PEREMPTORY ORDERS IN ARBITRATION
In Sai Wan Shipping Ltd v Landmark Line Co, Ltd [2022] SGHC 8, the High Court was confronted with a Second/Final Arbitration Award dated 27 May 2021 (the “second award”) which was made by the arbitrator without receiving any evidence or submissions from a party, excluded by reason of an earlier peremptory order made by the arbitrator. The second award was set aside for being made in breach of natural justice that prejudiced that party’s rights.
The facts. This concerned an arbitration between the plaintiff (the “Charterer”), a Hong Kong incorporated company, that was the charterer of a vessel owned by the defendant (the “Owner”), a South Korean company (at [4]).
In early March 2021, the firm Brown Marine Legal Limited (“Brown Marine”), who had represented the Owner in obtaining the first award, served further submissions on behalf of the Owner to recover the sum of US$199,679.50, containing a request that “… Charterers … serve Defence Submissions within 28 days of today’s date, ie on or before Wednesday 31st March 2021, failing which Owners will seek a further default award.” (at [11])
The arbitrator made his order on 4 March 2021 “with one tweak” (at [56]), stipulating that the Charterer provide its defence by 4.00pm London time on 31 March 2021. He added that “… If the Charterer fails to respond to this order, the Owners may apply for a short final and peremptory order which will include a severe sanction against the Charterer in the event that it fails to comply.” (at [12]) This order was not itself a peremptory order (at [58]).
The Charterer’s counsel from the firm Fichte & Co (“Fichte”) corresponded with Brown Marine, requesting an extension of time until 9 April 2021 (at [13]). This was made known to the arbitrator at least on 1 April 2021 when Brown Marine asked that “the tribunal review this exchange and make whatever order it considers appropriate.”
In relation to Fichte’s request for the extension, Brown Marine had replied that they could only recommend agreement if it was on a final and peremptory basis and sought confirmation that this was the case (at [59] – [60]). Fichte responded to give that confirmation, but “for some reason Brown Marine appears to have misread this as a withdrawal of the request for an extension” and informed the arbitrator of the same (at [60]).
The arbitrator proceeded to issue what he described as a final and peremptory order on the same day, giving a deadline of 5.00pm London time on Friday 9 April 2021 and warning (at [14]):
“If the [Charterer] fail[s] to comply with this order, the sanction will be that they are barred from advancing any positive case by way of defence (or counterclaim) and from adducing any positive evidence in the matter and it will then simply be for the [Owner] to prove their case.” (the “peremptory order”)
The Charterer failed to serve its defence submissions within the time stipulated although it did so later the same day due to “some trouble with the internet connection” (at [16]).
The next day, the arbitrator responded stating that as the terms of his order were clear, he must abide by it and exclude the Charterer’s defence submissions unless the Owner was prepared to accept them into evidence (at [17]).
Two weeks later, after Brown Marine conveyed the Owner’s decision, the arbitrator emailed both counsel directing that the Charterer’s defence submissions had not been admitted into evidence and that he awaited the Owner’s evidence to prove its claim (at [18]).
The next day, the arbitrator invited the Owner to put in further evidence and submissions to prove its case but did not allow the Charterer to respond to them (at [21]).
The arbitrator proceeded to make the second award without hearing witnesses and on a documents-only basis as requested by the Owner in an email of 24 April 2021.
The issues. There were three issues before the Court (at [39]):
“(a) what the powers of an ad hoc arbitrator are to make and enforce peremptory orders and how such powers should be exercised;
(b) whether the arbitrator acted within his powers, and exercised them in accordance with the principles of natural justice; and
(c) whether any breach of natural justice was connected to the making of the second award and caused prejudice to the Charterer.”
This article will only highlight the key findings of the Court.
Powers of an arbitrator. The Court identified three sources for the powers of an arbitrator (at [40]):
The arbitration agreement between the parties;
The choice of seat (powers provided by a statute in force at the seat); and
The choice of arbitral rules (powers provided under the chosen rules).
In this case, the arbitration clause provided that the seat was Singapore (at [41]), but there were no arbitral rules chosen by parties (at [42]).
The Model Law. The Court stated that as Section 3 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) gives the Model Law (other than Chapter VIII thereof, and all subject to the other provisions of the IAA) the force of law, the arbitrator should have looked to the Model Law before considering whether to make or enforce any peremptory orders (at [43]).
Although the phrase peremptory order is not found in the Model Law, Articles 23 and 25 provide three elements (at [44] – [45]):
“(a) The respondent has a period of time to communicate his statement of defence that depends on what is agreed by the parties, or if not, then as determined by the tribunal.
(b) If he fails to do so, unless otherwise agreed by parties, the arbitrator must consider whether the party in default has shown sufficient cause for the failure; then
(c) the arbitrator shall continue with proceedings without treating such failure as an admission of the claimant’s allegations.”
The Court observed that “Art 25 does not mandate general peremptory or unless orders. It differs from the provisions for judgment in default of defence or for striking out of a defence and consequent judgment for non-compliance with discovery orders that one finds in court rules. It is those sorts of consequences that might be described as draconian …” (at [46]).
Powers enlarged by agreement. As a side note, while this did not happen on the facts, the Court noted that the arbitrator’s powers could have been enlarged by agreement by raising with parties “the possible adoption of arbitral rules, or … construct[ing] a bespoke procedure for parties’ agreement.” (at [47])
The approach. In relation to procedural decisions of a tribunal, the proper approach a court should take is to ask whether “what the tribunal did (or decided not to do) falls within the range of what a reasonable and fair-minded tribunal in those circumstances might have done.” (at [54]; citing the Court of Appeal decisions of China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another [2020] 1 SLR 695 at [98] and CBS v CBP [2021] 1 SLR 935 at [51])
The Court ultimately found that this was not satisfied in respect of a few aspects.
Fixing the time for defence submissions. The Court found there was a breach of natural justice as the arbitrator did not give the Charterer any opportunity to provide input on the time needed to serve its defence submissions (at [57]).
This is because, if there was no agreement for the submission timeline, “an arbitrator must consult both parties, not just one of them” before determining it, and if for any reason he did not, “he must be open to reconsidering the time fixed upon request by either party, but especially the party bound by the timeline he has fixed unilaterally.” (at [51])
The making of the peremptory order. The Court also found, among others, that the arbitrator acted in breach of natural justice by failing to give the Charterer an opportunity to address him before making his peremptory order, including on the question of sufficiency of cause (at [64(c)]).
In particular, the Court found five distinct difficulties in the arbitrator’s course of action (at [62]; which we set out in full below):
“(a) After receiving the email from Brown Marine asking him to make whatever order he considered appropriate, he did not offer the Charterer any opportunity to be heard.
(b) There is no evidence that he considered or made any decision on whether there was sufficient cause shown for the failure to serve the defence submissions by “16:00 London time” on 31 March 2021.
(c) If he had considered sufficiency, he should have given consideration to at least three points that appear from the exchange of emails between Brown Marine and Fichte, namely:
(i) Fichte believed that an extension of time had been agreed.
(ii) Fichte had explained to Brown Marine that they had been recently instructed.
(iii) Fichte had said that they needed more time to have the draft checked by the Charterer.
(d) A review of the emails exchanged on 31 March 2021 shows that, in substance, Brown Marine and Fichte had agreed that the defence submissions did not have to be filed that day, although Brown Marine was seeking to impose a condition that it be final and peremptory (without specifying any sanction). This means that as of 1 April 2021 the Charterer had not yet failed to serve its defence submissions within the time agreed by parties. It would only be after 9 April 2021 that the Owner could apply for a peremptory order (and of course at that time the Charterer would still have been entitled to be heard).
(e) Brown Marine had not made an express application for a peremptory order nor specified any desired sanction. It only asked for whatever order the arbitrator considered appropriate. It was the arbitrator who made the leap to a peremptory order.”
Art 25 Model Law. The Court also found that the content of the peremptory order, namely its sanction, exceeded the powers of the arbitrator under Art 25 of the Model Law because (at [65]):
On its wording, it “barred the Charterer from raising any positive case by way of defence or counterclaim and from adducing any positive evidence in the matter.”
But as things turned out, “the arbitrator accepted the Owner’s request to proceed on a documents only basis, and did not offer the Charterer the opportunity even to respond to the Owner’s additional evidence and submissions. The sanction imposed thus operated in practice not just as a bar to a positive defence but as an effective exclusion even of a negative defence.”
Connected to the making of the award. The Court found it “obvious that the making of the peremptory order led to the arbitrator making the second award without receiving any evidence or submissions from the Charterer…” (at [74] – [75]).
Therefore, the breach of natural justice prejudiced the Charterer’s rights (at [77]). The Court declined to exercise its power to remit the matter to the arbitrator and granted the order to set aside the entire second award (at [78] – [80]).
Significance. The High Court reiterated at the beginning and end of the judgment the tension between “justice hurried” and “justice buried” and the need to balance timelines and achieving a just outcome for parties.
While the facts of this case are not typical, it makes clear that while arbitrators generally have the power to make peremptory orders in the way defined under the Model Law, arbitrators must give the party in default an opportunity to address the tribunal (including on the question of sufficiency of cause) before making any peremptory order. A failure to do so may result in a breach of natural justice which would cause the award to be set aside.
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