Last week, the Singapore International Commercial Court (SICC) refused to set aside partial arbitral awards. This week, the SICC again refused to set aside another arbitral award, emphasising the high threshold for a finding of breach of natural justice which is crossed only in “exceptional circumstances”.
- This SICC decision is a reminder that Singapore courts consider that set aside applications should not constitute a “second bite at the apple” and that there must be a real basis for alleging that the tribunal has conducted the arbitral process “either irrationally or capriciously”.
- This decision also reflects the “fair latitude” given to tribunals in determining the “essential issues” before them, while still upholding the obligation of the parties to brief the tribunal on those issues as fully and early as possible – the absence of which cannot then form the basis of the challenging party’s breach of natural justice claim.
- Furthermore, the SICC decision highlights that a breach of natural justice alone is not sufficient to set aside an arbitral award. The challenging party must also show that there is a causal nexus between the breach and the award, and that the breach prejudiced its rights.
The Parties and Dispute
In February 2013, CUW, CUX and CUY (together, the “Claimants”) and CUZ (the “Respondent”) entered into two agreements, a share subscription agreement (SSA) and a shareholders’ agreement (SHA) (together, the “Agreements”) as partners in a power plant project in India.
Pursuant to the SSA, the Respondent was to invest as a subscription of equity shares in CUX in three tranches, with the first two made in 2013. There was a condition precedent that CUX would enter into a common loan agreement (CLA) with certain lenders in relation to debt financing for the project prior to the third tranche investment.
The Respondent objected to the CLA stating that its terms were contrary to the terms of the Agreements between the parties. In April 2016, the Respondent issued a Material Adverse Change Notice under the SSA to CUW and CUY calling on CUW to cure it. In response, in May 2016, CUW, on behalf of the Claimants, issued a letter to the Respondent seeking termination of the Agreements given the Respondent’s repudiatory breach due to its April 2016 notice.
In December 2017, the Respondent, who was the claimant in the underlying arbitration, commenced arbitration proceedings against the Claimants (the respondents in the underlying arbitration). In July 2018, after the constitution of the Tribunal, the Respondent sent a written notice to the Claimants stating that the Claimants’ May 2016 letter served as repudiation of the Agreements, which the Respondent accepted.
During the arbitration, the Claimants filed an application for early dismissal of claims in October 2018 and the Tribunal issued a partial award on the matter in September 2019. The Tribunal issued its final award in February 2022. The Claimants then filed an application to set aside the award on breach of natural justice grounds.
The SICC began its analysis by outlining the legal basis for set aside of an award for breach of natural justice, in which a challenging party must show:
- which rule of natural justice was breached;
- how it was breached;
- in what way the breach was connected to the making of the award; and
- how the breach prejudiced its rights.
The SICC also noted that set aside applications should not constitute a “second bite at the apple”, and there must be a real basis for alleging that the tribunal has conducted the arbitral process “either irrationally or capriciously”.
The SICC then examined the four grounds upon which the Claimants based their set aside application.
Affirmation Defence Ground
The Claimants argued that the Tribunal, in breach of natural justice, failed to consider the Claimants’ argument that, after the May 2016 Letter, the Respondent had affirmed the Agreements and was therefore not entitled subsequently to terminate the Agreements on the basis of the same breach.
The SICC dismissed this argument by noting that the Claimants raised the Affirmation Defence at a late stage in the reply closing submissions and did not properly articulate it; in particular, the Claimants did not identify the act of affirmation by the Respondent. Furthermore, the SICC found that, even if there was a breach of the rules of natural justice, the Claimants have not established the necessary prejudice.
Afterthought Argument Ground
The Claimants alleged that, in breach of natural justice, the Tribunal failed to consider the argument that the Respondent’s objection to the CLA terms identifying it as a “promoter” was nothing more than an afterthought because the Respondent had already signed forms identifying it as such.
The SICC determined that whether the Respondent’s objection was an afterthought or not was not relevant and was of no consequence to the issue at play in the arbitration. As such, the afterthought argument could not affect the legal position and the Tribunal did not need to deal with it.
Clause 16.5 Breach Ground
The SICC quickly dismissed the Claimants’ allegation that the Tribunal did not consider its argument that the Respondent was in breach of Clause 16.5 of the SHA.
The SICC opined that the Tribunal did consider this argument and made a finding that the Respondent was not in breach. It also emphasised that an application to set aside is not concerned with the decision of the Tribunal on the facts and law.
The Claimants also alleged that the Tribunal’s findings in its partial award – that CUY only bore secondary liability – was inconsistent with the Tribunal’s findings in the final award – that CUY was jointly and severally liable.
The SICC dismissed this ground for set aside as well stating that there was no inconsistency between the partial and final awards. The partial award dealt with enforcement, finding that the Respondent could not enforce the award against CUY until CUW and CUX have failed to comply with it. In the final award, the Tribunal dealt with the question of liability, finding that CUY was jointly and severally liable with CUW and CUX.
May be of interest to you:
Singapore Arbitration: Singapore International Commercial Court Refuses to Set Aside Partial Arbitral Awards, Affirming Singapore’s Strong Pro-arbitration Policy