FUNCTUS OFFICIO AFTER CONDITIONAL FINAL AWARD
In York International Pte Ltd v Voltas Ltd [2022] SGHC 153, the High Court held that an arbitrator was functus officio after a conditional final award had been rendered by the said arbitrator in 2014.
The facts. This case concerned the plaintiff’s application under s 21(9) of the Arbitration Act (Cap 10, 2002 Rev Ed) (the “AA”) for the court to decide that the sole arbitrator (the “Arbitrator”) in Singapore International Arbitration Centre (“SIAC”) Arbitration No 61 of 2012 (the “Arbitration”) did not have jurisdiction to issue a further award in the Arbitration, following the Arbitrator’s ruling as a preliminary question that he has jurisdiction to do so (at [2]).
This centred on whether the award issued by the Arbitrator in 2014, titled “Final Award” (the “2014 Award”), resolved all the issues in the Arbitration, such that the Arbitrator became functus officio, and therefore no longer retained jurisdiction to issue any further award.
The background. The defendant was engaged by Resorts World at Sentosa Pte Ltd (“RWS”) to carry out the design, supply, construction, completion and maintenance of a District Cooling Plant (“DCP”) on Sentosa Island, Singapore (the “Main Contract”) (at [5]). The Main Contract was subsequently novated by RWS to DCP (Sentosa) Pte Ltd (“DCP Sentosa”).
Under a purchase agreement, the defendant purchased five water-cooled dual centrifugal chillers (each powered by two motors) (the “Chillers”) from the plaintiff (the “Purchase Agreement”), which formed one of the components of the DCP (at [6]). The plaintiff duly delivered the Chillers to the defendant, but around one to two years later, seven of the Chiller motors failed during operation.
The 2014 Arbitration. The plaintiff commenced the Arbitration against the defendant for, inter alia, the plaintiff’s claim for outstanding payments owed by the defendant under the Purchase Agreement (at [8]).
The defendant counterclaimed for damages, losses, and/or expenses arising out of the plaintiff’s supply of allegedly defective Chillers, alleging that the Chiller motor failures had resulted in RWS making claims against the defendant for losses and expenses. The defendant therefore sought to recover those amounts from the plaintiff in the Arbitration.
Among others, the defendant counterclaimed for a sum of S$1,099,162.46 (the “Nitrogen Claim”) and a sum of S$33,277 (the “Removal Claim”), being the costs that RWS had incurred due to the allegedly defective Chillers.
The 2014 Award. The Arbitrator issued the 2014 Award allowing the defendant’s counterclaims in part, finding that the plaintiff was liable to the defendant for the Nitrogen and Removal Claims (at [9]).
But as the Arbitrator was concerned of the risk of the defendant enjoying a windfall if the defendant ultimately did not have to pay RWS, the Arbitrator decided to make his orders conditional upon the defendant making payment to RWS.
The relevant orders made are set out below (at [9] – [10]):
For the Nitrogen Claim:
“… I will make an order for the [plaintiff] to make payment to the [defendant] for this head of damage as itemised at page 988 of Mr Sidhwani’s affidavit, up to a maximum of $1,099,162.46, upon the [defendant] making payment to RWS in respect of such items set out under this head of damage.”
For the Removal Claim:
“I … similarly make an order for the [plaintiff] to pay the [defendant] for this head of damage, up to a maximum of S$33,277.00, when the [defendant] pays RWS in respect of this head of damage.”
Settlement. Following the 2014 Award, the defendant entered into a settlement agreement with DCP Sentosa (the “Settlement Agreement”) where DCP Sentosa agreed to pay the defendant S$1,000,000 (excluding GST) in full and final settlement of all claims each party may have against each other in relation to the Main Contract (at [11]).
This settlement sum included an agreement to set off the sums owed by the defendant to DCP Sentosa in respect of the Nitrogen and Removal Claims. Therefore, the defendant considered that the total amount of S$1,132,439.46 which it owed DCP Sentosa for the Nitrogen and Removal Claims (S$1,099,162.46 + S$33,277 = S$1,132,439.46) was paid by it to DCP Sentosa by way of set off when the Settlement Agreement was concluded.
However, the plaintiff refused to pay the sum of S$1,132,439.46 when payment was demanded by the defendant. This was on the basis that the defendant had allegedly not provided sufficient evidence that the defendant had indeed paid DCP Sentosa for the Nitrogen and Removal Claims (at [12]).
The Further Award. The defendant thus applied to the Arbitrator for a further award to determine “… (a) whether the defendant had, in substance, paid DCP Sentosa in respect of the Nitrogen and Removal Claims; (b) if so, what sums the defendant had paid in respect of these claims; and (c) accordingly, what sums are to be paid by the plaintiff to the defendant …” (the “Further Award”) (at [13]).
The plaintiff objected and raised a jurisdiction objection that the Arbitrator was functus officio in relation to the Arbitration and did not retain any jurisdiction after the issuance of the 2014 Award (at [14]).
The Arbitrator then issued a written decision on whether he was functus officio in relation to the Arbitration (the “2021 Decision”), concluding, inter alia, that he did retain jurisdiction to issue the Further Award, and accordingly invited the parties to tender further submissions on the substantive merits of the defendant’s application for the Further Award (at [15]).
The plaintiff therefore filed the present application under s 21(9) of the AA seeking, among others, a decision from the court that the Arbitrator does not have jurisdiction to make any further award in respect of the Arbitration (at [16]).
Issues. There were two issues which arose for the High Court’s determination: whether the plaintiff was barred from making the application under s 21(9) of the AA, and whether the Arbitrator had jurisdiction to issue the Further Award (at [22]).
After the High Court decided that the plaintiff was not barred from making the application under s 21(9) of the AA (at [23] – [50]), the High Court proceeded to find that the Arbitrator did not have jurisdiction to issue the Further Award (at [51] – [89]).
A “final” award. The High Court cited PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364 (“Persero”) at [51]–[53] for the proposition that an award can be “final” in the following ways (at [51]):
“(a) First, an award is “final” if it resolves a claim or a matter in an arbitration with preclusive effect (ie, the same claim or matter cannot be re-litigated).
(b) Second, a “final” award can refer to an award that has achieved a sufficient degree of finality in the arbitral seat. In other words, the award is no longer susceptible to being appealed against or being subject to annulment proceedings in the arbitral seat.
(c) Third, a “final” award can refer to the last award made in an arbitration which disposes of all remaining claims.”
It was not in dispute that the 2014 Award is “final” in the first and second ways, nor was it seriously in dispute that as a general proposition, a conditional award can be “final” in all of the three ways detailed in Persero (at [52]).
The High Court found that the central question therefore was whether the 2014 Award dealt with all the issues that were the subject of the Arbitration, such that the 2014 Award is final in the third sense (at [53]).
The High Court found that the 2014 Award did deal with all the issues that formed the subject of the Arbitration, such that the Arbitrator is functus officio (at [55]), setting out four main reasons:
The Arbitrator chose to make a quantum award rather than adjourn the decision on quantum (at [56] – [61]);
The 2014 Award does not contain an express reservation of jurisdiction (at [62] – [66]);
The 2014 Award fully resolved the disputes between the parties (at [67] – [76]); and
The 2014 Award has the attributes of a final award (at [77] – [85]).
For completeness, the High Court did not place weight on the defendant’s argument that it will be left without recourse for the Nitrogen and Removal Claims if the Arbitrator did not possess jurisdiction to issue the Further Award (at [86] – [89]).
We now set out the key findings of the High Court in brief.
Choice of making a conditional award. The High Court found that, in the 2014 Award, the Arbitrator was concerned that there was a risk of the defendant obtaining a windfall (at [57]).
Based on Biffa Waste Services Ltd v Maschinenfabrik Ernst Hese GMBH [2008] EWHC 2210, a decision which was cited by the Arbitrator, there were two options to mitigate this risk: (a) adjourn the decision on quantum; or (b) make a conditional award (at [58]).
However, the Arbitrator did not choose to reserve his jurisdiction, and instead decided to make a conditional award in respect of both the Nitrogen and Removal Claims (at [60]).
As such, since the Arbitrator chose to fully resolve the Nitrogen and Removal Claims in the 2014 Award, the High Court held that the Arbitrator cannot have retained jurisdiction in respect of these claims after the 2014 Award and the Arbitrator does not have jurisdiction now to issue the Further Award (at [61]).
No express reservation of jurisdiction. The High Court found it significant that the Arbitrator did not expressly reserve any jurisdiction in the 2014 Award, despite acknowledging in the 2021 Decision that any reservation of jurisdiction would have been made “in clear and categorical language” (at [62]).
Given the Arbitrator’s own observations, the Arbitrator’s conclusion in the 2021 Decision that there was a reservation of jurisdiction in the 2014 Award did not cohere with the objective evidence (at [64]).
The High Court found that it did not need to decide whether there is any requirement in law that a reservation of jurisdiction must always be made expressly (at [65]). This was because, in light of the Arbitrator’s own observations, “… the absence of any express reservation of jurisdiction goes to show that to the Arbitrator’s mind, there was no intention on the Arbitrator’s part to reserve any jurisdiction in the 2014 Award. This… is strong objective evidence that the Arbitrator intended for the 2014 Award to be final and dispositive of all remaining issues in the Arbitration.” (at [66]; emphasis by the High Court)
Decision on the extent of the plaintiff’s liability. The High Court disagreed that the 2014 Award left the “precise extent” of the plaintiff’s liability to the defendant unresolved (at [72]).
While the 2014 Award did not contain a specific sum to be paid by the plaintiff for the Nitrogen and Removal Claims, the 2014 Award nevertheless sets out the method by which this precise sum is to be derived, as the plaintiff was to pay the defendant the same amount that the defendant ultimately paid to RWS, up to a maximum amount (at [72] – [73]).
Difficulties in enforcement. The High Court acknowledged that the 2014 Award is not immune to difficulties in enforcement, as illustrated by the present case (at [75]):
“… the 2014 Award does not state what evidence (if any) the defendant must provide before the plaintiff’s liability to pay the defendant for the Nitrogen and Removal Claims crystallises …”;
“… nor does it provide for how any disputes arising out of the Arbitrator’s conditional orders should be resolved.”
Nonetheless, the High Court was of the view that such matters are matters which remain to be determined by a court hearing an application to enforce the 2014 Award, should the defendant choose to make such an application in future.
In any case, the High Court stated that “… [t]he fact that there may be enforcement difficulties with the 2014 Award cannot be an independent reason to reverse engineer and read a reservation of jurisdiction into the 2014 Award, and more so when weighed against the other objective evidence …” (at [76])
Reasonable recipient. Finally, the High Court found that there were two attributes of the 2014 Award which, from a reasonable recipient’s perspective, bolstered the conclusion that it was the last award and dispositive of all the issues in the Arbitration (at [78] – [84]):
The 2014 Award is titled “Final Award”; and
The 2014 Award contains a final order on costs.
No further recourse. For completeness, the fact that the defendant may have no further recourse in respect of the Nitrogen and Removal Claims could not, to the High Court, itself be a basis for finding that the Arbitrator retains jurisdiction to issue the Further Award (at [87]).
The High Court stated that “… [t]he central question in this case is whether the Arbitrator reserved jurisdiction to issue a further award – that inquiry begins and ends with an examination of the 2014 Award. … the Arbitrator made no such reservation of jurisdiction. That really is the end of the matter.”
In this regard, the High Court observed that the defendant could have sought an additional award from the Arbitrator within the timeline provided for in s 43(4) of the AA, or brought an application to set aside, or sought to enforce the 2014 Award against the plaintiff (at [88]).
Significance. This is an interesting decision as it makes clear the importance of jurisdiction – or the lack thereof in the present case – in arbitration, especially in relation to whether an arbitrator retains any jurisdiction after a “final award” has been issued.
This case highlights that it is important for an arbitrator to consider adjourning its decision on quantum, or to expressly reserve jurisdiction in its award, if the arbitrator deems it necessary in order to retain jurisdiction to resolve further issues on the extent of a party’s liability to another.
As for parties, this case makes clear that if a party deems it necessary for an additional award within the ambit of s 43(4) AA to be issued, then the party ought to act within the time period stipulated for recourse. This is especially if the award received contains similar “difficulties” as highlighted by the High Court in this decision.
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