LATE INTRODUCTION OF ISSUE IN ARBITRATION & SETTING ASIDE
In the Singapore High Court decision of Convexity Ltd v Phoenixfin Pte Ltd and others [2021] SGHC 88 (“Convexity v Phoenixfin”), the High Court dealt with the question of whether an arbitral award should be set aside in part when the Tribunal erroneously thought that the parties had agreed to the late introduction of an issue into arbitration, and then proceeded to decide the arbitration on that issue, notwithstanding the fact that there was an objection made.
The facts. At the expense of oversimplification, the key facts of Convexity v Phoenixfin can be summarised thus:
1. The applicant was the claimant in the arbitration. The applicant claimed against the first respondent for breach of contract, and against the second and third respondents as guarantors / indemnitors.
2. Up until 18 May 2020, the first respondent did not plead that the clauses the applicant was relying on were unenforceable penalty clauses (the “Penalty Issue”).
3. Prior to that date, the parties had exchanged an Agreed List of Issues, which did not list the Penalty Issue.
4. However, the first respondent did apply (on 6 May 2020) to call a “Mr. M” to give expert evidence on, among others, the Penalty Issue. This was objected to by the applicant, and on 13 May 2020, in a telephone conference, the tribunal agreed with the applicant, though the tribunal allowed Mr. M to be a co-counsel.
5. On 18 May 2020, the first respondent applied to amend its pleading to plead the Penalty Issue as a defence. In its application, the first respondent recognised that the Penalty Issue was a question of fact and law.
6. This application was not allowed by the tribunal.
7. Nonetheless, after the evidentiary hearing, and after the submission of written closing submissions, the tribunal asked the applicant’s counsel to address the Penalty Issue during oral reply submissions.
8. Correspondence and directions ensued, in which the applicant objected to addressing the Penalty Issue, while the tribunal maintained that the Penalty Issue was in issue in the arbitration.
9. In due course, the final award (the “Award”) was rendered, where the applicant’s claims were dismissed solely based on the Penalty Issue.
The Application. The applicant applied to set aside the Award including on the tribunal’s decision to dismiss the applicant’s claims based on the Penalty Issue, submitting that there had been a breach of natural justice as:
1. The applicant was unable to present its case;
2. The Award decided on matters beyond the scope of the submission to arbitration; and
3. That the arbitral procedure was not in accordance with the agreement of the Parties.
The decision. The High Court set aside the tribunal’s decision to dismiss the claimant’s claim on the Penalty Issue and the parts of the Award affected by it.
In doing so, the High Court found, inter alia, that:
1. The tribunal did not consider the claimant’s objections to the introduction of the Penalty Issue due to the tribunal’s erroneous belief that the claimant had agreed to its introduction ([57]).
2. The tribunal did not engage with the claimant’s objections to the introduction of the Penalty Issue despite the claimant repeatedly objecting to the introduction of the Penalty Issue. The tribunal persisted in saying that the Penalty Issue had been introduced by agreement ([63]; [70]; [73]; [76]).
3. The tribunal in its Award also did not refer to an email from the claimant’s counsel objecting to the English law issues (including the Penalty Issue) identified by the first respondent as being irrelevant, unpleaded, and not at issue ([84]).
Breach of natural justice. The High Court found therefore that there was a breach of natural justice as the claimant was “… opportunity to address its objections to the mind of the tribunal … the tribunal did not bring its mind to bear on an important aspect of the dispute before it… ” ([88]); further, the High Court found that the tribunal had “… misapprehended that the claimant had agreed to what it was, in fact, objecting to. That misapprehension continued through to the making of the Award, with the tribunal persistently failing to engage with the claimant’s objections.” ([89])
The High Court also disagreed that the claimant was not prejudiced because the tribunal gave the claimant opportunity to put forward evidence on the Penalty Issue ([106]), finding that the claimant was entitled to “take a stand on its objections” and that had the claimant in fact put in further evidence, the claimant may have waived its rights to the tribunal’s breach ([107]).
Exceeded scope. The High Court also agreed that as the Penalty Issue was never properly introduced into the arbitration, the tribunal had exceeded the scope of the arbitration by dismissing the claimant’s claim on the Penalty Issue ([111]).
Contrary to parties’ agreed procedure. The High Court further found that the tribunal, by asking the parties to address the Penalty Issue more fully after the oral reply hearing (which the parties had intended to be the last stage) by, among others, allowing and then requiring the claimant to recall its witnesses for questioning, had departed from the procedure agreed to by the parties, and reinforced the High Court’s decision to set the part of the Award affected by the penalty issue aside ([112] – [116]).
Significance. While it is rare for an arbitral award to be set aside for breach of natural justice, Convexity v Phoenixfin is a reminder of the importance of complying with the rules of natural justice.
In addition, it is also an important reminder to parties to be careful in how they deal with breaches of natural justice in the course of an arbitration: had the claimant in Convexity v Phoenixfin put in further evidence or recalled its witness to give further evidence, the claimant may have waived any such breaches and would not have been able to set aside the tribunal’s decision on the Penalty Issue.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.