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Grounds publishedDecided 26 Nov 2015
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High Court

AUF v AUG and other matters

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[2015] SGHC 305Case no. Originating Summons No 790 of 2014, Originating Summons No 791 of 2014 and Originating Summons No 789 of 2014 (Summons No 4899 of 2014)

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  1. Belinda Ang Saw Ean J:

  2. Introduction

  3. [1] There are before the court three applications. The first two challenged an arbitral award dated 29 July 2014 (“the Award”). The first challenge in Originating Summons No 790 of 2014 (“OS 790”) is to set aside in part the Award pursuant to s 17(2) of the Arbitration Act (Cap 10, 1985 Rev Ed) (“the 1985 Act”). The second challenge in Originating Summons No 791 of 2014 (“OS 791”) is for leave to appeal on questions of law arising out of the Award. The third application is Summons No 4899 of 2014 (“SUM 4899”) filed in Originating Summons No 789 of 2014 (“OS 789”) to set aside an ex parte Order of Court dated 9 September 2014 to enforce the Award as a judgment of the High Court pursuant to s 46 of the Arbitration Act (Cap 10, 2002 Rev Ed) (“the 2002 Act”).

  4. [2] AUF is the plaintiff in OS 790 and OS 791, and the defendant in OS 789. AUF was the respondent in the Arbitration. AUF is hereafter referred to as “the Contractor”. The claimant in the Arbitration was AUG. Notably, AUG is the defendant in OS 790 and OS 791 and the plaintiff in OS 789. AUG is hereafter referred to as “the Owner”. Mr Davinder Singh SC (“Mr Singh”) is for the Contractor in all three applications, and Mr Alvin Yeo SC (“Mr Yeo”) is for the Owner. In the Arbitration, Mr Yeo represented the Owner and Mr Alan Thambiayah (“Mr Thambiayah”) was counsel for the Contractor.

  5. [3] The issues in the challenged part of the Award that fell to be decided by the sole Arbitrator was whether there was a breach of a contract in relation to design, supply and installation of the external wall system carried out by a nominated sub-contractor on a 13-storey commercial development in a premier shopping district of Singapore (“the Building”). The Arbitrator was to decide on the quantum of damages payable if he found the Contractor liable as main contractor for the defective works carried out by the nominated sub-contractor (“the NSC”). Specifically, the NSC’s tender price of $8,100,000 was for the design, supply and installation of the external wall cladding of the Building (“the Sub-Contract Works”). The final agreed sum for the Sub-Contract Works was $8,503,649.05 (“the Final Sub-Contract Sum”). Parties clarified in their respective letters dated 28 September and 6 October 2015 that the Final Sub-Contract Sum included the quantum of variation works accepted by the Contractor’s quantity surveyor.

  6. [4] The dispute before the Arbitrator spanned a period of 14 years. At the end of it, the sole Arbitrator rendered a 90-paragraph award in favour the Owner. The Arbitrator held that the Contractor, as main contractor, was in breach of the Sub-Contract Works and awarded damages based on 40% of the Final Sub-Contract Sum.

  7. [7] As stated, OS 791 is for leave to appeal on questions of law arising out of the Award. However, it is envisaged that the court need not proceed with OS 791 if the Contractor succeeds in OS 790. Similarly, the parties ought to abide by the outcome of either OS 790 or OS 791 in relation to SUM 4899 in OS 789.

  8. [8] The relevant statute that is applicable to OS 789, 790 and OS 791 is the 1985 Act (see also s 65(2) of the 2002 Act).

  9. The Arbitration

  10. The underlying dispute in the Arbitration

  11. [9] The underlying dispute leading to the Arbitration arose out of the construction of the Building which was the subject of an agreement made between the Owner and the Contractor and dated 25 May 1995 (“the Main Contract”). The works in the Main Contract included the design, supply and installation of the external wall system that was carried out by the NSC. The Main Contract incorporated the SIA Conditions of Contract for Measurement Contract (4th Ed). Clause 37 of the Main Contract contained an agreement referring disputes to arbitration.

  12. [10] After completion of the Building in March 1997, complaints of leaks and water-seepage into the Building surfaced. From March 1997 to June 1998, the Contractor carried out ad hoc repair works by face-sealing and over-sealing the Building. Further rectification works were carried out between September 1998 and January 2000, but the leaks persisted. In February 2000, the Owner informed the Contractor that it wanted the external wall to be re-cladded. Although it was an item of claim pursued in the Arbitration, the claim for the re-cladding of the external wall was dropped in the course of the Arbitration.

  13. [11] The Arbitration that was commenced was ad hoc. Thus, it was not governed by any institutional set of arbitration rules or procedure. The NSC was joined as a third party to the arbitral proceedings on or around 30 October 2000, but the proceedings against the NSC were later abandoned when the NSC went into liquidation. The Arbitration continued between the Owner and the Contractor.

  14. The pleadings in the Arbitration

  15. [12] The final pleadings in the Arbitration were as follows:

  16. (a) The Owner’s re-amended Points of Claim dated 9 May 2005, which included a list of 64 alleged defects set out in an appendix (“Appendix A1.1”);

  17. (b) The Contractor’s re-re-amended Defence and Counterclaim dated 23 August 2005; and

  18. (c) The Owner’s amended Reply and Defence to the Contractor’s Defence and Counterclaim dated 10 January 2004.

  19. [13] As can be seen from the re-amended Points of Claim, the Owner sought these reliefs:

  20. (a) an order that the Contractor remedies the defects in the external wall by recladding the Building;

  21. (b) alternatively, damages for the cost of recladding the Building;

  22. (c) alternatively, damages for diminution in value of the Building;

  23. (d) loss, damages and expenses for loss of rental, car park fees, damages and/or compensation paid or to be paid to the Building’s tenants, rectification works, and costs related to the engagement of a façade consultant to investigate the façade defects;

  24. (e) costs of the Contractor’s use of the Owner’s gondola to carry out rectification works;

  25. (f) damages, loss and expense suffered by the Owner, including managerial staff, administrative, and/or site costs expended on the façade defects, rectifications and/or tenants’ claims;

  26. (g) interest and costs; and

  27. (h) such further or other relief as the Arbitrator deems fit to award.

  28. [14] The Owner added its alternative claim for damages for diminution in the value of the Building to its pleadings on 5 December 2003.

  29. [15] Pursuant to this amendment, the Contractor requested further and better particulars on 12 December 2003 and 9 January 2004. In its request dated 9 January 2004, the Contractor asked the Owner to give full particulars of the damage it had allegedly suffered in respect of the Owner’s alternative claim for damages for diminution in the value of the Building. The Owner responded on 19 January 2004, stating that the Contractor was “not entitled to any such particulars” as the request was “for evidence”.

  30. [16] Dissatisfied with the Owner’s response, the Contractor made another request on 25 March 2004 for particulars of: (a) the basis upon which alleged damages for diminution in value were to be computed; and (b) the alleged damages suffered. On 12 April 2004, the Owner wrote:

  31. The hearings and directions made

  32. [17] The first tranche of hearing, on the issue of liability, was held over a period of 13 days in August and September 2005 (“the First Hearing”). The Contractor had originally taken the position that all defects and leaks had been rectified, but changed its position after seven days of the First Hearing in August 2005 and accepted that there were defects which were “capable of rectification”.

  33. [18] At a procedural meeting held on 10 August 2007, the Owner withdrew its claim for recladding of the external walls of the Building. The Arbitrator’s directions are apposite:

  34. [19] The parties were directed to have their respective expert witnesses meet to try to agree on the defects listed in Appendix A1.1, and their nature and extent. Directions were given to counsel on both sides to meet thereafter to attempt to streamline the agreed views of the expert witnesses and the parties’ respective positions. Further hearing dates in 2007 were fixed, but the dates were vacated subsequently.

  35. [20] The meetings were unsuccessful. In December 2008, the Arbitrator suggested that the parties consider the appointment of an independent expert instead. An independent expert was appointed on 13 May 2009 (“the Independent Expert”) and he was to meet with the parties’ experts to discuss the nature and extent of the defects listed in Appendix A1.1.

  36. [21] The Independent Expert issued a draft report on the defects listed in Appendix A1.1 in two parts: the first on 15 November 2010, and the second on 10 January 2011 (collectively “the Draft Report”). In the Draft Report, the Independent Expert opined that there was a “contractual defect” from the very fact that leaks were still being recorded. He further opined that the Owner’s method of recording the leaks was “not the preferred way of assessing the extent of the leaks”.

  37. [22] On 1 August 2012, a procedural meeting was held following the Contractor’s proposal made through its counsel on 9 July 2012 to limit, inter alia, the scope of the arbitral hearing to each party making submissions on the list of defects referred to in the Award as Annex 1. Directions were issued accordingly.

  38. [23] In July 2012, the Owner called for tenders and invited prospective contractors and façade specialists to quote for the rectification and repair works needed for the Building based on the repair procedures and quantities prepared by its expert. At the end of the tender period in August 2012, two tenders were received in the sum of approximately $7.7m and $14.7m from Tender Company 1 and Tender Company 2 respectively.

  39. [25] By a letter dated 18 February 2014 addressed to the parties, the Arbitrator wrote:

  40. These directions will hereinafter be referred to as “the February 2014 Directions”.

  41. [26] Pursuant to the February 2014 Directions, the parties exchanged written submissions on 3 March 2014. The Contractor filed reply submissions on 12 March 2014. The Owner responded that it did not expect the Contractor to tender reply submissions and asked for leave to do the same. The Owner was given leave to respond and it submitted its reply on 1 April 2014. Notably, the Contractor had objected to the Arbitrator’s remit to award damages on the basis of diminution in value at this stage and its submissions were submitted under protest and upon reservation its right to object to the Arbitrator acting in excess of jurisdiction.

  42. [27] A procedural meeting was held on 3 April 2014, after which the Arbitrator wrote to the parties to confirm the following matters:

  43. These directions will be referred to as “the April 2014 Directions”.

  44. [28] Once again the Contractor objected that the Arbitrator did not have jurisdiction to determine and make an award for damages based on diminution in value at this stage. The Contractor’s submissions of 1 May 2014 were submitted under protest and upon reservation of its rights. The Owner served its reply submissions on 29 May 2014. The Contractor took the view that the Owner had raised new points and legal material in its May 2014 Submissions and sought leave from the Arbitrator to respond on 4 June 2014. Specifically, Mr Thambiayah’s argument was that the Owner had, amongst other things, introduced a “new case” of abatement and that it was relying on Multiplex Constructions (UK) Limited v Cleveland Bridge UK Limited [2006] EWHC 1314 (TCC) (“Multiplex”) and Keating on Construction Contracts for this “new case”. Thus, the Contractor wanted to reply to this “new case”.

  45. [29] The Arbitrator declined to give leave to reply. It is important to set out the relevant portion of the Arbitrator’s e-mail of 18 June 2014 to Mr Thambiayah:

  46. [30] Separately, the Owner objected when the Contractor sought the Owner’s consent to the Contractor submitting a reply.

  47. The parties’ cases in the Arbitration on damages

  48. The Owner’s case on damages and quantum

  49. [31] The Owner’s case on damages and quantum prior to the Second Hearing was comprehensively tabulated in its submissions dated 9 October 2012:

  50. Prior to the Second Hearing, the Owner was undeniably advancing first and foremost a claim for damages based on the cost of rectification of the defects with reference to Appendix A1.1. However, diminution in value of the Building was still a positive alternative claim in the Owner’s Points of Claim as amended in 2003 and maintained in the Arbitrator’s directions in August 2007 (see [18] above). That was how the Arbitrator saw it for he raised the possibility of an award of damages based on diminution in value in the course of the Arbitration and asked for submissions on diminution in value.

  51. [32] That happened during the Second Hearing. I refer to the exchange on 9 July 2013 between the Arbitrator, Mr Yeo (counsel for the Owner in the Arbitration) and Mr Thambiayah (counsel for the Contractor in the Arbitration) during the Second Hearing:

  52. [33] The following day, 10 July 2013, the Arbitrator raised the issue of diminished value again:

  53. [34] After the Second Hearing, the Owner addressed the issue of diminution in value in its submissions dated 12 November 2013 in the following manner:

  54. [36] The Owner then proposed a “betterment discount” of 20% to 30% off the tender price of $7.7m submitted by Tender Company 1. Effectively, the Owner was proposing that the Arbitrator award approximately $5.4m (70% of Tender 1) as damages for diminution in value of the Building.

  55. [38] The Owner also submitted that there was no material difference between diminution in value of the Building and diminution in value of the Sub-Contract Works given that the Sub-Contract Works were part of the Building, and parties were arguing about diminution in value as a consequence of the same defects.

  56. The Contractor’s case on damages and quantum

  57. [39] Turning to the Contractor’s case on damages and quantum, the Contractor had submitted after the Second Hearing that there was never any claim made by the Owner for diminution in market rental, and that there was no evidence of diminution in value of the Building either. The Contractor highlighted the undisputed fact that the book value of the Building did not appear to be affected by the alleged defects in the Sub-Contract Works. In its submissions made in September 2013 after the Second Hearing (“the Contractor’s September 2013 Submissions”), the Contractor also comprehensively enunciated the relevant legal principles governing the measure of loss and its reasons for rejecting the Owner’s claims in the Arbitration. Given the importance of this submission, it merits quoting in full:

  58. [41] By the April 2014 Directions, the Contractor was to file its submissions first, before the Owner. This was a matter which the Contractor protested against in its answers to the April 2014 Directions (ie, “the Contractor’s May 2014 Submissions”) and it asked for an opportunity to reply if the Owner’s answers introduced a case that the Owner had not previously made.

  59. [42] The Contractor then reiterated its position that the Arbitrator had no jurisdiction to make an award for damages on the basis of diminution in value claiming that the Owner’s conduct of its case showed that it had abandoned its alternative claim based on diminution in value. It also pointed out that the Owner had claimed for diminution in value of the Building, and not diminution in value of the Sub-Contract Works, the latter being the basis on which the Arbitrator had posed his questions. Subject to that caveat, the Contractor agreed that the Arbitrator could use the NSC’s tender for the Sub-Contract Works as a basis to determine the diminished value of the works, although it submitted that any diminution in value of the Sub-Contract Works was de minimis.

  60. [43] Elaborating on its answers, the Contractor pointed out that the Owner had appeared to be collecting market rental for the past 16 years after the Building had been completed. The Owner had therefore suffered no loss, and there could not be any diminution in value of the Sub-Contract Works. However, the Contractor then went on to state the following:

  61. [44] The Contractor’s point was that if diminution in value of the Sub-Contract Works was applied on the established basis by comparing two values, ie, the value of the Sub-Contract Works as contracted for less the value of the allegedly defective Sub-Contract Works, the diminution in value of the Sub-Contract Works would amount to either $330,000 or $730,724.05 (depending on whether the NSC’s tender price or the Final Sub-Contract Sum of $8,503,649.05 was used as the value of the “non-defective” Sub-Contract Works).

  62. Events that occurred before the Award was handed down

  63. [45] I now refer to the events that developed after the Owner’s May 2014 Submissions were served. The Contractor sought leave to reply, alleging, among other matters, that the Owner had presented a new concept of abatement of value. The Owner strenuously objected on the basis that the Contractor had already implicitly addressed the issue of abatement as follows:

  64. [46] As stated above at [29], the Arbitrator’s direction on 18 June 2014 against this backdrop was that he required no further assistance. The Arbitrator recorded in the Award that he received a total of 16 written submissions by 18 June 2014. Notably, the opening sentence of the April 2014 Directions expressly “confirmed” that it was “[the Contractor’s] solicitors” who were to “revert” to the Arbitrator on the issues set out in the April 2014 Directions (see [27] above). The upshot of the Arbitrator’s confirmation is that the Owner was to have the last word on the very issues.

  65. The Award

  66. [47] Against the entire background facts, history of the arbitral proceedings, arguments and developments narrated above in [9]–[46] above, I now turn to the Award.

  67. [48] The Arbitrator found for the Owner on the main claim. He construed cl 28(2) of the Main Contract to mean that the Contractor would be fully responsible for the Sub-Contract Works that were carried out by the NSC. The Contractor was therefore held liable for the defects in, inter alia, the installation of the external wall cladding arising from the NSC’s default or breach of contract. Paragraphs [51] and [61] of the Award read:

  68. [49] The Arbitrator summarised the Independent Expert’s conclusions which he accepted in [31] of the Award:

  69. [50] Before me, the Owner argued that the parties had implicitly or effectively treated the Draft Report as the final version. The Contractor disputed this. Be that as it may, the Arbitrator accepted the Independent Expert’s conclusions in the Draft Report that analysed the 64 pleaded defects in Appendix A1.1 and came to a landing that there were 31 defects (whether by agreement between the parties, or in the Independent Expert’s opinion), with five other pleaded defects requiring further investigation.

  70. [51] Having found against the Contractor on the issue of liability, the Arbitrator then approached the issue of the quantum of damages. He cited the principle that compensatory damages are aimed at putting the innocent party in “as good a position as if the contract had been performed”. The Arbitrator quoted from The Law of Contract in Singapore, Andrew Phang Gen Ed (Academy Publishing, 2012) at para 21.058 which I set out here for background:

  71. [55] The Arbitrator opined that “the appropriate award [would be] one based on diminution in value”. Paragraph [82] of the Award reads:

  72. [56] In deciding on diminution in value as the appropriate measure of damages, the Arbitrator made the following findings of fact in [79] of the Award:

  73. (a) In view of the defects, the Building sustained diminution in value (“the DIV Finding”).

  74. (b) The parties had agreed that the NSC’s Final Sub-Contract Sum was $8,503,649.05.

  75. [57] Importantly, the Arbitrator also held that the diminution in value of the Building would be the difference between “the value in terms of the works supplied compared with the works contracted for” (see [80] of the Award). As shown in [82] of the Award (see [55] above), in arriving at the diminution in value, the Arbitrator took into account the defects confirmed in the Draft Report (ie, the 31 items of defects). In arriving at these conclusions contained in the Award, the Arbitrator would have accepted the legal proposition advanced by both sides that diminution in value of the work may be equal to diminution in value of the Building (see [38] and [39] above).

  76. [58] The Arbitrator cited Philips v Ward [1956] 1 WLR 471 (“Philips v Ward”) and Watts v Morrow [1991] 1 WLR 1421 (“Watts v Morrow”) as illustrative authority. As to how to derive the value of work supplied, the Arbitrator found guidance, as can be seen from [81] of the Award, from the speech of Gibson LJ in Watts v Morrow. The Arbitrator quoted Gibson LJ at 1434–1435:

  77. [59] The Arbitrator had earlier cited Romer LJ in Philips v Ward in [80] of the Award. Romer LJ at 477 said:

  78. [60] In [83] of the Award, the Arbitrator awarded to the Owner $3,401,459.62 being 40% of the Final Sub-Contract Sum as compensation for diminished value of the Building as of the cut-off date of 18 July 2005 (“the DIV Award”) as well as other sums which the Contractor had admitted. In [84] of the Award, he also awarded the Contractor the sum of $2,056,306.54, being the sum of the Contractor’s undisputed Counterclaim.

  79. [61] These consequential orders were also made:

  80. (a) The amounts awarded to each of the parties to carry interest at the rate of 5.33% per annum from 8 November 2001 to the date of the Award (“the Interest Award”).

  81. (b) The Owner and the Contractor were awarded costs on their claim and Counterclaim, such costs to be agreed, failing which to be taxed (“the Costs Award”).

  82. (c) The fees and expenses of the Arbitrator and the costs and expenses of the Award to be borne by the parties in the proportion of 60% by the Contractor and 40% by the Owner (“the Arbitrator’s Costs Award”).

  83. OS 790 to set aside the Award in part

  84. (a) Whether the Arbitrator exceeded his jurisdiction by: (i) finding that the Building sustained diminution in value; and (ii) making the DIV Award that referenced damages based on 40% of the Final Sub-Contract Sum, which had not been pleaded or referred to him for determination (ie, the Jurisdiction Issue).

  85. (b) Whether the DIV Award should be set aside because there was no evidence or reasons to support the Arbitrator’s conclusions that the Building had sustained diminution in value and in making the DIV Award (“the Natural Justice Issue 1”).

  86. (c) Whether the Arbitrator failed to give the Contractor a fair hearing as it was deprived of the opportunity to present its case on diminution in value, namely: (i) the DIV Award was made on a basis not put to the parties; and (ii) alternatively, it was made on the basis of the Owner’s May 2014 Submissions, which the Contractor was not given the opportunity to address (“the Natural Justice Issue 2”).

  87. (d) Whether the Arbitrator failed to give the Contractor a fair hearing in making the Interest Award (“the Natural Justice Issue 3”).

  88. (e) Whether the Arbitrator failed to give the Contractor a fair hearing in making the Costs Award and the Arbitrator’s Costs Award (“the Natural Justice Issue 4”).

  89. [63] The Contractor also contended that as a result of the Arbitrator’s misconduct of the arbitral proceedings, it had suffered prejudice.

  90. [64] The Contractor’s DIV challenge is brought under s 17(2) of the 1985 Act. It is necessary to show that the approach of the Arbitrator in the proceedings constituted misconduct of the proceedings within the meaning and scope of s 17(2) of the 1985 Act. The DIV challenge is disputed by the Owner on the basis that none of the criteria of s 17(2) is satisfied in relation to the matter this court is now considering and/or to the extent that s 17(2) is relied on. In short, Mr Yeo contended that the Contractor was seeking to re-litigate the substantive issues and merits in the arbitration.

  91. Statutory framework of s 17 of the 1985 Act

  92. [65] Section 17 of the 1985 Act provides for recourse against arbitration awards where the arbitrator had misconducted himself or the proceedings:

  93. [66] “Misconduct” for the purposes of s 17(2) of the 1985 Act refers to “a mishandling of the arbitration, which may lead to some substantial miscarriage of justice” (Halsbury’s Laws of Singapore (Butterworths Asia, 1998) at para 20.127). A “mishandling of the arbitration” may include cases where the arbitral tribunal acted in excess of jurisdiction, or where it committed a breach of natural justice (see Judith Prakash J in Koh Bros Building and Civil Engineering Contractor Pte Ltd v Scotts Development (Saraca) Pte Ltd [2002] 2 SLR(R) 1063 (“Koh Bros”) at [32]). The mere fact that a “mishandling of the arbitration” occurred would not ipso facto amount to “misconduct” within s 17(2) of the 1985 Act; the mishandling must be shown to be likely to cause an injustice that warrants correction.

  94. [67] The point is that s 17(2) of the 1985 Act is about due process, not whether the tribunal reached the right conclusions. Section 17(2) is only to be available in cases where the tribunal had gone so far wrong in its conduct of the arbitration that the court would be expected to take action to correct the injustice. Choo Han Teck JC (as he then was) stated in John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 1 SLR(R) 443 (“John Holland”) (at [19]–[20]):

  95. [68] Plainly, errors of fact or law do not qualify as “misconduct”. This statement of principle is articulated in s 28(1) of the 1985 Act which provides that subject to s 28(2) (which allows for appeals to court on a question of law arising out of the award), the court does not have the jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award.

  96. [69] It has been accepted that arbitrators should not come to decisions which surprise the parties. This oft-quoted passage in Mustill & Boyd, Commercial Arbitration (Butterworths, 2nd Ed, 1989) (“Mustill & Boyd”) encapsulates the principle (at p 312):

  97. [70] However, this observation is to be viewed and understood in light of the issues and circumstances of each case seeing that it will often not be necessary for an arbitral tribunal to request submissions on every point in its decision. The English Court of Appeal in Carillion Construction Limited v Devonport Royal Dockyard Limited [2005] EWCA Civ 1358 (“Carillion Construction”) explained (at [53]):

  98. [71] The Court of Appeal in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 66 (“Soh Beng Tee”) considered the authorities and distilled the following principles (at [65]):

  99. [72] The Court of Appeal in Soh Beng Tee cited extensively with approval the principles set out in the New Zealand case of Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452. In that case, Fisher J opined that the test of whether a particular decision reasonably flows from or may be foreseen from parties’ arguments is to be tested on an objective basis. He also explained (at 463):

  100. [73] In sum, there is no misconduct constituting breach of natural justice because an arbitrator comes to a conclusion which is not argued by either party as long as that conclusion, on an objective assessment, reasonably flows from or may be foreseen from parties’ arguments.

  101. [74] I come to the “no evidence rule”. The Contractor said that the “no evidence rule” could be a “third pillar” of natural justice that had yet to be decided by the Singapore courts. The “no evidence rule” was explained by Lord Diplock in R v Deputy Industrial Injuries Commissioner, ex parte Moore [1965] 1 QB 456 at 488 in an administrative law context:

  102. [75] The “no evidence” rule was considered by the Federal Court of Australia in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83 (“TCL Air Conditioner”) in the context of international commercial arbitration, and the court held at [83] and [112] that the making of a factual finding without evidence in the context of international commercial arbitration may in the appropriate case be characterised as a breach of the rules of natural justice offending the fair hearing rule, but it does not follow that lack of probative evidence (and so as to amount to error of law) should without more be characterised as a breach of natural justice. Caution was raised in TCL Air Conditioner by Allsop CJ, Middleton and Foster JJ who opined (at [113]) that the “no evidence” rule should not be used as a disguise to rehear the facts or submissions in the case and thus a party should be able to demonstrate the practical injustice suffered shortly without a detailed re-examination of the facts. What is important is not the application of formalistic rules, but whether “true practical injustice” had been occasioned. In Emerald Grain Australia Pty Ltd v Agrocorp International Pte Ltd [2014] FCA 414, the “no evidence” rule was analysed from a public policy perspective as a breach of natural justice would, under Australian law, render an arbitral award in conflict with the public policy of Australia.

  103. [76] Whilst the status of the “no evidence” rule was expressly left open in two High Court decisions (see TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 (“TMM Division”) at [118]–[120] and AQU v AQV [2015] SGHC 26 at [45]), there is no reason to consider this issue in the present case. The outcome of OS 790 turns on different grounds. Besides, there is a no compelling need to recognise the “no evidence” rule as a separate free standing rule of natural justice. As stated, the focus of the inquiry under s 17(2) is due process, and due process is to be examined in the context of the fair hearing rule. In the context of “misconduct”, Mustill and Boyd remarked (at p 561):

  104. [77] Another aspect of fairness in proceedings is the need for the arbitral tribunal to give reasons for its decision. Under the 2002 Act and the International Arbitration Act (Cap 143A, 2002 Rev Ed), an arbitral award must state the reasons on which it is based unless parties have otherwise agreed. While there is no similar provision in the 1985 Act, the provision of reasons for a decision is a facet of fairness. As the Court of Appeal in Thong Ah Fat v Public Prosecutor [2012] 1 SLR 676 (“Thong Ah Fat”) stated (at [15]):

  105. [78] Although the Court of Appeal in Thong Ah Fat was referring to the judicial duty to give reasons, the court in TMM Division found the standards set out in Thong Ah Fat “assistive indicia” to arbitrators. I agree with the approach of the court in TMM Division. While it has been suggested in Prestige Marine Services Pte Ltd v Marubeni International Petroleum (S) Pte Ltd [2012] 1 SLR 917 that the inadequate provision of reasons by an arbitral tribunal is a mere error of law, the concept of inadequacy exists within the bandwidth of a spectrum. As noted by the court in TMM Division (at [104]):

  106. [79] Hence, whether a given decision is sufficiently reasoned is a matter of degree and must be considered in the circumstances of each case. Even if no reasons were given in an arbitral award, this would not invariably cause the award to be set aside for breach of natural justice.

  107. [80] For misconduct to constitute a breach of natural justice, and in order to succeed in challenging the award as having been made in contravention of the rules of natural justice, the Contractor must establish: (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights (see John Holland at [18] and Soh Beng Tee at [29]).

  108. [81] On the test of prejudice in determining whether an arbitral award should be set aside, the Court of Appeal in LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 (“LW Infrastructure (CA)”) clarified the statement of “actual prejudice” in Soh Beng Tee at [65(f)] in its review of the matter in the context of s 48(1)(a)(vii) of the 2002 Act. For convenience, I set out the text of Soh Beng Tee’s [65(f)]:

  109. [82] As to the threshold of prejudice that must be crossed, the Court of Appeal said (LW Infrastructure (CA) at [50] and [54]):

  110. [83] Although LW Infrastructure (CA) concerned the provisions of the 2002 Act, in my reading of the authorities, the approach in LW Infrastructure (CA) is consistent with the earlier authorities under the 1985 Act (see for eg, John Holland at [19]–[20], Koh Bros at [32], and Anwar Siraj and another v Ting Kang Chung and another [2003] 2 SLR(R) 287 at [40]) and sets out the applicable test for prejudice required under s 17(2) of the 1985 Act.

  111. [84] Finally, in a setting aside application, the court may instead of setting the award aside remit any of the matters referred to the arbitral tribunal for reconsideration under s 16 of the 1985 Act.

  112. [85] With the relevant principles outlined above in mind, I now turn to the issues which arise for this court’s determination in OS 790.

  113. The Jurisdiction Issue

  114. [86] Paragraph [83] of the Award is where the Arbitrator awarded the Owner the sum of $3,401,459.62 being 40% of the Final Sub-Contract Sum as compensation for diminished value of the Building as of the cut-off date of 18 July 2005 (ie, the DIV Award) as well as other sums which the Contractor had admitted. In [84] of the Award, the Arbitrator awarded the Contractor the sum of $2,056,306.54, being the sum of the Contractor’s undisputed Counterclaim for the retention money. Hence, the net amount payable to the Owner (before the Interest Award) was $1,491,934.26.

  115. [87] The Contractor considered the outcome of [83] of the Award as not a matter that was pleaded or pursued in the Arbitration. Furthermore, the Arbitrator exceeded his reference using a method of assessment which he did not put to the parties and which neither party argued. Mr Singh submitted:

  116. [88] At first blush, Mr Singh’s contentions are attractive. However, with respect, there is nothing to the excess of jurisdiction point upon closer scrutiny of the Award read with the relevant documentary evidence before this court. Let me elaborate.

  117. [89] The underlying claim was the breach of the Main Contract in relation to the Sub-Contract Works. On ordinary principles, the innocent party is to be put in the same position, so far as money can, as if there had been no breach. If there was a breach and loss had been suffered, the question for determination in the Arbitration was this: “What was the true amount of the loss suffered by the innocent party?” In short, the Arbitrator’s reference was to decide on liability and quantum of damages. Indeed, this was made clear by the Owner’s general prayer for “loss and damage arising from defects” as stated in the Arbitrator’s August 2007 directions (see [18] above).

  118. [90] The important distinction which must be borne in mind is between an “erroneous exercise by an arbitral tribunal of an available power vested in it (which would amount to no more than a mere error of law)” and the “purported exercise by the arbitral tribunal of a power which it did not possess” (see CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 at [33]). Applying this distinction in the present case, the reference to Arbitration gave the Arbitrator the power to determine the damages which should be awarded to the Owner in the event he found that the NSC had performed defective works for which the Contractor was liable under the Main Contract. Specifically, the Owner had prayed for diminution in value of the Building as an alternative relief.

  119. [91] As the Court of Appeal stated in PT Prima International Development v Kempinski Hotels SA and other appeals [2012] 4 SLR 98 (at [33]):

  120. [95] Mr Singh relied on the case of Nada Fadil Al-Medenni v Mars UK Limited [2005] EWCA Civ 1041 (“Al-Medenni”) to press his point that the Arbitrator’s February and April 2014 Directions seeking further submissions on damages for diminution in value, were in excess of the Arbitrator’s jurisdiction and remit, and was an unwarranted descent into the arena. In Al-Medenni, the claimant was injured by a reel of wrapping paper weighing about 10 kg, which fell from a machine above her as she was going about the course of her employment. The claimant sued the employer for negligence. She pleaded that one Mr Braich had negligently placed the reel of wrapping paper on the machine. The defendant’s position was that the claimant herself had placed the reel on the machine. During the course of the opening submissions, the Judge suggested that there was another possibility – someone other than Mr Braich or the claimant had placed the reel on the machine (“the third man theory”). This suggestion was not taken up by the claimant or the defendant, and no cross-examination of witnesses proceeded on that basis. However, in the claimant’s closing submissions, the third man theory and the doctrine of res ipsa loquitur appeared to have been adopted as alternatives to her primary case that Mr Braich was responsible. Although the Judge found for the claimant, he did not accept that the claimant had proved that Mr Braich had placed the reel on the machine. In his judgment, the reel was negligently placed on the machine by another unidentified employee (ie, the third-man theory). Dyson LJ, with whom the other members of the English Court of Appeal agreed, stated (at [19] and [21]):

  121. [96] Al-Medenni is distinguishable on the facts. Unlike the third man theory in Al-Medenni, the Owner’s claim for diminution in value of the Building featured in the pleadings. The parties also agreed at the Second Hearing that they would, in their written submissions, address the Arbitrator on damages for diminution in value of the Building after this measure of damages had been raised as a possibility by the Arbitrator then.

  122. [100] In the circumstances, it was thus reasonable, and entirely within the Arbitrator’s remit, to seek submissions on diminution in value which the Arbitrator had raised at the Second Hearing. In my view, given the state of affairs prior to the Arbitrator issuing his February 2014 Directions (see [35], [39], [94] and [97] -[98] above), the Owner had not unequivocally abandoned its alternative pleaded claim for diminution in value of the Building (unlike its express withdrawal of its claim for recladding (see [18] above)).

  123. [101] I return to Mr Singh’s contention that the Arbitrator exceeded his jurisdiction in making the DIV Award in the manner and on the basis which he did (see [87] above). The Arbitrator was criticised for making findings of fact that had nothing to do with the market value of the Building as contracted for and the market value of the Building as supplied. In reality, Mr Singh’s submissions go to the substance of the DIV Award in that the contention is that the Arbitrator made an error by making use of the Final Sub-Contract Sum. This type of error (assuming there was an error) is plainly not misconduct that would go to the Arbitrator’s jurisdiction.

  124. [102] To the extent that the award was erroneous on the basis of legal principle, the following passage in Mustill & Boyd, which was cited with approval in the House of Lords decision of Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221at [25], is instructive (at p 550):

  125. [103] Mr Singh quoted AKN and another v ALC and others and other appeals [2015] 3 SLR 488 (“AKN v ALC”) at [72] where the Court of Appeal stated that an example of an act in excess of jurisdiction would be where an arbitral tribunal “makes an arbitral award that neither party requested”. However, the “request” referred to by the Court of Appeal in AKN v ALC relates back to the terms of the tribunal’s reference and the pleadings. Plainly, the Owner had requested, in its pleadings, for an award of damages for breach of contract, and specifically, an award of damage on the basis of diminution in value of the Building in the alternative.

  126. [104] I make two other points in relation to the argument that the DIV Award was unexpected and neither party had requested it. It was said that neither party had made submissions on the use of the Final Sub-Contract Sum, or that a percentage of the Final Sub-Contract Sum could be taken as the quantum of damages for diminution in value of the Building. This same contention was repeated in the complaint of breach of natural justice.

  127. [105] The first point is the Arbitrator’s use of the Final Sub-Contract Sum which nobody had raised and was said to be a wholly unexpected outcome. This contention lacks credence seeing that the Final Sub-Contract Sum was raised by the Contractor itself in its May 2014 Submissions, in response to the Arbitrator’s April 2014 Directions, and in the context of the Final Sub-Contract Sum being used as the value of the works contracted for (see [43] above). Having put the Final Sub-Contract Sum explicitly before the Arbitrator, it is a bad point to take that “neither party made submissions on the Final Sub-Contract Sum being taken as the first value”. The Final Sub-Contract Sum was put forward as one of the values for consideration.

  128. [106] The second point is the percentage figure of 40% in the DIV Award. It is true that the Arbitrator did not spell out how and where he derived the percentage figure of 40%. However, this does not mean that the Arbitrator had “applied a 60% discount plucked from thin air” (see [87] above) if the DIV Award is examined in light of the legal principles the Arbitrator took pains to reproduce in the Award. Let me elaborate.

  129. [110] In conclusion, the Arbitrator, in finding that the Building had sustained diminution in value and awarding damages on that basis, did not act in excess of jurisdiction. For the reasons stated, the Jurisdiction Issue fails.

  130. A breach of natural justice that constitutes misconduct

  131. [111] Before considering the DIV Award and the Contractor’s specific complaints about it in more detail, it bears stating again that the focus of the inquiry under s 17(2) is due process, not the correctness of the Arbitrator’s decision. Hence, the court’s inquiry is on whether there was due process: did the Arbitrator fail to give the parties the opportunity to address points, facts or arguments which occurred to the Arbitrator but had not been raised by the parties? This point that s 17(2) is about due process, not whether the tribunal reached the right conclusions, is of particular importance in the present case, where upon close analysis, the Contractor’s real complaint is that the Arbitrator reached the wrong result.

  132. Natural Justice Issues 1 and 2

  133. [112] The same grounds raised in the Jurisdiction Issue are being relied upon to set aside the DIV Award for breach of natural justice. This is not surprising since the grounds do overlap considerably.

  134. [113] The Contractor argued that anyone reading the DIV Award would not be able to understand the basis on which the Arbitrator reached his decision since the DIV Award was so bereft of reasons, “completely out of the ballpark and arbitrary”. The Arbitrator had asked for submissions on the NSC’s tender price but ended up using the Final Sub-Contract Sum. The Contractor argued that “neither party made submissions on the Final Sub-Contract Sum being taken as the first value” or that a percentage of the Final Sub-Contract Sum could be taken as the quantum of damages for diminution in value of the Building. In addition, there was no evidence to support the DIV Award; the Contractor had not been given the opportunity to respond to the “new case” based on doctrine of abatement raised in the Owner’s May 2014 Submissions and there was a lack of reasons for the DIV Award, which reinforced the startling and unexpected outcome of the Arbitration. It is the final holding of damages for diminished value of the Building that the Contractor submits constituted a breach of natural justice.

  135. [114] I will first deal with the allegation that the Contractor was not given an opportunity to respond to the Owner’s “new case” that was raised in the Owner’s May 2014 Submissions. The Contractor had sought leave from the Arbitrator to reply to the Owner’s May 2014 Submissions. Leave was not granted. The Arbitrator made a clear decision that he did not require further assistance and submissions from the Contractor. That was the end of the discussion as far as the Arbitrator was concerned. The fact that he did not preclude the parties from agreeing between themselves to make further submissions was not the point and it did not controvert the decision he had made.

  136. [115] Even if this case management decision could be characterised as a breach of natural justice, the Contractor would not have suffered any prejudice. The threshold prejudice required to set aside for breach of natural justice is explained in LW Infrastructure (CA) (see [82] above). The Contractor must show that the alleged breaches of natural justice were not merely technical or inconsequential.

  137. [116] The Contractor submitted that it would have made submissions on the points below had it been given an opportunity to respond:

  138. (a) The award of a percentage sum of the Final Sub-Contract Sum as damages should be reconsidered.

  139. (b) The values of diminution in value of the Sub-Contract Works and diminution in value of the Building are different and cannot be equated.

  140. (c) Evidence of diminution in value of the Building was required to show that the defects in the Sub-Contract Works affected the value of the property. The Owner cannot simply rely on what Mr Yeo had said at the Second Hearing as this was not admissible evidence.

  141. (d) There was no evidence to support a figure of 40% of the Final Sub-Contract Sum as damages.

  142. (e) The concept of abatement and Multiplex were inapplicable as abatement had not been pleaded and can only be applied as a defence.

  143. (f) The appropriate discount for betterment and for leave to adduce evidence on the same.

  144. (g) The Owner cannot rely solely on the cost of rectification without evidence of other factors to calculate diminution in value because this amounts to a conflation of two entirely different heads of damage.

  145. Points (b), (c), (e), (f) and (g) echoed the matters stated in Mr Thambiayah’s letter of 4 June 2014, where he sought leave to respond to the Owner’s May 2014 Submissions. I have already dealt with points (a) and (d) when discussing the Jurisdiction Issue in [105] to [109] above and I adopt the matters stated there as applying equally to the complaints of breach of natural justice in the present case.

  146. [117] In my judgment, the Contractor had ample opportunity to make and had in fact made the submissions in respect of points (b), (c), (d), (e ), (f) and (g) above in the Arbitration. Let me elaborate.

  147. [119] One related objection to the Arbitrator’s legal approach concerned the fact that the Owner had sought in its pleadings diminution in value of the Building, and not diminution in value of the Sub-Contract Works. In my judgment, there was no failure of due process or breach of natural justice here because the Arbitrator had given the both parties a chance to comment on an award for diminution in value of the Sub-Contract Works pursuant to his April 2014 Directions. Even at that stage, the Contractor had already made the argument that diminution in value of the Building could not be equated with diminution in value of the Sub-Contract Works. In fact, the Contractor’s submissions in 2014 showed a shift in its position that contradicted its earlier submissions in September 2013 where the Contractor had said that “[i]n many cases, diminution in value of the work may be equal to diminution in value of the building” [emphasis added] (see [39] above). In contrast, the Owner took the position that diminution in value of the Sub-Contract Works could amount and would be equivalent to diminution in value of the Building:

  148. [121] Hence, the Contractor’s objection on this count was a matter that was squarely before the Arbitrator, and the Arbitrator had already the benefit of submissions from both parties. The Arbitrator awarded damages based on diminution in value of the Building, and not the Sub-Contract Works, which was in line with the Owner’s submissions and in fact, the Contractor’s September 2013 Submissions. The fact that he preferred and decided to adopt these submissions could not be said to be a breach of natural justice, and indeed a contrary finding would be an unwarranted and impermissible intrusion into the merits of the decision. As stated, misconduct in s 17(2) of the 1985 Act is about due process, and errors of fact or law on the face of the award is not indicative of misconduct of the arbitral process.

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