General Division of the High Court · Decided 22 December 2008

The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd

Feedback & support

[2008] SGHC 236Case no. OS 986/2006 , SUM 2450/2008

What happened, in plain English

There is no plain-English summary of this judgment yet.

Ask about this judgment

Laws this judgment relies on

Grounds of decision

Official text from eLitigation

Introduction
[1] By way of Summons No 2450 of 2008, the applicant, Oriental Insurance Co Ltd (“OIC”) filed an application seeking to set aside the determination made by an Independent Adjudicator (“IA”) appointed pursuant to a Scheme of Compromise and Arrangement (“Scheme”) undertaken by the respondent, Reliance National Asia Re Pte Ltd, (“RNA”) and for the matter to be remitted to the IA for re-adjudication.
Background
[2] RNA is a general reinsurer registered and licensed in Singapore. OIC is a direct general insurer registered and licensed in India. The salient facts of this matter principally revolve around OIC’s issuance of a US$20m insurance policy in 1998 covering a Single Point Mooring Buoy (“SPM”) owned and operated by an Indian company, Reliance Industry Limited (“RIL”). The SPM is a floating device that allows vessels to dock offshore and facilitates the conveyance of oil between these vessels and an on-shore refinery through the use of hoses and pipelines. OIC retained 6.35% of the risk and reinsured the remaining 93.65% to several reinsurers. RNA is one such reinsurer which accepted 38.35% of the risk and became the lead reinsurer.
[3] The SPM was struck by a vessel named “Emerald Sky” on 12 October 1998 and eventually sank on 16 October 1998. It was retrieved to the surface on 12 November 1998 and was subsequently transported to RIL’s refinery site in Jamnagar, India. RIL duly commenced an admiralty action against that vessel in Ahmadabad, India in November that year.
[5] Both actions in India are still pending. RIL’s claim in India against OIC, the defendant in India, is for the principal sum of INR 991.9m (or US$24.25m at the exchange rate of US$1= INR40.9 as on 14 May 2007) plus interest at 21% p.a. on the principal sum from the date of loss on 12 October 1998 till the date of payment, of which RNA’s share amounted to 38.35%. See [61] for the details of the portion of RNA’s share as stated by the IA.
[6] It is crucial for the purpose of this judgment to note that the IA himself recognised at p 3 of his determination that the claim by RIL in India includes interest on the principal claim amount, which is to continue accruing up to the date of final payment and that the interest claimed by RIL is not going to simply terminate at the valuation date of the Scheme Claim specified to be 19 September 2006 or the Scheme cut-off date of 14 May 2007, which dates are in any event of no concern to RIL who is not a party to the Scheme. Hence, if RIL’s claim was to be allowed by the Surat court, the total judgment sum that OIC is liable for will most likely include both the principal sum plus interest on that principal sum up to the date of judgment (i.e. pre-judgment interest). This pre-judgment interest thus forms a part of the damages and merges with the principal sum to become a single total judgment sum under the doctrine of merger.
[7] Thereon, as with the normal practice of the Singapore courts in granting post-judgment interest in addition to the total judgment sum up to the date of payment (see O 42 r 12 of the Rules of Court (Cap 322, R5, 2006 Rev Ed), Trans Elite Equipment Rental Sdn Bhd v PSC-Naval Dockyard Sdn Bhd [2003] 4 MLJ 30, NM Rothschild & Sons (Singapore) Ltd & Ors v Rumah Nanas Rubber Estate Sdn Bhd [1994] 2 SLR 160 and Chia Ah Sng v Hong Leong Finance Limited [2001] 1 SLR 591), the Surat court will probably also grant further post-judgment interest (similarly calculated on the total judgment sum) which will run from the date of its judgment till the date of actual payment by the judgment debtor, OIC, to the judgment creditor, RIL, in India.
[8] What is clear therefore is that the Surat court will not be concerned at all with the terms of the Scheme agreed between RNA and its Scheme creditors and its award of pre-judgment interest on the principal claim amount will not stop accruing or stop running on either the valuation date of 19 September 2006 or the cut-off date of 14 May 2007. The Surat court will most probably allow the pre-judgment interest to accrue up to the date of its own judgment. See also the further discussion on the issue of the correct valuation date in [67] to [82].
[9] In exercise of its claim’s control clause, RNA took over the management of the legal proceedings before the Surat court and appointed solicitors to participate in the litigation in Surat. RNA solely handled the proceedings in Surat in connection with RIL’s claim apparently to the exclusion of OIC, the named defendant in India.
[10] In 2001, RNA encountered financial difficulties and ceased writing new business. It entered into a voluntary run-off of its business in April 2001. RNA’s parent, Reliance Insurance Company in the United States of America, was put into liquidation on 3 October 2001. RNA was subsequently bought over by Whittington Investments Guernsey Ltd on 1 July 2004 which decided to accelerate the run-off of RNA’s business by promoting to RNA’s creditors a solvent Scheme under s 210 of the Companies Act (Cap 50, 2006 Rev Ed).
[11] The Explanatory Statement on the Scheme states, inter alia, the following points:
[12] The object of the Scheme was to conclude this process of “run-off” in the shortest practicable time. To do so, the Scheme employed a practical process of estimating all present and future claims (including contingent claims) of Scheme creditors before paying out on those claims in full: see [2.1] of the Scheme.
[13] OIC supported the Scheme on the basis that it would be able to seek full indemnity from RNA in connection with RIL’s claim against it (i.e. OIC) in the Surat proceedings. OIC, as one of the largest Scheme creditors, voted in support of the Scheme. At the court-sanctioned meeting on 26 September 2006, the Scheme creditors comprising entirely of professional insurers and reinsurers voted and approved the Scheme with the requisite statutory majority. The IA noted that without OIC’s support, it was not likely that the Scheme would have materialised. The Scheme was subsequently approved by the High Court on 7 November 2006.
[14] The Scheme required each creditor to file a proof of debt with supporting documents. The manager of the Scheme (“the Scheme Manager”) would ascertain the claim and if there was a dispute, an Independent Adjudicator (“IA”) would determine the dispute. The IA’s decision is final and binding and “cannot be appealed from to the Courts or to be submitted to arbitration”. Paragraph 4.6 of the Scheme states:
[15] Schedule 2: “RERRERAL TO INDEPENDENT ADJUDICATOR” of the Scheme reiterates the finality and binding nature of the IA’s decision and the exclusion of all appeals to the courts as follows:
[16] In this connection, the full background behind the present Scheme had been set out by the Court of Appeal in The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd [2008] 3 SLR 121 (“Oriental Insurance”) where OIC had successfully sought an extension of time to file its proof of debt under the Scheme.
[17] OIC stood to be indemnified by RNA for 38.35% of the final quantum of liability that the Surat court may ultimately award against OIC and in favour of RIL. Essentially, what is before me is OIC’s claim in respect of its reinsurance with RNA of 38.35% of RIL’s insured loss that OIC now has to bear in India, which constituted a contingent liability that OIC had already notified its re-insurers, namely RNA. OIC therefore had a “notified outstanding claim” within the meaning of the Scheme, upon which it could submit a proof of debt to RNA under the Scheme.
[18] In January 2008, OIC submitted a proof of debt worth some US$24m plus interest of US$1.95m p.a. from 15 May 2007 till payment. However, the Scheme Manager determined the debt to be only worth US$1,964,000. Dissatisfied with the result, OIC referred its proof of debt to the process of Independent Adjudication provided under the Scheme.
[19] After three rounds of written submissions and an oral hearing, the IA rendered his final determination on 2 June 2008 ascertaining the total Scheme claim to be US$3,840,584, comprising the principal amount of US$3,176,168 plus interest of US$664,416 at 13.5% p.a. for an allowed discounted period of only 1.5 years. Dissatisfied with that outcome, the applicant filed the present application to set aside the IA’s determination, seeking to remit the matter to the IA for a re-determination.
The applicant’s case
[20] OIC submitted that the IA’s mandate and duties under the Scheme may accordingly be summarised as follows:
[21] According to OIC, it is on the above being satisfied that the IA’s decision is final and one that cannot be appealed against. Only if the IA had followed the above principles and adhered fully to his instructions would the Scheme creditors be bound by his decision. However, where it can be shown that he acted without due care and diligence, departed from the very instructions he was to follow or failed to give effect to the terms and purpose of the Scheme, then the IA’s decision cannot be said to be conclusive. None of the Scheme creditors would have agreed to IA’s decision being final and binding, in the event the decision can be shown not to be in their interest as a whole or if it can be shown that it was reached without due care and diligence or if it had been reached without heeding the instructions which the IA had to follow. This was the contractual bargain entered into by the parties under the Scheme.
[22] OIC further contended that the mode of dispute resolution chosen by the parties under the Scheme was not one of “expert determination”, but that of “adjudication”. The significance of this distinction lies in the narrow scope under which the court would disturb an expert’s award rendered after a process of expert determination. OIC contended that even if the mode of dispute resolution chosen was that of expert determination, that determination ought to be set aside on three grounds:
[23] OIC also complained of the IA’s failure to act with due care and diligence in the interests of the Scheme Creditors as a whole. OIC clarified that it was not alleging any lack of bona fides on the part of the IA, but he had reached conclusions that no right minded IA exercising due care and diligence would have reached.
[24] I shall address each contention in due course.
Principal modes of dispute resolution
[25] It is not disputed that there are broadly four principal modes of dispute resolution where the disputants submit their dispute to a neutral third party, having and exercising the authority to hear their respective positions and make a decision binding on them:
[26] See also ADR Principles and Practice, Brown and Marriott (London, Sweet & Maxwell, 1993):
[27] As pointed out by Rajah J in Evergreat Construction Co Pte Ltd v Presscrete Engineering Pte Ltd [2006] 1 SLR 634 (“Evergreat”), these different roles attract different attributes and entail consequences peculiar to the respective appointments. Parties who wish to have an alternative mode of dispute resolution may draw on the different principles, attributes and procedures in each of the above processes, and devise an agreed method or approach which fits their particular needs and circumstances. In choosing their alternative mode of dispute resolution, the parties are not constrained to any of the above processes or by any particular set of attributes or procedures. Hence, hybrid processes may be contractually formulated by the parties themselves to resolve a particular dispute in a manner considered most appropriate by them. The choice is basically theirs.
[28] Given that the IA in this case was an expert chosen by the parties themselves pursuant to the statutory contract in the form of the Scheme, the IA’s dispute resolution process can only be either arbitration or expert determination and with such other modifications the parties to the Scheme may have agreed.
Whether mode of dispute resolution is that of expert determination
[29] OIC characterised the mode of dispute resolution under the court ordered Scheme as one of expert determination and not “adjudication”. OIC contended that:
[30] The reasons proffered by OIC in its characterisation were that, unlike the present case, an expert in an expert determination does not step into the fray after an earlier determination (i.e. the ascertainment by the Scheme Manager) and is not put in as a form of appeal mechanism. Secondly, OIC contended that because the Scheme was an order of court, the IA was exercising powers under that order and not pursuant to a contract between parties. Lastly, OIC cited the following paragraphs 4.4, 9.3, 9.4 and 9.5 of the Scheme:
[31] OIC argued that the above paragraphs do not prohibit a challenge to the IA’s determination based on a lack of due care and diligence. According to OIC, the IA in this case was performing an “adjudicating” role whereby he was not only obliged to consider the correct question as an expert in an expert determination ought to, but to also take into account the arguments of various parties, consider the burden of proof on each party and assess the credibility of each position taken by parties. OIC submitted that “adjudication” in this regard was more akin to a process of arbitration than an expert determination.
[32] I have no difficulty in dismissing those arguments of OIC. I do not agree that the IA’s particular role and functions in this case are more in the nature of an arbitrator than an expert determiner. In my view, parties to the Scheme had envisaged that the mode of dispute resolution to be that of an expert determination, and not an amorphous concept of “adjudication” that straddled somewhere between arbitration and expert determination along the spectrum of alternative dispute resolution.
[33] Paragraphs 4.4 and 9.3 of the Scheme are also framed widely so that the expert is given considerable flexibility and latitude to apply his own expertise to address the problem at hand, assess and quantify the Scheme claim and determine the dispute submitted to him: see Evergreat (supra [27]) at [35]. These features are typical of expert determinations.
[34] Whilst the Scheme provides for a procedure for the parties to tender written submissions and attend hearings before the IA, the IA is not confined to accept or adopt either one of the methodologies advocated by the parties in their submissions or by the experts who had given expert evidence on behalf of the parties. The IA can still rely on his own experience and special expertise to reach his own independent conclusions and decisions (which can be very different from either of the parties’ positions or the positions of the experts called by the parties), subject of course to the terms of reference and the instructions for the expert determination which the IA is obliged to act within at all times.
[35] The name given of “Independent Adjudicator” in the Scheme does not necessarily mean that he is not an expert determiner in an expert determination but that the process must be one of “adjudication” where he ought not to rely at all on his own expertise and experience but is confined exclusively to the evidence (expert and factual) led by the parties.
[36] The fact that paragraph 4 of Schedule 2 of the Scheme requires the IA firstly, under sub-paragraph (i) to call the various parties to provide written submissions on their respective valuations on the amount of their Scheme claims which may include any expert evidence supported by relevant documentation; and secondly, to hear oral representations which parties in the dispute will be allowed to make under sub-paragraph (iii), is, in my view, not inconsistent with an expert determination, as these party representations assisted by other experts usually help the IA to better understand the various issues that have been entrusted to him as the chosen expert to finally determine the dispute between the parties. As aptly stated at [12.6.1] in John Kendall, Clive Freedman & James Farrell, Expert Determination (4 Ed, 2008) (“Kendall”):
[37] Under the Scheme, the IA is not required to issue a reasoned decision for his determination. In fact, he is obliged to issue a non-speaking determination, which will naturally make any examination of his reasoning next to impossible if he does not in fact provide any reasons but simply states a final figure in his determination. In Schedule 2 of the Scheme, the following is provided:
[38] That the IA shall issue a non-speaking determination means that no reasons may be given by the IA for his decision (see Kendall (supra [36]) at [14.6.1]) which clearly indicates to me that the parties have contractually agreed to accept that the determination shall be exclusively determined by the expert IA with the intention to severely restrict any supervisory jurisdiction that the courts may have over the IA’s decision making process. The expert IA cannot be legally compelled to give reasons unless it is clearly stipulated in his terms of reference and engagement that he has to give reasons for his determination. A non-speaking award is one feature, though by no means conclusive of the character of the determination by the IA being that of an expert determination than an arbitral determination. If it were intended that the determination be subject to close supervisory jurisdiction by the courts, then the contractual scheme agreed to by the parties would certainly not have specifically required the IA to issue a non-speaking determination. This feature contractually adopted by the parties for the IA’s determination points once again to the process being an expert determination.
[39] I accept the submission of RNA that the wide extent of personal and subjective discretion given to the IA in the Scheme, without being hindered by procedural and evidential niceties, is another piece fitting the jigsaw puzzle that the IA is engaged to act as an expert determiner. What V K Rajah J had enunciated at [35] in Evergreat (supra [27]) is particularly apposite:
[40] The fact that the Scheme had been sanctioned by the court does not detract from the fact that sanctity of contract lies at the heart of a scheme of arrangement. In considering this very Scheme, the Court of Appeal in Oriental Insurance (supra [16]) stated (at [67]):
[41] Besides, there are several other indicators that parties to the Scheme had consensually and contractually adopted the expert determination mode of alternative dispute resolution. First, it bears noting that RNA is a reinsurance company and the participants in the Scheme are mainly insurance companies. The insurance and reinsurance arrangements between the parties are highly technical and specialised. Accordingly, the IA, Mr Law Song Keng, had been specially selected for his expertise and experience as an established and respected figure in the insurance industry to resolve an insurance dispute amongst the insurers and their re-insurer, RNA. From this, it indicates that the IA was chosen to act more as an expert than an arbitrator under the Scheme. As noted by Kendall (supra [36]) at [1.1.1], experts are usually chosen for their expertise, knowledge and experience in the subject and issue between the parties:
[42] The finality and binding nature of the decision of the IA which cannot be appealed from to the courts or be submitted to arbitration is a further indication that the nature of the dispute resolution process chosen is not one of arbitration but more an expert determination. The relevant paragraphs expressly providing for the finality of the IA’s determination and the exclusion of appeals to the courts are at [14] and [15] above.
[43] Accordingly, from the totality of the features enumerated above, I find that the process of dispute resolution by the IA under the Scheme is neither litigation nor arbitration but is broadly a process of expert determination with an express caveat that the IA “shall act in good faith and with due care and diligence in the interests of the Scheme Creditors as a whole”, which does not in the main take it outside the domain of an expert determination. The fact that the parties may have contractually imposed a duty on the expert to act with due care and diligence in his determination does not, in my judgment, modify the process so drastically to turn it into anything that is substantially different from an expert determination. Although this requirement for the IA to act with due care and diligence does widen slightly the scope of review by the courts, I do not believe it changes the basic character of the expert determination process to be undertaken by the IA in the Scheme as a whole, which the parties have consensually and contractually agreed to. Hence, the general principles of review by the courts for expert determinations remain applicable to the Scheme at hand.
[44] I thus accept the submission of RNA that in answering the correct question of quantification of the Scheme claim, the IA is not acting as a judge or an adjudicator. He is performing the role of an expert, which does not involve pure law, but the application of prudent and sound business and insurance judgment, in order to estimate the appropriate amount RNA should pay OIC on account of its contingent claim against RNA under the reinsurance contract, which I believe however must be valued at the Scheme specified valuation date rather than the cut-off date. The width of the question formulated for the IA -- to determine the amount of the Scheme claim as at the valuation date, but without any set methodology or other constraints put on the IA apart from having to act in good faith and with due care and diligence in his determination -- implies that the adjudication process adopted and agreed by the parties is that of expert determination.
[45] I shall address, later in this judgment, the implications of a valuation by the IA of the contingent claim at the cut-off date instead of the Scheme specified valuation date (see [67] to [82]) on:
At a later part of my judgment at [207] to [222], I shall also deal with the legal effect and impact of the additional requirement and duty on the IA to act with “due care and diligence” on the extent of the reviewability of the expert determination process by the court.
[46] Once it is clear that the principal mode of dispute resolution on the facts of this case is an expert determination, the immediate focus turns next to the available legal grounds upon which the IA’s determination can be set aside by the court.
Challenging an expert’s determination
[47] Under what circumstances can the expert’s determination be challenged before the court in the case of a court-sanctioned contractual Scheme? From a review of the authorities below at [48] to [90], I conclude that short of fraud, corruption, collusion, dishonesty, bad faith, bias or the like, the only two main grounds on which this court can set aside the IA’s determination are as follows:
See Riduan bin Yusof v Khng Thian Huat [2005] 2 SLR 188 (“Riduan”); Tan Yeow Khoon v Tan Yeow Tat [2003] 3 SLR 486 (“Tan Yeow Khoon”); Geowin Construction Pte Ltd (in liquidation) v Management Corporation Strata Title No 1256 [2007] 1 SLR 1004 (“Geowin”) and Evergreat (supra [27]). As mentioned above, OIC was relying on both grounds.
Material departure from instructions
[48] Both counsel cited the following passage from the English Court of Appeal decision in Jones v Sherwood Computer Services Plc [1992] 1 WLR 277 at 287:
[49] In Jones (M.) v. Jones (R.R.) [1971] 1 W.L.R. 840 (“Jones v Jones”) where the valuer had valued the shares in a company on a break-up basis when he should have used a going concern basis, and as regards certain machinery which the contract required to be valued by an expert valuer selected by him, he had instead valued it himself, Justice Ungoed-Thomas emphasised at p 856 that:
[50] In Evergreat (supra [27]), V K Rajah J reviewed the authorities and said:
[51] The degree of the materiality of the departure from instructions must be considered in the light of the terms of reference or the particular engagement contract of the expert appointed for determining the dispute of the parties. Sometimes, the contract lays down a carefully regulated procedure and sets out in detail how the expert is to carry out his work. But when his departure from instructions or non-compliance with the terms of the determination first comes to light, which may be the first formal document produced by the expert after the departure or non-compliance has occurred, the ultimate effect of that on the parties’ position may not be known at that time, or even capable of being forecast with any accuracy, and hence it cannot be necessary or possible to wait until the outcome or effect of the departure or non-compliance is known before being able to decide whether it is sufficiently material to vitiate the expert’s act. As Justice Lloyd in Shell U.K. v. Enterprise Oil [1999] 2 Lloyd’s Law Reports 456 (“Shell U.K.”) stated at [97] and [98]:
[52] The court in Shell U.K. set aside the determination, which was held to have been vitiated by the expert’s use, in breach of the expert’s contract, of the wrong computer mapping package CPS-3 for mapping the contours of strata of rock under the seabed, and was therefore not contractually effective under the agreed procedure set out in the parties’ agreement which called for the use of Z-Map Plus. Potentially, different results could emerge from applying the two mapping packages to the same seismic data because the two mapping packages contained functions or algorithms, which were not exactly common to both. The court examined the question of whether the use of the wrong mapping package invalidated the expert’s work or deprived it, by itself, of contractual effect and decided that it did: Shell U.K. at [90].
[53] At [14.5.8], Kendall (supra [36]) collated some examples of material departures from instructions:
[54] The materiality of an expert’s departure from instructions would undoubtedly depend on the relevant facts and circumstances of each case, and it is to the facts of the present case which we must now turn to understand the nature of the Scheme and the role played by the IA. As a general proposition, so long the expert has answered the question put to him; his determination is binding even if he may have answered it wrongly. As V K Rajah J said at [34] in Evergreat (supra [27]):
[55] Similarly, in Nikko Hotels (UK) Ltd v MEPC Plc [1991] 28 EG 86 it was held that:
[56] Paul Baker Q.C. said in Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 E.C.L. R. 148 at 151L-M:
[57] As to when a departure is considered material, Simon Brown LJ in Veba Oil Supply & Trading GmbH v Petrotrade Inc [2002] 1 All ER 703 (“Veba Oil”) gave his views as follows at [26]:
Tuckey LJ agreed with the test propounded by Simon Brown LJ above (in bold and underlined) because it was more certain and direct. Tuckey LJ added at [39] that in any event the court would obviously need to consider the subject matter and the express terms of the contract, the nature of the departure and any other relevant facts.
Scheme instructions to the IA
[58] RNA had ceased to write new risks and was already running down its business prior to the Scheme. The object of the Scheme, as set out in paragraph 2.1 of the Scheme, was to accelerate that process. To do so, the Scheme employed a process of estimating all present and future claims (including contingent claims) of RNA’s creditors before paying out on those claims. The process of estimating and paying out on future contingent liabilities in exchange for releasing RNA from these future ongoing liabilities to achieve a clean break is known as “commutation”. The Reinsurance Division of Barlow, Lyde and Gilbert, Reinsurance Practice and The Law (1993) explained the process of commutation in greater detail (at [20.6.2]):
[59] The complaint of OIC was that the formulation of the issue by the IA materially departed from the Scheme. The question which the IA set out to answer in his determination was expressed thus by him: “[M]y assessment of the Disputed Scheme Claim from OIC will be based on how a prudent insurer would assess the claims it receives from its insureds…” OIC strenuously argued that the IA had asked himself the wrong question. What the IA ought to have done instead was to estimate the liability owed by RNA to OIC on the account of the proceedings in India by considering the strengths and weaknesses of RIL’s claim in the Surat court. At the hearing, I directed counsel for OIC to phrase the right question which counsel said the IA should be asking himself. Counsel submitted the IA should have stated: “[M]y assessment of the Disputed Scheme Claim from OIC will be based on how much RNA should pay OIC in respect of its contract to indemnify OIC against the claim by RIL, currently being prosecuted in the High Court of Surat.” In other words, the correct question should have been “What was OIC’s likely liability in the Surat action: the subject matter of RNA’s indemnity under the contract of reinsurance?” (See para 108 of OIC’s submissions dated 2 Oct 2008.)
[60] To recapitulate, the Scheme claim was RNA’s obligation to OIC on account of RNA’s 38.35% share of the potential full liability that OIC was legally and ultimately exposed to, which the Surat court has yet to determine and award on some future judgment date (with full pre-judgment interest running from the date of loss till date of judgment and with further post-judgment interest from date of judgment till the date of actual payment) which total judgment sum (principal judgment sum plus interest) is at the moment prospective and unliquidated, for which the IA is tasked to ascertain.
[61] I cannot see how counsel’s question is materially different from what the IA had set out in his reasoned determination. The IA had said that he was going to assess the claims he had received from RNA, and in the next paragraph (at p 7 of the IA’s determination) the IA had in fact set out RIL’s claim in detail to show exactly what he was valuing and assessing as follows:
[62] Clearly, the IA was answering the very question which OIC said the IA should be addressing. The IA was paying full attention to the extent of the claim that was filed in the Surat court in India. It was obvious to me that the IA was assessing that claim before the Surat court and valuing that contingent liability specified in the Scheme as a prudent insurer should. For OIC to say that the IA had asked himself the wrong question in that the IA was not valuing the claim by RIL currently being prosecuted in the High Court of Surat would be to ignore what the IA had clearly stated at p 7 of his determination.
[63] The most probative evidence to show that the IA was in fact valuing the Scheme claim based on 38.35% of what the court in India would likely ascertain as the judgment sum flowing from RIL’s claim in India was the IA’s adoption of the interest rate of 13.5% per annum for the interest and discount computations when valuing the Scheme claim of OIC: see p 22 of the IA’s determination. The courts in Singapore certainly are not awarding interest rates of that high order of magnitude for damages suffered from the date of loss or date of writ to the date of judgment to compute the total amount of pre-judgment interest to be included in the final judgment sum. The rate of interest used by the Singapore courts was 6% p.a. for a considerable number of years previously and only recently was that rate changed to 5.88% p.a. The IA was in fact relying on the average of the in-trend interest rates of between 12% to 15% p.a. reported by OIC’s legal counsel in India to be reflective of the typical rates of interest used by the courts in India for interest computations up to the date of judgment. If the IA were indeed valuing RIL’s claim based on local conditions in Singapore or based on the Scheme as administered in Singapore with no consideration of what the Surat court might award as the interest rate in order to arrive at the total judgment sum in India as at the date of judgment, then the interest rate the IA should be using would have been at 6% p.a. or thereabouts, and quite certainly no where near the interest rate of 13.5% p.a. that the IA had in fact used. Second, the IA all the while had in mind whether to allow the starting point of the interest payment to commence “from date of court filing by RIL” in India or at some later date because of RIL’s contribution to the delays: see p 21 of the IA’s determination. The date of the court filing in India can only be relevant if the IA had in mind the valuation of RIL’s claim as filed in India and with full regard to what the Surat court may award as the final judgment sum (inclusive of pre-judgment interest on the principal amount of the loss commencing also from the date of the writ provided RIL cannot be faulted in anyway for delaying the court proceedings unreasonably). Otherwise, there would be no need for the IA to consider when RIL had filed the writ in India in order for the IA to ascertain the starting date on which the interest of 13.5% p.a. was to run.
[64] In my view, OIC’s contention that the IA had asked himself the wrong question was an unmeritorious one. The IA had carried out his mandate in accordance with the Scheme, viz to make a best estimate of the quantum of OIC’s liability based on what the Surat court in India might likely award as the total judgment sum (principal plus interest) on RIL’s claim. It was significant that although the IA was not limited to any particular methodology himself and neither was he compelled to take into account and adopt any particular facts, nevertheless the record of the IA’s deliberations showed that the IA was fully cognisant of the Surat proceedings and was clearly mindful of the effect and relevance of those proceedings to the valuation of OIC’s Scheme claim. In fact, the IA had specifically raised several queries with OIC as follows (see the affidavit of Simon Neale Birch (“Birch”) dated 10 June 2008 at pp 239 and 242):
OIC duly submitted a written reply to these queries. Accordingly, the IA had considered the very issue which OIC now asserts the IA ought to have considered. The IA cannot be faulted in this regard.
[65] The IA had also listed the following issues which he said had been raised in the case for his consideration:
[66] The IA was also fully aware of his duties (which included that of acting with due care and diligence) and his responsibilities as the IA to estimate, quantify and value the future liabilities of RNA to its Scheme creditors. The IA said that he had observed principles of law pertaining to insurance contracts, as well as industry best practices. In his determination he said:
Correct valuation date is 19 September 2006
[67] Paragraph 4.4 of the Scheme states that “the amount of the Scheme Claim of that Scheme Creditor shall be determined by the Independent Adjudicator”. This is the principal instruction to the IA. The Scheme defines “Scheme Claim” to mean the total amount of RNA’s liabilities “as at the Valuation Date” to that Scheme creditor (i.e. RIL in this case) under or in connection with any insurance contract or reinsurance contract. The “Valuation Date” is then also defined in the Scheme as follows:
[68] Paragraph 2.2 in Schedule 1 “GUIDELINE TO IBNR METHODOLOGY” of the Scheme further reinforces the irrefragable fact that the relevant date to value all agreed claims, notified outstanding claims as well as IBNR claims is 19 September 2006 and not the cut-off date that the IA had adopted:
[69] The claims cut-off date of 14 May 2007 is only relevant in so far as it sets the deadline to submit proofs of debt under the Scheme and to deem the value of claims submitted after the cut-off date to be zero in value: see paragraph 3 of the Scheme. The cut-off date therefore has no relevance whatsoever to the reference date for assessing, quantifying or valuing the Scheme claims that have been submitted prior to the cut-off date (and in this case, also to OIC’s Scheme claim that was allowed to be submitted after the cut-off date by the Court of Appeal).
[70] It is no business of the court to enquire why the parties have chosen 19 September 2006 as the reference valuation date to value the Scheme claims and not the cut-off date of 14 May 2007. The IA should be using the correct valuation date as instructed.
[71] I can without hesitation state that valuing the Scheme claim as at the cut-off date of 14 May 2007 constitutes a material departure from instructions. On a proper interpretation of the Scheme documents, it is beyond peradventure that was not what the parties to the Scheme had intended and contractually tasked the IA to perform. The parties had expressly directed the IA to value the contingent liability as at the valuation date of 19 September 2006 in the Scheme documents and at no other date. The Scheme documents admit of no other possible reasonable interpretation of what is the relevant valuation date contractually agreed by the parties under the Scheme. If this requirement to use the valuation date as specified in the Scheme is not adhered to, it seems to me that the determination must be set aside as a nullity. The IA can be said to have asked himself the wrong question, and it is irrelevant that the IA may have answered that wrong question correctly. That the valuation amount ascertained may have been correct will not bring that IA’s valuation within his mandate if he has answered the wrong question, which was never asked of him in the first place.
[72] Imagine for the moment as an analogy that a house purchaser is interested in buying the house in 2008 and has asked a professional valuer to value a particular house that he intends to purchase as at the year 2008. Suppose the valuer decides instead to value the house as at a different year 1998 and he subsequently provides the house purchaser with his valuation for 1998 and not 2008 as instructed by the house purchaser. I doubt very much that the house purchaser will be happy to pay the valuer his valuation fees even though the valuation of the house may have been accurate for 1998. Even if the valuation amount for the correct year 2008 happens to turn out to be the same as what the valuer had earlier given for the valuation for the year 1998 (e.g. where the property market in 2008 has fallen to the same level as 1998), it is of scant consolation to the house purchaser. I believe the house purchaser will still reject that 1998 valuation because that was not what he had asked the valuer to value.
[73] A failure to adhere to instructions, by going beyond the IA’s mandate to value a Scheme claim only as at the Scheme specified valuation date of 19 September 2006 and as at no other date, naturally results in a lack of jurisdiction on the part of the IA. There is in principle no need for me to consider if that act of materially departing from instructions also amounts to a manifest error as that is a relevant question for consideration only if the IA had acted within his mandate and had adhered to his instructions but unfortunately had committed an error when answering the right questions asked of him. If the departure from instructions assessed with respect to the instructions (and not the ultimate outcome) is material, then the IA’s determination must be set aside as it is a nullity.
[74] Generally, the court will not proceed to determine whether the material departure, once established, will affect the outcome or will affect the outcome in a material way as an additional criterion to be satisfied before setting aside the IA’s determination on the ground of a material departure from instructions.
[75] The authorities I have reviewed above (Shell U.K. (supra [51]) at [97], Jones v Jones (supra [49]) at p 856 and Veba Oil (supra [57]) at [26]) indicate that even if the material departure is shown not to affect the final outcome or the final quantification, the IA’s determination nevertheless will still have to be set aside as that was not the bargain entered into by the parties. If the non-conformance with instructions also materially affects the final outcome as in this case, then a fortiori, it must be set aside. In this case, I have ascertained that the use of the wrong valuation date has also made a significant quantitative impact on the interest/discount computations and has therefore affected the correct amount of the total award (i.e. principal and interest) as can be see at [82].
[76] However, counsel for both parties did not make submissions on this issue of the correct date for valuation of the contingent liability of RNA to OIC. Perhaps the parties, in particular OIC, may not have seen the relevance of the point or may have overlooked it. OIC may not have realised that the IA had in fact valued the contingent liability on the wrong date. The significance of that mistake or its impact on the ultimate valuation of the total contingent liability may have escaped OIC.
[78] Unless it is positively shown that OIC is fully aware of the wrong valuation date since the delivery of the IA’s determination, and unless OIC has fully understood and appreciated what it means to value a contingent claim as at a different date and has itself not been mistaken that the correct date under the Scheme to determine the valuation is 19 September 2006 and not 14 May 2007, and unless OIC with such full knowledge, has taken no objection to this, RNA cannot possibly argue now that OIC has made an informed concession on this point or has affirmed it or should be held at law to have elected to affirm the departure from instructions or the breach of the terms of reference by the IA to value the Scheme claim on a different basis i.e. on a different date from that specified in the Scheme. Here is a non-contractual tender of performance by the IA who valued the Scheme claim on a date different from what he was instructed. If with knowledge of the facts giving rise to a right to reject that non-contractual performance and having an informed choice to do so, OIC nevertheless unequivocally elects not to do so, its election shall be final and binding upon it and it will be treated in law as having waived its right to reject the tender of performance by the IA as non-contractual and a material departure from instructions.
[79] But it is too late for RNA to take the point that OIC had been content to waive or affirm this material departure from instructions. Similarly, it is too late for OIC now to argue that valuation on the wrong date is a material departure from instructions and the determination a nullity. It would appear that both parties had not realised or foreseen this point.
[80] Since I have not notified counsel for the two parties of this issue and have not invited them to submit on it, I do not consider it appropriate for the purpose of this judgment (a) to set aside the IA’s determination on the ground that the IA had materially departed from his instructions by assessing the contingent liability with respect to the cut-off date (i.e. 14 May 2007) and not the valuation date as prescribed in the Scheme (i.e. 19 September 2006); and (b) to remit to the IA for his re-determination because this material departure from instructions had made his earlier determination a nullity. Having given both counsel no opportunity to argue this issue, it will also be a breach of natural justice and wrong of me simply to set aside the whole determination on the ground that the IA had valued OIC’s Scheme claim on a date different from what was instructed of him and which in this case has also very materially affected the outcome as can be seen in [82] below.
Difference between material departure from instructions and manifest errors
[83] What is the difference between a material departure from instructions and a manifest error in an expert determination and what are the legal consequences flowing from each of them? Simon Brown LJ in Veba Oil (supra [57]) succinctly differentiated between an error/mistake and a departure from instructions at [26]:
[84] Once it is shown to be a case of a material departure from instructions, it is immaterial whether or not the result is affected in a significant way by that departure. The determination must be set aside. Unless the departure can truly be characterised as trivial or de minimis when analysed with respect to the instructions (and not so much with respect to the quantum or the end result of the final determination), a departure from instructions must generally be regarded as material, and that end result, even if shown not to be significantly different, must accordingly still be set aside as it is a nullity and not binding. Hence, once there is a material departure from instructions, there is generally no need to consider if that material departure constitutes at the same time a manifest error, or as in this case, also whether it amounted to an act of the IA that is lacking in due care and attention. The expert determination is simply no longer binding as the court in Veba Oil (supra [57]) had observed as follows at [34]:
[85] Apart from fraud, corruption, collusion, dishonesty, bad faith, partiality and the like, an expert who does not decide the actual issues referred to him in accordance with his terms of reference or his instructions will have made a decision outside his mandate and jurisdiction and his decision is a nullity. But if he does so, then his decision is binding even if he made errors provided those errors do not amount to manifest errors. Where the expert has not carried out the determination according to the specified methodology (e.g. in testing, sampling or valuing as at a specified date), then he has not done his job in accordance with his instructions and hence the parties have not agreed to be bound by the result. This is far more fundamental than a failure in relation to a procedural matter, which is ancillary to the determination itself. Hence, a material departure from instructions affects the very nature of the assessment which he, as the expert determiner, has been entrusted with and is supposed to have carried out. This is no longer a case of answering the right question in the wrong way because the expert has effectively performed a task different from what the parties had asked him to do. He has failed to act within his terms of reference and do what he was appointed to do. Even if the departure from instructions were to have no impact on the ultimate outcome, it must still be set aside when it is a material failure to follow instructions. The materiality here is evaluated with respect to the instructions, mandate, the contractual terms of the expert’s engagement for the expert determination and the terms of reference as set out in that agreement. Of course, if the non-conformance with instructions has also materially affected the final outcome as in this case, then a fortiori, it must be set aside.
[86] On the other hand, in determining whether a manifest error has occurred, the materiality and impact of the error in answering the right question in the wrong way on the ultimate outcome will become relevant, unlike a case involving a material departure from instructions. If the impact on the final outcome is trivial, then the court will have the discretion not to set aside the award for a manifest mistake or error that leads to no significant difference in the outcome. Where any outcome is materially impacted by a manifest error, then there will be prejudice to the party adversely affected by that error and the normal course is to remit the matter to the expert determiner for a re-determination and to correct the manifest error accordingly.
Manifest errors
[87] The Court of Appeal in Riduan (supra [47]) had accepted Choo Han Teck J’s holding in Tan Yeow Khoon (supra [47]) that a party may challenge an expert’s valuation if “there is a manifest error that justly requires judicial intervention.” This notion of “manifest error” has also been interpreted by V K Rajah J in Geowin (supra [47]) at [16] – [18] to be “a patent error on the ‘face’ of the award or decision” where the court “does not stray beyond the actual report or award in considering how or why the decision was reached.” After reviewing several Commonwealth authorities, V K Rajah J further opined (at [17] and [19]) that:
[88] On the facts of this case, fortunately the IA gave a reasoned determination and even included the relevant important documentary evidence as part of his written determination which then enabled me to see more clearly and better understand, both from the IA’s reasoned determination and the attached documentary evidence forming part of his written determination, as to where and how the manifest errors as contended by OIC could have arisen.
[89] What if the manifest error is not detectable unless the underlying evidence is referred to? What if the parties themselves put forward the underlying evidence before the court for consideration? Should the court completely ignore such underlying evidence? Is such evidence also not a part of the “record” simply because they are not attached to the expert determination? Must the court confine itself only to the four corners of the written expert determination when reviewing that determination on the question of a manifest error? In this case, I had no alternative but to depart respectfully from what Rajah J had said in relation to not examining the underlying evidence at all, as I would not have been able to understand fully how the IA had determined the case and follow his reasoning if I could not examine the insurance policies, the provisions in the Scheme documents and various other exhibits in the affidavits filed in support of the case, which included many of the documents/letters constituting the underlying evidence that were earlier placed before the IA.
[90] At [33], the court in Veba Oil (supra [57]) considered what else could constitute “manifest errors”:
Hence, manifest errors include errors which are “obviously capable of affecting the outcome of the determination” and “admit of no difference of opinion”. Usual errors that qualify as manifest errors are mathematical miscalculations in the determination e.g. 2 + 2 = 5.
[91] OIC raised two areas where alleged manifest errors had been made in this case: (i) the IA’s ruling that the SPM was not a CTL as defined under the insurance contract between OIC and RIL; and (ii) the IA’s basis for awarding interest for 4.5 years, discounting it by 3 years and allowing only 1.5 years of interest. I shall now deal with them.
Constructive Total Loss: CTL
(**NOTE 1: At the re-determination, if the IA decides to value the Scheme claim on 19 September 2006 instead of 14 May 2007, then it is necessary to apply the exchange rate on 19 September 2006 and not the exchange rate on 14 May 2007 to re-compute the agreed insured value of the SPM in US dollars to determine if the CTL conclusion remains valid. The deductible must also be converted to US dollars at the exchange rate on 19 September 2006 rate to see what adjustments, if any, are required for the deductible.
***NOTE 2: There is a small error here in the averaging computation by the IA at p 16 of his determination as the figure of US$3,484,864 should have been US$3,484,846 based on the breakdown of the cost estimates proved at p 15 of his determination. The IA may wish to correct this at his re-determination.)
[95] OIC’s objection to this was that Dolan’s report was premised on the assumption that the SPM could be repaired in designated repair yards in India. OIC asserted that the designated yards had turned down such an offer and it would be impossible to prove before the Surat court that repairs could be carried out in India as these yards would give contrary evidence.
[101] Accordingly, I am not interfering with the IA’s ascertainment of RNA’s share of the principal amount of the claim of US$3,176,168 excluding interest.
[102] It also bears reiterating that the adjudication framework under the Scheme does not dictate to the IA any parameters or guidelines to consider in quantifying the Scheme claim. The IA’s discretion to select the methodology to assess the loss has not been fettered in any way. The IA is left to apply his specialised knowledge, technical and actuarial expertise to best assess the dispute at hand and to adopt his own methodology in quantifying the Scheme claim. The IA may of course consider the submissions from the parties, but the Scheme does not oblige the IA to act solely on or be fettered by the submissions before him.
Deduction of 3 years of interest on account of RIL’s contribution to the delay
[103] In the absence of any fault for causing delay in instituting and prosecuting legal proceedings against OIC on the part of RIL in India, the pre-judgment interest on the principal sum claimed should normally commence at least from the date the writ was filed on 27 October 1999 in the action before the Surat court, if not from the date of the actual accident and loss of the SPM, which was on 12 October 1998, about a year earlier than the date of the filing of the writ.
[104] What is in issue between the parties concerns the determination of the total quantum of interest. The IA decided to award interest only for a period of 4.5 years prior to the cut-off date of 14 May 2007. Accordingly, the IA had determined the starting date for the accrual of interest to be 14 November 2002 on the basis that the delays in part were caused by the insured RIL, who had acted unreasonably in not making the SPM available for an invasive survey. In the IA’s view, it was not reasonable on account of the delays to allow payment of interest for the full period from the date of filing of the writ by RIL (i.e. 27 October 1999) to the cut-off date which would have been for a period of 7.5 years. OIC contended that the IA made a manifest error in deducting 3 years from this 7.5 years, thus allowing only 4.5 years of interest prior to the cut-off date, in order to penalise RIL for its culpable behaviour in contributing to the delay in the proceedings in India. OIC submitted that it was a manifest error for three principal reasons:
[105] On the other hand, RNA submitted that the IA took into account RIL’s conduct in contributing to the delays in the Indian proceedings by persistently denying OIC and the other underwriters access in India to the damaged SPM for the purposes of inspection. On account of these delays, the IA awarded OIC only 4.5 years of interest prior to the Scheme’s cut-off date of 14 May 2007. RNA contended that the IA’s findings on delay and interest were a completely rational exercise of his discretion and an application of his experience in valuing OIC’s claim. It reiterated that the role of the IA was that of an expert who was commutating OIC’s claim and was not a proxy for an Indian court awarding interest in favour of RIL in the Indian proceedings. OIC further argued that in any event, even if RIL was in a court of law, it would not be entitled to interest as of right and it would remain a matter of discretion for the court.
[107] Clearly, cooperation from all parties was needed to expeditiously move the whole process of investigative fact finding by the experts and evidence collation for the litigation in India. If any party involved in the process (including RIL) had been less than cooperative or had been putting obstacles in the way or had been unnecessarily difficult or unreasonable, it would not be manifestly erroneous for the IA to conclude as a fact that RIL had contributed to the delay in moving the claim forward in India.

The judgment continues past this page. Read the rest at eLitigation.

The Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd

Laws this judgment relies on

Grounds of decision

Introduction

Background

The applicant’s case

Principal modes of dispute resolution

Whether mode of dispute resolution is that of expert determination

Challenging an expert’s determination

Material departure from instructions

Scheme instructions to the IA

Correct valuation date is 19 September 2006

Difference between material departure from instructions and manifest errors

Manifest errors

Constructive Total Loss: CTL

Deduction of 3 years of interest on account of RIL’s contribution to the delay