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Singapore – BLC V BCB: Setting Aside Under The Doctrine Of Infra Petitia

6 November 2014

 

Legal News & Analysis – Asia Pacific – Singapore  Dispute Resolution

 

BLC v BLB [2014] SGCA 40 (“BLC”) is decision of the Singapore Court of Appeal (reversing a High Court decision) on a case of a misguided attempt by a dissatisfied party to set aside an arbitral award on the basis that the tribunal had failed to deal with an essential issue, otherwise known as the doctrine of infra petitia (as opposed to extra petitia where the tribunal decides an issue that is not before them).

 
BLC is also a warning to tribunals of what can go wrong if it does not make an effort to ascertain the essential issues or give the parties an opportunity to comment on the tribunal’s formulation of the issues. In particular, this case is an example where the tribunal was criticized by the High Court as having misunderstood the case by adopting one party’s list of issues as a ”convenient framework”. Although the High Court’s ruling was reversed on appeal, practitioners should take heed of its criticism of bad arbitral practice and be wary of formulating their own list of issues (from the parties’ list) without giving the parties an opportunity to comment.

 
In addition, the Singapore Court of Appeal exhorted aggrieved parties whose claim(s)/counterclaim(s) have not been dealt with in the award to utilize their remedy under Article 33(3) of the Model Law in the first instance before applying to set aside the award infra petitia, otherwise the Court may exercise its discretion to uphold the award.

 
Facts

 
The facts are complicated and will require elaborate explanation. For ease of reference, the Appellants are the claimants in the arbitration, the losing party in the Singapore High Court and parties appealing to the Singapore Court of Appeal and vice versa for the Respondents.

 
The Appellants are a group of German companies which specialize in producing pipe components using hydro forming technology. The Respondents are a group of Malaysian companies in the automotive industry. Both Parties entered into a joint venture through a series of agreements. Under the joint venture, the Appellants granted the Respondents a license to use the Appellants’ trademark on products manufactured by the Respondents. The Respondents were obliged to manufacture the products according to specified quality standards and to ensure that products ordered by the Appellants were delivered on time.

 
The joint venture broke down and the disputes went to arbitration, which was conducted under the SIAC Rules (2007 Edn). The Appellants alleged that the Respondents failed to deliver goods on time and that those goods had failed to meet the specified quality standards. The Appellants claimed, amongst other things, rectification costs for defective goodsand loss of profits. The Respondents made two counterclaims:

 

 

  • The first counterclaim was for damages for misrepresentations made by the Appellants to induce the Respondents to enter into the joint venture and the Appellants’ acts in frustrating the joint venture.
  • The second counterclaim was for the sum of MYR 5,838,956 for payment of goods and outstanding bank balances owing to the Respondents (the “Disputed Counterclaim“).

 
The Arbitrator upheld the Appellants’ claims and dismissed the Respondents’ counterclaims. With respect to the Disputed Counterclaim, the Arbitrator found that the Respondents had provided defective goods to the Appellants and failed to prove that the Appellants had made misrepresentations or frustrated the joint venture; he held that the Disputed Counterclaim did not arise for determination.

 
The Respondents contended that the Arbitrator had omitted to deal with the Disputed Counterclaim and applied to the Singapore High Court to set aside the award under the following grounds:

 

  • Section 24(b) of the International Arbitration Act (Cap 143A):  if there has been “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“.
  • Article 34(2)(a)(iii) of the Model Law: if the award “deals with a dispute not contemplated by or not falling within the terms of submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration…
  • Article 34(2)(b)(ii) of the Model Law: “the award is in conflict with the public policy of [Singapore]“.

 
The Arbitrator retired one day after publishing his award.

 
Singapore High Court Ruling

 
Belinda Ang J agreed with the Respondents and set aside the award on the grounds that the Arbitrator had failed to deal with the Disputed Counterclaim and remitted the award to a new tribunal on the Disputed Counterclaim. Ang J made this finding after reviewing the award, the pleadings, the evidence and the overall presentation of each party’s case before the Arbitrator.

 
Ang J accepted the Respondents’ argument that the Arbitrator had erred by conflating the issues concerning:

 

  • the Group A goods, which the Appellants had alleged were defective and for which they claimed rectification costs; and
  • the Group B goods, for which the Appellants made no allegations of defects and were simply challenging the Respondents to prove their quantum.

 
The distinction between the Group A goods and the Group B goods was first made in the setting aside application.

 
The Disputed Counterclaim was the Respondents’ counterclaim for payment for the Group B goods, which had nothing to do with the Appellants’ allegations of defects, so the Arbitrator’s finding that the Respondents were responsible for the defects was irrelevant to the Disputed Counterclaim. Moreover, there was no logical corollary between the Arbitrator’s findings on the Respondents’ allegations of misrepresentation or frustration of the joint venture. Part of the reason why the Arbitrator fell into error was because he had adopted the Appellants’ list of issues as a ”convenient framework” (i.e. the parties were unable to agree on a list of issues, so each party submitted its own list), which listed (erroneously) the Disputed Counterclaim as a relief to be granted if the Respondents could prove that the Appellants had made the alleged misrepresentations or frustrated the joint venture:

 

“Issue 16: If the Tribunal finds in favor of [the Respondents] in [the arbitration], whether [the Respondents are] entitled to claim any or all of the following amounts:


(i) loss of profits amounting to…;


(ii) impairment loss amounting to…


(iii) [the Disputed Counterclaim]; and


(iv) retrenchment costs amounting to…”

 
In passing, Ang J noted that this was the type of case which Article 33(3) of the Model Law could have provided a redress for instead of a setting aside application under Article 34. Article 33(3) permits a party to request the tribunal to make an additional award on claims presented in the arbitration but omitted from the award, if the request is made within 30 days of receipt of the award. Ang J hoped that parties will avail themselves of such remedies before turning to the courts in future.

 
The Appellants appealed.

 
Singapore Court Of Appeal Ruling

 
Andrew Phang JA, Chao Hick Tin JA and Judith Prakash J upheld the appeal and restored the award.

 
Phang JA (writing for the Court of Appeal) took a two stage approach in determining the appeal. First, he looked at the Parties’ pleadings, list of issues and their submissions to see how the Disputed Counterclaim was presented to the Arbitrator. Second, he looked at the award to see whether (and if so, how) the Arbitrator dealt with the Disputed Counterclaim.

 
Phang JA observed that the distinction between the Group A goods and Group B goods was not made during the arbitration, but which first arose during the setting aside proceedings. He noted that the Appellants had pleaded the generic defence that the goods (without distinguishing between Group A and Group B goods) were defective, with which the Respondents joined issue by alleging that the defence of defective goods was an afterthought. In fact, the Respondents’ own list of issues had linked the Appellants’ liability to pay for the goods with the issue of defectiveness and this link was followed through in their submissions.

 
Next, Phang JA proceeded to examine how the Arbitrator dealt with the Disputed Counterclaim. There was transcript evidence that the Arbitrator had noted down the hearing bundle references for the invoices for the Group B goods, which suggests that the Arbitrator had the Disputed Counterclaim in mind. Although the Arbitrator adopted the Appellants’ list of issues as a ‘convenient framework’, he did not blindly adopt it, but had cherry picked issues which he regarded as live. In light of the Respondents’ presentation of the Disputed Counterclaim, it was not necessary for the Arbitrator to expressly say why he dismissed the Disputed Counterclaim, once he had found that the Respondents were responsible for the defects in the goods.

 
Even taking the Respondents’ case at the highest that the Arbitrator had treated the Disputed Counterclaim as a remedy instead of as an independent and distinct counterclaim, this was an error of fact and law where the Arbitrator had simply misunderstood the arguments before him, which did not amount to a breach of natural justice.

 
Accordingly, the award would be restored and no issue would arise under Article 33(3) of the Model Law. However, Phang JA took the opportunity to make some observations on how Article 33(3) may operate in future setting aside cases on the ground of infra petitia.

 

  • In view of the principle of minimal curial intervention, it is arguable that an aggrieved party should be penalized for not invoking Article 33(3) before seeking to set aside the award, particularly where the tribunal had failed to deal with a minor claim. 
  • He noted that under the English Arbitration Act 1996, an applicant seeking to set aside an award must first exhaust his statutory remedy equivalent to Article 33(3) under the Act. Although there is no similar requirement to do so under the Model Law, the premise of the English Act is consistent with the principle of minimal curial intervention. 
  • On the other hand, the use of the words “may request” in Article 33(3) suggests that an aggrieved party is not obliged to invoke this remedy. 
  • To reconcile these seemingly opposing positions, Phang JA warned that in future setting aside cases, the court may exercise its discretion to refuse to set aside the award or remit the omitted claim back to the tribunal, if the applicant does not use the Article 33(3) remedy first.

 

Lessons To Be Learnt

 
There are a number of lessons to be drawn from this case for both practitioners and arbitrators.

 
1. As there is no rule in arbitration that pleadings should exhaustively set out the essential issues submitted to the tribunal, arbitrators must be careful not to omit any essential issue in their substantive award. The list of issues is the most common means of avoiding this pitfall. However, if parties cannot agree on and the arbitrators have to determine the list of issues, arbitrators should give the parties the opportunity to check that the list of issues incorporate all their claims and defences, so as to mitigate the risk of an aggrieved party complaining that its claim/defence was not addressed in the substantive award.

 
2. No doubt, the Respondents had presented a clearer case in the setting aside proceedings than the arbitration by distinguishing between the Group A and Group B goods. When dealing with such cases, court should be mindful of Phang JA’s exhortation:


“It is important not to underestimate the ingenuity of counsel who seek to launch back doors appeals or, worse still, completely reinvent their client’s cases with the benefit of hindsight in the guise of a challenge based on an alleged breach of natural justice.”


3. By contrast, ICC arbitrations should not face the risk of infra petitia setting aside challenges as the ICC Rules mandate the preparation of the Terms of Reference, which sets out all the essential issues that are referred to the tribunal. Other arbitral institutions can consider adopting the same practice.

 
4. This case is also a lesson to claimants’ counsel to be careful to avoid pleading multiple claims in a broad brush way, particularly for large project disputes where there could be hundreds of mini-claims which could be time consuming to plead properly. Otherwise, a cunning respondent could plead its defence in a broad brush manner, which is what the Appellants did here by not distinguishing between the Group A and Group B goods. Claimants’ counsel should be careful to avoid such traps by replying in a similarly broad brush manner, otherwise the tribunal may treat the claims in a broad brush way and the dissatisfied claimant may have no cause for complaint.

 
5. Given the policy of minimal curial intervention of most Model Law jurisdictions, the dicta in BLC that the court may exercise its discretion to refuse to set aside on award if the aggrieved party did not avail itself of the Article 33 remedy may minimize or eliminate infra petitiachallenges in future.

 

This article was supplied by Andrew Chin, Baker & McKenzie

 

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For further information, please contact:

 

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