basis for setting aside an award then, a fortiori, a 19-month delay cannot be a sufficient basis for setting aside the Award.
Further, if the delay were truly intolerable, Coal & Oil ought to have applied under Article 14 of the Model Law for the mandate of the arbitrator to be terminated before the Award was released. Article 14 of the Model Law is similar to s.16 of Singapore’s International Arbitration Act and provides in pertinent part as follows.
Article 14 - Failure or Impossibility to Act
(1) If an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination…
However, Coal & Oil did not do so, leading Chong J to infer that it was “only making the argument now because the Award that was issued was adverse to Coal & Oil and not because of any delay”.
Application of the Judge’s findings above to the three grounds of appeal
In respect of the alleged Failure to Close Proceedings, the judge’s finding that the parties’ chosen rules imposed no such obligation meant that there was no breach of (a) the parties’ agreed procedure, (b) natural justice, or (c) public policy.
In respect of the Lapse of Time, the Court found as follows.
First, the delay did not impair Coal & Oil’s right to a fair hearing; given that the Award was prepared on the basis of the submissions of the parties – all of which had already been tendered by August 2012 – there was no possibility that Coal & Oil had been prejudiced in the preparation of its case.
Second, a 19-month period for an award to be issued did not meet the high threshold necessary for setting aside an award on the basis that the award conflicts with the public policy of Singapore. The Singapore Court of Appeal had, in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597, opined that it was only in exceptional cases where the “upholding of an arbitral award would ‘shock the conscience’…, or is ‘clearly injurious to the public good’ or… ‘wholly offensive to the ordinary reasonable and fully informed member of the public’…, or where it violates the forum’s most basic notion of morality and justice” that a court would set aside an award on grounds of public policy.
Further, Chong J opined that Coal & Oil had conflated the concept of public interest with that of public policy: “[t]he public interest is the wider concept. It embraces everything that is conducive to the public good ranging from the comparatively minor (clean streets) to the vital (a robust criminal justice system). An innumerable number of things could be described as not being in the public interest. However, the concept of “public policy” in the context of the setting aside of an arbitral award, as noted at [61] above, is much narrower. Violations of “public policy” only encompass those acts which are so egregious that elementary notions of morality have been transgressed. While delay in the release of an arbitral award might not necessarily be in the public interest, it cannot, in itself without more, constitute a violation of public policy”.
Comment
This decision highlights the Singapore Courts’ faithfulness to the text of the Model Law and Singapore’s International Arbitration Act when faced with an application to set aside arbitral awards. The Court made the following observations as a prelude to its findings:
"… Finality of the arbitral award is also perceived as a significant advantage though it would be fair to say that the perception is viewed less advantageously, after the fact, by the losing party. Curial intervention is therefore available only in limited circumstances, including instances where there has been a breach of natural justice, where the award is tainted by fraud or corruption, or where the award has been made ultra vires the jurisdiction of the tribunal.
I have observed a clear trend, in recent times, of parties seeking to set aside adverse arbitral awards on the basis of alleged breaches of natural justice. Many have failed. It is perhaps opportune for me to state that 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”
These remarks will not be surprising to those familiar with the Singapore Courts’ approach to applications to set aside arbitral awards. The Court will, generally speaking, take a non-interventionist approach.
More importantly, this decision clarifies the purpose and operation of rule 27.1 of the SIAC Rules 2007 (and its successors). This is especially useful for tribunals who are disposing of proceedings in accordance with the SIAC Rules 2007, 2010 or 2013. In particular, tribunals operating under the SIAC Rules 2010 and 2013 should be minded to ask the parties (after final submissions) whether they have any further submissions to make, and thereafter close the proceedings in accordance with rule 28.1.
In any event, failure to close the proceedings even under the newer SIAC Rules (i.e., 2010 or 2013) is unlikely to be a sufficient basis, ipso facto, to set aside an award.
It is likely that, despite the “clear trajectory” discerned by Chong J in Coal & Oil, a tribunal which did not close the proceedings in accordance with rule 28.1 of the SIAC Rules 2010 or 2013 would not have its award set aside on that basis, since the Court would be likely to find that such a breach was also an “arid” or “technical” breach.
