Singapore Court of Appeal and High Court: Grounds to set aside an award, criteria to determine the breach of Natural Justice and Public Policy

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Introduction

In a recent case of Fisher, Stephen J v Sunho Construction Pte Ltd [2018] SGHC 76, the High Court of Singapore dismissed the application to set aside an award on the ground of breach of natural justice and/or public policy. In the instant case, the party challenging the award contended that breach of natural justice occurred by the omission on the part of the Arbitrator to consider the Issues which were raised in the pleadings and addressed in the submissions of the other party. The Court held that accepting the submissions of the award debtor would be to allow a backdoor review of the merits of the arbitrator’s conclusions, disguised as a challenge on the ground of breach of natural justice. The Court held that it must be a clear and virtually inescapable inference that the arbitrator had failed to consider the issue to set aside an award on the ground of breach of natural justice. The Court further held that Public Policy as a ground to set aside an award encompasses a narrow scope and should only operate in situations where the upholding of an award would, for example, “shock the conscience” or is “clearly injurious to the public good”. In the given case, the plaintiff’s submission was simply that the Award involved errors of law, and therefore, the court held that public policy ground was not engaged. Below is the legal literature on breach of natural justice and public policy as a ground for setting aside an award in Singapore thus far.

Breach of Natural Justice as a ground to set aside an award

Section 48(1)(a)(vii) of the Singapore’s Arbitration Act (Cap 10, 2002 Rev Ed) (Domestic Arbitrations) and Section 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) identify breach of natural justice as a ground for setting aside an award. These two provisions are identical and the language is as follows:

Court may set aside award

(1) An award may be set aside by the Court —

(a) if the party who applies to the Court to set aside the award proves to the satisfaction of the Court that —

(vii) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced; or

The genesis of this ground is Article 18 of the UNCITRAL Model Law on International Commercial Arbitration (MAL) which is as follows:

Article 18. Equal treatment of parties

The parties shall be treated with equality and each party shall be given a  full opportunity of presenting his case.

 

Legal Precedents on Breach of Natural Justice in Singapore 

In Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86, the Singapore Court of Appeal while addressing an application to set aside an award on the ground of breach of natural justice under the Singapore International Arbitration Act (Cap 143A, 2002 Rev Ed) (the IAA) set the precedent in this regard. The Court held that a party challenging an arbitration award as having contravened the rules of natural justice must establish:

  • which rule of natural justice was breached;
  • how it was breached;
  • in what way the breach was connected to the making of the award; and
  • how the breach prejudiced its rights.

As such, the Court of Appeal concluded that the “same approach towards natural justice ought to be adopted for both international and domestic arbitrations in Singapore”

The Court also observed that it court should not mechanically apply the rules of natural justice in arbitration such as to require that every conclusion that the arbitrator intends to make be put to or raised with the parties. Parties to an arbitration frequently appoint or accept the appointment of an expert in the relevant field as arbitrator for the purpose of relying on his or her expertise for a sound and swift judgment. Indeed, an arbitrator is “not bound to accept an either/or approach” and is “perfectly entitled to embrace a middle path (even without apprising the parties of his provisional thinking or analysis)”

In AKN and another v ALC and others and other appeals [2015] 3 SLR 488, the Singapore Court of Appeal held it is only after identification of the rule of natural justice that was allegedly breached by the party challenging the award, that the Court will proceed to consider whether there was a causal nexus between the breach and the arbitral award, and whether the breach prejudiced the aggrieved party’s rights. It was also held that that the inference that an arbitrator failed to consider an issue may only be drawn if it was “clear and virtually inescapable”.

Distinction between “tribunal’s decision to reject an argument” and “tribunal’s failure to consider the argument”

It was held that only the latter amounts to a breach of natural justice; the former is an error of law (which is not ground to set aside the decision). Even if the tribunal comes to an inexplicable decision because it comprehended the issue erroneously, it does not necessarily indicate a breach of natural justice. Thus, the court will only infer that a tribunal has failed to consider an important issue if the inference is “clear and virtually inescapable”.

In this regard, the inference should not be drawn if the facts were consistent with the arbitrator having (1) misunderstood a party’s case, (2) been mistaken as to the law or (3) chosen not to deal with a point because he thought it unnecessary (even if this was due to a misunderstanding of a party’s case). It is clear that the inference ought not to be drawn lightly.

In TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972, the plaintiff submitted that the arbitrator had not tried to understand its arguments. However, as Chan J noted, the submission properly understood was “essentially to force the Arbitrator to accept – and not just consider or comprehend – its argument”. Chan J thus rejected the submission, and observed that “no party has a right to expect the arbitral tribunal to accept its arguments, regardless of how strong and credible it perceives its own arguments to be”.

Chan J went on to explain that natural justice only protects the right to be heard. It does not function as a guarantee that the tribunal will fully comprehend the submissions made or that the tribunal will accept those submissions.

In Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd [2010] SGHC 80, the arbitrator had expressly stated in the award that the defendant to the arbitration had “ceased to rely on a number of points pleaded”. Before the Singapore High Court, the defendant sought to set aside that portion of the award and argued that the arbitrator had reached his decision under the mistaken impression that it had abandoned its arguments on those points. The High Court agreed and held that the arbitrator had failed to accord the defendant natural justice. The Singapore Court of Appeal in AKN (Supra) affirmed this ruling, but emphasised that the facts there were “unique” as there was “no real dispute” that the arbitrator had in fact failed to consider the party’s pleaded representations.

Breach of Public Policy as a ground to set aside an award

Section 48(1)(b)(ii) of the Singapore Arbitration Act provides Public Policy as a ground to set aside an award as follows:

Court may set aside award

48.—(1) An award may be set aside by the Court —

(b) if the Court finds that —

(ii) the award is contrary to public policy.

In this regard, the Singapore Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 made clear that “errors of law or fact, per se, do not engage the public policy of Singapore”. The threshold for setting aside an arbitral award for breach of public policy was very high and it encompasses a narrow scope and should only operate in situations where the upholding of an award would, for example, “shock the conscience” or is “clearly injurious to the public good

In the case of VV v VW [2008] 2 SLR(R) 929 (HC), the Singapore court declined to set aside costs award on the basis that it was in conflict with the public policy in Singapore (in that it offended the principle of proportionality).

In VV v VW [2008] 2 SLR(R) 929, even though the Singaporean High Court judge in that case (Prakash J) disapproved of the tribunal’s award and held that it did not follow established legal principles and was disproportionate, the Judge nevertheless held that it was “not part of the public policy of Singapore to ensure that the costs [incurred in an arbitration] are assessed on the basis of any particular principle including the proportionality principle”. The Judge went on to say: “I do not think that the amount of costs awarded by an arbitrator to a successful party…. could ever be considered to be injurious to the public good or shocking to the conscience no matter how unreasonable such an award may prove to be upon examination….. it would be odd for the courts to be able to justify interfering with the quantum of costs awarded by an arbitrator by invoking public policy.

In case of Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1, the Singapore High Court held that “breach of public policy” cannot be generalized and that the party who alleges such breach should establish the specific public policy that has been breached.

In Prometheus Marine Pte Ltd v King, Ann Rita [2017] SGHC 36, the Singapore High Court held that “[a]n objection based on public policy is to be narrowly construed, and only operates where the award would shock the conscience, is clearly injurious to the public good or wholly offensive to the public, or violates the forum’s most basic notion of morality and justice. Mere errors of fact and/or law made by an arbitral tribunal are not contrary to public policy per se; instead the tribunal’s decision or decision making process must be tainted by fraud, breach of natural justice or some other vitiating facto. A merely “perverse” or “irrational” award cannot amount without more to a breach of public policy. There must be egregious circumstances, such as corruption, bribery or fraud.

Recent Development in India

In case of Punjab State Civil Supplies Corporation Ltd. & Anr. v M/s Atwal Rice & General Mills Rep. by its Partners, the Supreme Court of India inter alia held that that an inquiry into facts cannot be held in execution proceedings in relation to award/decree. The court held that

[i]t is a well-settled principle of law that the executing Court has to execute the decree as it is and it cannot go behind the decree. Likewise, the executing Court cannot hold any kind of factual inquiry which may have the effect of nullifying the decree itself but it can undertake limited inquiry regarding jurisdictional issues which goes to the root of the decree and has the effect of rendering the decree nullity.

 

 

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