Sobati General Trading LLC v PT Multistrada Arahsarana

Tay Yong Kwang J:

[1] The plaintiff, Sobati General Trading L.L.C. (“SGT”), applied, pursuant to s 24(b) and Article 34 of the First Schedule of the International Arbitration Act (Cap 143A, 2002 Rev Ed)(“IAA”), to set aside an arbitral award, dated 11 November 2008 (“the final award”) and amended on 9 January 2009 (“the addendum”) (henceforth, collectively, the “arbitral award”), made by the single arbitrator tribunal (“the tribunal”) in International Chamber of Commerce (“ICC”) International Court of Arbitration Case No 15158/JEM (“the arbitration”) on the following two grounds:

(a) the arbitral award was made in breach of the rules of natural justice; and

(b) the tribunal exceeded the express mandate given to it by the parties.

Although SGT had initially also contended that the arbitral award was contrary to the public policy of Singapore, its counsel, Ms Chou Tzu, informed me at the outset of the hearing that she was not proceeding on this ground.

[2] The central issue before me was whether the tribunal was entitled (as it did) to come to a decision that a distributorship agreement made in March 2003 (“the March 2003 Agreement”) between SGT and the defendant, PT Multistrada Arahsarana (“Multistrada”), had terminated on 31 March 2005. The tribunal’s decision was based on the express wording of a fax sent by Multistrada to SGT on 29 October 2004 (“the October 2004 Fax”). SGT claimed that because the tribunal was not entitled to find that the March 2003 Agreement had terminated on 31 March 2005, the rules of natural justice were breached and the tribunal exceeded its express mandate given to it by SGT and Multistrada. After hearing the parties, I dismissed SGT’s application. I now give the reasons for my decision.

[3] SGT, the claimant in the arbitration, is a company incorporated under the laws of the United Arab Emirates. It is in the business of distributing automobile tyres. Multistrada, the respondent in the arbitration, is a company incorporated under the laws of Indonesia. It is a manufacturer of tyres.

[4] SGT alleged that on or about 7 March 2003, it entered into an exclusive distributorship agreement with Multistrada for the sale and distribution of certain brands of tyres in Iran (i.e., the March 2003 Agreement). The relevant provisions of the March 2003 Agreement, with Article 5.1 as the arbitration clause, read as follows:

[5] On 6 September 2007, SGT filed a request for arbitration (“Request”) with the ICC International Court of Arbitration (“the ICC Court”) under the ICC Rules of Arbitration (1 January 1998) (“the ICC Rules”) alleging the following:

the March 2003 Agreement was effective on 7 March 2003. Because SGT met the contractual requirement and imported the minimum number of tyres, the March 2003 Agreement was subsequently renewed annually on 7 March 2004, 7 March 2005 and 7 March 2006;

in breach of Article 1.1 and Article 4 paragraph 5 of the March 2003 Agreement (see [4] above), Multistrada unilaterally terminated the March 2003 Agreement on 12 August 2006 by appointing a new sole distributor in Iran in place of SGT;

Multistrada had failed to pay SGT the rebate it was contractually entitled to under the March 2003 Agreement.

SGT claimed damages and specific performance of the March 2003 Agreement.

[6] On 15 October 2007, Multistrada filed its answer to SGT’s Request (“Answer”) denying the existence and validity of the March 2003 Agreement on the grounds that:

the March 2003 Agreement had not been signed by a duly authorised officer of Multistrada;

the March 2003 Agreement was a sham document and void from inception;

the existence of the March 2003 Agreement was inconsistent with all the contemporaneous documentation; and

an oral arrangement between SGT and Multistrada had commenced only from September 2004. Before September 2004 and after 31 July 2005, transactions between SGT and Multistrada had proceeded on a case by case basis.

[7] In the alternative, Multistrada claimed, in its Answer, that even if the March 2003 Agreement was valid and binding, it had not been renewed after 7 March 2004. In this regard, Multistrada asserted that:

because SGT did not import the minimum quantity of tyres in the one year period between 7 March 2003 and 7 March 2004 as required by the March 2003 Agreement, SGT was not entitled to a rebate under Article 4 of the March 2003 Agreement (see [4] above);

since 7 March 2004, SGT had only sold tyres to Multistrada on a case by case basis and not pursuant to the March 2003 Agreement; and

[8] On 9 November 2007, the ICC Court decided that the arbitration should proceed in accordance with Article 6(2) of the ICC Rules. On 23 November 2007, a single arbitrator (i.e., the tribunal) was appointed pursuant to Article 9(3) of the ICC Rules.

[9] Save for Multistrada’s counterclaim (see [7(c)] above), which is not relevant for the purpose of these proceedings, the parties’ respective positions and the issues arising in the arbitration were agreed and set out in the Terms of Reference (“the Terms of Reference”) sometime on or about 25 January 2008. Based on the documents submitted by the parties, paragraph 7 of the Terms of Reference set out the following issues to be decided in the arbitration:

whether the March 2003 Agreement was valid and binding;

whether the tribunal had jurisdiction to hear SGT’s claims; and

if the March 2003 Agreement was valid and binding, whether:

Multistrada had breached its obligations under the March 2003 Agreement;

the minimum quantities and/or value stated in Article 4 of the March 2003 Agreement were fulfilled or varied by the parties;

the March 2003 Agreement was renewed after 7 March 2004;

SGT was entitled to the 1.5% rebate under the terms of the March 2003 Agreement; and

SGT was entitled to damages and/or each of the reliefs sought.

[10] In addition to its position as set out in its Answer (see [6] – [7] above), Multistrada averred, inter alia, in its Statement of Defence and Counterclaim, filed on 28 February 2008, that:

[11] In its Reply to the Statement of Defence and Defence to the Counterclaims filed on 28 March 2008, SGT maintained its position that the March 2003 Agreement was valid and binding, and in support of this position, averred inter alia, that:

SGT raised the October 2004 Fax as evidence that the March 2003 Agreement remained in effect until 12 August 2006. In other words, SGT raised the October 2004 Fax to show the continued existence and performance of the March 2003 Agreement after 7 March 2004.

[12] At this juncture, it would be useful to set out the entire contents of the October 2004 Fax referred to in the preceding paragraph which was addressed to the Managing Director of SGT, Masoud Sobati (“Mr Sobati”). The October 2004 Fax reads as follows:

[13] It should be noted that:

the October 2004 Fax was not raised by either party at the pleadings stage;

the October 2004 Fax was not available when the parties decided on the Terms of Reference (see [9] above) for the arbitration; and

in its closing submissions dated 8 August 2008 Multistrada contended that the arrangement between the parties, if any, had ended on 31 March 2005 pursuant to the terms of the October 2004 Fax.

[14] SGT and Multistrada also adduced expert opinions on Indonesian law. Dr Hikmanhanto Juwana (“Dr Hikmanhanto”) and Dr Otto Hasibuan (“Dr Otto”) gave opinions, both dated 30 June 2008, on behalf of SGT and Multistrada respectively. On the first day of the hearing of the arbitration (which was held from 14 July 2008 to 17 July 2008), SGT confirmed that it would not be cross examining Dr Otto. Accordingly, Dr Otto’s presence was dispensed with. Dr Hikmanhanto was cross examined on 16 July 2008 on the contents of his expert opinion.

[15] The arbitration proceedings concluded on 22 August. On 11 November 2008, the tribunal rendered the final award, dated 11 November 2008, wherein it dismissed SGT’s claim and Multistrada’s counterclaim. In particular, the tribunal found that:

Costs orders were also made against both parties. The net result of these costs orders was that SGT was ordered to pay Multistrada US$108,750. This amount comprised Multistrada’s entitlement to the legal costs and expenses of the arbitration, the administrative expenses of the ICC Court and the tribunal’s fees and expenses.

[16] Following the release of the final award, SGT’s lawyers in the arbitration sought by way of two letters dated 25 November 2008 and 1 December 2008 respectively, to apply for a correction and interpretation of the final award pursuant to Article 29 of the ICC Rules. On 9 January 2009, the tribunal rendered the addendum correcting a typographical error and dismissing SGT’s said application.

[17] As mentioned above at [1], SGT applied pursuant to s 24(b) and Article 34 of the First Schedule of the IAA to set aside the arbitral award made by the tribunal on the following two grounds:

(a) the arbitral award was made in breach of the rules of natural justice; and

(b) the tribunal exceeded the express mandate given to it by the SGT and Multistrada.

[18] The relevant portions of Article 34 of the First Schedule of the IAA, which is the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), state as follows:

Section 24(b) of the IAA provides that:

[19] To support its position on these two grounds (see [1] and [17] above), SGT relied on the following points to show that it suffered prejudice:

[20] The above mentioned points revolve essentially around the tribunal’s finding that SGT had wholly accepted the terms of the October 2004 Fax and that the October 2004 Fax had extended the March 2003 Agreement to 31 March 2005 (see [15(b)] above), i.e., that the March 2003 Agreement terminated on 31 March 2005. Accordingly, it is clear that the October 2004 Fax must assume central focus in this case.

[21] With regard to the interpretation of s 24(b) of the IAA, the Court of Appeal’s decision in Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd [2007] 3 SLR 86 (“Soh Beng Tee”), is especially apposite as it sets out the key principles governing the setting aside of an arbitral award on the basis of a breach of the rules of natural justice. Although the setting aside application in Soh Beng Tee was made pursuant to s 48(1)(a)(vii) of the Arbitration Act (Cap 10, 2002 Rev Ed) (“AA”), the principles enunciated in Soh Beng Tee are equally applicable to the present case since s 48(1)(a)(vii) of the AA is in pari materia with s 24(b) of the IAA. In accepting that the right to be heard is a rule of natural justice, the Court of Appeal set out the following principles at [65]:

[22] The thrust of SGT’s case under this head is that it had been denied the opportunity to be heard (see [19(a)] above) on the effect of the terms of the October 2004 Fax which expressly provided that the March 2003 Agreement was to terminate on 31 March 2005. In deciding whether the tribunal’s decision on this issue breached the rules of natural justice, it must first be asked whether this issue was indeed in play during the course of the arbitration proceedings or whether the tribunal had gone on a frolic of it own and put forth its very own idea unsupported by the evidence placed before it.

[23] SGT claimed it had been denied the opportunity to be heard on:

All these issues relate directly to the tribunal’s conclusion that the October 2004 Fax terminated the March 2003 Agreement on 31 March 2005. As already mentioned above at [13], while the October 2004 Fax was not raised by either party at the pleadings stage nor available when the parties decided on the Terms of Reference for the arbitration, it was adduced by SGT itself on 28 March 2008 in its Reply to the Statement of Defence and Defence to the Counterclaims (see [11] – [12] above), albeit as its evidence that the March 2003 Agreement existed and remained in effect until 12 August 2006. In this regard, SGT had also alleged that the transactions between the parties from 31 March 2005 to 12 August 2006 were pursuant to the March 2003 Agreement.

[24] Because Multistrada had no directions to file a response to SGT’s Reply to the Statement of Defence and Defence to the Counterclaims, it could only address the effect of the October 2004 Fax when it filed the first witness statement of its director, Mr Hartono Setiobudi’s (“Mr Setiobudi”), on 2 June 2008. At [38] of this witness statement, Mr Setiobudi referred to the October 2004 Fax and stated that Multistrada was willing to supply SGT with tyres until the 31 March 2005:

At [41] of his witness statement, Mr Setiobudi also provided evidence to the effect that after 31 March 2005, although the parties did not discuss the terms relating to the supply of tyres by Multistrada to SGT, SGT continued to make regular orders for tyres:

[25] The foregoing discussion shows that Multistrada did in fact, at the earliest opportunity, address the effect of the October 2004 Fax. Its position, as evident from the above mentioned passages from Mr Setiobudi’s first witness statement, was that it would supply tyres to SGT under the March 2003 Agreement until 31 March 2005 and that thereafter the parties did not negotiate any new arrangement. Hence, insofar as Multistrada was concerned, the March 2003 Agreement terminated on 31 March 2005. Furthermore, Multistrada’s position vis-à-vis the status of transactions after 31 March 2005 was that these transactions were on a “regular”, case-by-case basis and not pursuant to the March 2003 Agreement. In this respect, I note that SGT had in fact had ample opportunities to deal with Multistrada’s position (as set out above at [24] – [25]) but it chose not to do so. Following the filing of Mr Setiobudi’s first witness statement on 2 June 2008 on behalf of Multistrada, SGT filed four witness statements on three separate occasions, viz, that of Mousa Vahedzadeh on 14 June 2008, Maribel Franco Cabrieto on 16 June 2008 and Maribel Franco Cabrieto (again) and Mr Sobati on 9 July 2008. However, in none of these four witness statements did SGT address the terms of the October 2004 Fax or their effect.

[26] The question as to the effect of the October 2004 Fax remained a live one even during the hearing from 14 to 17 July 2008 when Mr Setiobudi expressly stated that the arrangement between the parties was only valid until March 2005 and that the October 2004 Fax was an acknowledgment of this arrangement. Despite this, SGT chose not to challenge the evidence presented by Multistrada on this. SGT also chose not to challenge the evidence on Indonesian law presented by Multistrada’s expert witness, Dr Otto (see [14] above).

[27] In its closing submissions dated 8 August 2008, Multistrada submitted that the March 2003 Agreement terminated on 31 March 2005 and that the business relationship between the parties thereafter (i.e., from 31 March 2005 to 12 August 2006) was no longer based on the March 2003 Agreement but “pursued on a month-to-month basis, consistent with Multistrada’s dealings with all its other clients”. It was only at this juncture that SGT sought to meet and challenge Multistrada’s case by way of its Reply to Multistrada’s Closing Submissions dated 22 August 2008 wherein SGT argued that that October 2004 Fax did not form an agreement between the parties and that the March 2003 Agreement was renewed after 7 March 2005 and did not terminate until 12 August 2006.

[28] Given the foregoing sequence of events, it is clear that Multistrada considered and dealt with the effect of the terms of the October 2004 Fax. While SGT was, since 2 June 2008 (see [25] above), aware of Multistrada’s position that the March 2003 Agreement had terminated on 31 March 2005, it chose only to mount a delayed challenge to Multistrada’s position more than two months later in its Reply to Multistrada’s Closing Submissions. Clearly, SGT failed to fully avail itself of the opportunities it was accorded to rebut Multistrada’s position (see also [38] of Soh Beng Tee). In these circumstances, I am of the view that SGT cannot now seek to set aside the arbitral award simply because its own conduct in the arbitration has led to a result it was dissatisfied with. Accordingly, SGT’s claims that it was denied the opportunity to be heard on the stated issues could not be sustained.

[29] SGT’s claim that the tribunal exceeded the scope of its jurisdiction because it failed and/or refused to apply the law governing the March 2003 Agreement, viz, Indonesian law (on which expert opinion and submissions had been provided by both parties) is also without merit. As stated above at [14], SGT chose not to cross examine Dr Otto on his expert evidence that, under Indonesian law, a person could accept a written offer by conduct and that where an agreement provided that it would terminate on a certain day, that agreement would terminate on that day unless the parties agreed to its extension. In any event, Ms Chou Tzu stated that SGT was not saying that the Indonesian legal position was necessarily different from the position adopted by the tribunal in the arbitral award. Rather SGT’s contention was on a more tenuous basis, viz, that the Indonesian legal position might be different.

[30] SGT’s contention that the tribunal arrived as a conclusion that was “completely unexpected, illogical in the circumstances and/or contrary to available evidence” in deciding that the March 2003 Agreement terminated on 31 March 2005 is also difficult to sustain. Even if the issue as to when the March 2003 Agreement was terminated was not truly alive during the arbitration,that would not be sufficient to lead to the conclusion that the [tribunal] had necessarily failed to adhere to the rules of natural justice in denying [the parties] an occasion to present its contentions on the issue because “[i]t is frequently a matter of degree as to how unexpected the impugned decision is, such that it can persuasively be said that the parties were truly deprived of an opportunity to argue it” (see [41] of Soh Beng Tee). I am of the view that the tribunal was wholly entitled to come to the conclusion that the March 2003 Agreement terminated on 31 March 2005. The tribunal was not required to put this conclusion before the parties given that this was not a dramatic departure from the evidence presented to him, viz, the October 2004 Fax, which was in fact placed before the tribunal by SGT itself. The tribunal was entitled to come to this conclusion on the basis of the following:

(a) SGT alleged that Multistrada breached the March 2003 agreement when it appointed a new distributor for its tyres in Iran in August 2006;

(b) Multistrada alleged, in the alternative, that the March 2003 Agreement was not valid and binding;

(c) in order for the tribunal to determine whether Multistrada breached the March 2003 Agreement, the tribunal had to determine:

(i) whether the March 2003 Agreement was valid and binding in the first place;

(ii) if the March 2003 Agreement was valid and binding, whether it was in effect in August 2006;

(d) the evidence before the tribunal included the March 2003 Agreement and the October 2004 Fax;

(e) the October 2004 Fax , which was evidence that SGT itself placed before the tribunal, referred to the March 2003 Agreement and expressly stated a termination date of 31 March 2005; and

(f) during the course of the arbitration proceedings, Multistrada led factual and expert evidence that the parties had wholly accepted the terms of the October 2004 Fax to govern their business relations and that there were no negotiations after 31 March 2005 to renew the agreement or to enter into a new distributorship agreement.

[31] In fact, the tribunal adopted a middle path that was consistent with the cases of both SGT and Multistrada, viz, that:

In these circumstances, and given the evidence presented before the tribunal, it is clear that the tribunal was wholly entitled to conclude that the March 2003 Agreement terminated on 31 March 2005 and that, accordingly, the transactions between SGT and Multistrada from 31 March 2005 to 12 August 2006 were not pursuant to the March 2003 Agreement. With SGT’s first ground in this application disposed of, I now turn to its second ground.

[32] SGT’s second ground in its application to set aside the arbitral award was (pursuant to Article 34(2)(a)(iii) of the Model Law: see [18] above) on the basis that the tribunal exceeded the express mandate given to it by the parties. The mandate given to the tribunal is contained in Article 5.1 of the March 2003 Agreement. It is sufficiently broad and confers on the tribunal the jurisdiction to determine:

[33] SGT alleged that the tribunal’s finding that the March 2003 Agreement terminated on 31 March 2005 was not within its jurisdiction to make. However, as Multistrada correctly pointed out, this allegation was unfounded because the tribunal’s decision had in fact arisen out of the parties’ respective cases vis-à-vis the March 2003 Agreement, viz:

(a) SGT’s allegation that the March 2003 Agreement was still in effect in August 2006 and its reliance on the October 2004 Fax as evidence of this; and

(b) Multistrada’s alternative allegation that the March 2003 Agreement between the parties ceased to have effect after 31 March 2005.

[34] Based on the parties’ respective cases as framed in this manner, a pertinent, and indeed determinative, issue that required resolution was clearly whether the March 2003 Agreement was still in effect after 31 March 2005. As mentioned above, no rules of natural justice were breached as it was well within the tribunal’s power to come to the conclusion that the March 2003 Agreement terminated by 31 March 2005 by virtue of the October 2004 Fax. In these circumstances, I cannot agree with SGT’s contention that the tribunal exceeded the express mandate given to it by the parties.