postimage

    03:25 PM Lionel Leo (Partner, WongPartnership LLP) and Reka Mohan (Associate, WongPartnership LLP)

    High Court Clarifies Law on Applications to Set Aside Arbitral Award for Lack of Jurisdiction: AQZ v ARA [2015] SGHC 49

        

    In the recent decision of AQZ v ARA [2015] SGHC 49 (“AQZ”), Justice Judith Prakash in the High Court dealt with interesting issues on the scope of the court’s power to hear questions of jurisdiction de novo and on the application of the expanded definition of “in writing” in the International Arbitration Act (Cap 143A, Rev Ed 2002) (the “IAA”). Significantly, this is the first case in which the High Court opined on the operation of the Expedited Procedure under the SIAC Rules 2010 (4th Ed, 1 July 2010) (“SIAC Rules 2010”) (which also feature in the current rendition of the SIAC Rules (5th Edition, 1 April 2013)), and whether an award rendered by a sole arbitrator appointed under the Expedited Procedure should be set aside on the basis that the arbitration agreement expressly provided for three arbitrators. 

    This case comment first sets out a summary of the facts and the relevant holdings of the High Court before commenting on the court’s decision and reasoning. 

    Facts and decision

    Facts

    The plaintiff-supplier is a mining and commodity trading company incorporated in Singapore (the “Supplier”). The defendant-buyer is a Singapore subsidiary of an Indian trading and shipping conglomerate (the “Buyer”). In or around November 2009, the parties commenced negotiations on two separate sale and purchase agreements under which the Supplier would sell Indonesian non-coking coal to the Buyer. It was undisputed that by 7 December 2009, those negotiations culminated in a contract for the shipment of 50,000 metric tonnes of coal in January 2010 (the “First Shipment”) at a price of US$56 per metric tonne. What was disputed was whether the discussions also resulted in a further contract for a second shipment of the same quantity of coal on essentially the same terms save for the shipment period and the purchase price (the “Second Shipment”). The Buyer’s position was that the Second Shipment was concluded and the Supplier subsequently breached the contract. The Supplier maintained that the contract for the Second Shipment never came into existence.

    On 21 March 2013, the Buyer commenced SIAC arbitration against the Supplier purportedly under Clause 16 of the alleged Second Shipment. On the following day, the Buyer applied to the SIAC for the arbitration to be conducted under the Expedited Procedure pursuant to Rule 5 of the SIAC Rules 2010. On 18 April 2013, the Supplier’s solicitors wrote to the SIAC and challenged the existence of an arbitration agreement and objected to the Expedited Procedure. The Supplier did not expressly rely on the fact that the contract had been entered into before the Expedited Procedure provision came into force as a reason why that provision should not apply. By a letter dated 20 May 2013, the President of the SIAC Court of Arbitration (“SIAC President”) allowed the Buyer’s application.

    On 8 July 2013, the SIAC President appointed a sole arbitrator (the “Arbitrator”). The Arbitrator conducted a preliminary hearing from 16 to 18 October 2013 on the issue of jurisdiction and liability; and the Arbitrator subsequently issued a “Ruling and Partial Award on Preliminary Issues relating to Jurisdiction and Liability” dated 12 May 2014 (the “Award”). In the Award, the Arbitrator found that he had jurisdiction and that the Supplier was liable to the Buyer for breach of contract. Dissatisfied with the Arbitrator’s ruling, the Supplier applied to the High Court to set aside the Award. 

    Issues

    The issues before the High Court were as follows.

    a)    As a preliminary issue, the scope of a de novo hearing in an application to set aside an award on grounds of lack of jurisdiction.

    b)    Whether, in view of the fact that the Arbitrator’s decision to hear the dispute is contained in an award which also deals with the merits of the dispute, the Supplier can apply for relief under Section 10(3) of the IAA and Article 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”).

    c)    Whether the Arbitrator’s decision on jurisdiction can be challenged under Article 34(2)(a)(i) of the Model Law on the basis that there was no valid arbitration agreement.

    d)    Whether the Award can be set aside under Article 34(2)(a)(iv) in that the composition of the arbitral tribunal (i.e., the appointment of a sole arbitrator instead of three arbitrators) or the arbitral procedure (i.e., the Expedited Procedure) was not in accordance with the agreement of the parties.

    Decision

    On the preliminary issue, the High Court held that there can be no doubt that the court will undertake a de novo hearing of the arbitral tribunal’s decision on its jurisdiction in an application to set aside an arbitral award on the ground of lack of jurisdiction (see [49]). However, a complete rehearing of the oral evidence was not necessary in every case (see [49], [52]). It was held that Order 69A Rule 2 of the Rules of Court (“ROC”) did not envisage a de novo rehearing of all the evidence as a default rule, but instead contemplated that generally the matter would be resolved by way of affidavit evidence (see [52]). However, pursuant to Order 28 Rule 4(3) of the ROC, the court may allow oral evidence and/or cross-examination (see [53]). 

    On the substantive issues, the High Court held as follows.

    a)    Only a preliminary ruling on jurisdiction could be challenged under Section 10(3) of the IAA and Article 16(3) of the Model Law. These sections were not intended to apply to an award that deals with the merits of the dispute, however marginally (see [65]-[71]).

    b)    On the facts, the High Court found that the Second Shipment had been concluded and that Clause 16 of the First Shipment was orally imported into the Second Shipment (see [78]-[92]). This arbitration agreement was in writing because the current version of the IAA was applicable and, under the relevant section, the requirement of writing is satisfied if one party to the agreement unilaterally recorded it in writing. It does not matter that the written version of the agreement is neither signed nor confirmed by all the parties involved (see [110]-[119]). The arbitration agreement was recorded in the First Shipment contract as the parties had agreed that all the terms of that contract would apply (see [120]-[121]).

    c)    Express assent is not necessary for the Expedited Procedure provision to override the parties’ agreement for arbitration before three arbitrators even though the version of the SIAC Rules that was in force at the time the parties entered into the contract did not contain the Expedited Procedure provision. A commercially sensible approach to interpreting the parties’ arbitration agreement would be to recognise that the SIAC President has the discretion to appoint a sole arbitrator (see [132]-[133]). In any event, the Supplier failed to demonstrate that it had suffered any prejudice as a result of the Expedited Procedure, which was a factor the supervisory court would consider in deciding whether to set aside the award (see [136]). 

    Commentary

    This case is significant in that it clarifies several points which have not previously been the subject of an affirmative decision of the Singapore courts. Our comments will focus on three points: (i) the scope of de novo hearing; (ii) applicability of s 10(3) of the IAA and Article 16(3) of the Model Law and (iii) appointment of a sole arbitrator under the Expedited Procedure in spite of the stipulation of three arbitrators in the arbitration agreement. 

    1.    Scope of de novo hearing

    The crux of a de novo hearing is that the court should form an independent view on the jurisdiction of the arbitral tribunal without deferring to the view of the tribunal. As the Court of Appeal held in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and another appeal [2014] 1 SLR 372 (at [162]), “the tribunal’s own view of its jurisdiction has no legal or evidential value before a court that has to determine that question”.

    However, a de novo hearing to set aside an arbitral award for lack of jurisdiction does not ipso facto require a rehearing of the evidence. Indeed, applications before the High Court to set aside arbitral awards (whether or not on jurisdictional grounds) are generally resolved using affidavit evidence pursuant to Order 69A ROC. The High Court in AQZ also rightly noted that, in deciding on a jurisdictional challenge, the record of the arbitration is before the court precisely so that the court can look at evidence that has already been adduced before the tribunal. 

    Notably, the High Court pointed out that the court had the power under Order 28 Rule 4(3) ROC to allow oral evidence and/or cross examination where there may be factual disputes relevant to an application to set aside an award on jurisdiction, and that evidence is necessary to secure the just, expeditious and economical disposal of the application. This was relevant if a party wanted evidence to be re-taken in court. The High Court opined that such a party should, at the time the application to set aside an award is made, also file additional affidavits of evidence of the witnesses that the party intends to call and make the necessary applications for them to be cross examined. The Supplier in AQZ was penalized for not making such applications for additional evidence to be heard when it applied to set aside the award (see [52]-[53], [60]). 

    The High Court’s approach is understandable given that parties to an arbitration would presumably have fully presented their case before the tribunal in the hearing on jurisdiction. Further, short of new evidence surfacing post-award, the parties ought to already know what evidence needs to be re-taken when it makes an application to set aside the award. The court would also be entitled to consider the need for efficiency as an application made late in the day can result in the vacating of hearing dates and wastage of court’s time. Nevertheless, it is respectfully submitted that the court should be willing to allow certain portions of the evidence to be retaken, even if an application is made late in the day, in those exceptional cases where the evidence on a critical issue is lacking or is unclear. As the hearing is de novo, the court should not defer to the arbitral tribunal on any factual findings but should instead satisfy itself based on evidence; and it would be unsatisfactory for the court to make its decision on incomplete or unclear evidence. In this regard, the holding in AQZ does not close the door completely to these avenues. However, parties seeking to set aside an arbitral award on the ground of lack of jurisdiction would do well to bring applications for oral evidence to be heard as early as possible and to draft their supporting affidavits as affidavits of evidence-in-chief insofar as they wish for the deponent to be called as a witness and cross-examined. 

    2.    Applicability of s 10(3) of the IAA and Article 16(3) of the Model Law

    The second point clarified by the High Court is that s 10(3) of the IAA and Article 16(3) of the Model Law cannot be used to set aside an award that deals with the merits of the dispute. 

    In relation to Article 16(3) of the Model Law, the tribunal may rule on its own jurisdiction either as a preliminary question or in an award on the merits. This decision is usually taken after considering the parties’ submissions on whether there ought to be a bifurcation of the arbitration so that the tribunal first decides on its own jurisdiction before going to the merits of the case. In examining the travaux préparatoire of Article 16(3), the High Court observed that the arbitral tribunal is empowered to assess whether there was a greater risk of dilatory tactics or a possibility of time and costs being wasted by carrying out an unnecessary arbitration (at [68]-[69]). The High Court held that the Award in this instance dealt with both the jurisdiction of the tribunal and merits of the case, and the setting aside of such an award falls outside the intent and scope of Article 16(3). It is respectfully submitted that the High Court’s approach is commendable in that it showed fidelity to the intent of the drafters, while at the same time giving effect to the general principle of minimal curial intervention in international arbitration.

    The High Court also held that the fact that s 10 of the IAA allows a tribunal to rule on a plea that it has no jurisdiction “at any stage of the arbitral proceedings” did not entitle the Supplier to challenge the Award under this provision. In coming to this conclusion, the High Court rightly recognized the distinction between when a determination can be made and the form that the tribunal’s ruling takes. The form that the ruling takes (whether as a jurisdictional award or an award that deals with both jurisdiction and merits) determines the question of whether the supervisory court may review the award pursuant to Art 16(3) of the Model Law (see [70]). 

    3.    Appointment of a sole arbitrator under the Expedited Procedure

    The third point which warrants discussion is the High Court’s decision to uphold the tribunal’s jurisdiction notwithstanding that a sole arbitrator was appointed (under the Expedited Procedure) contrary to the arbitration agreement. The material part of the arbitration agreement in AQZ reads:

    … the dispute shall be finally settled by arbitration upon the written request of either party hereto in accordance with the rules of conciliation and arbitration of the Singapore International Arbitration Centre (SIAC) by three arbitrators in English Language. The result of all such arbitration shall be final.”

    The High Court applied the presumption that a reference to rules containing primarily procedural provisions is a reference to the rules that are applicable at the date of commencement of arbitration, and held that the SIAC Rules 2010 (and not the 2007 version as at the date of contract) were the rules that were incorporated in the arbitration agreement (see [125]-[127]). The High Court also held that (at [132]) a “commercially sensible approach to interpreting the parties’ arbitration agreement would be to recognise that the SIAC President does have the discretion to appoint a sole arbitrator. Otherwise, regardless of the complexity of the dispute or the quantum involved, a sole arbitrator can never be appointed to hear the dispute notwithstanding the incorporation of the SIAC Rules 2010 which provide for the tribunal to be constituted by a sole arbitrator when the Expedited Procedure is invoked”. 

    The appointment of a sole arbitrator under the Expedited Procedure may at first blush appear to be an unwarranted interference with the parties’ arbitration agreement which provided for three arbitrators. However, where parties agree for an arbitration to be administered by the SIAC, it would be reasonable to assume that they intend to be bound by any ruling of the SIAC President in respect of the administration of that arbitration. Accordingly, the SIAC President would have the power to determine administrative issues relating to the arbitration, including the number of arbitrators appointed under the Expedited Procedure insofar as the exercise of this power does not run contrary to the parties’ intention (given that the power of an institution to administer an arbitration itself derives from the arbitration agreement). Here, there was no evidence that the SIAC President failed to consider the parties’ arbitration clause (see [134]). Further, the Supplier did not appear to have argued that three arbitrators should be appointed under the Expedited Procedure if it was deemed applicable. Moreover, the appointment of a sole arbitrator was not inconsistent with the parties’ intention given that they had never considered how many arbitrators should preside in the context of the Expedited Procedure. In any event, the decision in AQZ is correct because, as held at [136], the Supplier did not appear to have discharged its burden of explaining the materiality or the seriousness of the breach. Nor had it demonstrated that it suffered any prejudice as a result of the arbitral procedure that was adopted. (see [136]). 

    In a time where arbitral institutions are constantly pushing the procedural boundaries of institutional rules, drastic changes in institutional rules can work to the peril of parties who fail to stipulate the version of the rules they wish to apply to their dispute. In light of the decision in AQZ, if parties wish to use a particular version of an institution’s rules, they should specifically identify the name or version of those rules in their arbitration agreement. If they do not do so but instead opt for the rules “for the time being in force”, they should be cognizant of the risk that changes in the rules may impose on them procedures which they have not bargained for, and may wish to consider expressly opting out of specific procedures (such as the Expedited Procedure) in their arbitration agreement.

    * This blog entry may be cited as Lionel Leo and Reka Mohan, “High Court Clarifies Law on Applications to Set Aside Arbitral Award for Lack of Jurisdiction: AQZ v ARA [2015] SGHC 49”, Singapore Law Blog (30 April 2015) (http://www.singaporelawblog.sg/blog/article/108)

    ** A PDF version of this entry may be downloaded here

Comment Section