In the case of Coal & Oil Co. LLC v GHCL Ltd  SGHC 65, the Singapore High Court took the opportunity to reinforce that a party seeking to set aside an arbitral award on the grounds of breach of natural justice is a serious matter requiring a high evidential threshold, and will be limited to only “egregious cases where the error is clear on the face of the record.”
The facts of Coal & Oil Co. LLC v GHCL Ltd are straightforward: in 2007, the plaintiff, Coal & Oil Company LLC, entered into an agreement to supply coal to the defendant, GHCL. Following a dispute regarding the contract price, the matter was referred to the Singapore International Arbitration Centre (SIAC) under the auspices of the 2007 SIAC Rules.
The matter was heard by the sole arbitrator (Tribunal) in May 2012 with post-hearing submissions received in August 2012. In its final award dated March 2014 – almost 2 years after the oral hearings and 19 months after parties tendered their post-hearing submissions – the Tribunal found in favour of the defendant.
Several months later, in June 2014, the plaintiff applied to the Singapore High Court to set aside the award on the following bases:
- Under the UNCITRAL Model Law (as applied in Singapore by the International Arbitration Act), the issuance of the award was in breach of the parties’ agreed procedure;
- Under the UNCITRAL Model Law, the award was in conflict with the public policy of Singapore;
- Under the International Arbitration Act, Singapore, there was a breach of natural justice (together, the “Three Grounds“).
All Three Grounds for setting aside the award rest on the same two factual premises – either (or both) of which, the plaintiff argued, would be a sufficient basis for invoking any of the Three Grounds.
The first factual circumstance concerned the Tribunal’s purported failure to comply with Rule 27.1 of the 2007 SIAC Rules (Rule 27.1), which provides:
“The Tribunal shall submit the draft award to the Registrar within 45 days from the date on which the Tribunal declares the proceedings closed.”
The second factual circumstance concerned the “inordinate” 19 month delay between the parties’ post-hearing submissions and the date of release of the award. Again, the plaintiff argued that this delay justified the setting aside of the award under any of the Three Grounds.
(i) Breach of Rule 27.1
The plaintiff argued that Rule 27.1 obliges the Tribunal to declare the proceedings closed before issuing a draft award. Since the Tribunal made no such declaration, it followed that the Tribunal breached its duty by issuing the draft award and any of the Three Grounds for setting aside the award may be invoked.
To resolve this argument, the Tribunal identified the key question to be whether Rule 27.1 should be construed as imposing a duty on the Tribunal to declare proceedings closed, or as conferring a mere power.
After a careful analysis of the wording and drafting history of Rule 27.1, the Court came to the conclusion that the latter construction – a mere power to declare proceedings closed – was to be preferred for the following reasons:
- It would be “unsafe” to impose a duty on the Tribunal to declare proceedings closed without also a corresponding duty to consult with the parties, for example to ensure that parties have no further evidence to tender or submissions to make (such a duty to consult is present in the 2010 and 2013 iterations of the SIAC Rules).
- The plaintiff’s construction was not consistent with what the judge considered to be the function and purpose of Rule 27.1 – case-management. In other words, a declaration of closure should prevent last-minute submissions/new documents and signal to the parties that an arbitral award is forthcoming. His Honour did not consider that Rule 27.1 should be elevated from a case-management tool into a condition precedent for an award to be released.
- The plaintiff did not advance any satisfactory explanation as to why the declaration of closure is so important, or “fundamental” to the arbitral process.
(ii) Grounds for setting aside – 19 month delay and Rule 27.1
In addressing this question, the Court looked at each of the Three Grounds in light of both the delay issue and (for the sake of completeness) Rule 27.1, to show that a breach of Rule 27.1 would not, in any event, have warranted the setting aside of the award.
Breach of agreed procedure under the UNCITRAL Model law
- The Court did not accept that a breach of arbitral procedure should result in an award being set aside, especially not a “technical” or “trifling” breach. Rather, it must be a material breach of procedure which will often (though not always) require proof of actual prejudice.
- In this respect, the Court did not consider that the failure to issue a declaration of the closure of proceedings satisfied the test. In fact it was exactly the type of “technical” and immaterial breach the Court had warned against. Particularly so, since the plaintiff was unable to show why the declaration of closure was of such “critical importance”.
- The Court also rejected the plaintiff’s argument that the 19 month delay was a breach of the agreed procedure. Given the SIAC Rules did not prescribe any kind of time limit for the release of an award, the Court would not accept that any breach of agreed procedure had taken place.
Conflict with public policy
The plaintiff argued that the breach of Rule 27, and/or the subsequent delay in the issuance of an award was in direct conflict with the public policy of Singapore.
- The court first noted that public policy “appears to be the last refuge of the desperate” as far as applications to set aside arbitral awards are concerned.
- The Court then went on to reject the plaintiff’s argument. The procedural issues of the arbitration were not of interest to the wider community and certainly not issues rising to the “level of gravity that the notion of public policy contemplates.“
- Specifically with regard to the issue of delay, the Court was also influenced by Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd  1 SLR(R) 510, where Singapore’s Court of Appeal had ruled that a delay of more than ten years in releasing an award after the hearings had concluded, while “grossly inordinate” and apt to “undermine faith in arbitration”, was not, per se, a sufficient basis for setting aside an award which had already been rendered. If the delay were truly intolerable, the plaintiff ought to have applied under Art 14 of the Model Law for the mandate of the arbitrator to be terminated before the Award was released.
Breach of natural justice
According to the plaintiff, the Tribunal’s failure to invite submissions to address the alleged breach of Rule 27.1 was tantamount to a denial of the plaintiff’s “right to be heard”.
The Court rejected this argument for several reasons:
- First, the plaintiff’s argument is self-defeating. The plaintiff submits that it had not been given the chance,- before the award was issued, to argue a breach of Rule 27.1. However, before the award was issued, there could not, by definition, have been any breach of Rule 27.1.
- Second, the 2007 SIAC Rules do not contain any right for the parties to appear before the Tribunal on the issue of the alleged breach of Rule 27.1.
Meanwhile, the plaintiff also claimed that the “inordinate” 19 month delay in issuing the award is a “procedural irregularity” resulting in a breach of natural justice. Again, this was dismissed by the Court, who pointed to the fact that the 19 month delay did not affect the hearing, the tendering of the plaintiff’s submissions, nor did it evidence any bias on the part of the Tribunal.
This case serves as an important reminder to parties when arbitrating, particularly with a seat in Singapore, that any attempts to set aside (typically unfavourable) arbitral awards on the grounds of alleged breaches of natural justice will be considered as extremely serious matters by the domestic courts.
The evidential threshold in proving violations of natural justice and public policy is high, particularly given the implications of such accusations on an arbitrator’s reputation and standing in the arbitration community and in circumstances where the tribunal is not afforded the opportunity to defend itself. Mere technical breaches will not meet this threshold, and often proof of actual prejudice will be required. As a result, the number of awards which are successfully challenged – and subsequently set aside – by the Singaporean courts is very limited.
For further information, please contact Alastair Henderson, Partner, Bree Farrugia, Senior Associate or your usual Herbert Smith Freehills contact.