BLB and another v BLC and others

Belinda Ang Saw Ean J:

[1] This application vide Originating Summons No 1006 of 2012 (“OS 1006/2012”) is to set aside an arbitral award dated 31 July 2012 (“the Award”) for the sole arbitrator’s purported failure to decide a counterclaim that was submitted to arbitration. The arbitration proceedings followed an unsuccessful joint venture in Malaysia between two groups of companies. For convenience, the parties have referred to the subject arbitration as “the BOA Arbitration”. The abbreviation “BOA” stands for the “Business Operations Agreement” as described in [12(c)] below.

[2] The first to third defendants viewed OS 1006/2012 as an attempt by the plaintiffs to have the court interfere with and judicially review the merits of the findings of fact and law reached by the sole arbitrator (“the Tribunal”). In such a case, there would be no recourse to the court, and the losing parties would remain contractually bound to accept the Tribunal’s decision whether or not they think it right. In contrast, the plaintiffs’ principal ground of complaint, viz. that the Tribunal’s treatment of their counterclaim was contrary to the rules of natural justice, represents the other extreme. On this ground of complaint, the law permits recourse to the courts pursuant to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) and Art 34(2) of the UNCITRAL Model Law for International Commercial Arbitration 1985 (“the Model Law”). The parties’ opposing positions embody a tension that is becoming increasingly apparent in the context of curial challenges to arbitral decisions. On one hand, the supervisory function of the court requires it to step in to provide relief in cases of genuine challenges. On the other hand, the linked principles of minimal curial intervention and finality in proceedings demand that this power of intervention be exercised warily and only in meritorious cases where statutorily prescribed grounds for setting aside have been established. This tension is further heightened when the losing party attempts to air its grievances before the court as complaints of breaches of natural justice or other established grounds of challenge and in doing so attempts to re-open the arbitration or traverse over the issues in the arbitration. The court must firmly resist any such attempts.

[3] The recent case of TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] SGHC 186 (“TMM”) exemplifies this tension. There, Chan Seng Onn J declined to set aside the arbitral award in question, finding that no breaches of the rules of natural justice had occurred in connection with the making of the award. Implicit in the reasoning of Chan J was the finding that curial recourse against the award had been improperly used to invite the court to judge the full merits and conduct of the arbitration (see TMM at [126]). The following observations in TMM (at [2]) merit citation:

The central issue before me relates to which of the two diametrically opposing scenarios the present application falls into. Nevertheless, due to the concerns just discussed, it is my view that in a borderline case the benefit of doubt would invariably favour the tribunal.

[4] The second plaintiff (“P2”) is a public company incorporated in Malaysia primarily involved in the automotive industry and a component member of the [P] group of companies (loosely referred to by the Tribunal as [P]).

[5] The second defendant (“D2”) is a company incorporated in Germany in the business of producing butt-weld pipe fittings and bespoke piping components mainly using hydroforming technology. This last-mentioned technology is acknowledged by the parties to be a core competence of the [D] group of companies (hereafter [D]), of which D2 is a component member.

[6] The fourth defendant is a Malaysian-incorporated subsidiary of D2 established to undertake manufacturing operations for D2 in Malaysia. D4 is now in liquidation (see below at [10]).

[7] The first defendant (“D1”) is also a subsidiary of D2 and is in the business of selling and distributing products made by D2.

[8] The third defendant was and is the sole shareholder of D2. He is regarded by the first two defendants as the alter ego of the [D] group of companies.

[9] The first plaintiff (“P1”) is a Malaysian-incorporated company and a joint venture vehicle between P2 and D2. Pursuant to the joint venture, P2 holds 75% and D4 holds 25% of the issued shares in P1.

[10] The plaintiffs were represented by Mr Hri Kumar Nair SC (“Mr Kumar”). The first to third defendants were represented by Mr Chenthil Kumar Kumarasingam (“Mr Kumarasingam”) who indicated, at the hearing of this present application, that an order had been made to wind up D4. D4 did not participate in the present application even though OS 1006/2012 was served on the liquidator. D4 was not affected by the bulk of the counterclaim but only by a claim for RM 22,185.88.

[11] In 2002, [P] and [D] negotiated a possible joint venture in which D2 would sell its shares and business operations in D4 to P2, which was desirous of acquiring [D]’s expertise in the aforementioned hydroforming technology.

[12] Following negotiations between the parties, a Heads of Agreement dated 3 July 2003 was entered into between D2 and P1. It was followed in time by, inter alia, the following agreements:

(a) An Asset Sale Agreement (“the ASA”) dated 13 October 2003 between D4 and P1 effecting the sale by D4 to P1 of D4’s business;

(b) A Shareholders Agreement dated 3 April 2004 between D4 and P2 pursuant to which P2 subscribed for sufficient shares in the enlarged capital of P1 to constitute P2 as owner of 75% of P1;

(c) A Business Operations Agreement dated 3 April 2004 (“the BOA”) between D1 and P1 regulating the obligations of the parties in promoting the commercial success of the joint venture; and

(d) A Licence Agreement dated 3 April 2004 (“the LA”) between D1 and P1 granting P1 a licence to use the [D] trademark on products manufactured by P1, subject to the products meeting [D]’s quality standards.

Upon the completion of the ASA on 23 June 2005, the purchase consideration was paid in the following modes: RM14m paid in cash, RM10m by way of an issue to D4 of shares in P2 and RM26m by way of an issue to D4 of shares in P1 (making D4 the owner of 25% of P1).

[13] In the context of the present application, the following terms of the BOA and LA are pertinent. Clause 5 of the BOA provided for D1’s purchase of a minimum quantity of the annual production of all “[P1] Product Lines” (defined in the BOA) from P1. Clause 5.4.1 of the BOA provided that upon call-offs being made by [D], P1 was to ensure that the products for which call-offs had been sent were ready for delivery within a period of time prescribed by the BOA. Finally, under the LA (see above at [12(d)]), D1 granted P1 a non-transferable and non-exclusive licence to use the [D] trademark on products manufactured and sold by P1 subject to the products meeting D1’s quality standards.

[14] In or around June 2005, P2 took over operation of P1. Between July and December 2005, D2 made various call-offs for the [P1] Product Lines. However, P1 could not fulfil all the orders and failed to deliver all of the products ordered within the time period prescribed by the BOA. On or about 18 May 2006, D2 issued a Notice of Default in delivery to P1. On or about 11 July 2006, D1 also issued a Notice of Default for purported breaches of the BOA and LA, particularly in respect of delay of supply, failure to adequately stock raw materials, and defective products. Following further correspondence, D1 wrote to P1 on 15 August 2006 to terminate the BOA and LA.

[15] Notwithstanding the purported breaches by P1, D1 issued 14 purchase orders to P1 between July 2006 and February 2007 amounting to €6,704,065. On or about 13 February 2007, P1 wrote to D1 to demand payment of RM4,653,604.78 purportedly owed for goods sold and delivered by P1 as of December 2006. On 14 February 2007, D1 responded to this demand as follows:

[16] On 28 February 2007, P1 wrote back to D1 denying, inter alia, that any monies were due and owing to D1. For purposes of clarity, context and ease of reading, I should point out that D1’s reference to the “debit notes for defective products” in its letter of 14 February 2007 related to 10 debit notes issued by D2 for the rectification of defective products supplied by P1, which are hereafter described as “the Group A Goods”. It is common ground that the 14 purchase orders referred to above at [15] related to sales of a different set of products, which are hereafter described as “the Group B Goods.”

[17] On or about 13 February 2007, P1 also wrote to D4 to demand the transfer of bank balances amounting to RM22,185.88 purportedly owed to P1 under the ASA. On or about 14 February 2007, D4 wrote to dispute its liability to transfer this sum to P1. On or about 15 March 2007, P1 wrote to D4 to reiterate its demand for the transfer of the said sum.

[18] On 30 May 2007, D1 commenced arbitration proceedings against P1 and on 25 June 2007, D4 commenced arbitration proceedings against P2 (both arbitration proceedings will hereafter be collectively referred to as “the Arbitration”). On 22 February 2008, by way of an ad hoc agreement executed by all parties in these proceedings, it was expressly agreed that:

(a) All claims and/or counterclaims and/or defences available to or against all parties were to be included in the Arbitration; and

(b) All relevant parties were to be included as parties to the Arbitration.

Pursuant to this ad hoc agreement, D2 and D3 were added as parties to the Arbitration, and P1 and P2 brought counterclaims against those parties.

[19] The present application concerns matters arising out of the BOA Arbitration. In the BOA Arbitration, D1 sought to claim damages from P1 in respect of the following matters:

(a) P1’s purported breach of the BOA in failing to deliver D2’s call-offs in time as required by Clause 5.4.1 of the BOA;

(b) P1’s purported failure to hold the minimum raw materials required per line item pursuant to Clause 5.4.3 of the BOA; and

(c) P1’s purported breach of Clause 4.1 of the LA insofar as the goods it supplied were not in accordance with the applicable [D] quality standards. (The 10 debit notes for rectification works referred to above (at [16]) related to this breach.)

Arising from the above purported breaches, D1 claimed, inter alia, €500,377.04 for the loss of profits as well as US$43,108.69 and €424,168.33 for rectification works in respect of purportedly defective products supplied by P1. By way of observation as to the nature and extent of D1’s complaints, the Tribunal would have to deal with issues relating to liability, as well as concern itself with what remedies and relief should be ordered. To obtain an order for damages, D1 would have to prove breach of contract, ensuing loss, and the quantum of its loss.

[20] In response to D1’s claims, P1 raised, inter alia, the following points:

(a) D1 and/or D2 had misrepresented various material facts which induced P2 to enter into the joint venture partnership with D2;

(b) D1 and/or D2 had acted in a manner inconsistent with the aim and object of the joint venture partnership, and acted to the detriment of P2; and

(c) D1 and/or D2 and/or D4 had acted in a manner to induce a breach of the BOA and the LA and/or to cause loss and damage to P1.

[21] P1 counterclaimed for, inter alia:

(a) General damages in the sum of RM97,034,078; and

(b) The sum of RM5,838,956 being receivables purportedly due to P1 as of 31 January 2008 (“the Disputed Counterclaim”). This sum purportedly comprised of the price of the Group B Goods sold to D1 as well as bank balances of RM22,185.88 due from D4 (collectively, “the Receivables”) (see above at [16] and [17] respectively). With regard to the former, the trade receivables had purportedly increased from RM4,653,604.78 (as reflected in P1’s letter of 13 February 2007) to RM5,816,770.25 (as reflected in P1’s audited accounts as of 31 January 2008) due to additional goods delivered to D1 in this period.

[22] The Arbitration was heard from 12 January 2009 to 15 January 2009 and 22 July 2009 to 24 July 2009 before the sole arbitrator, a senior and experienced legal practitioner. The parties’ submissions and reply submissions were tendered by 20 November 2009. After an interval of two years, the Award was issued on 31 July 2012. On 1 August 2012, one day after the Award was issued, the arbitrator ceased private practice.

[23] In paragraph 1.3 of the Award, the Tribunal listed out the various claims and counterclaims referred to in the Arbitration. It is useful to bear in mind that the defendants were the claimants in the BOA Arbitration and the plaintiffs were the respondents.

[24] In paragraph 1.3.3(l) of the Award, the Tribunal noted that the plaintiffs were alleging that the defendants had failed to pay P1 for the goods D1 had purchased (ie, the Group B Goods). However, the Tribunal proceeded to adopt, out of convenience, the defendants’ framework of issues to be tried in the arbitration proceedings. At paragraph 1.9.1 of the Award, the Tribunal stated:

[25] Despite his remarks, the Tribunal included certain additional issues found in the plaintiffs’ list of issues (which were omitted from the defendants’ list), for example, whether [D] performed its obligations under the joint venture (Issue #13) and whether D4 and D2 acted in a manner to frustrate the joint venture or to the detriment of the plaintiffs (Issue #14). However, the Tribunal did not include, as an issue to be decided, whether D1 and D4 were indebted to P1 in respect of the Receivables pursuant to the Disputed Counterclaim. Instead, the Tribunal set out the Disputed Counterclaim as one of the remedies sought by P1 at paragraph 1.9.1(f):

Similar to the framework provided by the defendants (see below at [48]), the Tribunal thus framed the issues in such a way that if the plaintiffs were in breach of the BOA and the LA, they would not be entitled to any of the amounts counterclaimed, including the Disputed Counterclaim for the Receivables.

[26] Before the Tribunal proceeded to deal with the above issues, he first considered D1’s claim in the BOA Arbitration in paragraph 3 of the Award, which pertinent portions are quoted below:

[27] The Tribunal then held in favour of D1 in respect of its claim for damages for breach of P1’s delivery obligations under Clause 5.4.1. The sum of €500,377.04 was awarded for the loss of profits D1 would have earned on sales of products which were not delivered arising out of the shortfall in supply (see paragraph 3.2.9 of the Award).

[28] In paragraph 3.3, the Tribunal dealt with another liability question, which was whether P1 had breached the LA in delivering poor quality products. Noting that P1 did not seriously deny that there were quality lapses, the Tribunal made the following remarks:

[29] I now come to [P]’s counterclaims (see [21] above). The Tribunal dealt with them in the following manner at paragraphs 5.3 to 5.5 of the Award:

[32] The BOA Arbitration was held under the auspices of the Singapore International Arbitration Centre Rules 2007. In the present setting aside application, the plaintiffs relied on the following provisions, each as a separate and alternative ground:

(a) S 24(b) of the IAA, on grounds that a breach of the rules of natural justice occurred in connection with the making of the Award by which the rights of parties have been prejudiced;

(b) Art 34(2)(a)(iii) of the Model Law, on grounds that the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of submission to arbitration; and

(c) Art 34(2)(b)(ii) of the Model Law, on grounds that the Award is in conflict with public policy.

[34] In this judgment, I shall first examine the circumstances surrounding the Tribunal’s purported failure to consider and address the Disputed Counterclaim, before considering the position under the various provisions of the IAA and the Model Law.

[35] Before I do so, I feel it is necessary to make a few remarks about the degree of review that is appropriate in such cases, which is ultimately a matter dependent on the type and nature of the challenge. Even so, the review should not involve a re-argument or re-trial of the arbitration. I must emphasise that it is not the role of the court to rake through the award and the record fastidiously with the view to finding fault with the arbitral process. Instead, “an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied” [emphasis added] (see Soh Beng Tee at [65(f)]).The same views were expressed by Chan J in TMM at [126], where the review was far more extensive than that undertaken in this case:

[36] The present case is not complicated and I was content to look at the Award, the pleadings, the evidence and the overall presentation of the parties’ respective cases before the Tribunal. This approach was adopted because it was apparent, on the face of the Award itself, that something was amiss in this particular case, and to understand the Award and the opposing arguments of the defendants, some degree of review was required.

[37] I have already set out above (at [23]-[30]) the various salient parts of the Award. In this part of the Judgment, I shall discuss the Award in the context of the pleadings and evidence before the Tribunal, including the manner in which the parties’ presented their respective cases.

[38] It is worth repeating several matters. First, the Disputed Counterclaim for the Receivables was in fact presented by the plaintiffs to the Tribunal for determination. Second, it is not in dispute that the Group B Goods were actually delivered. Third, it is similarly not in dispute that the Group B Goods were different purchases from the Group A Goods, and that the rectification works for which 10 debit notes were raised by D2 related to the Group A Goods only (see above at [16] and [28]). In other words, there was no claim for rectification works in respect of the Group B Goods.

[39] In P1’s Re-Amended Defence and Counterclaim in the BOA Arbitration, P1 pleaded its entitlement to an aggregate sum of RM5,838,956 purportedly being “Amounts owing as at 31 January 2008”. This included the sum of RM5,816,770.25 as “Amounts owing for goods sold and delivered”. In relation to the latter sum, P1 further pleaded that:

P1 also pleaded its entitlement to RM22,186 being the bank balances purportedly payable by D4 to P1.

[40] In its Amended Reply and Defence to Counterclaim, D1 stated:

[41] The plaintiffs also led evidence in respect of the goods sold (ie, the Group B Goods). In the witness statement of Ms Valerie Gan (“Ms Gan”), a witness for the plaintiffs, she stated at paragraph 15.3 that:

On 24 July 2009, Ms Gan was subjected to cross-examination in respect of the Receivables. Then counsel for the defendants in the Arbitration, Mr Sivaneindiren, focused his cross-examination on how Ms Gan was able to show the quantum of Receivables due with reference to P1’s statement of account and audited accounts.

[42] Other than a bare denial of Ms Gan’s evidence by the defendants’ principal witness, Mr Rainer Floeth (“Mr Floeth”), the defendants’ witnesses did not address the issue of the Receivables or the Disputed Counterclaim in their evidence.

[43] In P1’s written submissions in the BOA Arbitration dated 30 October 2009, it was submitted at paragraphs 16.8 and 25.3.3 as follows:

[45] In light of the above, the positions of the parties before the Tribunal appear to be as follows. P1 had made it clear in its pleadings, evidence and submissions that it was claiming the sum of RM5,838,956 for the Receivables. On the other hand, based on its pleadings and submissions, D1’s position was that the Disputed Counterclaim had not been proven in terms of the quantum sought in pleadings. This is clear from [D]’s further submission that if the Tribunal accepted P1’s position that the amount claimed under the Disputed Counterclaim was based on the audited accounts of P1, then this amount was to be set off against any amounts awarded to D1 and/or D4 by the Tribunal. I pause here to flag out Mr Kumarasingam’s argument for D1 to D3 which was that the Tribunal did not accept Ms Gan’s evidence and as such did not deal with the set off. The short answer to Mr Kumarasingam’s contention is that this plainly contradicts paragraph 5.5.1 of the Award which stated that the question of remedies, including P1’s entitlement to the Disputed Counterclaim, “[did] not arise” (see above at [29]-[30]).

[46] On 24 July 2009, the Tribunal instructed parties to furnish an agreed list of issues. However, since the parties could not agree on a common list of issues, separate lists of issues were submitted. On 24 August 2009, the defendants furnished the Tribunal with a statement of issues to be tried (“[D]’s List”). On 26 August 2009, the plaintiffs furnished the Tribunal with their list of issues (“[P]’s List”).

[47] In [P]’s List, the Tribunal was to determine a number of issues, including (at paragraph 15):

At paragraph 18, the plaintiffs sought the following reliefs in the BOA Arbitration:

At paragraph 19, the plaintiffs framed the issues as follows should the Tribunal find in favour of [D]:

[48] Conversely, [D]’s List omitted explicit consideration of whether D1 was indebted to P1 in respect of the Receivables (ie, paragraph 15 of [P]’s List). The issues set out in paragraphs 1 to 6 of [D]’s List related to whether P1 acted in breach of its obligations under the BOA and the LA. However, when framing the reliefs claimed by P1 in the BOA Arbitration, the defendants then combined P1’s counterclaims for general damages with the Disputed Counterclaim in respect of the Receivables. At paragraph 7 of [D]’s List, it stated (mirroring paragraph 18 of [P]’s List; see above at [47]):

In other words, in [D]’s List, the issues were framed such that if the Tribunal found that the plaintiffs were in breach of the BOA and the LA as alleged in the arbitration, they would not be entitled to any of the amounts counterclaimed, including the Disputed Counterclaim for the Receivables. [D]’s List did not explicitly list the Receivables as a claim for consideration despite the plaintiffs’ pleadings.

[49] I have already recounted the Tribunal’s treatment of the Disputed Counterclaim in the Award (see [29] to [30] above).

[50] Mr Kumar argued that it was the Tribunal’s adoption of [D]’s List that led to the Tribunal’s failure to address the Disputed Counterclaim, as the framework of issues put forward by [D] omitted the issues of D1’s purported indebtedness for goods sold and delivered by P1 (which, conversely, was set out at paragraph 15 of [P]’s List) and D4’s indebtedness to P1. According to Mr Kumar, because Issue #16 in the Award was phrased in a manner which obliged the Tribunal’s consideration of the Receivables only if the other substantive issues in the BOA Arbitration were determined in [P]’s favour (ie, Issue #13 and Issue #14 in the Award), the Tribunal completely failed to consider the Disputed Counterclaim.

[51] Mr Kumar further submitted that the Disputed Counterclaim was a stand-alone issue before the Tribunal and had nothing to do with whether [D] had breached their contractual obligations (Issue #13 in the Award) or had acted in a manner to frustrate the joint venture (Issue #14 of the Award).

[52] In response, Mr Kumarasingam countered that the plaintiffs had only made a bare allegation that the Disputed Counterclaim (and the parties’ submissions thereon) was not considered by the Tribunal. The Tribunal had the benefit of the parties’ pleadings and submissions on the Disputed Counterclaim. Further, the issue of the Disputed Counterclaim was also dealt with in the course of cross-examination of Ms Gan. Mr Kumarasingam submitted that in finding that neither the plaintiffs nor the defendants had acted in a manner so as to frustrate the joint venture, the Tribunal left it to the parties to “come to a consensual resolution to unwind the remainder of their failed joint venture” (paragraph 5.6.3 of the Award). I have to say that I do not see how Mr Kumarasingam’s contentions impact the question at issue in OS 1006/2012.

[53] Sensing the weakness of his arguments, during the hearing of the present application, Mr Kumarasingam came up with a line of argument that was not the defendants’ case before the Tribunal. He said that the issue of the defective goods before the Tribunal was tied to the issue of the Receivables. In other words, the defendants appeared to assert that the Tribunal had considered (and dismissed) the Disputed Counterclaim for the Receivables with the finding that P1 had been in breach of the LA in failing to manufacture products in accordance to contractually applicable standards (see above at [28]). To repeat, at paragraphs 3.3.1-3.3.10 of the Award (ie, Issue #3), the Tribunal had considered the issue of whether P1 had breached Clause 4.1 of the LA in delivering poor quality goods (ie, the Group A Goods), and if so, whether D1 was entitled to recover for rectification works for which it had incurred a total expenditure of US$43,108.69 and €424,168.33. The Tribunal ultimately found that P1 was in breach of Clause 4.1 of the LA and was liable to pay for the rectification works.

[54] Mr Kumarasingam argued that the fact that the Group A Goods were found to be defective by the Tribunal suggested that the Group B Goods were also defective. Moreover, he submitted that the plaintiffs’ own formulation of the issue of the Receivables in [P]’s List at paragraph 15 suggested that the quality of the Group B Goods was in issue (see above at [47]). It is to be recalled that the relevant issue was formulated in [P]’s List as follows:

[55] According to Mr Kumarasingam, the Tribunal’s finding that the plaintiffs did not consistently produce goods of the required quality logically extended to the Group B Goods as the plaintiffs had raised (in [P]’s List) the question of whose responsibility it was to ensure the quality of the Group B Goods. Mr Kumarasingam also verbally referred me to various portions of the plaintiffs’ pleadings and submissions before the Tribunal where the plaintiffs claimed that [D] had alleged that the goods supplied by P1 were defective in order not to pay for the goods. Mr Kumarasingam therefore concluded that the Tribunal, upon finding that the plaintiffs did not consistently produce goods of the required quality, decided that the issue of the Disputed Counterclaim “[did] not arise” (see above at [29]).

[57] Mr Kumar pointed out that the defendants’ argument relating to the alleged defects in the Group B Goods was not the way the case was run before the Tribunal. The defendants had argued on the basis that the plaintiffs had to prove the quantum of the Receivables. According to Mr Kumar, the issue of the Disputed Counterclaim had always been a separate and distinct issue from the purported breaches by the plaintiffs in supplying defective Group A Goods.

[60] Besides, as Mr Kumar rightly submitted, this particular argument run by Mr Kumarasingam was brought up for the first time at the hearing of OS 1006/2012, and was not alluded to in any of the affidavits filed before the hearing or the written submissions prepared for the hearing by Mr Kumarasingam. Indeed, D1 to D3’s case on affidavit was that “[t]hroughout the BOA Arbitration, the position of [D1] in relation to [P1’s] counterclaim was consistent i.e. the Purported Sum had to be proven by [P1] to the satisfaction of the Tribunal”.

[61] Due to the way the issues were framed in the Award, and the fact that the Receivables were listed under Issue #16 as a relief sought (as opposed to an issue of liability), once the Tribunal held that [P] failed to prove [D]’s breaches in Issue #13 and Issue #14, the Tribunal logically concluded that all the remedies listed in Issue #16 did not arise for determination. According to Mr Kumarasingam, “the necessary inference must be that the Tribunal had considered the parties’ respective positions and submissions…and come to the conclusion that the Plaintiffs had not satisfied the Tribunal that the Disputed Counterclaim was due and owing”.

[62] I am not convinced by this. I agree with Mr Kumar that on the face of the Award, the merits of the Disputed Counterclaim had not been listed as an issue of liability and only as a relief the plaintiffs might be entitled to if they succeeded on their other claims (ie, Issue #13 and Issue #14). It is quite clear that the plaintiffs’ pleaded complaints described at [25] above were rejected by the Tribunal as not having been successfully proven. In contrast, the Disputed Counterclaim was not rejected because the Tribunal found that it had not been proven or because of any conclusion relating to the quantum of the Receivables.

[63] It is to be recalled that D1, in its letter of 14 February 2007 (see above at [15]), disputed its liability to pay the Receivables and stated that it was undertaking its own “verification exercise” on the goods purchased from P1. At the Arbitration, there was no suggestion or evidence that the verification exercise was carried out. I note that putting the plaintiffs to strict proof with respect to the Disputed Counterclaim is not the same thing as alleging that the goods were defective. Whilst the parties did not agree on the quantum of the plaintiffs’ claim, the goods delivered must have been worth something. Notably, it was not D1’s case in the BOA Arbitration that the Group B Goods had no value. In addition, there was no evidence that the Group B Goods were returned by D1 for rectification. The only way the plaintiffs would not have been entitled to any payment at all would be if the Tribunal had found that defects in the products should have resulted in an abatement in price which would have extinguished the Disputed Counterclaim. No mention at all was made by the Tribunal of any abatement or extinguishment of the sum, or even of any defects in quality in relation to the Group B Goods. Moreover, it was never even the defendants’ case in the BOA Arbitration that the Group B Goods were defective.

[64] In these circumstances, the Tribunal’s omission to make a ruling on the Discounted Counterclaim could only mean that the Tribunal did not address the substantive merits of the Disputed Counterclaim because the Tribunal had assumed that it was a relief sought pursuant to the plaintiffs’ pleaded complaints described in [25]. It had slipped the Tribunal’s notice that the Disputed Counterclaim for Receivables was an independent and distinct claim that had to be dealt with independent of his findings on Issue #13 and Issue #14. It is highly likely that this oversight happened because the Tribunal extensively adopted [D]’s List of issues to be determined (see above at [24]-[25]).

[65] For completeness, I refer to Mr Kumarasingam’s argument that the plaintiffs had at no time objected to the issues formulated in [D]’s List. I accord this argument little weight. It was precisely because the parties were unable to agree on a list of issues that separate lists were submitted for the consideration of the Tribunal.

[66] In my view, the Tribunal’s oversight for the reasons explained above was not due to a manifest error of law or fact on the part of the Tribunal. This leads me to the next question of whether the oversight falls within the provisions of s 24(b) of the IAA or Art 34(2) of the Model Law.

[67] This form of challenge to the Award under inter alia s 24(b) of the IAA, like other types of statutory challenges to arbitral awards, is circumscribed by the judicial philosophy of minimal curial intervention. The oft-cited reasons for the principle of minimal curial interference with arbitral awards are the need to encourage finality in the arbitral process as well as the deemed acceptance by the parties to an arbitration of the attendant risks of having only a very limited right of recourse to the courts (per V K Rajah JA in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [65(c)]). In the context of this case, it is apposite that I quote the statement of principle at [65(f)] of Soh Beng Tee as a reminder of the judicial philosophy of minimal intervention with the finality of an arbitral award:

[68] It is well-established that the courts will decline to set aside arbitral awards in cases of errors of law or fact on the part of the arbitral tribunal. As stated in Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1 (“Sui Southern”), a case on Art 34(2)(a)(iii) of the IAA, at [38]:

[69] However, in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (“CRW”) at [27], the Court of Appeal emphasised that while the courts infrequently exercise their power to set aside arbitral awards, they will nevertheless do so without hesitation if a statutorily prescribed ground for setting aside an arbitral award is clearly established.

[70] It is well accepted that Art 18 of the Model Law enshrines the right of the parties to be treated with equality and to be given a full opportunity to present their cases. Singapore has legislated on the right to challenge an award on grounds of a breach of natural justice in s 24(b) of the IAA, which provides that the High Court may set aside the award of the arbitral tribunal if 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.

[71] The test for setting aside where there is a breach of natural justice was laid down in Soh Beng Tee. The Court of Appeal held (at [29]) that a party challenging an arbitration award as having contravened the rules of natural justice 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.

[72] While Soh Beng Tee was a decision under the Arbitration Act (Cap 10, 2002 Rev Ed) (“the AA”), the test should equally apply to a case brought under s 24(b) of the IAA (see Soh Beng Tee at [65] and L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 (“L W Infrastructure”) at [49]).

[73] In Soh Beng Tee (at [43]), the Court of Appeal further explained two pillars of natural justice encapsulated in the maxims nemo judex in causa sua and audi alteram partem:

[74] As recognised by the Court of Appeal in Soh Beng Tee, the doctrine of audi alteram partem is a fundamental as well as multi-faceted one in the context of arbitral proceedings. The sub-branches referred to by the Court of Appeal are the four “sub-rules” identified in TMM. In that case, Chan J considered a setting aside application on inter alia the ground of a breach of the rules of natural justice in the context of four further sub-rules (see [63]-[106]):

(a) the duty to not look beyond the parties’ submissions.

(b) the duty to deal with essential issues;

(c) the duty to attempt to consider and comprehend the parties’ submissions; and

(d) the duty to give reasons and explanations;

I agree that the above formulation provides a convenient framework to consider whether the rules of natural justice have been breached in a particular case. The abovementioned duties of the arbitral tribunal are not exhaustive and should not be considered rigidly or in isolation as there will often be a degree of overlap between the various amplifications of the doctrine. For example, a complete failure on the part of the arbitral tribunal to give essential reasoning may in certain circumstances give rise to a factual inference that it has been remiss in its duty to attempt bona fide to consider and comprehend the parties’ submissions. Finally, I also note that the question of breach often involves a determination of the extent of departure from best practices and/or procedures, and that there is an entire spectrum of conduct ranging from “permissible discretionary decision-making [to] the forbidden territory of impermissible breach of natural justice” (see TMM at [60]).

[75] In the present instance, the duty most closely engaged is the duty to deal with all essential issues in the arbitration. As noted in TMM (at [72]-[74]), an arbitral tribunal is not obliged as a matter of practicality to deal with every argument canvassed by the parties, but it must ensure that all essential issues are dealt with. In determining what is considered “essential”, tribunals should be given a fair amount of latitude and should be entitled to take the view that the dispute may be disposed of without further consideration of certain issues. Moreover, an issue need not be addressed expressly in an award but may be implicitly resolved. Nevertheless, it is remains incumbent on the tribunal to address its mind to the various critical issues in the proceedings. In this context, the High Court in TMM drew a distinction between arguments on the one hand and issues on the other. To this, in my view, might be added a further distinction as between a head of claim brought by the parties and an issue that is a part of a head of claim, which distinction we will have reason to return to later (see below at [86]). Suffice to say that an issue that is part of a claim may be either an essential or subsidiary issue. An essential issue is likely to impact on the outcome of the claim whereas a subsidiary or peripheral issue will not.

[76] At this juncture, it may be helpful to look at various instances where the courts have either set aside or declined to set aside arbitral awards on the ground of breaches of the rules of natural justice. In TMM, as noted, the High Court eventually declined to set aside the award finding, inter alia, that the arbitrator had dealt with all the essential issues to the dispute. In that case, the dispute between the parties was over the purported repudiation of two Memoranda of Agreement for the sale and purchase of two vessels. The High Court opined that once the arbitrator took the position that the defendant’s failures (if any) in respect of certain contractually required repairs only amounted to a breach of a warranty and not a condition, the plaintiff was accordingly not entitled to reject delivery of the vessels. All the essential issues were therefore addressed and, whilst the defendant submitted that the arbitrator did not deal with certain issues, the resolution of those issues flowed from his decision on other issues.

[77] Conversely, in Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd [2010] SGHC 80 (“Front Row”), the High Court set aside an arbitral award under s 48(1)(a)(vii) of the AA, which is in pari materia with s 24(b) of the IAA. The facts of Front Row are worth exploring at some length. There, the plaintiff and the defendant entered into an agreement to jointly organise and run a series of races (the “Asian Cup Series”) using 35 specially built Mercedes-AMG SLK 55 cars. The plaintiff’s obligations were to purchase the cars from the defendant and provide working capital for the Asian Cup Series. The defendant’s obligations were, inter alia, to organise and promote up to 20 races per year for two years. In the event, the Asian Cup Series was discontinued after three races as a result of insufficient participation. The plaintiff then attempted to stage a supporting event for the A1 Grand Prix using the SLK 55 cars, only to be informed by Mercedes-AMG that the SLK cars were developed only for use in “driving training programmes...which [did] not involve the cars competing against each other”. The defendant commenced arbitration proceedings against the plaintiff, who counterclaimed on the grounds of misrepresentation, alleging that the defendant had induced the plaintiff to enter into the agreement by three main representations:

(a) That the Asian Cup Series was to be a race series;

(b) That the 35 Mercedes-AMG SLK 55 cars were specially developed, adapted and were appropriate for races conducted under the Asian Cup Series; and

(c) That the defendant would give the plaintiff its full backing and support in marketing, promoting and organizing the Asian Cup Series, and in particular, it would organise 20 races over 10 weekends per annum with 30 cars (the “Representation”).

The arbitrator dismissed both the defendant’s claim and the plaintiff’s counterclaim. On the plaintiff’s application to the High Court to set aside the relevant part of the arbitrator’s award, Andrew Ang J (“Ang J”) found that the arbitrator had failed to accord the plaintiff natural justice by dismissing its counterclaim without considering the grounds of the counterclaim in full. Specifically, the arbitrator had disregarded the issue concerning the defendant’s obligation to organise, brand and promote the Asian Cup Series because he was under the misapprehension that the plaintiff had abandoned its reliance on the Representation.

[78] In contrast, the High Court per Prakash J in SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 (“SEF Construction”) found that there was no breach of natural justice and declined to set aside the adjudicator’s determination under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) on grounds that the adjudicator clearly had regard to the submissions of parties and the material before him in arriving at his decision. In the circumstances, Prakash J held (at [60]) that:

[79] Prakash J in SEF Construction considered a line of Australian cases, and cited with approval inter alia the following passage from Brookhollow Pty Ltd v R&R Consultants Pty Ltd [2006] NSWSC 1:

[80] Several observations may be made about the decision in SEF Construction. First, whilst Prakash J found it superfluous to import a duty to act in good faith from Australian law, she also said (at [58]) that “[w]hat the Australians say in regard to good faith can be applied to the requirements of natural justice as well”.

[81] Second, Prakash J clearly recognised that there were many reasons why a tribunal might omit to address particular submissions in its decision. It may have been an inadvertent omission, or the tribunal might have considered the argument so wholly unmeritorious as not to necessitate an explicit ruling. To these possible scenarios, there might be added the not altogether uncommon scenario where the tribunal may consider certain strands of argument particularly compelling or even determinative of the result so as to dispose of the matter and render all other arguments nugatory.

[82] Third, and more importantly, it is implicit in the decision of SEF Construction that the tribunal must nevertheless have regard to the submissions of the parties, even if it does not overtly deal with every single one of them in its decision.

[83] This view is in line with the sentiments expressed in Front Row by Ang J (at [31]) where he states:

On the facts, Ang J distinguished Front Row from SEF Construction (at [45]) as the former was not a case where the arbitrator had regard to the submissions on the issue but accidentally omitted to state his reasons for rejecting the same or had found the submissions so unconvincing as to render it unnecessary to explicitly state his findings on it. In particular, Ang J noted that the arbitrator in Front Row explicitly stated that he was disregarding the material issue because the plaintiff had ceased to rely on it.

[84] In the present application, Mr Kumarasingam sought to distinguish the facts in OS 1006/2012 from that of Front Row and portray them as being more in line with the situation in SEF Construction. He emphasised that:

(a) The plaintiffs had not alleged that they were ever prevented from fully presenting their pleadings, evidence, and submissions in relation to the Disputed Counterclaim;

(b) The plaintiffs had not alleged that the Arbitrator ever mis-characterised the plaintiffs’ position in relation to the Disputed Counterclaim; and

(c) The plaintiffs had not alleged any misconduct on the part of the Tribunal.

[85] I note Kumarasingam’s arguments in this respect. I am cognisant of the fact that in borderline cases the difference between a mere error on the part of the Tribunal and an unjustified omission to consider parties’ arguments or submissions may appear vanishingly small. Nevertheless, I am unable to ignore the fact that the present case involved a clear oversight on the part of the Tribunal to consider an entire head of counterclaim that was specifically referred to the Tribunal by the plaintiffs. As noted above, the Tribunal did not address the substantive merits of the Disputed Counterclaim having regarded it as a question of relief that would follow the breaches alleged by the Plaintiffs in relation to Issue #13 and Issue #14. Indeed, the Tribunal did not even cite the Disputed Counterclaim for the Receivables as an issue in the Award, due (most probably) to his extensive reliance on the defendants’ framework of issues, let alone any findings on the Disputed Counterclaim and questions of relief and remedies flowing from the Disputed Counterclaim. As submitted by Mr Kumar, this is not a case of logical inference (such as SEF Construction) in which it is clear from the face of the award that the Tribunal had actually considered and dismissed the claim, albeit without explicitly addressing the same: there was no corollary between the Tribunal’s findings in the Award and the plaintiffs’ counterclaim for the Receivables. In the circumstances, the inference must be that the Tribunal had inadvertently disregarded this particular head of claim.

[86] A wholesale omission to deal with a distinct head of claim is in contrast to an omission to deal with particular issues or arguments which might be interrelated and/or cumulative in nature. In respect of the latter, arbitrators are often required to consider and balance numerous arguments of differing relevance and/or importance. In such a situation, arbitrators often have a degree of discretion in assigning what they consider to be the appropriate weight to each issue or argument. In TMM, Chan J considered the further distinction between issues and arguments significant, and explained it (at [75]) as:

As stated above (at [75]), an arbitral tribunal is not obliged to deal with every single argument brought up by the parties, but has the duty to deal with all essential issues. However, in the present case, the Receivables formed a discrete head of claim that was specifically referred to the Tribunal for determination.

[87] The fact that P1 had fully canvassed the Disputed Counterclaim before the Tribunal in the BOA Arbitration does not mean that the counterclaim was in fact considered or that the Award is thereby unimpeachable. As Ang J observed in Front Row (at [35]):

[88] As noted in TMM (at [90]), the central inquiry in all such cases is whether the award reflects the fact that the arbitral tribunal had applied its mind to the critical issues and arguments. In the present circumstances, it appears that this crucial question must be answered in the negative. In my judgment, the present case is very similar to Front Row, where the arbitrator arrived at the erroneous view that the plaintiff was not pursuing a counterclaim based on the Representation and made it clear the he did not consider the Representation in dismissing the counterclaim. Likewise, for the reasons stated earlier, the Tribunal in failing entirely to consider the merits of the Disputed Counterclaim had breached the principle of natural justice reflected in the Latin maxim audi alteram partem.

[89] The Court of Appeal in Soh Beng Tee identified (at [91]) the requisite level of prejudice which had to be shown as one where the breach of natural justice “must, at the very least, have actually altered the final outcome of the arbitral proceedings in some meaningful way”.

[90] In its recent decision of L W Infrastructure, the Court of Appeal reconsidered the required level of prejudice before an award can be set aside, stating (at [51]) that Soh Beng Tee “should not be understood as requiring the applicant for relief to demonstrate affirmatively that a different outcome would have ensued but for the breach of natural justice”. The Court of Appeal clarified the contextual use of the phrase “real or actual prejudice” in Soh Beng Tee and qualified the test of prejudice (at [54]) as follows:

[91] The preceding passage from L W Infrastructure was in the context of parties not having the opportunity to reply or make submissions on a particular issue. The same reasoning applies to the situation where the arbitrator has disregarded or otherwise failed to address specific issues or submissions put forth by the parties. Where the arguments or submissions omitted from consideration could have reasonably made a difference to the final result, the applicant can be said to have suffered the requisite prejudice. In the present case, D1 and D4 had taken the clear position in their submissions that any sums found to be due to P1 in respect of the Disputed Counterclaim should be set-off against the damages awarded to D1 and/or D4. No submission was made nor was any evidence adduced contesting the Disputed Counterclaim save for a bare denial of the defendants’ liability to pay the Receivables (see above at [42]). Had the Tribunal applied his mind to the merits of the sum in issue in the Disputed Counterclaim for Receivables, there was a possibility that he could have granted the counterclaim, which would have resulted in a material difference in the Award.

[92] As noted above, the Tribunal had overlooked an entire and discrete head of claim by the plaintiffs, which, if considered, might have made a substantive difference to the final award. Had the Tribunal considered this head of claim for the Receivables, an outcome in favour of P1 could alter P1’s position from the paying party in the BOA Arbitration to the receiving party as the damages awarded to D1 were less than the quantum of the Disputed Counterclaim (see above at [33]).

[93] In the premises, I find that there was a breach of natural justice under s 24(b) of the IAA. The Tribunal’s wholesale failure to consider the Disputed Counterclaim could not be said to be a merely “technical and inconsequential” breach, but was one which could have reasonably resulted in prejudice to the plaintiffs.

[94] Having reached the conclusion that there was a breach of natural justice, Art 34(2)(a)(iii) of the Model Law would also be engaged on the facts as the pertinent questions and answers for both grounds in cases such as this are the same (see CRW at [96]).

[95] Art 34(2)(a)(iii) states that an arbitral award may be set aside by the court if the party making the application furnishes proof that “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside”.

[96] The legal principles underlying the application of Art 34(2)(a)(iii) were considered in CRW at [31] to [33]:

[97] Relevant to the case before me, CRW appears to allow for awards to be set aside where the arbitral tribunal fails to decide the matters submitted to it, which proposition was also recognised in TMM at [41]. Also, reference to “real or actual prejudice” in the preceding paragraphs must be understood in context, and can be given the same interpretation as set out in L W Infrastructure (see above at [90]). As such, the court’s exercise of discretion to set aside cannot be exercised for a mere technical breach but only where there is cogent evidence of prejudice such that it would have reasonably made a difference to the arbitral tribunal.

[98] In International Commercial Arbitration (Wolters Kluwer, 2009), the textbook cited by the Court of Appeal in CRW at [96] above, the learned author explained at pp 2606 to 2610:

[99] As stated above, the Tribunal appeared to have overlooked the issue of the Receivables and in the event failed to reach a decision on the Disputed Counterclaim. The Tribunal thereby failed to exercise the authority granted to it by the parties and the doctrine of infra petitia clearly applied. Moreover, the test of prejudice was satisfied for the reasons explained above.

[100] This is the third ground relied upon by Mr Kumar. Having reached the conclusions I did in relation to s 24(b) of the IAA and Art 34(2)(a)(iii) of Model Law, I do not consider it necessary to deal with the third ground, viz. Art 34(2)(b)(ii) of the Model Law, which provides that an arbitral award may be set aside if the court finds that “the award is in conflict with the public policy of this State”. I say no more about this ground except to note (without deciding) that the courts have repeatedly held that it must be shown that upholding the award would “shock the conscience” or be “clearly injurious to the public good”. In Sui Southern Gas (at [48]), the court made it clear that the mere contention that an award was “perverse” or “irrational” could not of itself amount to a breach of public policy. To avail of this provision, there must instead be some demonstrably “egregious circumstances such as corruption, bribery or fraud which would violate the most basic notions of morality and justice.” In the present application, there have been no indications or allegations of such circumstances. Indeed, I have noted that the Tribunal’s omission to deal with the Disputed Counterclaim appeared to have been the result of pure oversight or inadvertence in the face of two differing lists of issues.

[102] The part of the Award that is set aside is limited to the Tribunal’s finding in Issue # 16 that relates to the Receivables.

[103] I note, parenthetically, that this would have been the type of case that Art 33(3) of the Model Law would have been intended to provide redress for. Art 33(3) permits parties to request (within a specified time period) the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. It is to be hoped that parties in future cases of a similar nature would first attempt to avail themselves of any available opportunities to seek redress from the tribunal itself, before turning to the courts (assuming of course that this is possible in the circumstances).