Minimal curial intervention in international arbitration proceedings
Does an arbitral tribunal have jurisdiction to hear a matter if the contract contains an arbitration clause and a separate specific disputes clause for a particular dispute to be referred to an expert determination? What if the arbitral tribunal puts an issue in play not because of the parties’ pleadings but because of the tribunal’s express directions, should the award be set aside? Where there are disagreements with the decision of the arbitral tribunal, can the award be set aside? These are issues which the High Court in DGE v DGF [2024] SGHC 107 considered.
Background
F and E entered into a 2012 Contract where F was designated the “Buyer” and E as the “Seller” with a reference to an “[E] Limited Warranty” (cl 1), an arbitration clause (cl 10) and for the CISG to apply (cl 10). F and E entered into a further 2013 Contract containing a Limited Warranty in Appendix 2. The Limited Warranty did not use the words “Buyer” and “Seller” and instead referred to “E” and “Customer”.
F, the claimant in two consolidated arbitrations claimed E, the respondent in the arbitration on the basis that E supplied solar panels with allegedly defective AAA backsheets.
The Tribunal subsequently found that the 365,000 AAA Modules supplied by E were defective.
Dissatisfied with the outcome of the arbitration, E sought to set aside the award in the High Court by advancing 8 grounds. The first ground was that the Tribunal had no jurisdiction to decide the dispute and the second ground was that the Tribunal should not have considered the Third-Party Warranty issue (i.e. that the Limited Warranty was for end-users of the solar panels and not F). Grounds 3 to 8 which could broadly be categorised as purported failures by the Tribunal were not seriously challenged by the claimant as it was contended to rely on written submissions at the hearing before the High Court.
The High Court’s decision
First ground of challenge
On the first ground of challenge, the Court examined the arbitration clauses in the 2012 Contract and the 2013 Contract as well as cl 8 of the Limited Warranty which referred disputes for expert determination. The Court declined to set aside the award on the first ground as cl 8 could only apply to particular matters covered by its scope. Cl 8 was only limited to claims made under the Limited Warranty and not as E claimed, “any disputes relating to technical issues…arising from the [PV modules]. E’s argument that because the Limited Warranty was incorporated into the Contracts, cl 8 of the Limited Warranty thus somehow applied to all technical claims brought by F in connection with the Contracts therefore failed.
The second ground of challenge
On the second ground of challenge which the claimant placed the most emphasis on, the claimant argued several sub-grounds for setting aside the award which the Court rejected:
(a) The Court decided that E had not explained how it was proceeding on a setting aside under Model Law, Art 34(2)(a)(i) concerning the validity or existence of the parties’ arbitration agreements.
(b) As for the claimant’s reliance on Model Law, Art 34(2)(a)(ii) read with s24(b) of the International Arbitration Act and Art 18 of the Model Law, the Court held that E must in addition to (1) identifying the rule of natural justice breached, also establish (2) how it was breached, (3) how the breach was connected to the making of the award, and (4) how the breach prejudiced its rights.
i. The Tribunal had expressed a preliminary view on the first day of the hearing that the Limited Warranty was a Third-Party Warranty and reminded parties on the sixth day of the hearing to respond to the Tribunal’s initial views. The Court was of the view that given that F had initially claimed based on the Limited Warranty, E could adopt a wait-and-see approach to see if F would drop the Limited Warranty claim in which case E would have the burden of establishing that the Limited Warranty was not a Third-Party Warranty if E wished to invoke the Limited Warranty against F. Alternatively, E could have taken steps to prove that the Limited Warranty applied between E and F to secure E’s positive case. On the final day of the hearing, when F dropped its claim under the Limited Warranty, E could have applied to the Tribunal to adduce further evidence but failed to do so. E had failed to recognise the opportunity which existed. Further, E had and took the fullest opportunity to address the Third-Party Warranty issue substantively in its post-hearing brief and its reply post-hearing brief. There was therefore no breach of the fair hearing rule.
ii. The Court also found that there was no prejudice to E although E claimed that there would have been relevant evidence in the form of documents on the parties’ negotiations on the Limited Warranty, evidence from the parties on whether they considered the Limited Warranty as a Third-Party Warranty and evidence on warranties issued by F to its end-users. However, none of the evidence could reasonably have made a difference to the Tribunal’s decision as (1) E had not suggested that the evidence before the Tribunal was incomplete; (2) the subjective intentions of the parties would not have assisted with the objective principle of contractual interpretation; and (3) F’s interactions with its end-users about the PV modules supplied by E would be conducted after it executes the contracts with E which could not be considered by the Tribunal as the evidence were not reasonably available to the contracting parties, and relating to a clear and obvious context.
(c) For an award to be set aside under the Model Law, Art 34(2)(a)(iii), the requirements are (1) identification of the scope of the submission to the arbitration; and (2) consideration of whether the award involved matters within the scope. The scope is identified concerning five sources of the parties’ pleadings, the agreed list of issues, opening statements, evidence adduced and closing submissions. On the facts, the Third-Party Warranty issue and the Tribunal’s decision that the Limited Warranty was a Third-Party Warranty were within the scope of the parties’ submission to arbitration as (1) the Tribunal raised and directed the parties to address the Third-Party Warranty issue on the first day of the hearing; (2) the Third-Party Warranty issue was directly related to the disputes which the parties had submitted to arbitration; (3) the finalised list of issue expressly included the Third-Party Warranty issue; (4) the parties addressed the Third-Party Warranty issue in their post-hearing briefs and reply post-hearing briefs; (5) F need not plead that the Limited Warranty was a Third-Party Warranty for the Third-Party Warranty issue to fall within the scope of submission; and (6) E had a reasonable opportunity to address the Third-Party Warranty issue.
(d) For an award to be set aside under Model Law, Art 34(2)(a)(iv), the agreed arbitral procedure must not have been adhered to. The requirements are (1) there must be an agreement between the parties on a particular procedure; (2) the tribunal must have failed to adhere to the agreed procedure; (3) the failure must be causally related to the tribunal’s decision in that the decision could reasonably have been different if the agreed procedure had been adhered to; and (4) the party mounting the challenge will be barred from relying on this ground if it failed to object to the proceeding. The Court held that E’s challenge at least failed on the second and third requirements. In this case, Procedural Order No. 1 (“PO1”) para 74 prescribed a specialised procedure that was to apply where new matters were raised at the hearing and operated in precedence to other general provisions. It provided that the Tribunal could determine the terms on which it permits a new matter to be raised, which may or may not include directions for the amendment of pleadings. The provision also allowed the tribunal to permit a party to advance a new matter in exceptional circumstances without application. There was no breach of the arbitral procedure just because F did not set out its position on the Third-Party Warranty issue in F’s Statement of Claim (“SOC”) because of PO1, para 74. On the third requirement, even if there was a procedural breach, it was not material as F did not rely on any evidence to advance its position on the Third-Party Warranty issue and any amendment to the SOC would only have introduced a legal argument which was already put into the post-hearing brief and in the reply post-hearing brief. If E wished to adduce evidence on the Third-Party Warranty Issue, E need not have waited for F to amend its pleadings.
The third broad ground of challenge
In relation to E’s remaining arguments concerning the Tribunal’s failings to others consider and/or address arguments made by E, the Court held amongst others that (1) the Tribunal considered the arguments made by E; and (2) even if the Tribunal had failed to consider certain factors, this would be an error of law that did not warrant curial intervention.
Key takeaways
It is common in construction contracts for certain disputes to be referred to a dispute board. To avoid jurisdictional challenges, it is key to closely examine the ambit of the dispute board clause in conjunction with an arbitration clause to determine if the clause referring matters to a dispute board is a pre-condition, carve-out or to operate in parallel with an arbitration clause which is usually broadly drafted.
Often, in construction disputes, a myriad of issues of mixed facts and law would be submitted to an arbitral tribunal for consideration and it is not always easy to decipher if an issue is live before the arbitral tribunal. Where the arbitral tribunal appears to have raised a new issue not previously advanced by either party which changes the complexion of the case, it is prudent for parties to immediately determine if an urgent application needs to be made to the arbitral tribunal to amend the case and/or to introduce further factual evidence and legal arguments.
Finally, the case has reaffirmed Singapore’s pro-arbitration stance and the long-standing principle of minimal curial intervention in international arbitration proceedings even where a party has perceived an arbitral award to be less than satisfactory.
For further information contact Danna ER, Partner, Eldan Law
