Singapore Case Update: Setting Aside an Award on the Basis of Public Policy & Breach of Natural Justice (Coal & Oil Co LLC v GHCL Ltd [2015])

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I.  BACKGROUND

On 26 April 2007, Coal & Oil Co LLC and GHCL Ltd signed an agreement, for Coal & Oil Co LLC to supply between 180,000 to 190,000mt of coal to GHCL Ltd, with three to four shipments. Both parties agreed to settle any disputes arising from the agreement with arbitration in Singapore, under the 2007 SIAC Rules.

Following the dramatic increase in the price of coal, the Plaintiff requested an increase in coal prices for the third shipment, leading to a US$1,295,888 increase in price.  While the Defendant agreed to this increase initially, the Defendant shortly requested the Plaintiff to return the US$1,295,888, accusing the Plaintiff of coercion. In settling the dispute, the Tribunal appointed by the Singapore International Arbitration Centre (“the SIAC”) awarded the Defendant the sum of $1,295,888 with interest, 19 months after both parties’ final reply submissions.

On 12 June 2014, the Plaintiff applied to set aside the award, under the International Arbitration Act (“the IAA”), on the following grounds:

a. Under Art 34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (“the Model Law”), the issuance of award breached the agreed arbitration procedure.

b. Under Art 34(2)(b)(ii) of the Model Law, the issuance of award conflicted with the public policy of Singapore.

c. Under s 24(b) of the IAA, the issuance of award breached pillars of natural justice.

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II. ISSUES FOR THE COURT

The Plaintiff’s grounds for setting aside the award were based on two factual premises: the Tribunal contravened r. 27.1 by issuing an award before declaring proceedings closed and an “inordinate delay” of 19 months between both parties’ final submissions and the issuance of the award.

With the above three grounds for setting aside the award based on these two factual premises, the Court was tasked to address the following issues:

• Whether there was a breach of the agreed arbitration procedure by the Tribunal?

• Whether the issuance of the award conflicts with the public policy of Singapore?

• Whether the issuance of the award breaches pillars of natural justice?

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III.  THE COURT’S DECISION

Before focusing on the grounds presented by the Plaintiff, Steven Chong J dealt with the issue of whether Rule 27.1 of the 2007 SIAC Rules confer a power or a duty on the Tribunal to declare proceedings closed before releasing the award.

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A power or a duty?

Relying on an excerpt from r. 27.1 (“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 Plaintiff claimed that the Tribunal is required to declare the proceedings closed before releasing the award.

However, the Court held that r. 27.1 is silent on this issue and purposively interpreted that this rule confers a power, and not a duty, to declare proceedings closed before releasing the award.

This decision was based on the following grounds:

• The 1991, 1997, 2010 and 2013 SIAC Rules have never required the Tribunal to declare the proceedings closed before issuing the award. In line with these versions, the 2007 SIAC Rules ought not to have this additional requirement. In fact, it would be dangerous to impose such a duty, without imposing a further duty on the Tribunal to consult with the parties before making the declaration.

• 27.1 merely serves as a case-management tool, to prevent parties from making last-minute submissions and to signal to the parties the end of proceedings. This case-management tool ought not to be a condition precedent for the release of award, to prevent unnecessary delays.

• The Plaintiff’s submissions are not commercially sensible and require unnecessary formalities.

• The Plaintiff’s construction will render Rule 25.1 of the 2007 SIAC rules superfluous.

For completeness, Steven Chong J then addressed all 3 issues with reference to both factual premises, to illustrate that a breach of r. 27.1 would not warrant the setting aside of the award.

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The agreed arbitration procedure

In interpreting Article 34(2)(a)(iv) of the Model Law, Steven Chong J cited Belinda Ang J’s holdings in Triulzi Cesare SRL v XinyiGroup (Glass) Co Ltd [2014] SGHC 220 at [54] and held that with a fact-specific inquiry, “the procedural breach complained cannot be of an arid, technical, or trifling nature; rather, it must be a material breach of procedure serious enough that it justifies the exercise of the court’s discretion to set aside the award.” Without a proof of actual prejudice, the Plaintiff’s complaints of the Tribunal’s failure to declare the proceedings closed before releasing the award failed to satisfy this test.

Furthermore, as the 2007 SIAC Rule do not stipulate any time limits for the release of the arbitral award before declaring the proceedings closed, the 19 months delay did not contravene any 2007 SIAC Rules procedures. Therefore, there was no breach of the agreed arbitration procedure.

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Public policy

Article 34(2)(b)(ii) of the Model Law states that if an award conflicts with public policy, it may be set aside. Following the standards set in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 at [59], where “upholding of an arbitral award would ‘shock the conscience’ …, or is ‘clearly injurious to the public good’ or … ‘wholly offensive to the ordinary reasonable and fully informed member of the public’ …, or where it violates the forum’s most basic notion of morality and justice” warrants the setting aside of awards, Steven Chong J held that the Plaintiff’s case did not cross this high threshold. Instead, the Court held that the Plaintiff’s argument confused public interest with particular interest and therefore, will certainly not warrant the award to be set aside.

Notably, the Court highlighted that not every violation of public interest equates to a violation of public policy. As held by Steven Chong J, “violations of “public policy” only encompass those acts which are so egregious that elementary notions of morality have been transgressed.” Clearly, a delay in an award fails to transgress notions of morality. In further support of his argument, Steven Chong J compared the current case with Hong Huat Development Co (Pte) Ltd v Hiap Hong & Co Pte Ltd [2000] 1 SLR(R) 510 (“Hong Huat”). He illustrated that in both cases, parties did not elect to remove their arbitrators for the delay in issuance of award, implying an understanding for the time needed. As compared to Hong Huat, where the Court held that a ten-year delay was insufficient for a breach of public policy, the “inordinate delay” of 19 months pales in comparison and will not constitute a breach of public policy.

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Breach of natural justice

In Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86 at [43], the Court reiterated the two pillars of natural justice, “that an adjudicator must be disinterested and unbiased … parties must be given adequate notice and opportunity to be heard.” In an attempt to establish a breach of natural justice, with reference to r. 21.7, the Plaintiff submitted that the Tribunal’s failure to invite parties to submit on its non-compliance with r 21.7 before issuing the award constituted a denial of the right to be heard. However, under all variations of the SIAC Rules, there is no provision that confers such a right. This “seriously misconceived” suggestion to delay justice failed to qualify as a breach of natural justice.

With regard to the delay issue, the Plaintiff failed to identify the pillar of natural justice breached by the 19-month delay. As pointed out by the Court, even if the Plaintiff submitted on both pillars, the Court held that the delay did not infringe on the Plaintiff’s rights to a fair and unbiased hearing.

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IV.  CONCLUSION 

After carefully analysing all the issues presented, Steven Chong J held that there is no such duty to declare proceedings closed before the issuance of award. There was no breach of the agreed arbitration procedure, public policy and natural justice, and the plaintiff’s appeal was dismissed.

This decision serves as a reminder to all arbitration practitioners on the thresholds for breaches of agreed arbitration procedure, public policy and natural justice. The Courts are aware of the use of public policy and natural justice as “the last refuge of the desperate” and have reminded that only in exceptional cases, such grounds can successfully warrant the setting aside of awards.

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This article may be cited as follows: Jordan Tong, “Singapore Case Update: Setting Aside an Award on the Basis of Public Policy & Breach of Natural Justice (Coal & Oil Co LLC v GHCL Ltd [2015])”, International Arbitration Asia (20 August 2015) <http://www.internationalarbitrationasia.com/articles/singapore-case-update-declaring-proceedings-closed-before-releasing-award-a-power-and-not-a-duty-coal-oil-co-llc-v-ghcl-ltd-2015/>.