SETTING ASIDE OF ARBITRAL AWARD ON A MATTER NOT SUBMITTED TO ARBITRATION
In CIZ v CJA [2021] SGHC 178, the High Court set aside the arbitral award relating to the X Opportunity as the Tribunal had exceeded its jurisdiction by deciding on a ground that was not set out in the pleadings or submissions.
Arbitration proceedings. The plaintiff and the defendant were the respondent and claimant respectively in the arbitration proceedings before the Singapore International Arbitration Centre(at [1]). In the arbitration proceedings, the defendant claimed damages in respect of the plaintiff’s refusal to pay for consultancy services provided by the defendant in relation to the acquisition of shares by the plaintiff in [X Co], an operator of oil fields (the “X Opportunity”) and a collaboration between the plaintiff and [Y Co], an integrated energy company (the “Y Opportunity”).
In its Final Award (“Award”), the arbitration tribunal (the “Tribunal”) determined in favour of the defendant in respect of its claim in relation to the X Opportunity but dismissed the defendant’s claim in relation to the Y Opportunity (at [2]). The plaintiff applied to set aside the award in relating to the X Opportunity while the defendant did not challenge the Tribunal’s dismissal of its claim in relation to the Y Opportunity (at [3]).
The High Court set aside the Award relating to the X Opportunity on the ground that the Tribunal had exceeded its jurisdiction, pursuant to Article 34(2)(a)(iii) of the Model Law read with ss 3 and 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) (at [4]).
The Amended Agreement. The plaintiff entered into a Consultancy Agreement dated 7 September 2012 (the “Agreement”) with [Z Co] (at [5]). [Z Co] was to provide the plaintiff with information and consultation/advisory services relating to opportunities for the plaintiff to “acquire an interest in producing oil and gas fields around the world” in return for a Success Fee subject to certain conditions in the Agreement.
After the Agreement expired on 31 December 2012, [Z Co] requested an extension of the Agreement to 31 December 2013 and assignment of the Agreement to its sister company, the defendant (at [6]). This led to a Deed of Novation between the plaintiff, [Z Co] and the defendant, as well as the Amended and Restated Consultancy Agreement (the “Amended Agreement”) between the plaintiff and the defendant, whereby the defendant replaced Z Co as a contracting party (at [7]-[8]).
The X Opportunity. In 2012, [Z Co] presented the X Opportunity to the plaintiff, which involved the acquisition of [HF]’s shares (controlling shareholder) in [X Co], which were held through [ABC Co] (at [11]). While the plaintiff engaged in due diligence of [X Co] (after entering into a Confidentiality Agreement with [X Co]), various issues arose, and by the time the Amended Agreement expired on 31 December 2013, there was no written agreement for its extension and the plaintiff had not entered into any sale and purchase agreement (“SPA”) relating to the X Opportunity (at [12]-[15]).
The issues were later resolved and in 2016, the plaintiff eventually acquired [ABC Co]’s shares in [X Co] using its wholly owned subsidiary (at [18]). The plaintiff did not involve [Z Co] or the defendant in this acquisition (at [20]). The plaintiff also disputed the defendant’s entitlement to a Success Fee in respect of the acquisition.
The defendant commenced arbitration proceedings (at [22]), acknowledging that the term of the Agreement (as extended by the Deed of Novation) expired on 31 December 2013, but pleading that: (at [25])
“(a) There was an oral agreement between the plaintiff and the defendant to extend the Agreement for “a further period” during which the defendant would continue to provide the services under the Agreement, and this would be reflected in a written contract to be executed in due course (the “Oral Agreement”).
(b) In the alternative, there was an “implied contract between [the defendant] and [the plaintiff] on the same terms as the [Agreement] governing the interim period between the expiry of the [Deed of Novation] and the execution of a new written contract” (“Implied Contract”).
(c) The plaintiff was “estopped from denying that the Agreement [was] no longer valid by virtue of the fact that the [Deed of Novation had] expired”. Presumably, what the defendant meant to say was that the plaintiff was estopped from asserting that the Agreement was no longer valid.”
The High Court noted that although the defendant referred only to the Agreement instead of the Amended Agreement, no issue arose out of this (at [24]).
The defendant claimed “damages in the form of the Success Fee, arising from the plaintiff’s breach of the Agreement and/or the Oral Agreement and/or the Implied Contract”, and in the alternative, “a reasonable sum for work done in respect of the X Opportunity” (at [26]).
The defendant submitted in its Closing Submissions that the crux of its case remained that “there [was] a subsisting agreement between the parties after the expiry date stated on the [Deed of Novation] such that there [was] no issue of expiration” (at [29]; emphasis added by the High Court).
The Award relating to the X Opportunity. In essence, the Tribunal rejected the defendant’s pleaded case, but found that the plaintiff was liable to pay the defendant the Success Fee for the X Opportunity (at [36]). This was not withstanding that the Amended Agreement had expired without any SPA having been signed and there was no subsisting agreement thereafter (at [37]).
Art 34(2)(a)(iii) of the Model Law. The High Court found that the Tribunal exceeded its jurisdiction because it had improperly decided matters that had not been submitted to it (at [44]).
In determining the scope of the matters submitted to the tribunal, “the pleadings play an important role” (at [45]).
However, pleadings should not be construed too narrowly as “… any new fact or change in the law … which is ancillary to the dispute submitted for arbitration and which is known to all parties to the arbitration is part of that dispute and need not be specifically pleaded. It may be raised in the arbitration, …” (at [46]).
In this regard, “a practical view has to be taken regarding the substance of the dispute being referred to arbitration” (at [47]).
Therefore, the High Court stated that “an arbitral tribunal is not entitled to depart from the pleadings to the extent of making its decision based on a ground that has not been pleaded at all and which cannot be said to be ancillary to what has been pleaded.” (at [50])
The High Court cited TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 as an example (at [51]). In that case, one of the grounds that the claimant relied on in seeking to set aside the award was that the only issue it had put before the arbitrator was whether cl 11 was a condition or innominate term. The arbitrator found that cl 11 was not a condition precedent but a warranty, the breach of which did not entitle the claimant to terminate the contracts. According to the court, this finding “was not only reasonably connected to the arguments raised by both parties; it was a reasonable follow-through from his finding that cl 11 was not a condition”. This was, therefore, an issue that was “ancillary to the dispute that had been submitted to arbitration”.
Application to the facts. Turning to the facts of the case, the High Court found that when the Tribunal found that there was no subsisting agreement after the Amended Agreement expired on 31 December 2013, “That should have been the end of the defendant’s claim since the very premise of the defendant’s claim had been rejected” (at [55]) and “It was never the defendant’s case in the arbitration proceedings that it had a valid claim if there was no subsisting agreement after the Amended Agreement expired” (at [56]). According to the defendant’s position that there was a subsisting agreement, neither Article 3.2 (on exclusivity) nor Article 12 (on limitation of actions) of the Amended Agreement presented any issues.
Yet the Tribunal proceeded to find for the defendant on grounds that were “Nowhere in the defendant’s Notice of Arbitration, pleadings or submissions in the arbitration proceedings” (at [56]).
Therefore, the High Court found it “clear that the Tribunal’s finding that the defendant was entitled to payment of the Success Fee was based on grounds that were entirely different from the defendant’s case in the arbitration proceedings. It was not possible to describe the Tribunal’s findings as being ancillary to the matter submitted to arbitration. The Tribunal’s interpretations of Articles 3.2 and 12 were also inconsistent with the defendant’s positions on these provisions.” (at [59])
The High Court found it sufficient to set aside the Award relating to the X opportunity on this ground alone (at [63]).
Significance. Arbitration is founded upon parties’ agreement to submit the dispute to the tribunal for determination. The tribunal’s jurisdiction is therefore determined by the pleadings and submissions of the parties which set the scope of matters before the tribunal.
The High Court noted (at [61]) that during the course of the arbitration proceedings, the Tribunal had drawn the parties’ attention to Article 3.2 and asked the parties to consider a position, to which the defendant decided not to change how it framed its case. Therefore, the “Tribunal should have respected the defendant’s decision as to how it chose to frame its case.”
Hence, while the position in arbitration is less strict than in litigation where the pleadings set the four corners of the suit, parties to an arbitration should nonetheless frame their cases carefully as their pleadings and submissions determine the scope of the dispute submitted for arbitration.
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