Singapore—dismissal of application to set aside ICC award for breach of natural justice and/or excess of jurisdiction (CHH v CHI)

By Shaun Lee, Zhe Ning Low

01-2021

Arbitration analysis: The Singapore High Court (SGHC) dismissed an application under section 48 of the Arbitration Act to set aside a Singapore-seated International Chamber of Commerce (ICC) award. Although the arbitrator’s finding on a particular issue was against common ground between the parties (the ‘impugned finding’), the SGHC refused to set aside the ICC award. While the impugned finding was made in excess of the scope of the submission to arbitration, no prejudice was caused and thus a setting aside was not warranted. In any event, the impugned finding could be separated from the other reasons upholding the award. Shaun Lee, counsel, and Low Zhe Ning, associate, in the dispute resolution group at Bird & Bird ATMD LLP explain the implications of the decision of the SGHC in this case.

CHH v CHI [2020] SGHC 269

What are the practical implications of this case?

The decision suggests that to succeed in a setting aside application, the applicant is required to show not only that a ground for setting aside has been made out, but that prejudice has been caused as a result thereof. This appears to be so, even though among all the grounds for setting aside an arbitral award, breach of natural justice is the only statutory ground that expressly requires an aggrieved party to show that prejudice has been caused.

It bears noting that the setting aside application was made under the domestic Arbitration Act (Cap 10, 2002 Rev Ed) (the AA) and not the International Arbitration Act (the IAA). However, regardless of the type of arbitration and the resultant operative act, the Singapore courts retain a discretion in determining whether or not to set aside an award, even where the grounds for setting aside are made out. A party seeking to invalidate an award under the IAA should also, for good measure, demonstrate that prejudice has been caused.

Finally, parties to a Singapore-seated arbitration are still under a general obligation of confidentiality. This is so even if the applicable rules of arbitration (eg the ICC Rules) are silent or neutral as to confidentiality.

What was the background?

The respondent (plaintiff in the court proceedings) was the main contractor for a construction project. The claimant (defendant in the court proceedings) was the subcontractor under a ‘Design, Supply and Installation of Stone and Tile Sub-Contract’ (the ‘subcontract’). The subcontract work included the supply and installation of S stones and SV stones (collectively, the ‘stones’) and the subcontract provided for a quality assurance and quality control process for stone selection.

In the course of the project, the respondent and/or architect rejected all the S stones and most of the SV stones, which rejection was disputed by the claimant. Accordingly, the claimant commenced ICC arbitration for payment.

The issue in the arbitration was whether the stones complied with the acceptance criteria. The arbitrator held that the question was answered in the affirmative and that the stones should not have been rejected by the respondent. In finding that the stones complied with the subcontract, the arbitrator had, inter alia:

  • opined that the respondent and architect ‘chose not to attend most of the Dry Lays in Singapore’ and whose reliance on photographs was problematic

  • accepted the stone inspector’s conclusions that the stones were compliant, rather than the architect who should have relied on the stone inspector

The respondent challenged the ICC award on the following grounds:

  • the arbitrator should not have decided that the architect should have relied on the stone inspector (unless it could be plainly demonstrated he was wrong) (the ‘stone inspector finding’)

  • it was common ground between the parties that the architect had physically inspected the rejected stones. Thus, the finding that the architect ‘chose not to attend the Dry Lays’ exceeded the scope of submission to arbitration and/or was in breach of natural justice (together, the ‘setting aside application’)

The respondent also applied for sealing and redaction orders to preserve the confidentiality of the arbitration.

What did the court decide?

The application for sealing and redaction was allowed, but the setting aside application was dismissed.

The arbitrator’s findings did not go beyond the scope of submission to arbitration

The respondent argued that the stone inspector finding went against the contractual scheme that final approval rested with the architect and not the stone inspector. Nonetheless, the SGHC considered that while it was for the architect to decide whether to approve or reject the stones, the claimant could challenge that rejection on the basis that the stone inspector’s approval demonstrated that the stones had met the acceptance criteria.

The SGHC therefore held that the arbitrator’s finding that the architect should have relied on the stone inspector was simply ‘part and parcel of [the arbitrator] preferring the stone inspector’s views to those of the architect’. Whether the stones complied with the contractual requirements was an issue in the arbitration and thus, it was open to the arbitrator to make the stone inspector finding, and that finding was not in excess of jurisdiction nor a breach of natural justice. This was so even if the claimant had not made any arguments in line with the stone inspector finding.

In any event, the SGHC noted that the arbitrator had other reasons for finding that the stones complied with the contractual requirements. As such, setting aside the arbitrator’s stone inspector finding would not affect the conclusion that the stones met the acceptance criteria.

The arbitrator’s finding on an issue which was a common ground between the parties exceeded the scope of submission, but did not cause actual or real prejudice

The SGHC noted that it was common ground that the architect had physically inspected all the stones which were rejected. However, the arbitrator had made a finding that the architect ‘chose not to attend most of the Dry Lays…and relied on photographs’. This was notwithstanding that it was common ground between the parties that the architect had attended all four dry lays of the S stones. As a result, the SGHC held that the arbitrator’s finding was ‘plainly wrong’ and that the arbitrator had ‘simply proceeded on a factual basis contrary to what was common ground between the parties’.

The SGHC accepted that ‘there was force’ in the respondent’s contention that the arbitrator had, in making a contrary decision on a matter which was common ground between the parties, exceeded the scope of the submission to arbitration. Nonetheless, the court declined to set aside the award for excess of jurisdiction and/or breach of natural justice.

To this end, the SGHC accepted that ‘prejudice is not an express requirement for grounds other than breach of natural justice’. However, since ‘a court retains a discretion not to set aside an award even if one of the grounds for setting aside has been made out…by corollary, if there is no actual or real prejudice, the court might decline to set aside the award’.

On the facts of the present case, the SGHC opined that the arbitrator’s impugned finding above was not as material and, in any event, concerned only one of several grounds on which his decision in favour of the claimant was based. Since none of the arbitrator’s grounds for his decision hinged on the impugned finding, that (impugned finding) would not reasonably have made a difference to the arbitrator’s decision that the stones complied with the acceptance criteria. Thus, the respondent did not suffer actual or real prejudice.

The SGHC noted that in any event, even if the impugned finding exceeded the tribunal’s jurisdiction, it could be severed from the other reasons for his decision—the arbitrator’s other reasons and his conclusions could not be set aside.

In the circumstances, the SGHC declined to set aside the award.

The sums awarded by the arbitrator were upheld

The respondent had, after the award was issued, argued that the awarded sums were excessive and that the arbitrator had failed to deduct retention monies from what was awarded and had awarded double compensation. The arbitrator declined to correct his award in this respect.

The SGHC considered that the deduction of retentions sums had already been factored into each parties’ valuation of the works and the claim simply reflected the difference between the two valuations. In other words, there was no excess sum awarded. Further, the ‘excess’ sum was the
subject of another separate arbitration between the same parties and could be resolved in that arbitration.

As such, ‘the arbitrator did not exceed his jurisdiction, nor breach natural justice’ in awarding the sums to the claimant.

The parties were subject to the general common law obligation of confidentiality

The SGHC granted the respondent’s application for sealing and redaction orders to preserve the confidentiality of the arbitration. In this regard, the SGHC reiterated that for Singapore-seated arbitrations, ‘confidentiality will apply as a substantive rule of arbitration law…through the common law’ unless the parties agree otherwise.

To this end, the claimant contended that the parties’ agreement to arbitrate under ICC Rules amounted to an agreement that their arbitration will not be confidential, given that the ICC Rules do not expressly stipulate that arbitrations conducted thereunder are confidential. The claimant also argued that a party must make a request under Article 22(3) of the ICC Rules and that the tribunal must then make orders concerning the confidentiality of the arbitration proceedings before that arbitration would be confidential.

The SGHC disagreed. Instead, it held that ‘the ICC Rules are neutral as to confidentiality’ and ‘in a Singapore-seated arbitration…does not displace the general obligation of confidentiality’. The judge also considered that the effect of Article 22(3) of the ICC Rules itself indicates that an agreement to arbitrate in accordance with the ICC Rules is not thereby an agreement to non-confidential arbitration.

Case details:

  • Court: Singapore High Court
  • Judge: Andre Maniam JC
  • Date of judgment: 21 December 2020

This article was first published on LexisPSL linked here.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.