CEF and another v CEH [2022] SGCA 54

Introduction

The parties to this appeal were once eagerly engaged in the enterprise of constructing and operating a steel-making plant. Unfortunately, disputes over the construction and production capabilities of the plant arose and the respondent terminated the construction contract. An arbitration proceeding ensued in which the respondent was largely successful. The appellants now raise before us, as they did in the court below, issues of breach of natural justice and, further, challenge the workability and enforceability of the award issued by the tribunal.

Apart from the first appellant, which is incorporated in Narnia, all the parties are companies incorporated in Ruritania. The first appellant is a multinational company which designs, builds, and sells plants for the iron and steel industry. It is the parent of the second appellant. In 2011, the appellants were contracted to design and build a steel-making plant for the respondent.

The respondent manufactures hot-rolled steelcoils and carries on business on the premises of its parent, a major steelmaker in Ruritania (the “Parent”).

The relationship between the parties broke down in 2016 and each started action against the other. This led to a consolidated arbitration (the “Arbitration”) in October 2016. An award was issued in 2019 (the “Award”) and various orders made in favour of the respondent.

The appellants were dissatisfied with the Award and therefore applied to the Singapore High Court to set it aside. They asserted breach of natural justice under s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”) and also invoked various grounds under Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”). The High Court judge (the “Judge”) dismissed the appellants’ application for the reasons given in CEF and another v CEH [2021] SGHC 114 (the “GD”).

Facts

Background

In June 2011, the first appellant entered into a contract (the “Contract”) with the Parent. Under the Contract, the first appellant was to provide engineering equipment and services to design and build a steel-making plant (the “Plant”) on a site in Ruritania (the “Site”) owned by the Parent for a contract price of F$92.7m (“F$” being a pseudonym for the currency used in the contract documents). The material terms of the Contract were as follows:

(a) The Plant, once commissioned and fully operational, would be capable of producing approximately 600,000 tonnes of hot-rolled steelcoils per year. This was set out in a document dated 7 May 2011 containing specifications and attached to the Contract (“Technical Specifications”).

(b) The first appellant’s scope of supply under the Contract comprised: (i) supplying the engineering for the Plant; (ii) supplying the equipment for the Plant; (iii) supervising the erection of the Plant; (iv) supervising the commissioning of the Plant; and (v) training workers to operate the Plant.

(c) The Parent would, inter alia: (i) install the foundations of the Plant; (ii) manufacture and erect the steel building of the Plant; (iii) erect the equipment of the Plant; and (iv) install, start up, operate and maintain the Plant in conformity with, inter alia, the Technical Specifications.

In September 2011, the Parent assigned its rights, title, interest and liabilities under the Contract to the respondent. However, the Parent continued to retain ownership of the Site.

In March 2014, the first appellant supplied the respondent with additional equipment worth F$49,000 and additional services worth approximately F$31,000. This equipment was subsequently used in or incorporated into the Plant. The appellants received no compensation from the respondent for providing these additional services and equipment.

About two months later, in May 2014, the appellants and the respondent entered into a service agreement (“Service Agreement”) whereunder the first appellant assigned to the second appellant the first appellant’s obligation under the Contact to provide supervision and training services to the respondent.

The parties’ dispute and the Arbitration

Unfortunately, there were delays in the construction of the Plant and the completed Plant never achieved its production target. The respondent purported to terminate the Contract. So, in August 2016, the appellants commenced an arbitration against the respondent. Some three weeks later, the respondent commenced its own arbitration against the appellants. In October 2016, the two arbitrations were consolidated into the Arbitration by consent. The claimants and respondent in the Arbitration were the appellants and the respondent, respectively. By November 2016, the Tribunal was constituted comprising Dr Michael Moser (President of the Tribunal), Prof Mauro Bussani and Mr Alan J Thambiayah.

The Arbitration was commenced under both the Contract and the Service Agreement. Art 26.1 of the Contract provided that it was governed by Singapore law, while Art 26.2 of the Contract provided that any dispute arising from or in connection with the Contract was to be arbitrated in Singapore under the Rules of Arbitration of the International Chamber of Commerce (“ICC Rules”). Article 6.2 of the Service Agreement incorporated Art 26 of the Contract.

On 3 January 2017, in accordance with Art 23 of the ICC Rules, the parties and the Tribunal signed the terms of reference (“Terms of Reference”) setting out the parties’ claims in the Arbitration.

Based on the Terms of Reference, the reliefs sought by the appellants in the Arbitration included the following:

The respondent, for its part, stated in the Terms of Reference that it was seeking the following reliefs:

The Award

On 28 November 2019, the Tribunal issued the Award. The majority of the Tribunal found that the respondent had been induced to enter into the Contract by the appellants’ misrepresentations, and that the respondent was therefore entitled to rescission of both the Contract and the Service Agreement. The Tribunal made various orders including the following:

(a) The appellants were to pay the respondent the contract price of F$92.7m, less F$15m (to account for two loans which the first appellant had previously extended to the respondent) and F$54.5m (to account for the respondent’s use of the Plant after it had been completed and the diminution in value of the Plant) (the “Repayment Order”).

(b) The respondent was to “transfer the title to the Plant, including the additional equipment installed” to the appellants in return for payment under the Repayment Order (the “Transfer Order”). In this connection, the Tribunal noted that “[w]hile [the appellants] did not request the transfer of title to the Plant in their request for relief, such transfer of the title is the natural (i.e. legal) consequence of the rescission of the Contract, as specifically acknowledged by [the respondent] and not challenged by [the appellants]”.

(c) The appellants were to pay the respondent sums denominated in Ruritanian currency totalling R$176,245,250 as damages under the Misrepresentation Act (Cap 390, 1994 Rev Ed) (the “Misrepresentation Act”) to compensate the respondent for five heads of loss and/or expenses which it would not have incurred but for the first appellant’s misrepresentations (the “Damages Order”). The Tribunal only permitted the respondent to recover 25% of the damages it had sought under each of the five heads as it found the respondent’s evidence of the quantum of the loss it had suffered under each head to be deficient.

It should be noted that the Co-Arbitrator Prof Mauro Bussani disagreed with and dissented from certain findings and conclusions of the majority of the Tribunal on the respective liability of the parties as well as the quantum of relief awarded by the majority.

Arguments and the decision below

On 25 February 2020, the appellants applied to the High Court to set aside the Award.

Transfer Order

The bulk of the appellants’ submissions before the Judge was directed at setting aside the Transfer Order. They submitted that:

(a) First, the Transfer Order should be set aside under Art 34(2)(a)(iv) of the Model Law, on the basis that it was “uncertain, ambiguous and/or not enforceable”, and therefore in breach of the parties’ arbitration agreement, the arbitral rules, and/or the Model Law.

(b) Second, the Transfer Order should be set aside under Art 34(2)(a)(iii) of the Model Law, on the basis that the transfer of title to the Plant from the respondent to the appellants was a decision on a matter beyond the scope of the submission to arbitration.

(c) Third, the Transfer Order should be set aside under s 24(b) of the IAA and/or Art 34(2)(a)(ii) of the Model Law, on the basis that it had been issued in breach of natural justice and/or the fair hearing rule. A transfer of title to the Plant from the respondent to the appellants as a consequence of rescission had not been a live issue in the Arbitration, and the appellants had not been afforded an opportunity to present their case on the same.

The respondent responded that the Transfer Order was not in breach of the ICC Rules or the parties’ arbitration agreement and that, further or in any event, the appellants had waived and/or were precluded from alleging any breach of Arts 23 and 41 of the ICC Rules. Second, the Transfer Order was clearly within the Tribunal’s jurisdiction as it was a natural consequence of the rescission of the Contract, which was a form of relief that the respondent had explicitly sought during the arbitration proceedings. Third, the appellants had had every opportunity to make submissions and adduce evidence in relation to the Transfer Order, but had deliberately chosen not to do so. Accordingly, the grant of the Transfer Order could not constitute a breach of natural justice.

The Judge rejected the appellants’ argument that the Transfer Order could be set aside under Art 34(2)(a)(iv) of the Model Law. The Judge considered that the appellants’ reliance on this provision failed for two reasons. First, Art 34(2)(a)(iv) could only apply to a breach of arbitral procedure, and the appellants’ complaints about the Transfer Order were in effect complaints about the substance of the Transfer Order (GD at [37]–[39]). Second, the appellants had waived their right to rely on Art 34(2)(a)(iv) to challenge the Transfer Order (GD at [41]–[42]).

The Judge further took the view that, even if these two preliminary points were incorrect, the appellants’ challenge under Art 34(2)(a)(iv) would still fail as:

(a) There was no authority, and nothing in the Model Law or ICC Rules, which supported the proposition that an arbitral award could be set aside merely on the basis that it was unenforceable or unworkable (GD at [51], [55], [56] and [60]).

(b) In any event, the Award was not unworkable (GD at [62]–[80]).

Turning to the issue of whether the Transfer Order was beyond the scope of the parties’ submission to arbitration under Art 34(2)(a)(iii) of the Model Law, the Judge rejected the appellants’ contention that Art 23 of the ICC Rules required the Terms of Reference to state in detail every single head of claim that was advanced in the arbitration (GD at [89]). However, even if Art 23 imposed such a requirement on the parties, paragraph 78 of the Terms of Reference was broad enough to bring counter-restitution of the Plant in specie within the scope of the submission to arbitration (GD at [91]). The appellants had also waived their rights to rely on Art 34(2)(a)(iii) of the Model Law to challenge the Transfer Order (GD at [96]).

Finally, the Judge declined to set aside the Transfer Order on the basis that it was tainted by a breach of natural justice. The issue of counter-restitution in specie had been live throughout the arbitration (GD at [102]–[103]). Having failed to present their case on counter-restitution in specie during the arbitration, the appellants could not now argue that the Tribunal had acted in breach of the fair hearing rule (GD at [136]).

Repayment Order

In relation to the Repayment Order, the appellants submitted that the Tribunal had, in breach of the “no evidence rule”, determined that the diminution in value of the Plant amounted to F$54.5m without any evidence from the parties on the current value of the Plant. The Tribunal had also failed to give the parties a reasonable opportunity to present their case on that issue. The respondent, however, argued that there was no breach of natural justice, as the appellants had had ample opportunity to address the Tribunal on the diminution in the Plant’s value. The “no evidence rule” did not assist the appellants as it was inapplicable to the present context and, in any event, should not be accepted as a part of Singapore law.

In relation to the Repayment Order, the Judge held that:

(a) The Tribunal did not breach the fair hearing rule in making the Repayment Order. The diminution in value of the Plant had been a live issue in the Arbitration from the very outset and the appellants could well have presented their case on the same if they had so desired (GD at [143] and [150]).

(b) The “no evidence rule” should not be accepted as part of Singapore law. Even if it were to be accepted as a free-standing rule of natural justice, it could not apply to a situation where, as in the present case, the Tribunal had no evidence before it on a material issue of fact simply because the party who bore the burden of proof on that issue had failed to adduce such evidence (GD at [152] and [154]).

Damages Order

Lastly, in respect of the Damages Order, the appellants submitted that the Tribunal had found that the loss/expense incurred by the respondent amounted to 25% of the sums claimed by the respondent under each of the five claimed heads of loss, without giving the appellants a reasonable opportunity to present their case or evidence on the same. The respondent argued that the Damages Order had not been issued in breach of natural justice, as the appellants had had ample opportunity to address the Tribunal on the evidence supporting the respondent’s reliance loss. The “no evidence rule” did not assist the appellants as it was inapplicable in the present context and, in any event, should not be accepted as a part of Singapore law.

The Judge held that the fair hearing rule had not been breached as the appellants could have advanced an alternative case on the quantum of the respondent’s reliance loss, but had refused to do so (GD at [175]). The appellants’ reliance on the “no evidence rule” to challenge the Damages Order was without merit – even if the “no evidence rule” were accepted as a free-standing rule of natural justice, the Tribunal did have evidence before it to justify the Damages Order (GD at [176]–[180]).

Inadequate reasons

Finally, the appellants argued that the contents of the Award taken as a whole did not contain adequate reasons for the Tribunal’s decision, and that the Award therefore ought to be set aside under s 24(b) of the IAA and/or Art 34(2)(a)(ii) of the Model Law and/or Art 34(2)(a)(iv) of the Model Law.

The Judge rejected the appellants’ contention that the Award and its contents were inadequately reasoned. As far as the Transfer Order was concerned, it was clear that the Transfer Order was enforceable and workable, and no further explanation was required on the Tribunal’s part. Taken as a whole, the Award did provide sufficient reasons to inform the parties of the bases on which the Tribunal had reached its decision on the essential issues (GD at [187]–[188]).

The parties’ cases on appeal

On appeal, the appellants rehash the arguments they made below in relation to the three orders in the Award and the Tribunal’s alleged failure to furnish sufficient reasons on material issues in the Award. Aside from individually challenging the Transfer Order, the Repayment Order and the Damages Order on the bases set out at [17], [23] and [25] above, the appellants also aver that “[a]s the Transfer Order and Repayment Order are reciprocal, interdependent and necessarily contingent on each other, if either order is liable to be set aside, this will necessarily mean that at the least, the other order will also have to be set aside as a consequence” [emphasis added]. The respondent generally supports the decision of the Judge and relies on its submissions below as well.

We mention here that on 9 September 2021, the respondent applied for leave to adduce further evidence in this appeal by CA/SUM 73/2021 (“SUM 73”). The application was allowed by this court on 18 October 2021; we permitted both the respondent and the appellants to adduce further evidence.

Issues before this court

Consequently, the following issues arise for our determination:

(a) Should the Transfer Order be set aside:

(i) under Art 34(2)(a)(iv) of the Model Law, on the basis that it is uncertain, ambiguous, impossible and/or unenforceable and therefore not in accordance with the parties’ agreement, the ICC Rules and/or the Model Law?

(ii) under Art 34(2)(a)(iii) of the Model Law, on the basis that it contains decisions on matters beyond the scope of the submission to the Arbitration?

(iii) under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was obtained in breach of natural justice and/or without giving the appellants an opportunity to present their case on the same?

(b) Should the Repayment Order be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice?

(c) In the event that either the Transfer Order or Repayment Order is set aside, should the other Order also be set aside on the basis that the two Orders are “reciprocal, interdependent and necessarily contingent on each other”?

(d) Should the Damages Order be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA on the basis that it was issued in breach of the fair hearing rule and/or the “no evidence rule”, and is therefore contrary to natural justice?

(e) Should the Award (or part thereof) be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the Award?

Issue 1: Should the Transfer Order be set aside?

Whether the Transfer Order is uncertain, ambiguous, impossible and/or unenforceable

The appellants’ first complaint in relation to the Transfer Order is that the Transfer Order is “uncertain, ambiguous and/or unenforceable”, and “factually impossible or unworkable”. Therefore, it is in breach of the parties’ arbitration agreement, arbitral rules and/or the Model Law, and it ought to be set aside under Art 34(2)(a)(iv) of the Model Law, which states:

Unenforceability

The appellants argue that the Transfer Order is unenforceable and therefore in breach of the parties’ arbitration agreement in two respects:

(a) First, the Transfer Order is contrary to Art 41 of the ICC Rules (being the procedural rules by which the parties agreed to conduct the Arbitration), which oblige the Tribunal to, inter alia, “make every effort to make sure that the award is enforceable at law”.

(b) Second, the Transfer Order is in breach of “an implied term … [in the parties’] arbitration agreement that the resulting award shall be in a form which is capable of being enforced in the same manner as a judgment”.

We do not accept the appellants’ arguments.

First, as the Judge (GD at [82]) and the respondent have pointed out, it does not make sense to suggest that an arbitral award can be set aside on the basis that it is “unenforceable”. The grounds on which an arbitral award can be refused enforcement under s 31(2) of the IAA and Art 36 of the Model Law essentially mirror the grounds on which an arbitral award can be set aside under Art 34 of the Model Law, but s 31(2)(f) of the IAA and Art 36(1)(a)(v) of the Model Law additionally provide that an award can be refused enforcement if it has been set aside. Thus, an arbitral award becomes unenforceable because it is set aside – an arbitral award is not set aside because it is unenforceable. The appellants’ assertion that the Transfer Order is unenforceable does not answer the question of whether the Transfer Order may be set aside under one of the grounds set out under s 24 of the IAA or Art 34 of the Model Law.

Second, there is no legal basis for the appellants’ claim to set aside the Transfer Order in the present case on the basis that it is “unenforceable”. The first ground which the appellants rely upon in support of this claim is Art 41 of the ICC Rules, which states as follows:

The Judge opined, citing Nigel Blackaby, Constantine Partasides, et al, Redfern and Hunter on International Arbitration (Oxford University Press, 6th Ed, 2015) (“Redfern”) at para 9.14 that Art 41 did not assist the appellants because it “impose[d] a duty on the tribunal to perform rather than to achieve a defined result”: GD at [54]. The appellants submit that the statement in Redfern which the Judge had relied upon ought to be interpreted for the limited proposition that “no arbitral tribunal can be expected to guarantee that its award will be enforceable in whatever country the winner chooses to enforce it” [emphasis added]. Where the tribunal does have reason to believe, based on the arbitration record, that an award is intended to be enforced in a particular jurisdiction, the tribunal is expected to ensure that the award is enforceable therein.

We do not agree with the appellants’ interpretation of Redfern. The relevant passages of Redfern provide:

These paragraphs suggest that a tribunal’s primary duty under Art 41 is to ensure that the procedural requirements for enforcement are satisfied, which was also the Judge’s view (GD at [55]). These include, for example, ensuring that the procedural rules governing the arbitration are satisfied, signing and dating the arbitral award, and arranging for it to be delivered to the parties in the manner laid down by the relevant rules to the arbitration. In so far as the substantive (eg, public policy) requirements for enforcement are concerned, the tribunal will be found to have discharged its duty under Art 41 as long as it demonstrates that it has used “every effort” to ensure the enforceability of the award in the jurisdictions wherein the award can reasonably be expected to be enforced. After all, as the authors of Redfern highlight, enforceability is sometimes subject to the discretion of the relevant judicial authority. It would be unreasonable to impose on the tribunal a duty to accurately predict or guarantee the outcome of such a discretionary exercise.

We turn next to the appellants’ contention that it is “an implied term in every arbitration agreement that the resulting award shall be in a form which is capable of being enforced in the same manner as a judgment”. The appellants argue that support for the existence of such an implied term may be derived from the UK case of Margulies Brothers Ltd v Dafnis Thomaides & Co (UK) Ltd [1958] 1 WLR 398 (“Margulies”).

The Judge opined (GD at [48]) that Margulies does not support the appellants’ case. We agree. The only ratio which can be extracted from Margulies is that an award for the payment of money has to be in a form which is capable of being enforced in the same manner as a judgment. Diplock J (as he then was) who delivered that decision did not say that this applied generally to all arbitration agreements, or to a case like the present, which involves an award for the transfer of title in property. Indeed, various local commentators (see, eg, Chan Leng Sun, Singapore Law on Arbitral Awards (Academy Publishing, 2011) at para 3.78; Sundaresh Menon CJ, Arbitration in Singapore, A Practical Guide (Sweet & Maxwell, 2nd Ed, 2018) (“Arbitration in Singapore”) at para 13.092) have also cited Margulies for the same narrow proposition.

Second, Margulies involved an application for an award to be remitted based on common law principles as set out in the case of Montgomery Jones & Co v Liebenthal & Co (1898) 78 LT 406 (“Montgomery Jones”). It was not an application for the award to be set aside under the Model Law as in the present case. The appellants argue, citing AKN and another v ALC and others and other appeals [2016] 1 SLR 966 (“AKN v ALC”) at [25] (which refers to Art 34(4) of the Model Law) that this is irrelevant since remission is only ordered where there is a valid ground for setting aside the award. This argument is unpersuasive for two reasons:

(a) First, it is not clear that Art 34(4) of the Model Law and AKN v ALC stand for such a proposition. Article 34(4) of the Model Law allows the court to remit the award to the arbitral tribunal “when [the court is] asked to set aside the award” [emphasis added]. However, just because the court is asked to remit an award does not mean that there is a valid ground to set aside the award. Although AKN v ALC does state (at [33]) that the power to remit was conceived as an alternative to setting aside, the case does not go so far as to say that “remission is only ordered where there is a valid ground for setting aside the award”, as the appellants claim.

(b) Second, the grounds for remitting an award under Montgomery Jones were: (i) that the award was bad on the face of it; (ii) that there had been misconduct on the part of the arbitrator; (iii) that there had been an admitted mistake and the arbitrator had asked that the matter be remitted; and (iv) that additional evidence had been discovered after the making of the award. Those grounds are different from the grounds for setting aside an award under s 24 of the IAA or Art 34 of the Model Law.

(c) Third, the appellants argue that the principles in Margulies continue to apply today even under the regime of the Arbitration Act 1996 (c 23) (UK). However, even if the principles in Margulies do continue to apply in the UK, this does not answer the question of what the law is in Singapore which is governed by a different regime.

Uncertainty/ambiguity

We now turn to the appellants’ submission that the Tribunal has a duty to render an award that is certain, unambiguous, precise and possible, and that the Transfer Order is uncertain, ambiguous and capable of multiple interpretations. In our view, however, uncertainty or ambiguity is not a basis to set aside an award under Art 34(2)(a)(iv) of the Model Law.

In support of their argument, the appellants cite Official Assignee v Chartered Industries of Singapore Ltd [1977–1978] SLR(R) 435 (“Official Assignee”) and BYL and another v BYN [2020] 4 SLR 1 (“BYL v BYN”).

(a) The appellants argue that in Official Assignee, the High Court set aside an award because it was ambiguous in that it was capable of two interpretations, uncertain as to how it decided the matters referred, and was therefore invalid. We do not think Official Assignee supports the appellants’ argument. Official Assignee was decided before the IAA/Model Law was adopted in Singapore, on the basis of the old common law concept of arbitrator misconduct (Official Assignee at [14]–[16]). As the Judge noted, that has no relevance to the regime for setting aside an award under the Model Law (GD at [51]).

(b) The appellants next argue that the court in BYL v BYN (at [30]–[46]) did not dispute that an award could be set aside under Arts 34(2)(a)(ii), 34(2)(a)(iii) and/or 34(2)(b)(ii) of the Model Law and/or s 24(b) IAA on the basis that it was incomplete or unworkable. In BYL v BYN, the plaintiffs argued that the award should be set aside as, first, it was neither final nor complete in that it entirely failed to resolve the parties’ dispute, and second, that the tribunal had improperly conferred upon itself the power to change the award if part of it was later found to be unenforceable by a court. The plaintiffs in BYL v BYN also contended that the award was “unworkable” (at [32]). However, we do not think that this case stands for the proposition that an award can be set aside under those provisions of the Model Law on the basis that it is “unworkable” (or uncertain/ambiguous). The court there ultimately found that there was nothing incomplete or lacking in finality about the award (at [37]) and decided that the award was not unworkable (at [40]). The court did not go further to say that “unworkability”, in and of itself, could justify setting aside.

Next, the appellants submit that the Transfer Order is capable of multiple interpretations, as it is unclear. They say it is not clear whether:

This ambiguity renders the Award defective and liable to be set aside, whether under Arts 34(2)(a)(ii), 34(2)(a)(iii), 34(2)(a)(iv) and/or 34(2)(b)(ii) of the Model Law, or s 24(b) of the IAA.

We do not accept the appellants’ submissions. First, we do not understand the appellants’ reliance on Arts 34(2)(a)(ii) to (iv) of the Model Law. Article 34(2)(a)(ii) of the Model Law states that an award may be set aside where the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case – this does not have anything to do with the purported uncertainty or ambiguity of the award. Article 34(2)(a)(iii) refers to setting aside an award where the award deals with a dispute not contemplated by or not falling within the terms or the submission to arbitration, while Art 34(2)(a)(iv) refers to the composition of the arbitral tribunal or the arbitral procedure not being in accordance with the agreement of the parties – again, neither of these sub-paras has anything to do with the uncertainty or ambiguity of the award. We also see no basis for the appellants’ reliance on Art 34(2)(b)(ii) of the Model Law, which concerns setting aside where the award is in conflict with the public policy of this State, ie Singapore – the appellants have not explained why uncertainty or ambiguity, even if proven, is in conflict with the public policy of Singapore. Lastly, s 24(b) of the IAA refers to the setting aside of an award where there is “a breach of the rules of natural justice” in connection with the making of the award by which the rights of any party have been prejudiced. The appellants have not explained or cited authority for why the purported uncertainty or ambiguity of the Transfer Order amounts to a breach of the rules of natural justice under s 24(b) of the IAA, such that the Transfer Order should be set aside.

Second, in any event, we do not think the Transfer Order is uncertain or ambiguous.

(a) First, the appellants argue that it is unclear whether the Transfer Order obliges the respondent (which does not hold the title to the plant) or the Parent (which holds the title to the Plant but was not a party to the Arbitration) to transfer the title to the Plant to the appellants. We first note that the appellants’ assertion that the Parent holds the title to the Plant is not based on a finding of fact made by the Judge; the Judge had only assumed, in the appellants’ favour, that the appellants were correct that title to the Plant had vested in the Parent together with the title to the Site, such that there was no longer any separate title to the Plant which the respondent could transfer to the appellants under the Transfer Order (GD at [63]). Second, even if the appellants are correct that the Parent holds the title to the Plant, the Transfer Order clearly states that: “[T]he Respondent shall transfer the title to the Plant, including the additional equipment installed, to [the appellants].” Thus, the Transfer Order is clear that the respondent is obliged to transfer the title to the Plant to the appellants. In our view, the appellants’ argument here is really about impossibility/workability – ie, whether it is possible or workable for the respondent to transfer the appellants the title to the Plant when (according to the appellants) title to the Plant is vested in the Parent. We return to this below.

(b) Second, the appellants submit that it is unclear whether the Transfer Order requires a transfer of title to the land on which the Plant is affixed. The appellants also submit that it is unclear whether the Transfer Order requires physical disassembly and detachment of the Plant from the land; physical removal of the Plant from the land or physical transportation of the Plant from the respondent to the appellant; and, if so, whether the appellants or the respondent are to undertake and pay the costs of any disassembly, detachment, removal and transportation of the Plant. Again, we think these points are really about impossibility or unworkability, which we address below.

Impossibility/unworkability

We now turn to the appellants’ submission that the Transfer Order is impossible or unworkable.

The appellants submit that the Plant is a fixture that forms part of the land to which it is affixed (the Site), and therefore there is no separate title to the Plant that can be transferred. The appellants submit that the Judge erred in holding that the Transfer Order is still workable because the Parent can consent to the appellants arranging to disassemble the Plant and sever it from the land so as to restore the resulting components to their original status as chattels, which can then be transferred by the Parent to the appellants. According to the appellants, the Transfer Order is still “unenforceable as worded”, since, practically, enforcement depends on a certain position being taken and maintained by the Parent, a non-party to the Arbitration, who can change its position at any time and against whom the respondent cannot enforce the Transfer Order. Further, the scenario contemplated by the Judge assumes that the Plant can be severed and disassembled into its original components, but it is factually impossible to disassemble the Plant without destroying or rendering worthless the Plant or its components.

The appellants’ submissions do not provide any basis on which to upset the decision of the Judge.

First, the appellants have not cited any authority for their argument that impossibility or unworkability is a basis to justify setting aside an award, much less under Art 34(2)(a)(iv) of the Model Law (GD at [60]).

In any event, the Transfer Order is not impossible or unworkable. First, as the Judge noted, the Parent can and has consented to the removal of the Plant from the Site, and is prepared to transfer title to the components resulting from the Plant’s disassembly to the appellants and allow the appellants to take possession of those components (GD at [64]–[66]). The fact that these matters were not ordered by the Tribunal and are contingent on a certain position being taken and maintained by the Parent is, in our view, beside the point – based on the situation now (and when the matter was before the Judge), the Transfer Order is indeed workable. Further, as pointed out by the respondent, if the Parent does indeed change its mind and the respondent is unable to comply with its obligation to transfer the Plant and additional equipment to the appellants, the respondent will be in breach of the Award and the appellants will be at liberty to take whatever steps they deem fit against the respondent.

Second, the appellants did not adduce any evidence in support of their contention that it is impossible to disassemble the Plant without destroying or rendering it or its components worthless. The appellants did not previously suggest, either before the Award was made or thereafter, that it would be unworkable to disassemble and retake possession of the Plant’s components or that disassembly would render the Plant worthless. The Judge therefore rejected this claim “as an afterthought and a contrivance”. In this regard, we refer to the Judge’s comprehensive analysis (GD at [70]–[79]), with which we agree. We only add that some of the further evidence adduced by both parties in SUM 73 supports the Judge’s conclusion that the appellants’ argument about the impossibility and unworkability of the Transfer Order is an afterthought and a contrivance. We summarise this relevant further evidence as follows:

(a) The respondent adduced an application by the appellants before the court of Narnia dated 18 January 2021 for, inter alia, an order that the respondent allow the appellants to inspect the Plant to verify its current condition (the “Narnian Inspection Application”). As mentioned earlier, the first appellant is incorporated in Narnia. The Narnian Inspection Application states, inter alia, that the appellants asked the Narnian court to allow their inspection of the Plant in Ruritania as the inspection is “essential to acquire the elements necessary to decide on [the appellants’] opposition (that is, the information regarding the current conditions of [t]he Plant and the additional installed equipment that the Award has ordered to be transferred back to [the appellants])”. The appellants went on to say that in their correspondence with the respondent following the Award, the appellants had repeatedly asked the respondent to allow them access to the Site in order to inspect it and verify “the material possibility to disassemble and remove [the Plant] from the land on which it is located” [emphasis added]. This is precisely how the Judge characterised the appellants’ position in the post-Award correspondence in coming to his finding that the appellants’ argument about unworkability was an afterthought (GD at [76], [79]). Even on their own characterisation of their correspondence with the respondent, therefore, the appellants implicitly accept that they had contemplated the possibility of disassembling and removing the Plant from the Site.

(b) Next, the appellants adduced an affidavit dated 9 October 2020 by the Project Director of the first appellant, which was filed in support of an application by the appellants to inspect the Plant in Ruritania (the “Ruritanian Inspection Application”). Paragraph 15 of this affidavit states that in response to a letter dated 24 January 2020 from the respondent’s solicitors, the appellants had explained that they needed to inspect the Plant so that the appellants could determine the “nature and extent of the removal activities”, as well as the “measures that [would] have to be implemented during the removal activities for the protection of [the appellants’] rights, including [their] intellectual property rights on the Plant and related technology” [emphasis added]. The appellants’ own characterisation of their reply to the respondent shows that the appellants had contemplated that removal/disassembly of the Plant was a viable option, and supports the Judge’s finding that their argument of the unworkability of the Transfer Order is an afterthought. In fact, two paragraphs later, the same affidavit states that the Award required the respondent to transfer title to the Plant (and additional equipment) to the appellants, and this relief “may only be given effect to if the Plant and the Additional Equipment … remain with [the respondent] and are in a state that permits all the physical components that comprise the Plant and the Additional Equipment to be redelivered to [the appellants]” [emphasis added]. Thus, the appellants did not take the position here that the Transfer Order was unworkable on the basis that it was not possible to separate the Plant from the land without destroying the Plant or rendering it practically worthless; rather, their position assumed that the Transfer Order was workable, subject to the condition of the Plant and the additional equipment. Finally, paragraph 46 of the same affidavit states that:

Clearly, the appellants contemplated that removal and disassembly of the Plant was possible – contrary to their position in OS 241 and in this appeal.

To sum up, our view is that some of the further evidence adduced by the parties supports the Judge’s finding that the appellants’ argument of unworkability is an afterthought.

The two preliminary points raised by the Judge

The Judge raised two preliminary points on the applicability of Art 34(2)(a)(iv) of the Model Law (GD at [37]–[43]). It is convenient to address them at this juncture.

(1) Agreement as to arbitral procedure

The appellants submit that the Judge erred in holding that the challenge to the Transfer Order failed because Art 34(2)(a)(iv) of the Model Law only concerns challenges to the “arbitral procedure” which the Tribunal adopted, and not the “substance” of the Award. According to the appellants, the Transfer Order violates the parties’ agreement that the Award be certain, unambiguous, possible and enforceable, and the ambit of Art 34(2)(a)(iv) of the Model Law clearly extends to requirements on what the Judge termed as the “substance” of the Award or its contents. The appellants cite two US cases and one UK case as authority for this proposition:

(a) Western Employers Ins Co v Jefferies & Co 958 F 2d 58 (9th Cir, 1992): The court vacated the award because the tribunal failed to comply with the requirement in the arbitration agreement to provide findings of fact and conclusions of law in the award.

(b) Weiner v Commerce Ins Co 78 Mass App Ct 563 (Mass App Ct, 2011): The court set aside the award because the arbitrator failed to determine the issue of damages in the award, as required under the arbitration agreement.

(c) Pacol Ltd v Joint Stock Company Rossakhar [2000] CLC 315: The parties had only referred issues relating to quantum to the tribunal, but the tribunal dealt with/reopened the issue of liability in the award. This constituted a serious irregularity warranting the setting aside of the award.

We do not think the Judge erred in finding that the appellants’ complaint was really about the substance of the Award and not about the arbitral procedure adopted by the Tribunal (GD at [39]). The appellants have not shown that the Transfer Order violates the parties’ agreement as to the arbitral procedure for the Award, which is what constitutes a ground for setting aside under Art 34(2)(a)(iv) of the Model Law. As for the US and UK cases relied on by the appellants, these cases do not address the question of how ambiguity, unenforceability, etc can constitute a basis for setting aside the Transfer Order under the Model Law.

(2) Waiver

The appellants also submit that the Judge erred in holding that the challenge to the Transfer Order must fail because the appellants had failed to raise the ground for the challenge in the Arbitration (GD at [42]). The appellants argue that they could not have been aware of the uncertainty, ambiguity, impossibility or unenforceability of the Transfer Order until the Award was issued, and so could not have raised this to the Tribunal during the Arbitration.

We agree with the Judge that the appellants have waived their right to rely on this ground of complaint. As we elaborate on below, an order for the respondent to make counter-restitution to the appellants in specie by transferring title to the Plant back to the appellants was a live issue throughout the Arbitration – if the appellants believed that an order for the respondent to transfer title to the Plant to the appellants was contrary to the agreed arbitral procedure or would be unenforceable, they should have raised this point to the Tribunal.

To sum up, the appellants have provided no basis on which we can reverse the Judge’s decision that the appellants’ challenge to the Transfer Order under Art 34(2)(a)(iv) of the Model Law should be dismissed.

Whether the Transfer Order contains decisions on matters beyond the scope of the submission to the Arbitration

The appellants also seek to challenge the Transfer Order under Art 34(2)(a)(iii) of the Model Law, on the basis that it contains decisions on matters beyond the scope of submission to the Arbitration. We summarise the appellants’ arguments on this issue as follows.

(a) First, the appellants submit that in the Terms of Reference, the respondent only sought a monetary order as the consequence if the Contract and Service Agreement were to be rescinded and did not seek a transfer of title to the Plant from the respondent to the appellants. The appellants also did not seek counter-restitution in specie, as set out in the Terms of Reference.

(b) Second, in its pleadings, the respondent sought pecuniary rescission instead of counter-restitution in specie. The appellants likewise did not seek counter-restitution in specie in their pleadings.

Hence, according to the appellants, the issue of counter-restitution in specie and a transfer of title to the Plant was not within the scope of the parties’ submission to arbitration, and the fact that the Tribunal made such an order warrants it being set aside under Art 34(2)(a)(iii) of the Model Law. Further, prior to the Award, the Tribunal did not inform the parties it intended to order a transfer of title to the Plant or hear the parties on the issue – this was in breach of Art 23(4) of the ICC Rules and warrants setting the Award aside under Art 34(2)(a)(iv) of the Model Law.

Article 34(2)(a)(iii) of the Model Law provides that an award may be set aside if it “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration”, or if it “contains decisions on matters beyond the scope of the submission to arbitration”. Article 23(4) of the ICC Rules states:

Article 23(4) of the ICC Rules and Terms of Reference

It is correct that the Tribunal did not expressly include counter-restitution of the Plant in specie as one of the issues in the Terms of Reference, nor did it exercise its power under Art 23(4) of the ICC Rules to authorise either party to seek an order for counter-restitution of the Plant in specie.

As the Judge noted, however, this does not mean that the Transfer Order was outside the scope of the parties’ submission to arbitration. First, Art 23(1)(c) of the ICC Rules only requires the Terms of Reference to include “a summary of the parties’ respective claims and of the relief sought by each party…” [emphasis added]. Thus, “[j]ust because a particular head of relief does not appear in the Terms of Reference does not mean it is outside the scope of the submission to arbitration within the meaning of Art 34(2)(a)(iii) [of the Model Law]” (GD at [89]).

Second, with respect to the appellants’ argument about the Tribunal omitting to inform the parties that it intended to order a transfer of title to the Plant, we do not think this was in breach of Art 23(4) of the ICC Rules. This argument is based on the premise that counter-restitution of the Plant in specie was a “new claim” within the meaning of Art 23(4) of the ICC Rules. In our view, however, this relief was not a “new claim” outside the Terms of Reference. Paragraph 78 of the Terms of Reference is widely enough worded to bring counter-restitution of the Plant in specie within the scope of the parties’ submission to arbitration. It states:

An issue which surfaces in the course of an arbitration and which is known to all the parties is within the scope of the submission to arbitration even if it is not part of any memorandum of issues or pleading (GD at [92]; TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 (“TMM Division”) at [52]). In our view, the Judge did not err in his holding that counter-restitution of the Plant in specie was one of the “factual or legal issues resulting from the Parties’ submissions” (GD at [94]). This was the natural legal consequence of the respondent’s counterclaim for rescission, as set out both in the Terms of Reference and in the respondent’s pleadings – rescission restores the parties to their pre-contractual positions (Straits Colonies Pte Ltd v SMRT Alpha Pte Ltd [2018] 2 SLR 441 at [33]).

In this regard, the decision of the Singapore High Court in CAI v CAJ and another [2021] SGHC 21 at [216]–[218] (“CAI v CAJ”) does not assist the appellants. The appellants cite this case as authority for the proposition that if a “new claim” falling outside the limits of the Terms of Reference is to be advanced after the signing of the Terms of Reference, the Tribunal must first authorise it. CAI v CAJ, however, is not relevant here as no new “claim” or “defence” was introduced by the respondent at all as we have explained above.

Waiver

The appellants submit that the Judge also erred in finding that they had waived their right to rely on Art 34(2)(a)(iii) of the Model Law to challenge the Transfer Order because they could have raised the argument during the Arbitration that counter-restitution in specie was outside the scope of the submission to arbitration. The appellants assert that they did not communicate any clear or unequivocal waiver in this case and counter-restitution in specie was not a live issue in the Arbitration. As stated earlier, however, we agree with the Judge’s reasoning on this point.

Whether the Transfer Order was obtained in breach of natural justice and/or without giving the appellants an opportunity to present their case

The appellants argue that they were unable to present their case on the Transfer Order as the respondent had only sought pecuniary rescission. Transfer of title to the Plant was not a live issue in the Arbitration, based on the Terms of Reference, the respondent’s defence and counterclaim, the respondent’s prayer for relief, the respondent’s opening submissions, the Tribunal’s List of Issues, the statements in oral closing submissions and the appellants’ reply post-hearing submissions. Thus, the Transfer Order should be set aside under Art 34(2)(a)(ii) of the Model Law and/or s 24(b) of the IAA as there was a breach of the fair hearing rule.

As the Judge explained (GD at [102]–[132]), however, the transfer of title to the Plant to effect counter-restitution in specie was a live issue throughout the arbitration. In our view, it was indeed a live issue.

Terms of Reference

The appellants submit that the respondent had only sought pecuniary rescission and not counter-restitution in specie in the Terms of Reference. We have addressed this point already.

The respondent’s defence and counterclaim

The Judge found that it was meaningless to raise rescission and its consequences by way of defence, and that these four paragraphs must not be read as part of a defence to the appellants’ claim, but as part of the respondent’s counterclaim. Further, these paragraphs sufficed to put the appellants on reasonable notice that counter-restitution in specie upon rescission, as one of the natural legal consequences of rescission, was a live issue in the Arbitration (GD at [110]–[111]).

We take the same view as the Judge. Given the repeated references in these paragraphs to the respondent’s position that the “Contract should be set aside” and that “title” to various components should “revert to [the appellants]”, it was apparent that counter-restitution in specie upon rescission was a live issue in the Arbitration.

The respondent’s prayer for relief

Third, the appellants submit that the Judge erred in finding that paragraph 424(b) of the respondent’s defence and counterclaim did not amount to a prayer for pecuniary rescission. We set out an extract from paragraph 424 as follows:

The Judge held that paragraph 424(b) of the defence and counterclaim did not amount to a prayer for pecuniary rescission – in fact, the respondent’s prayer was for full restitution of the contract price from the appellants, without any deduction to account for counter-restitution to the appellants. The implicit premise of this prayer was that the original value of the Plant was nil – this was the respondent’s best case on the consequences of rescission, and the respondent was perfectly entitled to advance its best case in this way. The respondent’s approach cast a “tactical forensic burden” on the appellants to take a position on counter-restitution as a natural consequence of rescission, ie, the appellants could either have claimed counter-restitution as a benefit or rejected counter-restitution as a burden, but did neither (GD at [115]). The appellants instead resisted rescission on the sole basis that the remedy was entirely unavailable to the respondent, leaving it exposed in the event that the Tribunal found that rescission was not barred and the respondent was not estopped from seeking it (GD at [116]).

On appeal, the appellants submit that viewed in context, the respondent had sought the monetary order in paragraph 424(b) as the only consequence to the rescission sought in paragraph 424(a), ie, the respondent had only sought pecuniary rescission, and not rescission through restitution and counter-restitution in specie.

We agree with the Judge that it is inaccurate to characterise paragraph 424(b) as a prayer for “pecuniary rescission” which would “take into account the value [the respondent] had received and the value [the respondent] had transferred”. What the respondent was saying in paragraph 424(b) was that it wanted the appellants to pay back the contract price to the respondent in full, while the respondent did not need to pay the appellants anything, ie, this meant the respondent was taking the position that it had received no benefit under the Contract and did not owe the appellants anything. The respondent was entitled to take such a position.

Second, as pointed out by the respondent, the appellants’ argument on appeal avoids the second aspect of the Judge’s reasoning. The Judge said that there was a tactical burden on the appellants to take a position on counter-restitution as a natural consequence of rescission (GD at [115]). Instead, the appellants adopted an “all or nothing” defence to rescission (GD at [116]), meaning that they flatly denied that the respondent was entitled to this relief in the first place and offered no alternative position in the event that the Tribunal found that rescission was an available relief. In our view, the appellants were well aware that counter-restitution in specie was a live issue in the Arbitration and simply chose to conduct their case without addressing the possibility that this relief would be ordered.

The respondent’s opening submissions

The List of Issues

Fifth, the appellants submit that the Tribunal did not include the issue of whether title to the Plant could or should be transferred from the respondent to the appellants in its List of Issues, indicating the reality that a transfer of title to the Plant was not a live issue in the Arbitration.

The Judge held that the failure to refer to counter-restitution in specie in the List of Issues did not withdraw it as a live issue in the arbitration.

The appellant has not provided any basis for a reversal of the Judge’s holding on the point. First, as noted by the respondent, Issue 2 concerned the issue of rescission, and restitution/counter-restitution in specie are the natural legal consequences of rescission. Second, the appellants have not addressed the Judge’s observation that a list of issues is not intended to set out every possible issue in the arbitration or to prevail over the scope of the parties’ arbitration agreement, the notice of arbitration, the Terms of Reference or the pleadings (GD at [127]).

Oral closing submissions

Sixth, the appellants submit that the statements in oral closing submissions referred to by the Judge have to be read in their proper context – these statements were not made in the context of whether the Tribunal should order counter-restitution in specie in the event that rescission is available. We reproduce the statements referred to by the Judge as follows:

We agree with the Judge that those statements of the appellants’ counsel showed that the appellants were arguing that rescission was barred as the Plant had been abandoned since 2016, and restoring the appellants to the status quo ante was no longer possible (GD at [121]). The very fact that the appellants’ counsel was making such an argument indicated that they accepted that counter-restitution in specie was available in principle as a relief – just that, according to the appellants, this was no longer possible in the circumstances. Further, the statements of the respondent’s counsel made it clear that the Tribunal’s decision to rescind the Contract would oblige the respondent to return the Plant to the appellants, and would oblige the appellants to accept the return of the Plant.

Reply post-hearing submissions

Lastly, the appellants submit that paragraph 67 of their reply post-hearing submissions was incorrectly interpreted by the Judge. Paragraph 67 states:

The Judge found that the appellants understood perfectly well that the issue of counter-restitution in specie was a live issue. The appellants’ position in paragraph 67(ii) would have been quite different if they genuinely believed that the respondent’s counterclaim was confined to pecuniary rescission. If the appellants really believed that, paragraph 67 would have been premised on the respondent (or the Parent) retaining title to the Plant, and the appellants would have argued in paragraph 67(ii) that the respondent must give the appellants credit against restitution of the Contract price for the full original value of the Plant, not merely for the diminution in its value. By submitting that the appellants’ restitution of the Contract price should be reduced only by the diminution in value of the Plant, and not by the full original value of the Plant, the appellants showed that they anticipated reacquiring title to the Plant upon counter-restitution in specie (GD at [130]).

The appellants, however, submit that in paragraph 67, they had simply made the point that the diminution in value of the Plant should be counted against the respondent in a monetary order awarded to the respondent, due to the respondent’s culpability in choosing to let the Plant lie idle.

We understand the Judge’s reasoning to be as follows. Suppose the Plant’s value in 2016 (before it was “moth-balled”: GD at [17]) was F$80,000, and it is now worth F$50,000 after lying idle for about three years after the termination of the Contract, ie, the diminution in value is F$30,000. If the appellants had really thought that the respondent would keep the Plant, then the appellants should have instead argued that the respondent would retain the Plant and that the Plant was worth its full original value of F$80,000. The appellants would then have asked in their reply post-hearing submissions for this full value of F$80,000 to be taken into account in the amount the appellants would have to pay the respondent, ie, if the appellants have to pay back the full contract price to the respondent, this should be reduced by the F$80,000 worth of Plant that the respondent retains. However, if the appellants contemplated that they would in fact get back the Plant as a consequence of the Award, then the appellants would receive the value of F$50,000 (the current value of the Plant, which the appellants say has diminished in value due to the fault of the respondent), and the respondent would have to compensate the appellants for the diminution in the value of the Plant in order to put both parties back in their pre-contractual positions, ie, the respondent would have to pay the appellants F$30,000, which should be set off against the amount the appellants have to pay to the respondent. The latter is exactly what the appellants asked for in paragraph 67(ii) of their reply post-hearing submissions. We agree with the Judge that this shows the appellants knew counter-restitution of the Plant in specie remained a live issue at the close of submissions in the Arbitration (GD at [131]).

We therefore reject the appellants’ submission that they were denied a reasonable opportunity to submit on the issue of a transfer of title to the Plant as a consequence of rescission, including whether such transfer was possible/enforceable and how it was to be effected. Since the appellants knew throughout the Arbitration that counter-restitution in specie was a live issue, they only have themselves to blame for failing to make submissions on this point. The appellants also submit that they have suffered significant prejudice due to the fact that any separation of the Plant from the land would result in the Plant being destroyed or render the Plant worthless. However, as we have explained earlier, the appellants have not adduced any evidence in support of this contention, and we agree with the Judge that this argument is an afterthought and a contrivance (GD at [79]).

Conclusion on Issue 1

In conclusion, the appellants have provided no basis to disturb the Judge’s decision concerning the Transfer Order.

Issue 2: Should the Repayment Order be set aside?

We now turn to the Repayment Order. Under the Repayment Order, the appellants were to pay the respondent the Contract Price of F$92.7m, less F$15m (to account for two loans which the appellants had previously extended to the respondent) and F$54.5m (to account for the respondent’s use of the Plant and the diminution in value of the Plant). This F$54.5m is the equivalent of R$270m. The Tribunal stated (see the Award at [398]–[403]):

The appellants submit that the Tribunal made the Repayment Order without any evidence of the current value of the Plant or the diminution in value of the Plant – in this regard, the appellants urge this court to consider the adoption of the “no evidence rule” as part of Singapore law. The appellants also submit that they were unable to present their case on the burden of proof and the condition/value of the Plant during the Arbitration – if the Tribunal wished to arrive at its conclusion on an issue where direct and relevant evidence was sorely lacking, the parties ought to have been given a chance to comment and provide submissions on the Tribunal’s thinking or proposed line of reasoning. Thus, the Repayment Order was issued in breach of the fair hearing rule.

We first deal with the appellants’ argument concerning the alleged breach of the fair hearing rule.

The fair hearing rule

The appellants say that they were unable to present their case on the burden of proof and the condition/value of the Plant (including on the diminution in value of the Plant). In our view, however, the Judge did not err in finding that the diminution in the value of the Plant was a live issue in the Arbitration from the very outset (GD at [143]).

In its statement of defence and counterclaim, the respondent had pleaded that rescission was not barred on the ground that the Plant had been used, because it could be accompanied by a monetary award of sufficient value to restore the appellants to the status quo ante (GD at [143]):

In its reply and defence to the counterclaim, the appellants had pleaded that the respondent was not entitled to rescind the Contract as, inter alia, the respondent had used and benefited from the Plant.

Thus, the pleadings showed that two issues were live in the Arbitration: whether the Plant had diminished in value since 2016, and the quantum of the diminution in the value of the Plant. Further, the Tribunal had held that the appellants bore the burden of proving the quantum of the diminution in value of the Plant (GD at [145]). Having failed to adduce any evidence in this respect, the appellants cannot now argue that they have been denied a fair hearing. It is also trite that even if the Tribunal had made an error of law in finding that the appellants bore the burden of proof, this is not a ground for setting aside an award under the IAA or the Model Law (Prometheus Marine Pte Ltd v King, Ann Rita and another appeal [2018] 1 SLR 1 at [57]).

In fact, as we observed at the hearing, any error in this regard was to the appellants’ advantage. The Tribunal found that the burden of proof was on the appellants to prove diminution in value of the Plant. The Tribunal could therefore have said that, since the appellants had not given any evidence of the diminution in value of the Plant, the Tribunal would not deduct anything from the sum to be repaid by the appellants to the respondent, with the result that the appellants would have to pay back more to the respondent. In our view, therefore, even if there had been any breach of the fair hearing rule, there was no prejudice caused to the appellants by this decision.

The “no evidence rule”

Next, the appellants argue that this court should consider adopting the “no evidence rule”, a rule which has sometimes been applied in Australia and New Zealand. Application of this “rule” would mean that an award which contains findings of fact made with no evidential basis at all is liable to be set aside for breach of natural justice. In support of their contention, the appellants refer to two Australian cases, Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666 (“Pochi”) and R v Deputy Industrial Injuries Commissioner ex parte Moore [1965] 1 QB 456 (“Moore”), and two Singapore cases, Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) and CAI v CAJ. The appellants submit that the Judge erred in finding that the “no evidence rule” has no application to a situation in which a tribunal has no evidence before it on a material issue of fact simply because the party who bears the burden of proof on that issue has failed to adduce any such evidence – the appellants contend that there is no such limitation on the “no evidence rule”. Rather, the respondent, being the party that sought pecuniary rescission, bore the burden of “proving every element in the formula necessary to calculate the monetary award which would achieve the same net economic effect as restitution and counter-restitution in specie, including the condition/value of the Plant”; and that the appellants were deprived of the opportunity to seek any evidence on the condition/value of the Plant during the Arbitration.

In our judgment, the “no evidence rule” should not be adopted as part of Singapore law, as to do so would run contrary to the policy of minimal curial intervention in arbitral proceedings (AKN and another v ALC and others and other appeals [2015] 3 SLR 488 at [37]–[38]). Further, it would not add anything to the existing grounds for setting aside an award but would instead be (as the Judge stated) “an impermissible invitation to the courts to reconsider the merits [of] a tribunal’s findings of fact as though a setting-aside application were an appeal” (GD at [152]).

In this regard, we do not think the cases cited by the appellants assist their argument.

(a) Simply citing the Australian cases of Pochi and Moore does not answer the question of why Singapore should adopt the “no evidence rule”.

(b) The appellants have referred to [65(a)] and [65(d)] of Soh Beng Tee. But these paragraphs do not explain why Singapore should adopt the “no evidence rule”. In respect of [65(a)], this explains that “[a]n arbitrator should not base his decision(s) on matters not submitted or argued before him” and that “[a]rbitrators who exercise unreasonable initiative without the parties’ involvement may attract serious and sustainable challenges”. Read in context, this is a reference to the established principle of ensuring that parties are given a fair hearing and have “reasonable opportunities to present their cases as well as how to respond”. The same goes for [65(d)], which addresses the issue of the parties’ “right to be heard”, and highlights that “there must be a real basis for alleging that the arbitrator has conducted the arbitral process either irrationally or capriciously”.

(c) The appellants have also referred to CAI v CAJ at [166]–[176]. These paragraphs concern the High Court’s finding that the tribunal in that case did not rely on any of the evidence adduced by the defendants, and instead had substantially relied on its “professed experience” to grant a 25-day extension of time to the defendants (at [168]). But, as the respondent submits, the High Court in that case did not rely on the “no evidence rule” in reaching its decision – rather, the High Court found that one of the parties (CAI) was denied a reasonable opportunity to be heard as it was not given a chance to comment and provide submissions on the tribunal’s professed “experience in these matters” (CAI v CAJ at [168], [169], [171], [176]). This case therefore does not explain why Singapore should adopt the “no evidence rule”. It is also different from the present case, where the issue of the diminution in value of the Plant was a live issue throughout the arbitration and the appellants simply failed to address it.

Second, even if the “no evidence rule” were to be applied in the present case, it cannot apply to a situation where the tribunal has no evidence before it on a material issue of fact because the party who bears the burden of proof on that issue has failed to adduce any such evidence. In this regard, the appellants have two contentions:

(a) The appellants submit that there is no such limitation on the “no evidence rule” – a tribunal faced with a situation where there is no evidence, whether or not due to the fault of the party bearing the burden of proof, cannot simply make an arbitrary decision based on mere speculation. However, as the respondent submits, where a party with the burden of proof on a particular point does not adduce evidence on that point, it has simply failed to discharge its burden of proof on that point, and the tribunal would thus be entitled to accept the other party’s best case.

(b) Next, the appellants submit that, in the present case, it was the respondent who bore the burden of proving the diminution in value of the Plant, since the respondent “had sought pecuniary rescission”. As we have explained, however, it was not the case that the respondent prayed for pecuniary rescission – as the Judge said, the respondent had pleaded its best case on rescission. We agree with the Judge that the appellants simply chose not to present their case on the diminution in value of the Plant in response (GD at [150]).

Third, in respect of the appellants’ argument that they were deprived of the opportunity to seek evidence on the condition/value of the Plant both by the respondent and by the Tribunal’s unexpected decision on the diminution in value of the Plant, and that the Tribunal should have requested the parties to tender evidence and submissions, the appellants have not addressed the Judge’s finding that the burden was on the appellants to deploy the appropriate procedural machinery at the appropriate procedural stage of the Arbitration to secure the necessary evidence to discharge their burden of proof (GD at [156], [158]). As for the appellants being allegedly taken by surprise by the Tribunal’s unexpected decision on the diminution in value of the Plant, we do not think this submission is meritorious given that this was a live issue during the Arbitration. In this regard, the appellants have not addressed the Judge’s finding that they failed to state a case on the diminution in the value of the Plant at any point during the Arbitration (GD at [159]).

Conclusion on Issue 2

In conclusion, the appellants’ submission that the Repayment Order should be set aside on the basis that it was issued in breach of the “no evidence rule” or in breach of the fair hearing rule must be rejected.

Since neither the Transfer Order nor the Repayment Order is to be set aside, the question of whether both orders should be set aside as a result does not arise.

Issue 3: Should the Damages Order be set aside?

The Damages Order stated that the appellants were to pay the respondent a total of R$176,245,250 as damages under the Misrepresentation Act to compensate the respondent for five heads of losses and/or expenses which it would not have incurred but for the appellants’ misrepresentations. The Tribunal had only permitted the respondent to recover 25% of the damages it had sought under each of the five heads as it had found the respondent’s evidence of the quantum of the reliance losses it had suffered under each head to be deficient.

In respect of the Damages Order, the Judge held that the fair hearing rule had not been breached as the appellants could have advanced an alternative case on the quantum of the respondent’s reliance loss, but had refused to do so: GD at [175]. The Judge also held that the appellants’ reliance on the “no evidence rule” to challenge the Damages Order was without merit: GD at [176]–[180].

The fair hearing rule

On appeal, the appellants submit that the Damages Order was issued in breach of natural justice and/or that the appellants were unable to present their case. The Tribunal had rejected and/or found the respondent’s evidence in support of its five heads of reliance loss to be deficient. Despite this, it inexplicably proceeded to adopt a “flexible approach” and to award the respondent 25% of each head of reliance loss, without first telling the parties it would be doing so or giving them the opportunity to address the Tribunal on the same. Had the Tribunal indicated beforehand that it would apply this flexible approach, the appellants would have had the opportunity to decide whether to ask the respondent to produce the source documents, or to take a forensic risk by resting their defence only on the burden of proof.

The law

In the recent decision of this court in BZW and another v BZV [2022] SGCA 1 (“BZW”), this court stated that a breach of the fair hearing rule could arise from the chain of reasoning which the tribunal adopts in its award (at [60(b)]):

In BZW, the respondent had entered into a contract with the appellants for the latter to construct and deliver a vessel to the respondent. While the vessel was still under construction, the respondent held discussions with a third party (the “Buyer”) to on-sell the vessel. After the appellants delivered the vessel to the respondent and the respondent delivered the vessel to the Buyer, the respondent commenced an arbitration against the appellants claiming damages for the installation of contractually inadequate generators (the “Rating Claim”). The tribunal dismissed this claim. The respondent successfully applied to the High Court to set aside the award on the basis that there was a breach of natural justice under s 24(b) of the IAA. That decision was upheld by this court on appeal. In their defence to the Rating Claim, the appellants had argued that they were not in breach of contract because the contract had not specified a particular rating for the generators and the “SA2 Minutes of Negotiations” signed by the parties permitted the appellants to deliver the vessel with IP23-rated generators.

In relation to the claim for breach of contract, the majority of the tribunal found that the Buyer had required the generators to be rated IP44 and that negotiations had resulted in an agreement for the respondent to pay the appellants a modification fee – the upgrade of the generators from IP23 to IP44 was a reasonable explanation for this fee. The tribunal also found that the pleadings and evidence pointed to the conclusion that the parties understood that the vessel’s generators had to be upgraded from IP23 to IP44. As the High Court held, this could only mean that the tribunal was rejecting the appellants’ defence that delivering the vessel with IP23-rated generators was not a breach of the contract. However, the tribunal then stated that there was no breach by the appellants in supplying IP23-rated generators because the respondent itself had confirmed that IP23 was fit for purpose. But it was never the appellants’ case in the arbitration that they were not in breach of contract because the respondent had confirmed that IP23 was fit for purpose. Finally, this court observed that even if the generators were fit for purpose, this finding would simply have no nexus whatsoever to the issue before the tribunal as to whether the installation of IP23-rated generators was in breach of a contractual obligation to deliver IP44-rated generators (at [61(b)]). This court thus agreed with the High Court that there had been a breach of the fair hearing rule in relation to the Rating Claim as the tribunal had adopted a chain of reasoning that had no nexus with the parties’ submissions.

Applying the law to the facts

In the Award, the Tribunal noted that there were deficiencies in the respondent’s evidence as regards proof of its reliance loss, but nonetheless proceeded to award the respondent 25% of each claimed head of reliance loss. We reproduce the relevant excerpts of the Award as follows:

The Tribunal explained that it was applying a “flexible approach” to proof of damage as “it is impossible to lay down any definitive rule as to what constitutes sufficient proof of damage”. The Tribunal included a footnote reference to the decision of this court in Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd and another [2008] 2 SLR(R) 623 (“Robertson Quay”) at [28]–[30]:

In our view, the Tribunal’s chain of reasoning in respect of the Damages Order was not one which the parties had reasonable notice that the Tribunal could adopt, nor did it have a sufficient nexus to the parties’ arguments.

First, the Tribunal had expressly stated that there were deficiencies in the respondent’s evidence due to the respondent’s failure to produce the relevant supporting documents or to explain how the existing documents substantiated its claim. In our view, both parties would have expected that the Tribunal would only award the respondent loss that the respondent could prove. They would have expected that if the Tribunal disagreed with the appellants about the state of the evidence adduced by the respondent in support of its reliance loss, it would award the respondent its claim in its entirety, ie, it would then award 100% of the respondent’s claim for reliance loss. Similarly, if the Tribunal were to award 25% of the claim for reliance loss, this would be because the respondent had only proved 25% of its claim for reliance loss (and failed to prove the other 75%). In our view, a reasonable litigant in the appellants’ shoes could not have foreseen the possibility of reasoning of the type revealed in the Award – ie, that the Tribunal, having noted all the deficiencies in the respondent’s evidence, would then go on to adopt a figure of 25% of the amount claimed as being the loss incurred. Instead, the parties would have expected the Tribunal to dismiss the claim for reliance loss in its entirety.

Second, the Tribunal’s chain of reasoning did not have a sufficient nexus to the parties’ arguments. The Tribunal justified its reasoning with reference to the “flexible approach” in Robertson Quay at [28]–[30]. We note that the sole reference to Robertson Quay was in the respondent’s reply post-hearing submissions, under a sub-heading concerning the respondent’s claim for expectation loss:

Even in the respondent’s own reply post-hearing submissions, the respondent did not cite Robertson Quay for the proposition that, if the Tribunal was not satisfied as to the state of the respondent’s evidence concerning proof of its loss, the Tribunal could then rely on the “flexible approach” to justify awarding a certain percentage of the respondent’s total claim (assuming the case could have been cited for that proposition which seems doubtful). In fact, the respondent had cited Robertson Quay in support of its argument that the question was simply “whether the Tribunal is satisfied that [the respondent’s] evidence on the loss and quantification is more likely to be true than not” [emphasis added]. Thus, even the respondent acknowledged that, on the “flexible approach”, the Tribunal had to first be satisfied that the respondent’s evidence was “more likely to be true than not” in order to award any damages to the respondent. In our view, therefore, the Tribunal’s reliance on the “flexible approach” in Robertson Quay had no connection to the issue before the Tribunal of what the appropriate award for the respondent’s alleged reliance loss should be. Once the Tribunal found that the respondent had not proved its reliance loss, the only appropriate percentage to award was 0% – the “flexible approach” did not allow the Tribunal to randomly select a figure of 25%.

In this regard, we think the present case is similar to BZW. In BZW, in relation to the Rating Claim, the tribunal found that (a) the upgrade of the vessel’s generators from IP23 to IP44 was a reasonable explanation why the appellants agreed to incorporate a modification fee in their agreement with the respondent and (b) the parties understood that the vessel’s generators had to be upgraded from IP23 to IP44. Making those two findings (“findings (a) and (b)”), could only mean that the appellants’ defence that they were not in breach of contract when they delivered IP23-rated generators was being rejected by the tribunal. Yet, instead of finding that the appellants were in breach of contract, the tribunal found that there was no breach of contract by the appellants based on a reason that was not even part of the appellants’ case, and that, even if true, had no relevance to the issue of whether the appellants had breached their contractual obligation. The parties could not have anticipated that a finding that there was no breach of contract by the appellants would follow from findings (a) and (b) above. Similarly, in this case, the Tribunal found that there were deficiencies in the respondent’s claim for reliance loss (eg, it observed that the respondent failed to produce documentary evidence or explain how the existing documents substantiated its claim). This could only mean that the claim for reliance loss had to be rejected in its entirety. Yet, instead of rejecting the claim for reliance loss in its entirety, the Tribunal awarded the respondent 25% of a figure which the Tribunal found was unproven.

Third, we consider that this breach of natural justice was connected to the making of the Award (BZW at [62]), as the Tribunal awarded the respondent 25% of its claimed reliance loss based on the “flexible approach”. In our view, this breach of natural justice prejudiced the appellants’ rights. Had the Tribunal informed the parties of its intention to apply the “flexible approach” in this manner, the appellants would have had the opportunity to inform the Tribunal of its objections to such an approach, or the appellants would have had the opportunity to decide whether to ask the respondent to produce the source documents or to take a forensic risk by resting their defence only on the burden of proof. This compliance with the rules of natural justice could reasonably have made a difference to the outcome of the Arbitration (BZW at [63]).

Both before the Judge and this court, the respondent submitted that, in the event the court was troubled by the challenge mounted against the Damages Order, the court should remit the matter to the Tribunal to reconsider the assessment instead of setting aside the Damages Order. The appellants’ submission in reply, relying on BZW at [67], was that in this case remission would not be appropriate because a reasonable person would not be confident in the ability of the Tribunal to objectively reconsider a decision that it had made arbitrarily.

The Judge did not need to consider this point as he held that the challenge against the Damages Order failed. We have come to a different conclusion on the merits of this challenge and therefore must consider if remittal to the Tribunal would be appropriate. Our conclusion is that this is not a proper case for remittal. We have explained at length above why the Tribunal was not entitled to do what it did – its flexible approach resulted in an arbitrary decision that could not have been anticipated by the parties.

We agree that resolving the question of whether to remit should, among other considerations, involve applying the objective test of whether a reasonable person would be confident that the Tribunal would be able to reconsider the issue remitted in a fair and balanced manner and would not, even sub-consciously, be influenced toward justifying or re-instituting its previous decision. In this case, we are satisfied that a reasonable person would not have that necessary confidence after having assessed how the impugned decision had been arrived at. Further, the Tribunal having dealt with each head of the reliance loss claim in detail from [435] to [468] of the Award, and having found that there was insufficient evidence on the record to support those heads, it would be pointless to send the claim back to the Tribunal to repeat an exercise which, logically, should result in the same conclusion of lack of evidence.

Conclusion on Issue 3

We will allow the appeal in relation to the Damages Order on the basis that there has been a breach of the fair hearing rule. In the circumstances, there is no need for us to address the appellants’ arguments concerning the “no evidence rule” in relation to the Damages Order.

Issue 4: Should the Award (or part thereof) be set aside on the basis that the Tribunal breached its duty to provide sufficient reasons on material issues in the Award?

Lastly, the appellants submit that the Award does not contain sufficient reasons for the Tribunal’s decision on key issues, and the Award should therefore be set aside under s 24(b) of the IAA, Art 34(2)(a)(ii) and/or Art 34(2)(a)(iv) of the Model Law. These key issues are as follows:

(a) In respect of the Transfer Order, the Award does not inform the parties of whether the Tribunal decided that the Transfer Order was a “legally and factually possible/enforceable remedy”, or the basis on which it made that decision.

(b) In respect of the Repayment Order, the Tribunal decided that the diminution in value of the Plant amounted to a proportion of R$270m. The Award, however, does not inform the parties of the precise proportion of R$270m which the Tribunal awarded for the diminution in value of the Plant or the basis upon which it decided that the diminution in value amounted to a proportion of R$270m.

(c) In respect of the Damages Order, the Tribunal did not inform parties of the basis or evidential route by which it decided to award 25% of the losses/expenses incurred by the respondent.

Both Art 31(2) of the Model Law and Art 31(2) of the ICC Rules provide that “[t]he award shall state the reasons upon which it is based”. 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 (AUF v AUG and other matters [2016] 1 SLR 859 at [77]–[79]). An allegation of inadequate reasons and explanations is generally not capable of sustaining a challenge against an award (TMM Division at [98]).

We have already dealt with the Damages Order. As for the Transfer Order and the Repayment Order, we agree with the Judge that, taken as a whole, the Award did provide sufficient reasons to inform the parties of the bases on which the Tribunal had reached its decision on the essential issues. The Tribunal had explained in detail why, in its view, rescission was not barred (see the Award at [351]–[406]), and ordered both the Repayment Order and Transfer Order to effect rescission. As for the appellants’ argument concerning the diminution in value of the Plant, the Tribunal took a broad-brush approach to assessing the diminution in value of the Plant, but this was not a result of any breach of the IAA or the Model Law. In fact, as we have noted earlier, this was to the appellants’ advantage.

Conclusion on Issue 4

In conclusion, we do not accept the appellants’ submission that the Award should be set aside on the basis that it does not contain sufficient reasons for the Tribunal’s decision.

Conclusion

For the reasons already provided, we allow the appeal in respect of the Damages Order and set the Damages Order aside. For the avoidance of doubt, we dismiss the appeal on the other issues and state that the rest of the Award is to stand.