CHH v CHI [2020] SGHC 269

Introduction

If an arbitration award goes against facts that are common ground between the parties, has the arbitrator exceeded the scope of submission to arbitration, or breached natural justice? Or has he merely made a mistake which the court cannot intervene to correct?

This application was made under s 48 of the Arbitration Act (Cap 10, 2002 Rev Ed) (the “AA”) to set aside parts of the Final Award (the “Award”) dated 21 November 2019 and the Addendum thereto dated 18 February 2020 in an International Chamber of Commerce (“ICC”) arbitration (the “Arbitration”). I shall refer to the parties by their designations in the Arbitration, ie, the plaintiff as the Respondent, and the defendant as the Claimant.

The Respondent contends that:

(a) the Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration; and

(b) a breach of the rules of natural justice occurred in connection with the making of the Award by which the rights of any party (ie, the Respondent) have been prejudiced.

The Claimant did not seek to defend the correctness of the arbitrator’s decision. Indeed, the Claimant acknowledged that the arbitrator had made mistakes; but it contended that the arbitrator’s decisions were within the scope of the submission to arbitration, and there was no breach of natural justice: therefore, the court could not intervene to correct the said mistakes.

Factual background

The Subcontract

The Arbitration

The Award

The setting-aside application

Should the court set aside the arbitrator’s finding that the stones complied with the Acceptance Criteria, and should not have been rejected?

Did the arbitrator’s findings about the stone inspector go beyond the submission to arbitration, or breach natural justice?

Did the arbitrator’s findings as to reliance on photographs go beyond the scope of the submission to arbitration?

It was common ground that the architect had physically inspected all the stones that were rejected. He attended all four of the dry lays of the S Stones in Singapore (where stones are laid out before installation, to show what they would look like when installed). He also inspected the SV Stones on site, at least after those were installed, if not before.

The Respondent complains that the arbitrator went against this agreed factual position, in emphasising the architect’s reliance on photographs (in extracts such as the following in paras 291(b), 291(c) and 291(e) of the Award):

(a) “Whilst the Stone Inspector inspected the actual stones at various times before installations, the Architect and the Respondent chose not to attend most of the Dry Lays in Singapore, and relied on the photographs taken at Dry Lays, as did the experts.”

(b) “… it was stubborn and obstinate for the Architect to have refused to attend Dry Lays in Singapore.”

(c) “The Sole Arbitrator also agrees with Mr [B]’s [ie, the Claimant’s expert’s] criticism of the Architect’s rejections … when photographs are relied upon lighting conditions are problematical.”

(d) “The Stone Inspector’s approvals have considerably more weight than the Architect’s objections, as not only were they world experts in marble, but they inspected at source in Italy, or at Singapore Dry Lays.”

(e) “When compliance with the Acceptance Criteria is finally balanced, the Sole Arbitrator gives the benefit of doubt to the Claimant, due to the Architect’s, and to a lesser extent the Respondent’s, refusal to inspect at source, or during Dry Lays in Singapore, the poorly drafted Subcontract Specifications, and unreliable photographs.”

The respondent goes as far as to submit that the arbitrator found that the architect had relied solely on photographs. I cannot, however, conclude from reading the Award that the arbitrator thought the architect never saw the rejected stones at all. In the first place, the arbitrator did not say that the architect had relied solely on photographs. In para 291(b) of the Award, the arbitrator said the architect chose not to attend “most” (not all) of the dry lays in Singapore. He expressly found that the architect had attended the dry lay of the S Stones on 27 January 2016 (see para 163 of the Award, and para 265 of the Award as corrected by para 5.10 of the Addendum).

In so far as the architect had rejected SV Stones after installation, the arbitrator stated at para 291(c) of the Award: “The Sole Arbitrator agrees with Mr [B] [ie, the Claimant’s expert] that rejection after installation should only have been for workmanship issues, and this was never alleged in this arbitration.” In view of that finding, the fact that the architect saw SV Stones on site after installation is of no avail to the Respondent.

The Respondent’s complaint has greater force in relation to the S Stones, all of which the architect saw on site before installation, at four dry lays on 27 January 2016, 2 March 2016, 7 March 2016 and 18 March 2016.

The arbitrator found that the architect only attended the dry lay on 27 January 2016, and that he was absent from the three March 2016 dry lays (see paras 163 and 166 of the Award, and para 265 of the Award as corrected by para 5.10 of the Addendum). This went against what was common ground between the parties, ie, that the architect had attended all four dry lays of the S Stones:

(a) In the witness statement of the Claimant’s Mr [S] in the Arbitration, he stated at para 136 that the architect had attended the dry lays on 2 March 2016 and 7 March 2016.

(b) The table exhibited at Tab 48 of Mr [S]’s witness statement records the architect’s attendances on 2 March 2016 and 18 March 2016.

(c) Mr [S]’s reply witness statement refers to the architect’s attendances on 7 March 2016 (at para 26) and on 18 March 2016 (at para 29).

After the Award was rendered, the Respondent served a request for correction and clarification to certain parts of the Award, including as to para 265 of the Award, on 20 December 2019. That was opposed by the Claimant on 17 January 2020. On 20 January 2020, the Respondent replied to say that it wished to respond with necessary clarifications, but that was not allowed by the arbitrator. In the event, the arbitrator issued the Addendum on 18 February 2020, correcting para 265 of the Award only to the extent of acknowledging that the architect had attended the dry lay on 27 January 2016 (consistent with para 163 of the Award).

In relation to the March 2016 dates, the arbitrator said at para 5.10(1) of the Addendum:

Not only was this plainly wrong, it suggested that the arbitrator had not considered Mr [S]’s witness statement (or Tab 48 thereto) or his reply witness statement: those show that the architect had attended on 2 March 2016, 7 March 2016 and 18 March 2016.

At para 4.5 of the Addendum, the arbitrator said Tab 48 of Mr [S]’s witness statement “contradicts some of the allegations in paragraph 12 of the Request” (ie, the corrections the Respondent sought in relation to para 265 of the Award). He went on to say, “The Sole Arbitrator had considered all arguments raised by the parties on this issue before rendering the Final Award.”

However, Tab 48 of Mr [S]’s witness statement records the architect’s attendances on two of the three March 2016 dates, namely, 2 March 2016 and 18 March 2016 – the arbitrator evidently remained unaware of this, or he would have corrected para 265 accordingly. As for his remark that he had considered all arguments raised by the parties on this issue before rendering the Award, there had been no arguments on this for it was never in issue between the parties. The arbitrator simply proceeded on a factual basis contrary to what was common ground between the parties.

In this application, the Claimant did not seek to defend the correctness of the arbitrator’s finding that the architect had been absent from the March 2016 dry lays. Its point was simply: the court could not correct the arbitrator’s mistakes.

There was force in the Respondent’s contention that the arbitrator had exceeded the scope of the submission to arbitration, when he found that the architect did not attend the March 2016 dry lays, although it was common ground between the parties that the architect had: he was making a decision on a matter that had not been submitted for his decision in the Arbitration, because it was common ground between the parties.

As the architect’s attendances at the March 2016 dry lays were not in dispute, the Respondent had no reason to anticipate that the arbitrator might find to the contrary. When that happened and the Respondent sought a correction, the Claimant incorrectly asserted that there was a dispute between the parties, and that Tab 48 of Mr [S]’s witness statement went against the corrections that the Respondent sought. The arbitrator then did not allow the Respondent a response.

The Respondent also argues that its expert had inspected the S Stones at the Claimant’s warehouse, and so his opinion (at least in relation to the S Stones) were not based solely on photographs. The Respondent’s expert had referred to his inspection of the S Stones in his expert report (see para 66(c)(iii) of the affidavit of the Respondent’s Mr [Z] dated 15 May 2020, and paras 39–40 of Mr [S]’s affidavit dated 9 July 2020). Although the arbitrator stated in para 291(b) of the Award that the experts had relied on photographs, I cannot conclude thereby that the arbitrator thought they had relied solely on photographs.

I shall now consider whether setting-aside of the arbitrator’s decision on the stones is warranted.

If grounds for setting aside are made out, should the court nevertheless decline to set aside the Award (or any part of it)?

Should the sums awarded by the arbitrator (or any part thereof) be set aside, because the arbitrator awarded retention monies twice over?

The contract sum was $11,578,000, and the Respondent was entitled to retain up to a total of 5% of that (ie, $578,900) as retention monies, to be released in accordance with the Subcontract terms, in two halves of $289,450 each.

In the Claimant’s payment claim number 29 (“PC 29”) submitted on 31 March 2017, the Claimant asserted that it had done work of a total value of $11,309,903.59 (the “Claimant’s valuation”). There was a difference between that and the Subcontract Price due to a deduction of $268,096.41 for variations. PC 29 was exhibited to the Claimant’s Request for Arbitration (“RFA”) and referred to at paras 38 and 45 thereof.

PC 29 shows that the Claimant’s valuation of $11,309,903.59 included the sum of $578,900 in retention monies. Thus, in PC 29, the Claimant deducted the sum of $578,900 from the sum of $11,309,903.59. The Claimant acknowledged that it had been paid $7,206,445.31, and the Claimant claimed payment of the balance from the Respondent. The Claimant also claimed the sum of $289,450 as the first half of the retention monies.

In the Respondent’s payment response number 29 (“PR 29”) issued on 21 April 2017 (also annexed to the Claimant’s RFA), it noted that the Claimant’s cumulative claim was for $11,309,903.59 in value of work, arrived at by deducting $268,096.41 for variations from the contract sum of $11,578,000, ie, as set out in PC 29. The Respondent valued the Claimant’s work at $7,670,139.62 (the “Respondent’s valuation”) and deducted the retention monies of $578,900 from that.

PR 29 also shows that the Respondent considered it had overpaid the Claimant, even before the Claimant commenced this arbitration. The Respondent’s valuation in PR 29 was $7,670,139.62, $115,205.69 less than its previous valuation of $7,785,345.31. Based on its previous valuation, the Respondent had paid the Claimant $7,206,445.31, whereas after deducting the retention monies of $578,900 from the Respondent’s valuation of $7,670,139.62 in PR 29, the Claimant should only be paid $7,091,239.62. The difference between the $7,206,445.31 which the Respondent had paid, and the $7,091,239.62 which the Respondent was obliged to pay, is the same sum of $115,205.69 mentioned above. GST of 7% was then added to this sum of $115,205.69 to arrive at the response amount of $123,270.09, which the Respondent considered the Claimant should repay.

In the Arbitration, the Claimant claimed $3,639,763.97 (the difference between the Claimant’s valuation of $11,309,903.59 and the Respondent’s valuation of $7,670,139.62). In the event, the arbitrator arrived at a figure that was between the parties’ respective positions: the arbitrator deducted $202,650.84 for non-installation of S Stones (see paras 343–349 of the Award) and awarded the Claimant a balance payment of $3,437,113.13 under Item V of section O of the Award, instead of the $3,639,763.97 the Claimant had claimed.

After the Award was issued, the Respondent asked the arbitrator to correct the sums awarded. The Respondent said that the Award was excessive to the extent of $115,205.69. The Respondent argued that the arbitrator had failed to deduct retention monies from what was awarded, and moreover had awarded retention monies twice over (by awarding the Claimant the first half of the retention monies of $289,450 under Item VI of section O of the Award (as amended by para 7.1 of the Addendum), on top of the balance payment awarded under Item V). The arbitrator declined to correct the Award in this respect.

As I noted above at [63], the so-called “excess” of $115,205.69 came about because the Respondent had paid the Claimant $7,206,445.31, rather than just $7,091,239.62 (the Respondent’s valuation of $7,670,139.62, less $578,900 in retention monies). The “excess” of $115,205.69 does not arise from the arbitrator failing to deduct retention monies from the Claimant’s claim of $3,639,763.97 (the difference between the Claimant’s valuation and the Respondent’s valuation) – no such deduction was required, as the sum claimed was simply the difference between the parties’ respective valuations, each of which was already subject to deduction of retention monies.

Whatever the Claimant’s claims in this arbitration, PR 29 shows that the Respondent considered that it had already overpaid the Claimant by $115,205.69 in relation to the value of work done. That did not come to the fore in this arbitration, perhaps because the Respondent’s counterclaims became the subject of another arbitration.

The Respondent cannot however point to that overpayment of $115,205.69 as a basis to undermine the sums awarded by the arbitrator. The arbitrator did not exceed his jurisdiction, nor breach natural justice, in awarding the sums which he awarded to the Claimant.

Whether the Respondent can recover the sum of $115,205.69 in the other arbitration is beyond the scope of this setting-aside application, and so I shall not comment on that.

In the circumstances, I do not set aside the sums awarded by the arbitrator in favour of the Claimant.

Conclusion