Singapore Court of Appeal: Right to Fair Hearing in Arbitration and Breach of Natural Justice

Singapore Court of Appeal: Right to Fair Hearing in Arbitration and Breach of Natural Justice

In DBL v DBM, [2024] SGCA 19, the Singapore Court of Appeal discussed various facets of natural justice as a ground to set aside the award. While doing so, the Court of Appeal pertinently observed that an aggrieved party ought not to be allowed to argue a breach of natural justice when at the material time it presented itself as a party which was ready, able and willing to see the arbitral proceedings through to the end.

FACTUAL MATRIX

In the facts of the case, DBL and DBM entered into a sales contract (‘Sales Contract’) for sale and purchase of steel slabs. The Sales Contract was governed by English law with a provision of Singapore seated arbitration under the aegis of arbitration rules of the Singapore Chamber of Maritime Arbitration.

According to the terms of the Sales Contract, goods were loaded in the vessel from Dammam Port located in the Kingdom of Saudi Arabia. Accordingly, DBL, the seller, issued the invoice to DBM, the buyer and in turn DBM’s bank paid consideration to DBL pursuant to a letter of credit.

However, later, DBM’s bank notified DBM that it has reasons to believe that goods are loaded at Bandar Abbas, Iran, rather than at the Dammam Port. Given that Iran was a jurisdiction subject to sanctions, DBM’s bank requested some information from DBM in respect of verification of goods. DBM in turn sought indemnity from DBL which was provided by latter in the form of indemnity bond (‘Bond’) wherein DBL confirmed that the goods were indeed loaded from Dammam Port.

DBM, being dissatisfied with this information, terminated the Sales Contract and sought refund from DBL of the consideration. Meanwhile, DBL sold the goods to another buyer and told DBM that payment from such buyer is awaited. However, in the meantime, DBL made some partial payments to DBM. DBM negotiated another agreement with another entity, DKL, for purchase of nickel. DBL is closely related with the parent entity of DKL and therefore, parties agreed that DBL will assume the responsibility of supplying nickel to DBM.

Disputes arose between the parties in respect of pending payments and DBM invoked arbitration for the alleged breach of Sales Contract by DBL and alternatively seeking restitution of amounts which it was entitled to after setting off its claim from nickel purchase agreement.

ARBITRATION PROCEEDINGS

In the arbitration proceedings, parties have agreed for a protocol whereby if any party intended to rely on demonstrative exhibits derived from evidence, this had to be disclosed by a particular date. However, beyond that date, DBM carried out a sea route demonstration through a vessel tracking website to show the location of vessel at the time of offloading and submitted its report as evidence before the Arbitrator. That report provided coordinates of vessel just before the day of offloading. These coordinates were of a place which was some 1200 km away from Damman Port. Based on this report, DBM argued that even if vessel would have accelerated with its maximum speed i.e., 15 knots, it was impossible for it to reach to Damman Port next morning. Most importantly, DBL did not object to this demonstration.

Accordingly, the Arbitrator decided in favour of DBM and held that based on sea route demonstration carried out by DBM that the goods could not have been loaded onto the vessel at the Dammam Port and rather the evidence proves that they were loaded in Iran. Thus, the Arbitrator upheld the termination of Sales Contract by DBM.

SINGAPORE HIGH COURT

Aggrieved by this award, DBL challenged it before the Singapore High Court under Section 24(b) of the International Arbitration Act 1994 asserting breach of the rules of natural justice which resulted in DBL’s rights being prejudiced. According to DBL, it was not afforded reasonable and fair opportunity as the Arbitrator has allowed sea route demonstration to DBM in violation of agreed arbitration protocol. DBM also contended that the Arbitrator has not considered its contention that the claim is time barred and the Bond provided by DMB was unenforceable under the applicable English law.

The Singapore High Court dismissed DBL’s application and held that the Arbitrator has relied on other evidence aside from sea route reports to conclude that goods were not loaded at Dammam Port. The High Court further held that DBL has never objected to the sea route demonstrations at all. In relation with limitation ground, the Court held that the Arbitrator was not required to deal separately with each argument canvassed by the parties as long as it dealt with the essential issues.

On the ground of enforceability of Bond, the High Court whilst recognised that the Arbitrator did not deal with the issue, ultimately concluded that it was unnecessary to consider the enforceability of Bond because as per High Court, the Award appeared to rest on findings that DBL had breached terms in both the Sales Contract as well as in the Bond. According to High Court, there was, therefore, no prejudice suffered by DBL. This decision was challenged by DBL before the Singapore Court of Appeal.

POSITION OF LAW

Based on precedents, the position of law on the issues at hand, is summarised as under:-

• In considering whether a party had been denied its right to a fair hearing by a tribunal’s conduct of the proceedings, the proper approach a court should take is to ask itself if 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. [China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another[2020] 1 SLR 695]

 

• However, that the tribunal’s conduct and decisions should only be assessed by reference to what was known to the tribunal at the material time [China Machine (supra)]

 

• An aggrieved party cannot simply “reserve” its position until after the award and only pursue a point if the outcome of the award turns out to be unpalatable to it. Hedging against an adverse result is an impermissible conduct because an aggrieved party ought not to be allowed to argue a breach of natural justice when at the material time it presented itself as a party which was ready, able and willing to see the arbitral proceedings through to the end. [China Machine (supra)]

 

• In the context of adjudication determination, natural justice requires that the parties should be heard; it does not require that they be given responses to all submissions made. [SEF Construction Pte Ltd v Skoy Connected Pte Ltd[2010] 1 SLR 733]

 

• In the context of arbitration, a tribunal is not obliged to deal with every argument as that would be neither practical nor realistic. Rather, a tribunal is only required to deal with the essential issues, with the tribunal being accorded fair latitude to determine what is essential. [TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd[2013] 4 SLR 972]

 

• An aggrieved party needed to show that a clear and virtually inescapable inference could be drawn that a tribunal had failed to consider an important pleaded issue before such a finding would be made. [AKN and another v ALC and others and other appeals[2015] 3 SLR 488]

 

• In setting aside proceedings, the curial intervention is only be justified where an aggrieved party is able to show that there was actual or real prejudice caused by the breach. [Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86]

 

• It is not the case that an applicant seeking relief of setting aside of an award on the ground of breach of natural justice must demonstrate that a different outcome would necessarily have followed but for the breach of natural justice. [CBS v CBP[2021] 1 SLR 935]

 

• The central question is whether, as a result of the breach, the tribunal was denied the benefit of arguments or evidence that had a real as opposed to fanciful chance of making a meaningful difference to the outcome of the arbitral proceedings. [L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal[2013] 1 SLR 125]

SINGAPORE COURT OF APPEAL

Applying the above position of law on the facts of the case, the Court of Appeal held that there is no breach of natural justice by the Arbitrator because if DBL had been aggrieved by the searoute demonstrations, it should have objected to it before the Tribunal. The Court of Appeal held that by notobjecting to the searoutes demonstration, DBL’s conduct clearly suggested that it had no issue with it at the material time.

The issue of limitation was also decided against DBL by the Court of Appeal since on the face of award, it was clear that the Tribunal had considered the essential issue as to whether DBM’s claims were time-barred. The Court of Appeal further observed that if the arbitrator does not make any reference to parties arguments in the award, it does not amount to a breach of natural justice. Further as per the Court of Appeal, in the preset case, it cannot be inescapably inferred that the Tribunal had not considered the essential issue of limitation just because it did not go on to explicitly address each of the arguments made by DBL.

On the issue of enforceability of bond, the Court of Appeal disagreed with the observations of High Court and held that that DBM has not raised any alternative claim for breach of just the Sales Contract standing alone as evident from its pleadings. Thus, according to Court of Appeal, the court cannot fill in gaps in DBM’s case or read into its case, a claim which it had not explicitly advanced. Further, according to the Court of Appeal, the Tribunal had not expressly referred to or even considered an alternative claim for breach of just the Sales Contract standing alone. In view thereof, according to the Court of Appeal, it could not be said that the Tribunal had made any finding in the Award that DBM had breached the Sales Contract since there was nothing in the Award to suggest this.

Nonetheless, the Court of Appeal held that DBL has not suffered any actual or real prejudice on account of the breach of natural justice as there was no real chance of a meaningful difference to the outcome of the arbitral proceedings even if the matter had been remitted to the Tribunal to consider this issue because even assuming that the Bond was unenforceable, this would not have changed the fact that there was nevertheless a breach of the Sales Contract.  Further, the Tribunal would have then had to consider the damages payable by DBL to DBM for the breach of the Sales Contract which was the same amount which the Tribunal had ordered DBL to pay DBM in the Award, albeit framed as a refund. Therefore, there was no basis for curial intervention because no actual or real prejudice had been suffered by DBL.

In view thereof, the Court of Appeal dismissed DBL’s appeal and awarded costs of SGD 60,000 to DBM.