An error of law or fact in the award does not amount to a breach of natural justice

Decision of the Singapore International Commercial Court (delivered by Chua Lee Ming J):

27 November 2023

Case Summary - CZT v CZU [2023] SGHC(I) 22

Originating Summons No 1 of 2023

Outcome: The Singapore International Commercial Court dismisses the plaintiff’s application to set aside an arbitral award issued by an arbitral tribunal in arbitration proceedings seated in Singapore and conducted in accordance with the ICC Rules 2017.

Introduction

1?In arbitration proceedings commenced by the defendant against the plaintiff (the “Arbitration”), the arbitral tribunal, by a majority (the “Majority”), issued an award against the plaintiff (the “Final Award”).

2?The plaintiff has applied to set aside the Final Award pursuant to:

a.?section 24(b) of the International Arbitration Act 1994 (2020 Rev Ed) (“IAA”) and/or Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) (ie, the Majority acted in breach of natural justice);

b.?further or in the alternative, Art 34(2)(a)(ii) of the Model Law (ie, the Majority exceeded the terms or scope of the submission to arbitration);

c.?further or in the alternative, Art 34(2)(a)(iv) of the Model Law (ie, the arbitral procedure was not in accordance with the agreement of the parties); and

d.?further or in the alternative, Art 34(2)(b)(ii) of the Model Law (ie, the award is in conflict with the public policy of Singapore).

In its submissions before the court, the plaintiff did not rely on (d) above.

3?The plaintiff’s case before the court is as follows:

a.?The Majority failed to consider critical arguments made by the plaintiff in the Arbitration.

b.?The Majority reached conclusions in the Final Award based on facts or matters that were not argued by the parties during the Arbitration and wrongly attributed arguments and positions to the parties that were not supported by the Arbitration record.

c.?There is a reasonable suspicion of bias on the part of the Majority as apparent from (i) the Award and as identified by the dissent (the “Dissent”), and (ii) the separate ex parte communications between one of the arbitrators in the Majority and counsel for the parties in the Arbitration.

The court’s decision

4?Pursuant to s?24(b) of the IAA, the court may set aside an arbitral award if there has been a breach of natural justice. A party challenging an arbitration award as having contravened the rules of natural justice must establish: (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights: at [27]–[28].

5?The failure by an arbitral tribunal to address an issue submitted to it for decision can constitute a breach of the fair hearing rule: at [31].

6?A breach of the fair hearing rule can also arise from the tribunal’s chain of reasoning. To comply with the fair hearing rule, the tribunal’s chain of reasoning must be: (a) one which the parties had reasonable notice that the tribunal could adopt; and (b) one which has a sufficient nexus to the parties’ arguments. A party has reasonable notice of a particular chain of reasoning (and of the issues forming the links in that chain) if: (i) it arose from the parties’ pleadings; (ii) it arose by reasonable implication from their pleadings; (iii) it is unpleaded but arose in some other way in the arbitration and was reasonably brought to the party’s actual notice; or (iv) it flows reasonably from the arguments actually advanced by either party or is related to those arguments: at [32].

7?An arbitral tribunal has to ensure that the essential issues are dealt with; it need not deal with each point made by a party and in determining the essential issue, the tribunal should not have to deal with every argument canvassed under each of the essential issues: at [35].

8?In the present case, the fact that the Majority did not deal specifically with an argument raised is insufficient reason to set aside the Final Award. The Majority had dealt with the essential issues in the Arbitration, and it did not have to deal with every point made by the plaintiff in support of its case: at [42] and [53]. Even if there was a breach of the fair hearing rule, there is no causal nexus between the breach and the Final Award, and the breach did not prejudice the plaintiff’s rights: at [43] and [54].

9?The court disagrees that the Majority’s finding that one of the issues was “uncontentious” meant that the Majority had ignored the plaintiff’s argument on that issue. The word “uncontentious” does not mean “undisputed” and the Majority was simply expressing its view that its finding should not give rise to argument: at [48]–[50].

10?Where an arbitral tribunal makes a decision based on matters that were not argued by the parties or based on arguments and positions that were wrongly attributed to the parties, the tribunal would have breached natural justice since the parties did not have the opportunity to be heard on these matters: at [56].

11?Pursuant to Art?34(2)(a)(iii) of the Model Law, the court may set aside an arbitral award if the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration. Article 34(2)(a)(iii) concerns the issue that has been determined by a tribunal, which is different from the arguments of the parties on the issue. Thus, where an issue that has been determined by a tribunal is within the scope of submission to arbitration, a complaint that the tribunal’s chain of reasoning involved arguments that were not raised by the parties would be more appropriately framed as a complaint of breach of natural justice: at [58]–[60].

12?A two-stage inquiry is followed in assessing whether an arbitral award should be set aside under Art 34(2)(a)(iii) for an excess of jurisdiction: first, the court must identify what matters were within the scope of submission to the arbitral tribunal; and (b) second, whether the arbitral award involved such matters, or whether it involved a new difference outside the scope of the submission to arbitration and accordingly would have been irrelevant to the issues requiring determination: at [61].

13?In the present case, the overarching issue which the Majority determined was within the scope of the submission to arbitration. The plaintiff’s complaints about the Majority’s chain of reasoning would be more appropriately framed as complaints of breach of natural justice. However, none of the points made by the Majority went outside the range that could be expected when construing contractual provisions and comparing the terms of related agreements. The parties were on notice as to comparisons to be made between the wording of one contract vis-à-vis another: at [64]. Even where the points were not pleaded or argued, the plaintiff failed to show that the Majority’s findings had prejudiced its rights: at [82] and [85].

14?One of the pillars of natural justice is that the adjudicator must not be biased. Bias may be actual or apparent: at [88]. The test for apparent bias is whether there are circumstances that would give rise to a reasonable suspicion or apprehension of bias in the fair-minded and informed observer; the test is an objective one: at [89].

15?A careful reading of the Final Award and the Dissent does not give rise to a reasonable suspicion of bias on the part of the Majority: at [91]–[100].

16?The ex parte calls by one of the arbitrators in the Majority to the parties’ solicitors do not give rise to a reasonable suspicion of bias. They took place after the Final Award had been issued. Accordingly, there was also no breach of the agreed arbitral procedure: at [106]–[107].

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

-Courtesy e-litigation. sg