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Singapore – Arbitral Award Held Enforceable Despite Applicant’s Failure To File Expert Witness Statement.

10 November 2014

 

Legal News & Analysis – Asia Pacific – Singapore  Dispute Resolution

 

The Singapore High Court recently issued its decision in the case of Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd [2014] SGHC 220. This case involved an application to set aside an international arbitration award. The applicant alleged that the arbitration tribunal had unfairly prevented it from filing an expert witness report although the respondent had been able to do so. The Singapore High Court refused the application, finding, among other things, that the applicant’s failure to file such report arose from its own lapses in the conduct of the arbitration rather than any wrongdoing on the tribunal’s part. In coming to its conclusion, the Court considered when a failure to abide by agreed arbitral procedures might be grounds for setting aside an arbitral award.

 
Facts

 

Triulzi Cesare SRL, the applicant, is in the business of the manufacture and sale of washing machines for glass sheets. Xinyi Group (Glass) Company Limited, the respondent, manufactures and sells glass products. The applicant and respondent had entered into contracts for the sale of three washing machines to the respondent.

 

The first two washing machines were delivered to the respondent, which carried out acceptance tests on the machines to determine if they met the agreed technical specifications. Both machines failed their respective tests. The third washing machine was never delivered. The respondent accordingly cancelled the contracts. The contracts contained an arbitration clause in favour of Singapore, and on 26 July 2012 the respondent duly commenced arbitration proceedings, seeking a refund of the purchase price paid under all three contracts as well as damages.

 

The arbitration proceedings were commenced in the International Court of Arbitration of the International Chamber of Commerce under ICC Rules of Arbitration 2012 (“ICC Rules”). These rules required the arbitration to be completed within six months from the Terms of Reference, i.e., by 28 May 2013.

 

After the arbitral tribunal (“Tribunal”) was constituted, it circulated a draft procedural timetable to both parties. This included a deadline for the filing of “Witness Statements”. A Case Management Conference was subsequently held and the timelines in the draft were adjusted to accommodate the various commitments of each parties’ counsel. The revised timelines that were formalised provided for the following, among others:

 

  • “Filing of Witness Statements” by 25 March 2013 (subsequently further adjusted to 1 April 2013); and
  • Hearing dates fixed for 22 to 25 April 2013.

 

After the revised timelines were finalised but before the close of the Case Management Conference, the applicant proposed adopting the International Bar Association Rules on the Taking of Evidence in International Arbitration (“IBA Rules”) for the purposes of the arbitration. The respondent did not object and the Tribunal duly directed that the IBA Rules be adopted. It appears that the IBA Rules draw a distinction between a reference to “witnesses of fact” and “expert witnesses” but at the time, neither party raised nor made any reference to this.

 

On 1 April 2013, the respondent filed an expert witness statement (“respondent’s Expert Witness Statement”) along with other factual witness statements. The applicant only filed factual witness statements and on the following day made an application to the Tribunal to exclude the respondent’s Expert Witness Statement. Alternatively, it asked to be allowed to file its own expert witness statement, and sought eight weeks to do so, which would necessitate a vacation of the hearing dates: four weeks to inspect the washing machines at the respondent’s facility, and an additional four weeks for the expert to prepare and file his witness statement. After hearing submissions from both parties, the Tribunal directed on 5 April that the respondent’s Expert Witness Statement be admitted into evidence. It also directed that the applicant be given an extension of time to file its own expert witness statement by 15 April 2013, seven days before the hearing was to commence. The hearing dates were to remain.

 

Since the Tribunal’s direction on 5 April, the applicant did not reach out to the respondent to arrange a time for inspection of the machines. On 12 April 2013, the applicant wrote to the Tribunal complaining that the timeframe to file its own expert witness statement was too short. A hearing was held on 16 April 2013 to deal with this. At this hearing, the applicant sought again to vacate the hearing dates. After hearing submissions from both parties, the applicant’s requests were refused by the Tribunal.

 

The hearings commenced on 22 April 2013. On 25 April 2013, the last day of the hearings, the applicant applied to adduce an expert witness statement. Given the last minute nature of the application and the fact that the applicant’s witness was not made available at the hearing, this was refused. The Tribunal noted that no compelling arguments were raised to persuade it to admit the applicant’s expert report.

 

The Tribunal subsequently rendered an award in favour of the respondent. The applicant brought an application to the Singapore High Court seeking to set aside the award on the grounds that its inability to admit its own expert witness statement impugned the award on the following bases (amongst others):

 

  • It alleged that parties had agreed not to file expert witness statements. The Tribunal’s acceptance of the respondent’s expert witness statement into evidence was in breach of such a procedural agreement to dispense with expert evidence and the award should therefore be set aside pursuant to Article 34(2)(a)(iv) of the Model Law.
  • Alternatively, it alleged that by not allowing it to adduce an expert witness statement, the Tribunal had not afforded it a reasonable opportunity to be heard in respect of expert evidence. Accordingly, this was grounds under section 24(b) of the International Arbitration Act and Article 34(2)(a)(ii) of the Model Law to set aside the arbitral award.

 
Decision

 
Whether Arbitral Procedure Was Contrary To The Agreement Of The Parties

 

The Court noted that an arbitral award may be set aside under Article 34(2)(a)(iv) if “the arbitral procedure was not in accordance with the agreement of the parties”. Reviewing the case law on this requirement, the Court noted that the following principles applied to the application of Article 34(2)(a)(iv):

 

  • The Article is not engaged if the non-observance of the agreed procedure is not due to circumstances attributable to the arbitral tribunal but is derived from the applicant’s own doing.
  • The Article is similarly not engaged if the challenge to the award is against the arbitral tribunal’s procedural orders or directions which fall within the exclusive domain of the arbitral tribunal.
  • The inquiry should focus on the materiality, or seriousness, of the procedural breach.
  • An applicant should endeavour to show the materiality of the procedural requirements that were not complied with.
  • An applicant may do so by establishing the fact that the applicant had been prejudiced, or was reasonably likely to have been prejudiced, by the arbitrator’s conduct of the arbitral proceedings, including his procedural directions and orders. However, this does not mean that the setting aside application would necessarily be dismissed in the event that he fails to establish prejudice although he would have to advance alternative submissions to evince the materiality or seriousness of the breach.

 

The Court found on the facts that there had been no agreement between the parties to dispense with filing expert witness statements:

 

  • The applicant’s basis for alleging the existence of such an agreement (an alleged telephone conversation between parties’ counsels) was not borne out by the contemporaneous records, and this allegation was a new one that was only raised belatedly in the High Court application itself.
  • The applicant’s alternate basis for alleging the existence of such an agreement was the adoption of the IBA Rules, which appear to draw a distinction between witnesses of fact and
  • expert witnesses. However, the Court noted that the Tribunal’s direction as to the filing of witness statements had been made prior to the parties’ adoption of the IBA Rules. Accordingly, the direction as to witness statements could not be construed in accordance with the definitions used in the IBA Rules.
  • The circumstances under which the directions as to witness statements were given did not evince an agreement between the applicant and the respondent. Instead, it was the Tribunal that gave directions rather than parties reaching an agreement between themselves as to the procedure to follow.
  • The Court also agreed with the respondent that, assuming that there had been such an agreement, the applicant had not raised the issue of the alleged agreement during the arbitration and should therefore be taken to have waived its right to do so now.

 

While this would have been sufficient to deal with the issue, the Court went on to consider, assuming that there had been an agreement to exclude expert witnesses, whether the respondent’s filling of an expert witness statement in breach of such an agreement had prejudiced the applicant. In this regard, the Court noted that in its reasons for its award, the Tribunal had not relied on the respondent’s expert witness. In fact, the Tribunal’s decision made clear that it was not relying on that statement. Accordingly, the admission of the respondent’s expert witness statement into evidence did not have any bearing on the Tribunal’s decision and therefore had not prejudiced the applicant.

 
Whether the Respondent Had Been Given a Reasonable Opportunity to Be Heard

 

The Court then considered Article 34(2)(a)(ii) of the Model Law. This Article provides that an arbitral award may be set aside if a party was “unable to present his case”. The Court also considered section 24(b) of the International Arbitration Act which provides that a court may set aside an arbitral award if a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced. The Court noted that in applying these provisions, the following principles would apply:

 

  • The applicant would have to show that the Tribunal’s procedural orders and decisions were not a matter of case management, but a breach of natural justice. In assessing the Tribunal’s procedural orders and decisions, a court will exercise a light hand; the conduct complained of must be sufficiently serious or egregious so that one could say a party has been denied due process.
  • The applicant would also have to show that its complaints were due to circumstances attributable to the arbitral tribunal and not due to its own failures or choices.
  • A party is to be given a reasonable opportunity to present its case. This did not mean that an arbitral tribunal has to ensure that the party takes the best advantage of the opportunity to which he is entitled.

 

The Court also held that Article 18 of the Model Law, which stipulates that the arbitral tribunal had to give each party “a full opportunity of presenting his case”, properly required only that each party be accorded a “reasonable opportunity” to present its case.

 

As regards the Tribunal’s directions to the applicant that it was giving it an extension of 10 days to file its expert witness statement and not vacating the hearing dates, the Court held that the Tribunal had not acted in breach of the rules of natural justice in this regard:

 

  • The Tribunal was under a duty to proceed with the conduct of the arbitration fairly and expeditiously. In this regard, Article 30(1) of the ICC Rules required the Tribunal to render its final award within six months from the Terms of Reference, i.e., by 28 May 2013, and it was entirely proper for the Tribunal to have regard to this in making its directions.
  • The applicant had sought an extension of time of eight weeks to prepare and file its own expert witness statement less than a month before the hearing was due to commence. However, it did not explain to the Tribunal why such a long period of time was needed when it first applied for the extension. Given these circumstances, the Tribunal was entitled to conclude that it was better for the hearing to proceed on the dates fixed and grant the applicant an extension of time of 10 days and not eight weeks to file its expert witness statement.
  • The applicant’s failure to file an expert witness statement on 1 April 2013 as required under the procedural timetable was due to its own doing, whether this was due to a mishap, mistake, or misunderstanding.
  • The Tribunal also had to consider the interests of both parties, and had to balance the respondent’s interests to ensure that it was not inconvenienced by the applicant’s mishaps.

 

With regards to the applicant’s last minute attempt to file an expert witness statement on the last day of the arbitral hearing, the Court noted that the applicant’s expert witness was not on hand to be cross-examined as to his statement. This meant that the hearing would have to be adjourned for parties to come back at a later date for the cross-examination. The expert’s absence was not explained, and the applicant provided no compelling reasons to satisfy the Tribunal that the report should be admitted. Furthermore, the applicant had given no prior notice that it had even been intending to file such a report. There was therefore no breach of natural justice arising from the Tribunal’s refusal to admit the expert witness statement.

 
Our Comments / Analysis

 
This decision is further reinforcement of the principle that the Singapore courts will exercise minimal curial intervention in arbitration. It also illustrates that the use of the setting aside procedure to raise new arguments that were not previously before the tribunal would not be countenanced by the court, and the court would be wary of any attempts by a party to re-package or re-characterise its original case and arguments that were previously advanced in the arbitration for the purpose of challenging the award. The supervising court would therefore not hesitate to scrutinise how the parties had approached their case in the arbitration and, in particular, to review the respective issues and arguments that had been put before the tribunal, and to compare with those placed before a supervisory court.

 

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For further information, please contact:

 

Alvin Yeo, Partner, WongPartnership
alvin.yeo@wongpartnership.com

 
Swee Yen Koh, Partner, WongPartnership

sweeyen.koh@wongpartnership.com

 

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