High Court · Decided 8 May 2008

Dongwoo Mann+Hummel Co Ltd v Mann+Hummel GmbH

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[2008] SGHC 67Case no. OS 713/2007

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International Arbitration Act 1994

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Introduction
[1] The plaintiff, Dongwoo Mann+Hummel Co., Ltd (“Dongwoo”), is a company incorporated in Korea and is in the business of manufacture and sale of automotive filtration systems to the Korean automotive industry. The defendant, Mann+Hummel GmbH (“M+H”), is a company incorporated in Germany and is in the business of automotive filtration.
[2] Dongwoo commenced the present action (by way of Originating Summons No 713 of 2007 dated 9 May 2007) to set aside the final award dated 13 February 2007 (the “award”) in an arbitration between Dongwoo and M+H (“the parties”). The arbitration was conducted pursuant to the Singapore International Arbitration Centre (“SIAC”) Rules (2nd Ed, 22 October 1997) (“the SIAC Rules”). The lex situs was Singapore and the law governing the arbitration was therefore Singapore law.
[3] Dongwoo brought this action in relation to the arbitration tribunal’s (“the tribunal”) determination of two particular issues raised in the arbitration: (1) the Crank Case Ventilation (“CCV”) oil separator and (2) the S-Engine oil filter, and on the following grounds:
(a) that the conduct of the proceedings and/or the conduct of the tribunal was such that Dongwoo was not accorded a full and proper opportunity to present its case and/or was otherwise unable to present its case (pursuant to Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”));
(b) that the rules of natural justice had been breached in connection with the making of the award by which Dongwoo’s rights have been prejudiced (pursuant to s 24 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”)); and
(c) that the award is in conflict with the public policy of Singapore (pursuant to Art 34(2)(b)(ii) of the Model Law).
[4] After hearing the parties’ submissions, I dismissed Dongwoo’s action. I now give my reasons.
Facts
[5] Sometime in March 2001, M+H and one Mr Choonsung Ley (“Ley”) entered into a memorandum of understanding (“MOU”) in which they envisaged the establishment of a joint venture, using Dongwoo as the vehicle for the joint venture.
[6] However, the parties did not proceed precisely along the terms of the MOU, but eventually entered into various agreements:
(a) A share purchase agreement dated 20 December 2002 between Dongwoo’s shareholders and M+H for the acquisition of 10% equity interest in Dongwoo by M+H (“the SPA”);
(b) A shareholders agreement dated 20 December 2002 between Dongwoo and Dongwoo’s shareholders on one part and M+H on the other part (“the SA”); and
(c) As provided for in the SPA, a technical assistance and trademark licensing agreement between Dongwoo and M+H dated 3 January 2003 (“the TATLA”).
[7] Under the TATLA, M+H was obliged to supply Dongwoo with technical information in order that Dongwoo may manufacture air and liquid filtration products (“the Products”) for vehicles, industrial and construction machinery and equipment, which included the CCV oil separator and the S-Engine oil filter. Article 3.1 of the TATLA provides as follows:
[8] Technical information is defined in Article 1.6 of the TATLA as:
[9] Article 9 governs the termination of the TATLA and provides, inter alia, that:
[10] Article 12.3 states that:
[11] The SA provided in Article 11.1 for M+H to have a call option to acquire the balance of the shares in Dongwoo, and in Article 15.2(d) for the termination of the SA:
[12] Subsequent to changes in Dongwoo’s shareholding, Dongwoo’s shareholders and M+H entered into an amended and restated shareholders agreement on 15 March 2004 (“the ARSA”) which contained Articles 11.1 and 15.2(d) of the SA in the same terms, save that Article 15.2(d) included a reference to a second share purchase agreement providing for the acquisition of an additional 3% equity interest in Dongwoo by M+H. The second share purchase agreement was entered into at or about the same time as the ARSA.
[13] On 14 September 2005, Dongwoo sent a letter to M+H stating that it had been experiencing substantial difficulties in communicating with and obtaining technical cooperation from M+H regarding its inquiries about various Products (which included the CCV oil separator and the S-Engine oil filter) and requiring M+H to promptly remedy its default in providing the requisite technical information.
[14] On 10 October 2005, Dongwoo sent a further letter to M+H stating that the technical information provided by M+H continued to fall far short of the technical information that should be provided under the TATLA.
[15] On 27 October 2005, Dongwoo sent a letter terminating the TATLA pursuant to Article 9.2(c) of the TATLA (see [9] above).
[16] Thereafter, Dongwoo’s shareholders sent a letter dated 28 October 2005 terminating the ARSA pursuant to Article 15.2(d) of the ARSA (see [11] and [12] above).
[17] M+H denied the right of Dongwoo to terminate the TATLA and referred the question of the validity of the purported termination of the TATLA by Dongwoo to arbitration.
[18] In its Statement of Case, M+H prayed for:
(a) a declaration that Dongwoo’s purported termination of the TATLA was invalid and that the TATLA remained in full force and effect; and
(b) compensation for all legal and other expenses incurred in connection with the dispute. M+H did not have a specific prayer for damages.
[19] In its Statement of Defence and Counterclaim, Dongwoo sought:
(a) a declaration that the TATLA had been validly terminated as of 27 October 2005;
(b) payment for all lost profits and loss of goodwill due to M+H’s failure to provide the technical documents; and
(c) full compensation for all legal fees and other expenses incurred in connection with the arbitration.
[20] In the course of the run up to the hearing of the substantive issues, the tribunal comprising Mr Tómas Kennedy-Grant QC (as chairman), Mr Michael Hwang SC and Dr Wolfgang Kuhn made rulings on various applications and gave various directions regarding the future conduct of the arbitration up to and including the hearing of the substantive issues.
[21] Of particular relevance to the present action was the tribunal’s rulings on discovery and document production. Another significant part of the tribunal’s findings related to the S-Engine Oil Filter Project. I will elaborate on these in turn.
The tribunal’s directions as to discovery
[22] Prior to the arbitration hearing and by a letter dated 10 March 2006, Dongwoo’s Korean counsel, M/s Bae Kim & Lee (“BKL”), sent a request to M+H for the production of 7 categories of documents as part of its discovery. In particular, Request No 7 was a request for copies of all technical information that related to certain Products, including the CCV oil separator, which was requested previously by Dongwoo through its various correspondence sent to M+H. The basis for this request was that the documents were relevant to the arbitration because the scope of the technical assistance required under the TATLA was the primary issue to be resolved in the arbitration and M+H had alleged that it had already provided Dongwoo with the necessary technical assistance required.
[23] On 17 March 2006, M+H’s Korean counsel, M/s Kim & Chang (“KC”), wrote to the chairman of the tribunal with a copy to BKL and SIAC stating that Dongwoo’s request for documents was unreasonably broad and burdensome. It sought the production of many categories of documents which were neither relevant nor material to this dispute. M+H further stated in the letter that it had already provided all the technical information that it was obliged to provide under the TATLA to Dongwoo. M+H therefore requested the tribunal to exercise its powers to determine the admissibility, relevance and materiality of the documents required by Dongwoo and to issue further instructions as it deemed necessary.
[24] After the production of certain documents by M+H on 17 and 24 March 2006 in response to Dongwoo’s request on 10 March 2006, BKL informed the tribunal by way of letter dated 7 April 2006 (with a copy to KC and SIAC) that the documents produced still fell short of satisfying Dongwoo’s request. BKL explained the necessity of the documents to the tribunal as follows:
[25] In the interest of moving the case forward, BKL then clarified Request No 7 and narrowed it to the following items previously sought in specific correspondence from Dongwoo to M+H:
(a) Test standards and reports on the performance of its spin-on type gasoline oil filters and for the oil filter part number W712/38 (“oil filter”);
(b) Design standards for the oil filter and for the CCV oil separator part number 39 310 70 900;
(c) Design ‘Failure Mode Effect Analysis’ (“D-FMEA”) reports and Process FMEA reports (“P-FMEA”) for the CCV oil separator;
(d) Quality control plans for the CCV oil separator;
(e) Material standards for resonators, hose and duct in air cleaners; and
(f) Benchmarking reports for the CCV oil separator and for the spin-on type gasoline oil filters installed in gasoline automobiles of 2.4 litres engine size exported to North America.
[26] M+H still did not produce the documents in the narrowed and clarified Request No 7. Various correspondence were exchanged and in a further reply dated 27 April 2006, M+H informed Dongwoo that the provision of these documents might be a breach of M+H’s confidentiality obligations to its customers, and that the documents would not be produced unless ordered by the tribunal. In particular, one specific reason for the non-production of the documents relating to the CCV oil separator was that it was a very old part and that M+H did not have the information requested by Dongwoo. It was emphasised that “Mann+Hummel repeats and confirms that it does not maintain this information.” To address M+H’s concern of confidentiality, Dongwoo offered to sign a confidentiality agreement or to abide by a stipulated order by which Dongwoo would agree to keep any documents produced under this category in strict confidence and not to use them beyond the purpose of the arbitration. However, KC insisted that the documents not provided to Dongwoo were beyond the scope of the TATLA and were irrelevant to this dispute.
[27] On 10 May 2006, the tribunal issued a ruling (“the 1 Ruling”) ordering, inter alia, M+H to comply with Dongwoo’s narrowed and clarified Request No 7 on condition of an undertaking to be provided by Dongwoo on certain terms spelt out by the tribunal to safeguard the confidentiality of the documents ordered to be produced. The tribunal considered these documents to be relevant and material to the matters in dispute, but this was not to be taken as a finding on any substantive issue in the arbitration. In addition, the tribunal made it clear that it was not for M+H to decide whether the documents were relevant and material, or whether they arguably could or could not have been produced under the TATLA.
[28] In response to the 1 Ruling, KC wrote to the tribunal on 19 May 2006 reiterating that the CCV oil separator was a very old part and M+H engineers did not maintain the information that Dongwoo had requested. M+H had searched its archives and was not able to locate any of the requested documents relating to the CCV oil separator except for the design standard drawings for the CCV oil “filter” (presumably referring to the CCV oil separator), which KC attached to the letter to the tribunal as Exhibit A. In this letter, KC appealed to the tribunal to reconsider its decision in relation to one aspect of the 1 Ruling and requested that it be modified only with respect to the CCV oil separator. KC explained that:
[29] Dongwoo was aware of the nature of the documents enclosed and given to the tribunal as it was also sent a copy of the letter dated 19 May 2006 albeit without the enclosures (ie, Exhibits A and B). However, at no time did Dongwoo agree that these Exhibits A and B (or any other documents) could be provided solely to the tribunal without Dongwoo being afforded an opportunity to review and comment on them.
[30] On 24 May 2006, BKL replied by way of a letter emphasising the prejudice caused to Dongwoo by being deprived of an opportunity to comment substantively on the documents which had been intentionally withheld from Dongwoo and disclosed only to the tribunal. BKL requested the tribunal to disregard M+H’s letter of 19 May 2006 and to order M+H to abide by the original deadline of 26 May 2006 in the 1 Ruling to supply the documents requested because of the following reasons:
(a) It was highly objectionable for M+H to drag into the discovery ruling procedures the very issues that would be addressed by both parties on the merits;
(b) It was a disguised request for a reconsideration of the discovery ruling for which M+H received no leave to seek. Effectively, M+H was asking the tribunal, in an ex parte manner, to retract its previous decision on the relevancy of the requested documents. This was grossly unfair and groundless as the confidentiality issue had been fully evaluated by the tribunal prior to rendering the 1 Ruling, and the tribunal had properly addressed the matter by conditioning the compliance of Request No 7 to certain undertakings which ensured that all documents under this category would be treated as confidential and used only for the purpose of the arbitration; and
(c) Showing the documents only to the tribunal had foreclosed Dongwoo’s ability to comment substantively on them. This was highly prejudicial to Dongwoo. The documents were directly relevant to the core issue of whether the requested documents fell within the scope of the technical information available to M+H that ought to be supplied to Dongwoo to enable Dongwoo to manufacture the products as stipulated in Article 3.1 of the TATLA. The actions of M+H to disclose the critical evidentiary documents only to the tribunal (but not to Dongwoo) on grounds that M+H needed to maintain their business relationship with customers outside the arbitration, even though such documents would be kept in strict confidence, flew in the face of due process and the very purpose of reasonable document discovery in arbitration.
[31] Further, on the same date, Dongwoo provided a confidentiality undertaking to M+H, pursuant to and in full compliance with the 1 Ruling.
[32] On 26 May 2006, M+H disclosed several documents, but not those relating to the CCV oil separator. M+H explained (with reference to Dongwoo’s Request No 7 for confidential and customer proprietary information on the CCV oil separator part number 39 310 70 900) that unlike standardized parts such as spin-on filters, this particular CCV oil separator was designed to specifications by an OEM customer, and unfortunately the disclosure of technical information regarding this part was restricted by a confidentiality agreement with this customer. Supply of technical information on the CCV oil separator had been explicitly excluded under Article 1.6 of the TATLA, which limited the information to those which M+H was “free to disclose to [Dongwoo] without accounting to others.” As such, information on this CCV oil separator was irrelevant to the dispute, being outside the scope of assistance to Dongwoo under the TATLA. M+H further explained that this CCV oil separator was a relatively old part and was designed quite some time ago, and was therefore no longer in the database readily available to M+H engineers, which was why M+H mistakenly believed that it no longer maintained the information on it. However, this part was still in production.
[33] BKL responded on 30 May 2006 that the disclosure again was inadequate and amounted to a deliberate non-compliance with the 1 Ruling, and that Dongwoo was disabled from preparing its defence in which it needed to establish that the documents it never received were in fact the crucial documents contemplated under the TATLA, and without which development of the Products was impossible. BKL submitted that if the arbitration were to proceed regardless of this non-disclosure, the tribunal should, at the very least, draw an adverse inference against M+H with regard to the relevancy of these documents and its behaviour against Dongwoo during the term of the TATLA.
[34] On 2 June 2006, KC replied characterising the impasse as a legal dispute which did not require the production or examination of the documents relating to the CCV oil separator, which M+H admitted it had intentionally not provided to Dongwoo. KC said:
[35] On 5 June 2006, the tribunal issued a second ruling (“the 2 Ruling”) dismissing M+H’s application for modification of the 1 Ruling and Dongwoo’s application for an order for further and better production of documents by M+H, and reserving to Dongwoo the right to argue during the hearing that an adverse inference should be drawn against M+H by reason of the manner in which M+H had responded to the 1 Ruling. The tribunal gave the following reasons for making its 2 Ruling:
The reasons for the [2] Ruling
[36] It is important to note that the tribunal dismissed the request from M+H to modify the 1 Ruling and also refused Dongwoo’s application for an order for further and better compliance with the 1 Ruling. In essence, the 1 Ruling remained unchanged. Further, the tribunal did not say that it would draw an adverse inference against M+H merely on proof of non-production of the documents ordered to be furnished to Dongwoo pursuant to the 1 Ruling. The tribunal specifically set out two conditions, which must both be satisfied before it was open to the tribunal to draw an adverse inference against M+H for the non-production. They were as follows:
(a) Dongwoo must first establish that the CCV oil separator information was indeed necessary for the manufacture of the Products that were intended by Dongwoo to be manufactured; and
(b) M+H did not lead evidence to establish that it was not free to disclose the CCV oil separator information to Dongwoo without accounting to others.
[37] Following the 2 Ruling, a copy of the confidentiality provisions of the OEM contract was provided on 8 June 2006 to BKL (redacted only to remove the OEM customer’s name and identifying information).
The S-Engine Oil Filter Project
[38] The S-Engine Oil Filter Project was a key motivation behind the conclusion of the TATLA between Ley and M+H, and one of the collaboration efforts between Dongwoo and M+H.
[39] From April to May 2004, one of Dongwoo’s engineers, Mr Hyun (“Hyun”), received from M+H know-how training and design drawings (“Initial Design”) for the drain valve system (which also included the drain valve rubber, which was essentially the small rubber component within the oil filter that was supposed to prevent the oil from leaking) inside the S-Engine oil filter.
[40] In June 2004, Hyun finalised the design for the drain valve system based on the Initial Design and this was later passed on to Dongwoo’s customer for testing.
[41] In February 2005, oil leaks were detected in the oil filter and this was reported back to M+H. In order to assure its customer that the design was indeed a verified design already in use by M+H, Dongwoo requested M+H to verify the parts and provide such confirmation.
[42] In April 2005, one of M+H’s employees, Mr Wolfgang Cedzich (“Cedzich”), visited Dongwoo’s offices to provide comments on the S-Engine oil filter problems and gave a presentation on what was believed to be the cause of such problems. M+H further confirmed that the model was currently in mass production.
[43] For several months, Dongwoo wrote to M+H asking for further technical information, in particular, updated drawings of the S-Engine oil filter in order to solve the oil leak problems.
[44] It was only in late June 2005 that M+H provided Dongwoo with the updated drawings of the affected components.
[45] The question arising in the arbitration was whether by the above, M+H had breached its obligations under the TATLA in relation to the S-Engine Oil Filter Project. Essentially, Dongwoo’s argument on this was that M+H had breached its obligations under Article 3.1 of the TATLA by failing to provide updates, modifications and relevant technical documents until it was too late to be of any use.
[46] In particular, Dongwoo alleged that M+H had intentionally delayed giving Dongwoo the full detailed design of the updated drain valve. M+H only provided the updated drawings some months after the initial request, at which time Dongwoo’s relationship with its customers was already severely impaired due to Dongwoo’s inability to respond with a solution to the oil leak.
[47] The tribunal found against Dongwoo on this issue in that Dongwoo failed to establish that M+H had breached its obligations under the TATLA in relation to the S-Engine oil filter design. The primary reason for this finding was Dongwoo’s failure to establish that the Initial Design was defective and that the defects were the cause of the oil leak. The tribunal went on to say that if Dongwoo was able to prove that the Initial Design was defective, the tribunal would have found that M+H was in breach of its obligations to Dongwoo under the TATLA because of the length of time that elapsed before M+H made available to Dongwoo the updated designs.
The award
[48] The arbitration hearing took place from 11 to 15 September 2006 in Singapore.
[49] On 13 February 2007, the tribunal issued the award as follows:
(a) M+H was entitled to a declaration that Dongwoo’s purported termination of the TATLA on 27 October 2005 was invalid;
(b) Dongwoo was to pay M+H the sum of US$1,358,173.58 being its legal and other costs of the arbitration;
(c) Dongwoo was to pay the costs of the arbitration in the amount of S$484,554.30;
(d) M+H was to pay Dongwoo the sum of Korean Won 166,666,667 as damages for M+H’s non-material breaches of contract together with interest thereon at 8% from the date of filing of Dongwoo’s Response to the Notice of Arbitration up to the date of the award; and
(e) save and except as provided by sub-paragraph (d) above, Dongwoo’s counterclaim was dismissed.
[50] The tribunal was, inter alia, of the following opinion on the different issues:
(a) CCV oil separator
(i) If M+H’s argument that the CCV oil separator information was confidential to third parties was made out, then its non-provision of such information requested by Dongwoo would be justified. If it was not made out, then the non-provision of the information would have constituted a breach of M+H’s obligations to Dongwoo under Article 3.1 of the TATLA (see [119] of the award). The tribunal at [80] had interpreted Article 1.6 of the TATLA to cover technical information which was confidential or proprietary information only with regard to M+H (but not those with regard to third parties), and which M+H was to provide to Dongwoo.
(ii) Although M+H’s evidence on the confidentiality of the CCV oil separator documents was not specific, however M+H had sufficiently established on the evidence as a whole (see [121]-[123] of the award for the tribunal’s basis for this finding) that they were bound by confidentiality. There was therefore no basis for the drawing of an adverse inference because of M+H’s failure to produce the documents sought. Accordingly, the tribunal dismissed Dongwoo’s claim that M+H was in breach of its obligations to Dongwoo in relation to the CCV oil separators (see [124]-[125] of the award).
(iii) Further, even if the tribunal found against M+H on the confidentiality point, it would still have dismissed Dongwoo’s claim as the tribunal accepted what Mr Thomas Schleiden (for Development Responsibilities CCV systems in M+H) had stated in his reply dated 16 June 2005 in response to the request of Mr Oh (of Dongwoo) dated 13 June 2005 for the process control plan, test data and drawing, 5 samples, D-FMEA and benchmarking data with other competitors concerning the specific single cyclone CCV oil separator of part number 39 310 70 900. Mr Schleden said that “The part 39 310 70 900 is a very old one and I do not have the information you are asking for. In order to get 5 samples please order them – I am not the right person for this issue.” The tribunal opined that (at [191] of the award):
(b) S-Engine oil filter
(i) Dongwoo had failed to establish on a balance of probabilities that the design of the S-Engine oil filter originally provided to it by M+H was defective and that the defects were the cause of the leakage problems subsequently faced by Dongwoo because of: (1) the existence of the alternative explanation for the leakage put forward in the contemporary documents; and (2) the absence of independent technical evidence as to the likely cause or causes of the leakage (see [137] of the award).
(ii) Dongwoo failed to establish that the design was changed because it was defective as the changes might merely have been improvements of an already effective design (see [138] of the award).
(iii) However, had the tribunal been satisfied that the original design was defective, the tribunal would have found that M+H was in breach of its obligations to Dongwoo under the TATLA because of the length of time that elapsed before it made available to Dongwoo the revised design (see [139] of the award).
(c) Termination notice of 27 October 2005 was not valid in any event
(i) The tribunal found that even under the (incorrect) assumption that M+H had materially breached the TATLA, Dongwoo’s termination of the TATLA would still be unlawful because its termination notice dated 27 October 2005 was not valid as M+H had confirmed on 23 September 2005 that it would make future information transfer more efficiently and secure in terms of punctuality and completeness, and confirmed their utmost best efforts to continue to provide the best possible support to Dongwoo. On the evidence, M+H had made all efforts to remedy any possible breaches (see [215] of the award).
(ii) As Dongwoo and its main shareholders did not address pending problems of the TATLA at the board meeting, the tribunal opined that Dongwoo did not regard the alleged breaches to be a material breach of the TATLA requiring urgent rectification, or that Dongwoo’s representatives had acted in bad faith in giving the impression to M+H that the alleged breaches were not matters which could lead to termination if not attended to (see [220] of the award).
(iii) The termination of the TATLA for cause on 27 October 2005, ie, just two months before the TATLA expired would require an extremely severe breach of law or contract which would make it unacceptable for Dongwoo to continue the contractual relationship for another two months. Dongwoo neither substantiated nor gave proof that such an extreme situation existed on the day of termination (see [224] of the award).
(iv) The tribunal was of the clear view that Dongwoo should have accepted M+H’s efforts “to deliver meaningful and valuable technical information” and continue the contractual relationship for another two months. Also due to this reason, the termination of the TATLA was void (see [226] of the award).
(d) Assessment of damages for non-material breaches due to negligence
(i) Although M+H’s underperformance did not reach the level of a “material breach”, M+H’s acts and failures to act on Dongwoo’s complaints on the porous ducts, HC Trap and air cleaners (but excluding those concerning the CCV oil separator, S-Engine oil filter, oil filters and inadequate technical training where the tribunal found that Dongwoo failed to establish that there was a breach of the TATLA) must be characterized as “negligent”, which would trigger damage claims by Dongwoo (see [232] of the award).
(ii) As Dongwoo had sufficiently substantiated the non-contractual performance of the TATLA by M+H for part of the year 2005 and proved that it suffered losses exceeding the contractual limitation of 60% of the total of the running royalties under Article 8.3 of the TATLA, and after assessing the contributory culpability, the tribunal evaluated the damage claim as 50% of the pro-rated royalties paid by Dongwoo for the year 2005, which was determined in the amount of Korean Won 166,666,667 (see [239] of the award).
Parties’ submissions on setting aside the award
[51] In relation to the CCV oil separator, Dongwoo alleged that the tribunal, in arriving at its decision:
(a) had examined various documents which were not extended to Dongwoo at any time in the proceedings, thereby depriving Dongwoo an opportunity to fully present its case on the documents, which it never had sight of;
(b) had failed to direct that M+H extend copies of such documents to Dongwoo;
(c) had thereby breached the principles of natural justice by not giving Dongwoo a fair opportunity to be heard; and
(d) had made an award which was in conflict with public policy by allowing M+H to “flagrantly flout” the tribunal’s directions in relation to discovery, and by not drawing an adverse inference against M+H’s refusal to furnish the documents as directed.
[52] In relation to the S-Engine Oil Filter Project, Dongwoo alleged that they were precluded from fully presenting its case because the tribunal had based its decision on an issue which it had not indicated was central to the dispute and which the parties had not fully submitted on. This, Dongwoo further alleged, also amounted to a breach of natural justice.
Unable to present its case
[53] Pursuant to Article 34(2)(a)(ii) of the Model Law, the issues before the court were:
(a) first, whether the disclosure of the design standard drawings to the tribunal and not to Dongwoo resulted in Dongwoo being unable to present its case with regard to the CCV oil separators; and
(b) second, with regard to the issue of the S-Engine Oil Filter Project, whether the tribunal had based its decision on an issue that had not been the focus of either party’s submissions and/or evidence, thereby rendering Dongwoo unable to present its case.
[54] Article 34(2)(a)(ii) of the Model law states:
[55] Whether a party was or was not able to present its case at the arbitration is very much a question of fact and degree, and it necessarily focuses on the overall conduct of the proceedings with particular attention paid to the conduct of the tribunal and the parties themselves. However, a tribunal’s ruling in accordance with the rules of the arbitration on discovery or admissibility of evidence after hearing the parties, which necessarily disadvantages one party, cannot, without more, be regarded as evidence which shows that the party was therefore unable to present its case.
The CCV oil separators
[56] It is not disputed that the design standard drawings of the CCV oil separator (seen earlier by the tribunal but not by Dongwoo) were not produced in contravention of the order to produce them.
[57] Dongwoo alleged that both M+H’s and the tribunal’s failure to extend a copy of the design standard drawings of the CCV oil separator to Dongwoo resulted in Dongwoo having to change the manner in which its case was run (for instance, by seeking other resources such as technical expert reports). Dongwoo also argued that it was not able to assess whether the design standard drawings were indeed confidential to third parties and this in turn caused a “real risk” that the tribunal considered and was influenced by the drawings in arriving at their decision on the CCV oil separator. Dongwoo contended that the tribunal must have considered the drawings because it had stated that even if the confidentiality point was to be decided against M+H, M+H could not have provided more information. Dongwoo argued that being unable to submit on whether the design standard drawings were the correct documents, or whether they were correctly construed, ultimately resulted in it not being able to fully and properly present its case on whether the design standard drawings fell within the ambit of Technical Information which M+H was obliged to provide under the TATLA.
[58] Dongwoo contended that M+H, by not extending the design drawings to Dongwoo, breached Article 24(3) of the Model Law which resulted in procedural injustice. Article 24(3) states:
[59] Dongwoo also contended that M+H had breached r 22.7 of the SIAC Rules which is worded exactly the same as Article 24(3) of the Model Law.
[60] M+H on the other hand argued that the burden of proof lay with Dongwoo to prove that there was a “real risk” that the tribunal considered and/or was influenced by design standard drawings and, more importantly, that it was unable to present its case. They argued that this assertion of a “real risk” was unsubstantiated and that Dongwoo did not need to rely on the design standard drawings (withheld by M+H from discovery contrary to the tribunal’s order) to present its case. According to M+H, the design standard drawings of the CCV oil separator in question were actually all on a single page.
[61] M+H submitted that under Article 19(2) of the Model Law, the tribunal was at liberty to conduct the hearing in whatever manner it deemed fit, so long as all parties were treated equally and each party was given an opportunity of presenting its case. M+H further submitted that the tribunal had the discretion to do all things to ensure the just, expeditious, economical and final determination of the dispute and, in doing so, had not compromised on the fundamental principle that each party must be treated with equality and be given a full opportunity to present its case, as enshrined in Article 18 of the Model Law. Articles 18 and 19 state:
[62] M+H also cited the following passage extracted from Howard M Holtzmann and Joseph E Neuhaus, A Guide to The UNICITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation Publishers, 1989) on the relationship between Articles 18 and 19 of the Model Law (at p 564):
[63] In my judgment, the real issue is whether Dongwoo was in fact not able to present its case with regard to the CCV oil separator after M+H had refused to comply with the 1 Ruling of the tribunal to make specific discovery of the design standard drawings at the arbitration.
[64] It is important to distinguish between the discovery stage of the arbitral proceedings and the next stage of the arbitration, which is the main hearing of the arbitration itself. At the discovery stage, the application by M+H to the tribunal to modify the order of discovery to exclude from discovery the design standard drawings of the CCV oil separator because of the alleged confidentiality agreement that M+H had with a third party, was in fact turned down. The tribunal decided in favour of Dongwoo at that stage. Therefore, in my judgment, it is irrelevant and immaterial whether or not Dongwoo was unable to argue its case at the discovery stage because it had obtained an interlocutory decision in its favour. I would say that Dongwoo did very well for itself when it succeeded in opposing M+H’s application to modify the 1st Ruling, whilst it was being “prevented” or “severely hampered” from arguing the case at that stage. Even if there was a breach of natural justice and a breach of r 22.7 of the SIAC Rules and Article 24(3) of the Model Law when the tribunal was deciding on the question whether or not it should modify the 1 Ruling at the request of M+H, that violation (which Dongwoo characterised as a violation of a fundamental procedural right, namely the principle of hearing both sides) did not result in any prejudice or injustice to Dongwoo as the 2 Ruling that eventually resulted was entirely in favour of Dongwoo.
[65] Since the 1 Ruling remained unmodified, M+H was therefore required to produce the design standard drawings for the CCV oil separator for the main arbitration hearing, subject to certain confidential undertakings from Dongwoo as ordered by the tribunal. If it failed to do so, M+H risked having an adverse inference being drawn against it by the tribunal and the tribunal had stated clearly that it would allow the parties to submit on the question whether an adverse inference ought to be drawn against M+H. Since M+H did not produce the drawings, the only question that was in issue at the arbitral hearing proper, as far as this was concerned, was whether or not in all the circumstances of the case and based on the evidence as a whole, an adverse inference ought to be drawn against M+H for its refusal to produce the drawings.
[66] On this, the first question that I have to examine is whether there was any evidence to show that Dongwoo was unable to present its arguments on this issue, ie, whether an adverse inference ought to be drawn. Obviously, in such cases, where a question of adverse inference arises for determination by the tribunal, one party must have failed to disclose the documents to the other party. But a failure to produce, per se, does not automatically lead to a circumstance of setting aside under Article 34(2)(a)(ii) of the Model law by reason of the party being unable to present its case. The inability of a party to present its case in this context must be Dongwoo’s inability to present its position on the issue or question on whether an adverse inference ought to be drawn, and not the mere fact of the failure to produce (for whatever reason).
[67] I scrutinised the record of the arbitration hearing, the Post-Hearing Briefs and the conduct of the tribunal with respect to this issue in order to decide whether or not Dongwoo was given a fair opportunity to state its case on why an adverse inference ought to be drawn against M+H for its refusal to produce the documents in question.
[68] Based on Dongwoo’s Post-Hearing Brief at paras 4-7, and paras 87-109, I could see that Dongwoo had ample opportunity to present its case fully on the issue whether or not an adverse inference should be drawn. Dongwoo’s arguments ran into 6 pages. It submitted very detailed reasons and presented cogent arguments why an adverse inference must be drawn, which I have summarised below as follows:
(a) The documents withheld were fundamental to Dongwoo’s case. The documents were highly probative, even determinative, regarding the fundamental defence of M+H in this dispute, including whether M+H breached the TATLA, thus justifying Dongwoo’s termination and claim for damages.
(b) As Dongwoo had furnished the confidentiality undertaking, M+H had committed a very serious and inexcusable breach of procedure and of due process since it denied Dongwoo the ability to support its own claims where it had the burden of proof and to challenge M+H’s defences to its culpability.
(c) The refusal to produce in the face of the tribunal’s order to produce amounted to a contempt of the tribunal and of justice itself.
(d) Dongwoo failed to provide evidence to support M+H’s alleged defence that the documents were proprietary or confidential information, which fell outside the scope of the TATLA as Article 1.6 had excluded documents which M+H was not “free to disclose without accounting to others.”
(e) Therefore, an adverse inference ought to be drawn that the documents were not confidential, that M+H was obliged to provide them under the TATLA, and their failure supported Dongwoo’s claim for damages for the breach of the TATLA by M+H.
(f) In any event, this “defence” to non-production failed and M+H had told a “little white lie”, which of itself was a significant breach of the TATLA.
(g) Of the 5 categories requested, Cedzich testified that at least 3 categories - (1) process control plans; (2) test data and drawings and (3) D-FMEA in relation to the CCV oil separator - could not be produced because they were confidential information of an M+H customer.
(h) The reacted copy of the product development agreement for the CCV oil separator contained a confidentiality section which described two categories of confidential information: “Supplier’s Confidential Information” and “Buyer’s Confidential Information”. Surprisingly, under the definition of “Supplier’s Confidential Information”, the control plans, D-FMEA and test data and drawings requested by Dongwoo were categorized as M+H’s own confidential materials, which the buyer was obliged to keep confidential, rather than the other way around as M+H claimed. Even more surprisingly, M+H flatly and unashamedly asserted the opposite to the chairman of the tribunal.
(i) On the other hand, the definition of “Buyer’s Confidential Information” did not mention any of the categories of documents sought by Dongwoo in stark contrast to the “Supplier’s Confidential Information” which expressly included them.
(j) M+H (which had the burden of proof) had not put any evidence to demonstrate that the information not disclosed was non-public and proprietary to the buyer (the first prerequisite for the information to be classified as “Buyer Confidential Information”). In fact, by the very terms of the agreement, the documents were defined as proprietary to the supplier, M+H, not the reverse. Hence the first prerequisite was not met.
(k) The second prerequisite (see [72]) was also not met since no evidence was produced to show that any of the requested documents were (1) volume projections; (2) related to the buyer’s future products; or (3) identified by the buyer as confidential.
(l) Cedzich attempted to explain how the requested documents fell under the “Buyer’s Confidential Information” by stating: “Control plans, design drawings, test data, FMEA (D-FMEA and P-FMEA) and other technical information created using the Intellectual Property Rights of the Buyer was non-public and proprietary to the Buyer, and was inherently confidential”. In any event, the pertinent question was whether the agreement prevented M+H from disclosing these documents to Dongwoo and, as explained, the confidentiality section itself did not do so.
(m) Cedzich’s assertion that the paragraph on the “Supplier’s Confidential Information” was meant to indicate confidential information of both the supplier and the buyer was indefensible and unsupportable.
(n) Section 15.01 on “Buyer’s Intellectual Property Rights” (see [72] concerned documents and information of recognized types of intellectual property “provided to the Supplier” by the buyer. M+H provided no supportive evidence to show that the subject documents met this requirement. On their face, they did not, since they were documents created by M+H.
(o) The most that M+H could say was that the CCV oil separator “was designed to specifications provided by a major customer, and therefore contains proprietary information belonging to such customer”. Naturally, “specifications” were not intellectual property rights as anticipated by s 15.01. Even if it were the case, M+H offered little more than bald, unsupported allegations – mere argument – to support it.
(p) M+H’s position ignored the very obvious point that Article 1.6 of the TATLA only excluded documents under which M+H was under a clear legal obligation to a third party not to disclose without first obtaining permission. However, no such exclusion existed where M+H’s claim of “confidentiality” rested only on its own internal policy or business decision, even if it was made out of respect for a customer or its business interests. In the latter case, M+H was still obliged to provide the documents to Dongwoo under the TATLA.
(q) Accordingly, with nothing but unsupported testimony to contradict the documents, M+H’s position on the issue of confidentiality had no credibility. Furthermore, in the light of M+H’s refusal to provide evidence in its possession contrary to the tribunal’s order, M+H’s argument that it was not free to produce certain documents “without accounting to others” should be wholly rejected.
[69] Having regard to the very extensive arguments put forward by Dongwoo for the tribunal’s consideration, I could not on any account see on the facts as disclosed in the documents before me, in what way Dongwoo was denied an opportunity to argue its position that an adverse inference ought to be drawn against M+H.
[70] If after hearing full arguments from both parties, the tribunal decided wrongly that it was not appropriate to draw any adverse inference, it would then be a mere error of fact finding and/or of law, which cannot be a ground for setting aside the award. An error of fact or law made by the tribunal does not come within the ground for setting aside under Article 34(2)(a)(ii) of the Model Law. Just because the tribunal had ruled against Dongwoo on that question did not mean that the losing side (ie, Dongwoo) was thus unable to present its case on this issue. If losing on an issue would ordinarily mean that the party concerned was not able to present its case on that issue, then it would be a remarkable distortion of logic. It would also follow that in all arbitration cases, where one side must necessarily lose, a situation would be invariably created for setting aside because the losing party must have been unable to present its case and hence, it lost for that reason. That cannot be right.
[71] Second, the inability to present the case cannot be attributed to the mere fact of non-production in contravention of a disclosure ruling, which contravention was the very reason why the question of adverse inference arose. If there were no contravention, the question of whether an adverse inference ought to be drawn for non-disclosure could not even have arisen in the first place.
[72] Hence, once the adverse inference question has arisen, and after the tribunal has given both sides an opportunity to submit fully on it, there can be no question that any party is denied an opportunity to present its case on that question. The tribunal is thereafter entitled, after taking account of the submissions of both parties, to decide on the issue whether as a matter of fact, law or mixed fact and law. In my judgment, the tribunal in the present case had given both parties the full opportunity to present their cases on the issue on whether or not an adverse inference should be drawn, and the tribunal had accordingly decided the issue as follows:
Whether the tribunal took into account of what M+H disclosed to it but not to Dongwoo
[73] The remaining issue is whether the tribunal did, in deciding the adverse inference question at the arbitral hearing itself, take into account what had been disclosed to it by M+H during the discovery stage of the proceedings, but which was not disclosed to Dongwoo. Here, Dongwoo simply assumed conveniently that the tribunal had done so (or appeared to have done so), and then it set up a whole series of arguments based on that assumption to justify its application in this action to set aside the award.
[74] That assumption is all too easy to allege and construct for argument’s sake, but it behoved Dongwoo to show that the assumption had rested on some firm evidential basis, and it should not be based on suspicions, surmise or speculation. It is all too easy to cast aspersions that the tribunal must have wrongly taken into account what it had seen (which was not disclosed to the other party), and then it must have decided the question of adverse inference on that basis. It is all too easy to allege a suspicion that the tribunal had in fact been influenced by what it had seen. It is all too easy to ignore the other evidence cited by the tribunal in its award to justify the decision it had made on this issue. The burden rested on Dongwoo to produce some strong and unambiguous evidence of the matters complained of. In my judgment, this burden was not discharged.
[75] I studied carefully the above detailed reasoning of the tribunal (which I have set out in full above at [72]) for its decision not to draw any adverse inference against M+H for not complying with the discovery order to produce the design standard drawings of the CCV oil separator for the main arbitral hearing itself. No where in the award did the tribunal refer to or make use of any information disclosed in these design standard drawings in arriving at its decision not to draw any adverse inference. I could not find any evidence that the tribunal had indeed relied on what it saw on these design standard drawings when deciding the question of adverse inference. On balance, the absence of any reference in the arbitral award to any data or information obtained from the design standard drawings points more to the fact that the tribunal had disregarded what it might have seen earlier (ie, at the interlocutory stage from the design standard drawings) when it was deciding the question of adverse inference at the main arbitral hearing itself, than to the fact that the tribunal had secretly made use of data or information found on the design standard drawings to decide the question of adverse inference. I am not minded to give any credence to any aspersions that the tribunal might have deliberately kept silent or hidden that fact by not stating it in the award, ie, that it had indeed made use of information obtained earlier from the design standard drawings of the CCV oil separator for not drawing an adverse inference at the main hearing on account of the non-production of these design standard drawings. If the tribunal for instance had said that the design standard drawings had “CONFIDENTIAL” stamped on it and that was another reason why it was not drawing an adverse inference, then Dongwoo would have some basis to complain that it was unable to present its case on this issue. Nothing of that sort could be found in the tribunal’s conduct as would be apparent from the award.
[76] From a careful perusal of the award, what was clearly apparent to me from the record was that the tribunal had rightly relied on “other evidence” (which was also available to Dongwoo and which would also include the evidence of a continued deliberate non-production of the design standard drawings of the CCV oil separator in M+H’s possession despite Dongwoo having given a confidentiality undertaking to M+H, whose act of non-production was therefore in contravention of the 1 Ruling), in deciding that no adverse inference was to be drawn. The tribunal in my view was entitled to find on these “other evidence” before it that M+H was bound by confidentiality, ie, the documents were confidential and for which M+H had to account to third parties. That question of fact was eminently for the tribunal to decide and the tribunal did decide. At this stage of the hearing by the tribunal, I did not think that there was any breach of natural justice, or that Dongwoo was unable to present its case on the effect of the non-disclosure by M+H of the design standard drawings for the CCV oil separator based on such “other evidence.”
[77] Even if the tribunal made a wrong finding of fact in reliance on these “other evidence” that the documents were confidential and had to be accounted to third parties when they ought not to be, then that bona fide error of determination by the tribunal (whether of fact or law) is insufficient to constitute a valid ground (whether of public policy or otherwise) upon which to set aside the award.
[78] For the purpose of analysis, it would be useful to consider a slightly different case, where the tribunal was never in fact given the design standard drawings of the CCV oil separator, and the tribunal’s order for production of the drawings was not complied with by M+H. Accordingly, the tribunal would still have to decide based on the “other evidence” available to it (including the evidence of deliberate non-compliance with its order) to decide on the question whether or not it would be proper to draw an adverse inference for the non-production. In this hypothetical case, the tribunal’s evaluation would obviously be without any benefit of the design standard drawings. Neither would the other party (ie, Dongwoo) have sight of the design standard drawings to make its submission on the drawing of an adverse inference. Under these circumstances, I do not believe that the party from whom the drawings were withheld (ie, Dongwoo) could have successfully contended that the award should be set aside on the ground of a breach of natural justice or an inability or hindrance in the presentation of its case, were the tribunal to make a finding based on the “other evidence” available to it that no adverse inference should be drawn. Whether the tribunal had erred in its assessment of the “other evidence” when it decided not to draw an adverse inference would be a totally different point. It is no longer a due process point but a fact finding point.
[79] It appears to me that the real unhappiness of Dongwoo stemmed from its own perception of some ‘cross-infection’ of knowledge obtained by the tribunal at the earlier discovery stage, being allegedly applied to decide the later issue of whether or not drawing an adverse inference was appropriate on the facts of this case at the later arbitration stage, on which I have found no reliable evidence to persuade me to conclude that such ‘cross-infection’ had happened and that such ‘cross-knowledge’ was in fact applied to decide the later issue.
[80] Dongwoo relied, inter alia, on the tribunal’s statement that even if the confidentiality point were to be decided against M+H, M+H could not have provided more information to argue that this must have meant that the tribunal had indeed considered the non-disclosed documents. In my view, this is not a fair submission by Dongwoo on what the tribunal had done, because the tribunal obviously was relying on Mr Schleiden’s email response, which clearly stated that the referenced part was a “very old one” and that M+H had no information on this part. It was plainly on the basis of this contemporaneous email response, and not on the undisclosed documents (ie, the design standard drawings of the CCV oil separator sent to the tribunal), that the tribunal derived its observation that “[i]t [was] difficult to see how M+H could have provided more information on this subject. Obviously, this matter was not further pursued by the parties’ engineers” (see para 191 of the award). In my judgment, Dongwoo’s submission on this issue did not have any merit.
[81] Finally, if Dongwoo were relying on a mere perception or suspicion that the tribunal might have been unknowingly or subconsciously influenced by what it might have seen earlier on the design standard drawings, which could have indicated to the tribunal that M+H was accountable to third parties for the confidential documents, and that was why the tribunal decided (or was influenced by what it saw) not to draw any adverse influence at the main hearing itself, I would then only wish to state that Dongwoo would be resting its case (for setting aside the award) on quick sand. My only comment would be that it would be a rather imaginative submission and I need say no more on that.
Threshold questions for production of documents
[82] In applications for production of documents, an arbitral tribunal often has to deal with “threshold questions” on whether a particular document is in fact not relevant or whether it falls outside the relevant parameters for production or disclosure as alleged. There will be instances where the “threshold questions” can only be determined by a review of the contents of the document itself. A party, who may well be prepared to disclose the document to the tribunal for its review, may not necessarily want to disclose it to the other party often for reasons of confidentiality. But when the party seeking production insists on inspecting the document so that it can submit on the “threshold questions” (and perhaps also reassure itself that the other party has in fact acted in good faith in opposing the production), then the procedure to adopt for the determination of the “threshold questions” can be rather contentious unless the procedure has been pre-agreed or pre-determined by the parties as early as possible and, preferably, no later than the commencement of the stage of the arbitration when documents are to be exchanged and submitted to the tribunal. The tribunal can then apply the agreed procedure whenever such “threshold questions” arise, irrespective of the party seeking the discovery or production so that all parties will be accorded equal treatment. This minimises any possible challenge from any party on the basis that there has been contravention of Article 18 of the Model Law, which states, inter alia, that the parties shall be treated with equality. It may be useful to set out some of the procedures that parties may agree upon for the tribunal to adopt when resolving such “threshold questions”.
[83] One possibility is that described in Article 3(7) of the International Bar Association Rules on the Taking of Evidence in International Commercial Arbitration (“the IBA Rules”) which provides for the following procedure where a review of the document is required:
[84] Other possible alternatives (or a combination thereof) are:
(a) Sensitive confidential information is redacted and the document is then produced;
(b) Counsel signs a confidentiality agreement not to disclose to anyone including his client whatever he has seen during the review of the contents of the document, unless the other party producing the document consents;
(c) The document is produced only to the tribunal who will decide the threshold question after inspecting the document, but the other party will not be given a copy of the document. The tribunal can also consider what special measures are needed to preserve confidentiality if it orders production after inspecting the document; and
(d) A neutral third party (not necessarily an expert) bound by confidentiality is asked to examine the document and report its findings to the tribunal and the parties.
[85] Often, parties have not thought about how these “threshold questions” are to be dealt with. The matter is usually left open ended. When they come to the bridge and have to cross it, the matter may then get unnecessarily contentious, especially where the institutional arbitration rules chosen by the parties do not set out specific procedures to resolve such “threshold questions”.
[87] Under the SIAC Rules, there do not appear to be rules specifically addressing the procedure for the “threshold questions” when applications for production or discovery are made. Indeed, the general rule in r 22.7 of the SIAC Rules (or r 21.6 of the SIAC Rules 2007) and Article 24(3) of the Model Law are substantively similar to Article 3(1) of the IBA Rules, which also requires each party to submit to the tribunal and the other parties all documents available to it on which it relies. While the SIAC Rules and the Model Law are silent on what procedure should govern disputes as to the relevance and admissibility of documents, the IBA Rules provide more comprehensively for the resolution of objections to production of documents. The general rule in r 22.7 of the SIAC Rules is therefore not inconsistent with a more nuanced approach in the event of such objections; nor should its silence be taken to suggest that the general rule for production to the opposing party is absolute. Thus, where the arbitration is conducted under the SIAC Rules and parties have not pre-agreed on any particular procedure in advance, the tribunal can, of course, decide for itself, after hearing submissions from the parties, what procedure it is going to adopt. This is a matter well within the jurisdiction of the tribunal, which has the power and the discretion to determine the rules of procedure and to conduct the hearing in a manner that it considers most appropriate to ensure the fair, expeditous, economical and just determination of the dispute. In the present case, I am not minded to interfere with the procedure adopted by the tribunal to deal with such “threshold questions” nor do I intend to take the fairly draconian step to set aside the arbitral award on account of the method that the tribunal has adopted to resolve the “threshold questions.”
The S-Engine oil filter
[88] Dongwoo contended that the tribunal’s decision on liability (ie, that M+H had not breached its obligation under the TATLA to supply Dongwoo promptly with updated technical information on the S-Engine oil filter) was based on an issue which had not been the focus of either party’s submissions or evidence and on which it had failed to invite the parties to address. That issue was whether or not the Initial Design of the S-Engine oil filter provided by M+H was defective, and Dongwoo argued that it was not a live issue during the arbitration.
[89] According to Dongwoo, the tribunal’s finding that Dongwoo failed to prove that the S-Engine oil filter was defective and, hence, M+H did not breach its obligation to supply the relevant technical information (promptly or otherwise) for the S-Engine Oil Filter Project, was a dramatic departure from the submissions of the parties, which focused instead on the inordinate delay in providing updated designs to Dongwoo, regardless of whether the Initial Design was defective or not. (It would appear that I was expected to infer from this that Dongwoo might also be putting forth the further alternative claim, which Dongwoo did not clearly articulate before me, that even if the S-Engine oil filter was not defective, M+H was still liable to Dongwoo under the TATLA.This point will be dealt with later at [100] to [111].)
[90] Accordingly, Dongwoo submitted before me that the tribunal failed to give Dongwoo a fair opportunity to argue the point that the Initial Design was defective, which thus resulted in a breach of natural justice and “severe prejudice” to Dongwoo. I found no merit in this submission for the following reasons.
[91] From the arbitration records, it was clear to me that the failure of and/or defects in the S-Engine oil filter had been put in issue. The extracts below showed that at all material times, both parties had disputed liability for the failure of and/or the defects in the S-Engine oil filter.
[92] At paras 23 and 24 of its Response to the Notice of Arbitration dated 13 January 2006, Dongwoo stated the following as part of its counterclaim:
[93] The complaint about the flawed design provided by M+H was made very clear in Dongwoo’s Statement of Defence and Counterclaim dated 21 April 2006 at the following paragraphs:
[94] The above constituted in my view indisputably clear evidence that Dongwoo put into the forefront of its case why the design provided by M+H was flawed or defective. Ultimately, it failed to prove that the design was defective before the tribunal. It would be extraordinary for Dongwoo now to submit that it was unaware that the issue (whether or not the design was defective) was a live issue, especially given that Dongwoo itself had thrust that issue into the forefront of its case on the S-Engine oil filter before the tribunal for its consideration.
[95] Seeing how Dongwoo had approached and stated its case, I found that the tribunal had correctly characterised Dongwoo’s complaint of the breach as one where M+H had initially provided a defective design of the oil filter, and then, it failed to provide the correct design promptly to remedy the defects in the original design when the defects were drawn to its attention (see [132] of the award).
[96] Dongwoo only had itself to blame if it did not make clear to the tribunal and to M+H in its pleadings that it had a further alternative ground that if the initial design provided for the oil filter was not defective or if M+H had indeed provided asuitable or workable Initial Design for the oil filter, then M+H was still in breach of the TATLA for not providing suitable updates in time to make it an even better or improved design (as opposed to a case of providing design updates promptly to remedy the defects in the defective Initial Design, which is very different).
[97] Even at the hearing before me, I was also given the same impression that Dongwoo’s complaints were premised on the defective design. In the submissions before me, Dongwoo alleged that the Initial Design provided by M+H was defective because oil leaks were detected after Dongwoo’s engineers had finalised their design based on the Initial Design from M+H. Dongwoo then requested updated drawings of the S-Engine oil filter in order to solve the oil leak problems. As the provision of updated drawings were intentionally delayed by M+H and only provided months after the initial requests, they were no longer of any use when Dongwoo received them as Dongwoo’s relationship with its customers was already severely impaired due to Dongwoo’s inability to respond promptly with a solution to the oil leak (see paras 81-86 of the written submissions of counsel for Dongwoo.)
[98] Hence, the main thrust of Dongwoo’s argument remained that the Initial Design was defective. Under these circumstances, obviously the tribunal (including M+H) would have focused on this issue whether or not the Initial Design was defective, and, if it was not, the whole basis of the complaint would then fall away. Accordingly, the Initial Design would not be the cause of the oil leak. If there was nothing wrong with the Initial Design provided by M+H (which Dongwoo relied upon for the design of its own engine oil filter), the obvious natural inference would be that there was then something wrong with what Dongwoo had itself done, which had nothing to do with the Initial Design. It would follow that no liability should be attached to M+H for the delays in supplying updates to a non-faulty design. The tribunal rightly focussed on what and where the real problem was, given the state of play in the briefs and submissions of the parties at the arbitral hearing.
[99] After having made sure that the thrust of its argument was that the Initial Design provided by M+H was defective, Dongwoo then made this rather surprising and unattractive submission before me that the issue whether the initial Design was defective was never at the front of the parties’ minds and that the tribunal ought to have invited the parties or counsel to submit on the issue whether or not the Initial Design was defective (see paras 87-92 of Dongwoo’s submissions). From this, Dongwoo formulated the present complaint that it was not given an opportunity to argue that the Initial Design was defective, which I had found to be unmeritorious for the reasons stated earlier.
Possible alternative claim by Dongwoo?
[100] It was not at all clear to me and I had to distil it out from the way the submissions were run that Dongwoo might be pursuing the further possible alternative ground that it was also not given an opportunity to argue that even if the S-Engine oil filter design originally provided was not defective, M+H remained liable under the TATLA for the delay in providing it promptly with improved versions of the non-defective Initial Design as part of its obligations under the TATLA. Not having made clear to both the tribunal and M+H that it was also going to run that further alternative case, and not having made submissions clearly along those lines in its Post-Hearing Brief, I did not think it would be fair to the tribunal and to M+H now to say that they ought to have known that such an alternative claim was being pursued.
[101] Dongwoo cannot take advantage of its own default arising from its own lack of clarity, to allege that there was a breach of natural justice by the tribunal, when the tribunal might not even have understood or known that such an alternative case was in fact being pursued by Dongwoo. There is also the other side of the coin that M+H, not having been notified of this alternative claim, may in turn suffer prejudice as it might also not have known that it was expected to meet this alternative claim, which Dongwoo never clearly spelt out.
[102] In my view, one cannot, after the conclusion of the arbitral hearing and the handing down of the arbitral award, make an allegation that a breach of natural justice has occurred on the ground that the tribunal failed to give it a chance (or to invite it) to argue a further alternative claim, when the responsibility rests with the party concerned in the first place to make it clear in its own statement of case in the arbitration and in its post hearing briefs that it has, and is indeed relying on and pursuing a further alternative claim such as the one that I have described above.
[103] In seeking to set aside the award and have the matter re-heard, Dongwoo was effectively asking for a second bite at the cherry so that it could ventilate an alternative claim at a second arbitration, when such an alternative claim was clearly foreseeable and should have been included for determination at this arbitration in the first place. Dongwoo would be exploiting its own default to the prejudice of M+H if I were to allow the award to be set aside on this ground.
[104] Dongwoo relied on Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 (“Zermalt”) where Bingham J set aside the award on the ground that the arbitrator dealt with matters on which the parties never had the chance to deal with. At [15], Bingham J opined as follows:
[105] The present case is distinguishable from Zermalt’s case. Dongwoo failed to plead an alternative claim during the arbitration. Dongwoo basically wanted the tribunal to consider this alternative claim that was never expressly pleaded before it in the first place. Dongwoo then alleged that not having done so, the tribunal has breached natural justice.

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Dongwoo Mann+Hummel Co Ltd v Mann+Hummel GmbH

Laws this judgment relies on

Grounds of decision

Introduction

Facts

The tribunal’s directions as to discovery

The reasons for the [2] Ruling

The S-Engine Oil Filter Project

The award

(a) CCV oil separator

(b) S-Engine oil filter

(c) Termination notice of 27 October 2005 was not valid in any event

(d) Assessment of damages for non-material breaches due to negligence

Parties’ submissions on setting aside the award

Unable to present its case

The CCV oil separators

Whether the tribunal took into account of what M+H disclosed to it but not to Dongwoo

Threshold questions for production of documents

The S-Engine oil filter

Possible alternative claim by Dongwoo?