Zynergy Solar Projects & Services Pvt Ltd v Phoenix Solar Pte Ltd [2017] SGHC 223

The plaintiff applied under s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) to set aside an arbitral award made on 31 January 2017 between it and the defendant on grounds of breach of natural justice, namely that the arbitrator had failed to consider the plaintiff’s arguments. In the arbitration, the defendant (as claimant) had succeeded in its claim against the plaintiff (as respondent) for the plaintiff’s breach of its obligation under a debt settlement agreement to pay the defendant USD 500,000. I dismissed the application on 17 July 2017. The plaintiff has since appealed and I now furnish the reasons for dismissing the plaintiff’s application.

Background and the arbitration

The plaintiff’s subsidiary, Greatshine Holdings Pvt Ltd (“Greatshine”), and the defendant entered into a supply contract on 27 June 2011 for the development of a solar power plant in a village in India (“Supply Contract”). The defendant and Alcetrona Energy Pvt Ltd concurrently issued a letter of undertaking agreeing to be jointly and severally responsible to the plaintiff for the completion of the project (“Letter of Undertaking”). The project’s superintending engineer issued a completion certificate for the power plant on 28 January 2012 but the power plant faced many problems, such as serious losses in power generation, discolouration and burn marks on thin film panels, and failing inverters. These problems remained unresolved.

On 1 August 2013, the defendant, Greatshine, and the plaintiff entered into a Debt Settlement Agreement (“the DSA”) acknowledging that Greatshine owed USD 1,405,794.00 to the defendant as at March 2012 under the Supply Contract. The plaintiff agreed in the DSA to pay the defendant a “Residual Obligation” sum amounting to USD 500,000. The plaintiff argued that it entered into this contract in reliance on an express representation that the defendant would work to resolve the underlying problems with the power plant.

The DSA provided for disputes to be resolved by arbitration. On 27 May 2016, the defendant issued a notice of arbitration against the plaintiff. The defendant claimed a sum of USD 500,000, being the plaintiff’s Residual Obligation under the DSA, and the plaintiff counterclaimed for rescission of the DSA, and in the alternative, losses for substantial failures of performance of the solar power plant. On 31 January 2017, the sole arbitrator (“the Arbitrator”) found for the defendant and awarded it the sum of USD 500,000 together with contractual interest at the rate of 9% per annum calculated daily starting from the first day of delay (“the Award”).

The setting aside application

The plaintiff applied to set aside the Award on 28 February 2017 on grounds of breach of natural justice. Specifically, it argued that the Arbitrator had not given regard to the plaintiff’s submissions and arguments. It filed one supporting affidavit dated 27 February 2017 (“the plaintiff’s supporting affidavit”) and tendered skeletal submissions. Both the plaintiff’s supporting affidavit and the skeletal submissions were substantially the same. Paragraphs 17 to 23 of the plaintiff’s supporting affidavit, forming the entirety of their arguments on the alleged breach of natural justice, state:

The plaintiff’s case was that it was evident from paragraph [150] of the Award that the Arbitrator did not consider the impact of the defendant’s fulfilment of its obligations under the Supply Contract and Letter of Undertaking on the plaintiff’s obligations under the DSA. The Arbitrator did not do so because the parties “[did] not allege that this question [had] any consequence on the [plaintiff’s] claim based on the [DSA]”. The plaintiff argued that this was untrue as its position was that it would not have entered into the DSA without the defendant’s express representations and assurances that the defendant would perform its obligations under the Supply Contract and Letter of Undertaking by addressing the problems and defects with the power plant. The Arbitrator was thus wrong in stating that the plaintiff did not allege that the defendant’s conduct under the Supply Contract and Letter of Undertaking had any consequence on the plaintiff’s obligations under the DSA.

The defendant’s general manager filed an affidavit in response to the plaintiff’s supporting affidavit (“the defendant’s reply affidavit”) on 23 March 2017. The defendant’s reply affidavit pointed to specific paragraphs in the Award dealing with the relevance of the defendant’s alleged representations regarding the Supply Contract and Letter of Undertaking to the plaintiff’s obligations under the DSA:

The court’s decision

A party challenging an arbitral award for breach of natural justice must establish the rule of natural justice that was breached, how it was breached, whether there was a causal link between the breach and the making of the arbitral award, and how the breached prejudiced its rights: Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2003] 3 SLR(R) 86 at [29], AKN v ALC [2015] 3 SLR 488 at [48] and ASG v ASH [2016] 5 SLR 54 at [53]. From its submissions, the plaintiff appeared to be relying on the Arbitrator’s failure to consider an issue pleaded by the plaintiff, ie, the defendant’s representations and its impact on the plaintiff’s obligations under the DSA. The threshold for setting aside an arbitral award for breach of natural justice on the ground that the arbitrator had failed to consider an important pleaded issue is high. Such a conclusion can usually only be reached by inference, and such an inference is only drawn if it is “clear and virtually inescapable”: see AKN v ALC at [46]. The plaintiff had to specifically show that the Arbitrator did not apply her mind at all to that particular submission; it would not be enough that she had rejected it, “whether implicitly or otherwise, whether rightly or wrongly, and whether or not as a result of its failure to comprehend the argument and so to appreciate its merits” (AKN v ALC at [47], followed in ASG v ASH at [62]).

As the plaintiff chose not to make any additional oral submissions during the hearing, the court’s decision was based on both parties’ affidavits and written submissions. It was clear that, far from failing to consider the argument, the Arbitrator had dealt with the defendant’s alleged representation and its impact on the DSA comprehensively and had eventually rejected it. Certain paragraphs of the Award (reproduced in the defendant’s reply affidavit, see [6] above) made it obvious that the Arbitrator had considered the significance of the defendant’s alleged representation on the plaintiff’s obligations under the DSA under various legal doctrines and principles:

(a) First, the Arbitrator considered the plaintiff’s submission that Greatshine would have paid its due under the Supply Contract had the defendant fulfilled its oral promises to support Greatshine to resolve the problems at the power plant. She rejected this because the plaintiff was not a party to the Supply Contract or Letter of Undertaking and the reasons for Greatshine’s failure to perform its obligations under those contracts were irrelevant to the plaintiff’s obligations under the DSA (at paragraph [149] of the Award);

(b) Second, the Arbitrator considered the plaintiff’s submission that “it would not have entered into the [DSA] save for the [defendant’s] express representation that it would assist in resolving the problems with the [power plant]”. This is the specific issue that the plaintiff claimed the Arbitrator did not address. Not only did the Arbitrator expressly state the plaintiff’s position (in paragraph [147] of the Award), she rejected it on the basis that the requirements for fraudulent misrepresentation were not made out (at paragraph [151] of the Award); and

(c) Third, the Arbitrator considered the plaintiff’s submission that the parties had entered into an oral collateral contract in parallel to the DSA, whereby the defendant agreed to resolve the power plant defects. This was again an evaluation of the legal significance of the defendant’s alleged representation. The Arbitrator found that there was no evidence of such an oral contract (at paragraph [156] of the Award).

Having considered the parties’ submissions and the Award in more detail, it is clear that the Arbitrator’s remarks at paragraph [150] that “[in] any event, whether the Parties to the Supply Contract and the Letter of Undertaking fully performed their obligations is not for the Sole Arbitrator to decide as she is not seized of a dispute under those contracts and the Parties do not allege that this question has any consequence on the [defendant’s] claim based on the [DSA]” did not mean that she had not considered the legal effect of the defendant’s alleged representations on the plaintiff’s obligations under the DSA. In the preceding paragraphs, the Arbitrator had carefully examined and rejected the plaintiff’s submissions in relation to this issue. I accept the defendant’s submission that the Arbitrator may simply have been making the point that “the disputes under the Supply Contract and Letter of Undertaking did not by themselves have any consequence on the DSA save insofar as they supported a finding of collateral contract or misrepresentation”. The preceding paragraphs demonstrated her attention to and disposal of these issues and there is no basis to draw the inference that she had failed to consider the plaintiff’s submissions.

For completeness, I note that prejudice, the other element that has to be fulfilled for a setting aside application under s 24(b) of the IAA (see [9] above), was nothing more than a bare assertion in the plaintiff’s written submissions.