High Court · Decided 23 September 2013

TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd

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[2013] SGHC 186Case no. Originating Summons No 178 of 2012/E

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International Arbitration Act 1994

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Chan Seng Onn J:
Introduction
[1] However good or bad in the eyes of a party, the decision of an arbitral tribunal with the requisite jurisdiction is final and binding. This general proposition of law is a manifestation of the fundamental principle of interest reipublicae ut sit finis litium or finality in proceedings. Arbitration will not survive, much less flourish, if this core precept is not followed through by the courts. The integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the courts appear unable or unwilling to restrain themselves from entering into the merits of every arbitral decision that comes before it. As is well-established under Singapore arbitration jurisprudence, the power to intervene in arbitrations generally, and more specifically to set aside awards, must and should only be exercised charily, in accordance with the rules under the applicable arbitral framework.
[2] Although parties have a right and expectation to a fair arbitral process and the courts should give maximum effect to these safeguards in deserving cases, parties must not be encouraged to dress up and massage their unhappiness with the substantive outcome into an established ground for challenging an award. Particularly for international commercial arbitrations under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), it is imperative that an application to set aside an award under s 24 read with Art 34(2) of the UNCITRAL Model Law for International Commercial Arbitration 1985 (“Model Law”) is not a guise for a rehearing of the merits. Unfortunately, as this case exemplifies, sieving out the genuine challenges from those which are effectively appeals on the merits is not easy under the present law.
Facts
Background
[3] Originating Summons No 178 of 2012 is an application to set aside an arbitral award (“the Award”) made in respect of two arbitrations which were consolidated (“the Arbitration”). The Arbitration arose out of a dispute over the sale and purchase of two second-hand vessels, namely, the “The Pacific 18” and “The Pacific 38” (individually the “Vessel” and collectively the “Vessels”).
The Memorandum of Agreement
[4] On 24 September 2008, more than a month after negotiations commenced, Grupo TMM SAB (“Grupo TMM”) entered into two Memoranda of Agreement (“MOAs”) with Pacific Richfield Marine Pte Ltd (“PRM”) for the purchase of the Vessels from PRM, one Memorandum of Agreement (“MOA”) for each vessel. The MOAs were signed after the Vessels’ classification records had been inspected between 16 August 2008 and 20 August 2008.
[5] Each MOA was accompanied by, inter alia, two addenda, a specification describing the capabilities of each Vessel (collectively “the Specifications”), and a schematic diagram of each Vessel. Addendum No 2 provided that Grupo TMM shall novate the MOA to its subsidiary, TMM Division Maritima SA de CV (“TMM”). Thus, for all intents and purposes, TMM was the buyer and PRM was the seller of the Vessels.
[7] One of the key repairs sought was the restoration of the Vessels to Dynamic Positioning (DP) System 1 (DP-1) Class notation and for the American Bureau of Shipping (“ABS”) to classify them with the DP-1 Class notation. This was listed as Item 1 on the Spreadsheets. It is common ground that at the time the Vessels were inspected prior to the signing of the MOAs, and at the time of entering into the MOAs, the Vessels were neither equipped with a DP-1 system nor did their Class certificates contain a DP-1 Class notation.
[8] TMM paid US$5.15m, 10% of the purchase price of the Vessels (“the Deposit”), into an escrow account with E S Platou (Asia) Pte Ltd (“Platou”). The delivery date for the Vessels was 7 November 2008.
The Notice of Readiness
[9] The clauses in the MOAs which are particularly relevant to this dispute are cll 5(a), and 11. They provide:
[10] Thus, the issuance of a valid Notice of Readiness for delivery of the Vessels (“NOR”) pursuant to cl 5(a) of the MOAs is an important step in the transaction as it obliges the buyer to take delivery of the Vessels. This in turn affects the date on which the buyer is obliged to make payment of the balance purchase price, a matter governed by cl 3 of the MOA which reads:
[11] On 28 October 2008 (Mexican Time), PRM issued a NOR which reads:
[12] The NOR was promptly rejected by TMM on 29 October 2008. In an email to PRM, TMM explained that the NOR was not valid as TMM had not received evidence that the items in the Spreadsheets had been repaired. The Vessels were therefore not, in TMM’s view, in every respect physically ready, as required under cl 5(a) of the MOAs.
[13] A series of emails were then exchanged between the parties’ respective solicitors on or about 31 October 2008. The first was from PRM’s solicitors, Haridass Ho & Partners (“HHP”), stating that PRM treated TMM’s rejection of the NOR as a repudiatory breach of the MOAs which PRM accepted. PRM nevertheless reiterated that it had complied with the terms of the MOAs, and despite having accepted TMM’s purported repudiation, offered the latter a chance to purchase the Vessels on the same terms as per the MOAs.
[14] This was followed by a response from TMM’s solicitors, Allen & Gledhill LLP (“A&G”), in which TMM denied that it had breached the MOAs by rejecting the NOR. A&G pointed to cl 5(a) of the MOAs and highlighted that the Vessels were not in every respect physically ready given that the repairs in the Spreadsheets had not yet been completed. In particular, ABS had not yet classified The Pacific 18 with DP-1 Class notation. A&G noted that PRM’s wrongful rejection of TMM’s refusal to accept the NOR was itself a repudiation of the MOAs. In these circumstances, TMM reserved its right to accept PRM’s repudiation but was prepared to await a valid NOR for the Vessels.
[15] HHP responded, maintaining PRM’s position that TMM had repudiated the MOAs. It added that TMM’s superintendents were on board the Vessels throughout the repairs at the dry dock and shipyard and had inspected all the works. On the DP-1 Class notation, PRM’s stance was that the ABS had inspected the DP-1 systems, and arrangements had been made to issue the DP-1 Class notations. That was the extent of PRM’s obligation.
[16] On 1 November 2008, A&G again stressed that the Vessels were not physically ready in every respect as they had not been classed with DP-1 Class notation, which was an express term under the MOAs. Other equipment on The Pacific 18 were also not functioning. Nevertheless, TMM remained ready to perform the MOAs as long as PRM tendered a valid NOR for the Vessels.
[17] The impasse remained. On 9 November 2008, A&G informed HHP that as the time for delivery of the Vessels was 7 November 2008 and PRM had not issued a NOR for the Vessels, PRM had repudiated the MOAs. Consequently, TMM accepted PRM’s repudiation and demanded PRM’s consent to the release of the Deposit held by Platou to TMM.
The Arbitration
[18] PRM did not consent to Platou releasing the Deposit to TMM. Eventually, on 9 December 2008, TMM commenced the Arbitration against PRM claiming, inter alia, that the Deposit be released to TMM as well as damages arising from PRM’s alleged repudiatory breach of the MOAs. The parties initially appointed Mr Thean Lip Ping as the sole arbitrator (“Mr Thean”). However, Mr Thean withdrew subsequently because of an unforeseen event. Mr G P Selvam (“the Arbitrator”) was then appointed as the sole arbitrator on 21 December 2010.
The Memorandum of Issues
[19] The parties’ arguments have to be read together with the Memorandum of Issues (“MOI”) for the separate arbitrations concerning each of the Vessels which, at that time, had not been consolidated. This only happened on 7 February 2011, after the Arbitrator was appointed. Each MOI was drawn up by Mr Thean in consultation with the parties. The most important section of each MOI for the purposes of these proceedings, headed “Main Issues”, sets out the main issues in the dispute for each Vessel, albeit it was expressly stated to be neither exhaustive nor immutable. It also provided that the arbitrator, in his discretion, might rely on or refer to additional issues or facts in arriving at his decision.
[20] Save for a couple of minor issues which were peculiar to The Pacific 18, the MOIs for both disputes were for most parts identical. In effect, there were 11 broad issues in dispute in the Arbitration. Restated, these included:
(a) Whether the NOR was valid and in compliance with the MOA. In particular, whether:
(i) PRM was obliged to arrange for the ABS to issue a class certificate for the Vessels with DP-1 Class notation at the time of delivery;
(ii) PRM was obliged to ensure that the DP system on each vessel was functioning and operating, and if there was such an obligation, whether the DP system was in fact functioning and operating;
(iii) all the repairs in the Spreadsheets were completed by PRM; and
(iv) PRM failed to allow TTM’s representatives to physically witness the repairs.
(b) Whether TMM’s refusal to accept PRM’s NOR was in breach of the MOAs, and if so, whether such breach amounted to a repudiatory breach.
(c) If TMM was not in breach or repudiatory breach of the MOAs, whether PRM was in repudiatory breach of the MOAs in the circumstances that occurred between 28 October 2008 and 7 November 2008.
(d) The relief to be awarded to either party for the other’s breach, if any, including the question of who the Deposit should be paid to.
[21] It was apparent from the MOI, as well as the parties’ submissions, that the validity of the NOR was central to the dispute. More specifically, the key factual issues with respect to the validity of the NOR were whether the Vessels were, at the time the NOR was issued, classed by ABS with DP-1 Class notation, and whether the DP-1 system on board each vessel was functioning and operational.
TMM’s case in the Arbitration
[22] TMM framed its submissions according to the list of issues in the MOIs. Each issue was argued comprehensively, with the closing and reply submissions totalling 320 pages, including annexes. On the central issue of the validity of the NOR, TMM’s arguments before the Arbitrator were:
(a) The Specifications described the Vessels as having DP-1 capability, DP-1 equipment, and DP-1 Class notation.
(b) In addition to the Specifications, PRM had a duty to ensure that the items in the Spreadsheets were repaired at the time of delivery. This duty was more than a goodwill gesture as claimed by PRM; it was a contractual obligation under the MOAs.
(c) Flowing from the above, the requirement under cl 5(a) of the MOAs that the Vessels be “in every respect physically ready for delivery” had two aspects. First, the Vessels must fit the description in the Specifications, particularly those related to the DP-1 system. Second, the repairs in the Spreadsheets, particularly those related to the DP-1 system, must be completed. The DP-1 system must not only be functioning and operational, the Vessels must be certified by ABS with a DP-1 Class notation. The Vessels were only physically ready in every respect if these two aspects were satisfied.
(d) The Vessels were not physically ready in every respect when the NOR was issued.
(i) For The Pacific 18, there was no evidence to show that the DP-1 Class notation had been restored. A Confirmation of Class certificate issued by ABS dated 28 October 2008 in fact contained all the notations except the DP-1 Class notation. There was also no evidence that the DP-1 system was functioning. Several parts of the system such as the fan beam, acoustic tracking system, and certain sensors had not been tested.
(ii) For The Pacific 38, there was similarly no Class certificate issued by ABS restoring the DP-1 Class notation at the time the NOR was issued. The DP-1 Class notation was eventually restored only on 5 November 2008. Further, the DP-1 system was not functioning as the trials on 22 October 2008 showed that there were defects with certain parts of the DP-1 system. Other parts had also not been tested.
PRM’s case in the Arbitration
[23] PRM denied that it had breached the MOAs, and sought in its counterclaim for an order that Platou release the Deposit to PRM. PRM’s position on the issue of the validity of the NOR was that the Vessels did not have to be delivered with DP-1 capabilities, or need to be certified as such by ABS. PRM referred to cl 11 of the MOAs (see [9] above).
[24] PRM contended:
(a) Following from the phrase “as is where is” in cl 11, the Vessels only needed to be in the same condition as they were at the time of inspection. The items in the Spreadsheets could not impose on PRM new conditions. PRM also buttressed this position by stating that it had communicated to Platou when returning the Spreadsheets that it would rectify the items in the Spreadsheets “as owner’s goodwill” but that the items were not additional obligations under the MOAs as the MOAs were entered into on an “as is where is” basis.
(b) Following from the phrase “delivered physically ready with her class maintained without condition/recommendation” in cl 11, the Vessels were physically ready if their Class certificates were valid and were the same certificates which were on the Vessels when they were first inspected in late August 2008. At the time of delivery, the certificates available were the same as those present during the initial inspection. They were also valid till 1 June 2010, beyond the required three months after delivery under cl 11 of the MOAs.
(c) PRM also did not have an obligation to deliver the Vessels in a fully operational condition. In the negotiations leading up to the MOAs, TMM had insisted on the words “fully operational” upon delivery to remain in the MOAs but PRM wanted them removed. They were ultimately removed. As such, it was agreed that the condition of the Vessels at delivery needed only to match the condition at the time of inspection.
(d) Even if “physically ready” in cl 5(a) of the MOAs meant that PRM had to deliver the Vessels with the requisite Class certificate and fully functioning DP-1 systems, PRM’s failure to do so amounted at most to a breach of an intermediate term, not a condition. TMM might be entitled to damages, but it was not entitled to refuse to take delivery of the Vessels.
(e) The Confirmation of Class certificates for the Vessels which were sent to TMM by PRM confirmed that the status of the Vessels at that time was the same as on the date of the initial inspection.
The Award
[25] The Arbitrator’s decision was contained in an award which was released to the parties on 28 November 2011 (“the Award”). Spanning 62 pages and 151 paragraphs, the Award dismissed TMM’s claims in respect of both The Pacific 18 and The Pacific 38, and allowed PRM’s counterclaim for the Deposit to be released by Platou to PRM. On the validity of the NOR, the Arbitrator made, inter alia, the following findings and conclusions:
[26] Notwithstanding his conclusion that the obligation to repair the items in the Spreadsheets was not a condition but a collateral warranty, the Arbitrator nevertheless found that the items which TMM claimed were not repaired in its initial letter rejecting the NOR were in fact repaired by 28 October 2008. TMM had surfaced seven items which it claimed were not repaired on The Pacific 18, and one item in relation to The Pacific 38. The Arbitrator found that all the items were repaired by referring to two ABS Statement of Fact Survey dated 5 November 2008 (collectively “the ABS Surveys”) confirming that those items were operational. Although the ABS Surveys were dated 5 November 2008, the Arbitrator accepted that the contents were true and reflected the condition of the Vessels on 28 October 2008 when the NOR was issued.
The present proceedings
[27] Dissatisfied, TMM commenced the present application on 27 February 2012 to set aside the Award on two grounds, namely:
(a) pursuant to s 24(b) of the IAA, that a breach of the rules of natural justice occurred in connection with the making of the Award by which TMM’s rights have been prejudiced; and
(b) pursuant to Art 34(2)(a)(iii) of the Model Law, that the Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration.
Parties’ submissions
TMM’s written submissions
Breach of the rules of natural justice
[28] The rules of natural justice which Ms Vivian Ang (“Ms Ang”), first counsel for TMM, claimed were breached were (a) that TMM lacked an opportunity to be heard, and (b) that the Arbitrator was apparently biased.
(1) Lack of opportunity to be heard
[29] Ms Ang gave a host of reasons why TMM was not given an opportunity to be heard, chief of which were:
(a) First, whether cl 11 of the MOAs was a condition or warranty was not raised in the pleadings or MOI. Thus, no arguments were presented by TMM on that issue. Yet, the Arbitrator examined that issue on his own and relied on it in coming to his decision.
(b) Second, the Arbitrator disregarded TMM’s evidence relating to its financial standing and ability to pay the balance purchase price. TMM had adduced much evidence to show that it could complete the purchase, but the Arbitrator had overlooked or did not deal with that evidence. There was also no mention in the Award of the evidence adduced by TMM.
(c) Third, the Arbitrator disregarded evidence from TMM’s broker which, in TMM’s view, confirmed its assertion that PRM had agreed to effect all the repairs as listed in the Spreadsheets. The Arbitrator also completely ignored and failed to deal with evidence from PRM’s own witness who allegedly admitted during cross-examination that PRM was selling the Vessels as described in the Specifications which expressly stated that the Vessels had DP-1 capabilities.
(d) Fourth, the Arbitrator did not refer to any of the statements given by TMM’s 11 witnesses. On the face of the Award, it appeared that the Arbitrator had paid no heed to the statements of TMM’s witnesses and reached his conclusions without considering that evidence.
(e) Fifth, the Arbitrator ignored TMM’s evidence on the physical condition of and the defects existing in the Vessels at the time of the issuance of the NOR. He chose to sweep all that evidence aside and rely solely on the ABS Surveys despite TMM’s evidence to the contrary.
(f) Sixth, the Arbitrator held that the repairs on The Pacific 38 were completed because he mistook the FiFi pump, a type of fire-fighting equipment, for the Harbour Generator.
(2) Apparent bias
[30] Ms Ang again provided a plethora of reasons why a reasonable person would develop a reasonable suspicion that the Arbitrator was biased. These include:
(a) The cross-examination of PRM’s two factual witnesses raised serious doubts as to their credibility. One gave evidence on a document which he had never seen before while the other contradicted his witness statement. However, the Arbitrator accepted the evidence from those witnesses as if there was nothing untoward about it and made no mention of these discrepancies in his Award.
(b) The Arbitrator mentioned in the Award that there was ample material in the form of documentary evidence to conclude that all the repairs were successfully completed. However, he did not state what those documentary evidence were. The ABS Surveys which the Arbitrator accepted as evidence that the challenged items had been repaired also did not contain any statement attesting to the state of the Vessels before 5 November 2008. The Arbitrator also ignored the testimonies of PRM’s own witnesses to the effect that certain repairs were not completed until after the NOR was issued. In short, he blindly accepted the confirmations in the ABS Surveys as determinative of the issue.
(c) The Arbitrator had a preconceived notion that TMM’s witnesses were not credible or truthful. This was manifested by his finding that TMM had deliberately not put in place the financial arrangement for the payment of the balance purchase price, a finding which went directly against the evidence given by TMM’s witnesses.
(d) Although the Arbitrator was an experienced adjudicator, he committed an inordinate number of egregious errors of fact and law. It was not that these errors themselves found a basis for setting aside. Rather, these errors were indicative of an apparent bias.
(i) For instance, the Award provided several seemingly conflicting interpretations of the phrase “in every respect physically ready” under cl 5(a). At one point, the Award stated that what was required to be physically ready was the actual physical condition in contrast to the documentary condition. At another point, the Award stated that the mere tendering of the classification certificate was sufficient to prove the actual physical state.
(ii) Another example was the Arbitrator’s conclusion that TMM had manifestly repudiated the MOAs by failing to make payment of the balance purchase price before the expiry of 36 hours after the NOR was issued. This was illogical as TMM could not have made payment, even if it wanted to, as PRM had, in its reply, accepted TMM’s purported repudiation of the MOAs even before the expiration of the 36 hours.
(iii) Last but not least, the Arbitrator confused and conflated the rejection of a NOR with the termination of the MOAs. TMM had a right to reject the NOR if the Vessels were not physically ready in every respect. The Arbitrator did not seem to have understood or tried to understand TMM’s case that it was not terminating the MOAs by rejecting the NOR.
Issues falling outside the scope of submission
[31] Ms Ang only raised one argument under this ground. She submitted that whether cl 11 of the MOAs was a condition which if breached entitled PRM to terminate the MOAs was not an issue before the Arbitrator. It was not in any of the pleadings or the MOI. In finding that cl 11 was not a condition such that TMM was not entitled to reject the NOR even if there was a breach of cl 11, the Arbitrator had determined an issue which was not in the terms of reference. He had therefore exceeded his authority as arbitrator.
PRM’s written submissions
[32] Mr Haridass Ajaib (“Mr Ajaib”), counsel for PRM, began his submissions with the established principle that the court should not sit as an appellate tribunal over the Arbitrator. The grounds for challenging the Award must be construed narrowly and strictly. In this regard, TMM’s application must fail as the alleged breaches of natural justice raised by TMM were vague, lacked contour, or fell outside the grounds for setting aside an award.
[33] Mr Ajaib divided his submissions into two categories. The first was whether cl 11 of the MOAs was a condition was properly before the Arbitrator. He argued that it was for the following reasons:
(a) It was part of the issue under paragraph 15(6) in the MOI, viz, whether TMM was entitled to reject the NOR. In any event, the MOI itself stated that the issues listed were neither exhaustive nor immutable, and the arbitral tribunal could “in its discretion” rely on additional facts or law which were necessary to decide the dispute.
(b) Apart from the MOI, it was clear from the parties’ pleadings that whether TMM was entitled to reject the NOR was a live issue.
(c) PRM’s closing submissions addressed whether cl 11 was a condition. TMM had ample opportunity – 21 days – to address this in its reply submissions but it chose not to do so.
[34] The second category was on whether breaches of the rules of natural justice had occurred. Mr Ajaib submitted that none had occurred as:
(a) The Arbitrator’s treatment of the evidence was proper. He did not deprive TMM of an opportunity to be heard nor was he apparently biased as:
(i) The Arbitrator had the power under Art 19 of the Model Law to conduct the arbitration in such manner as he considered appropriate, including determining the admissibility, relevance, materiality and weight of any evidence.
(ii) The mere fact that the Arbitrator did not list or make explicit reference to TMM’s witnesses did not mean that he had disregarded its evidence. Indeed, the Arbitrator had expressly stated in the Award that he had considered both parties’ submissions and evidence. The allegation that the Arbitrator had preconceived views about TMM’s witnesses was also vague, frivolous, bare and meaningless.
(iii) Even if there was a disregard of TMM’s submissions and evidence, that was not a ground for setting aside an award. It is trite law that even if the arbitral tribunal was manifestly unreasonable in coming to a conclusion, as long as it had conducted the arbitration fairly, the court should not be concerned with the substantive outcome.
(b) The Arbitrator had not made the egregious errors alleged by TMM. Even if there were numerous egregious errors, such errors cannot be raised as a ground for setting aside an award.
[35] Mr Ajaib concluded his written submissions by reiterating that the court’s role is not to retry issues. He urged the court to protect the finality of arbitration proceedings by adhering to the policy of minimal curial intervention.
Oral submissions
[36] The oral arguments for these proceedings stretched over several days, during which TMM’s counsel made substantial arguments in addition to their written submissions. I shall briefly summarise the thrust of those submissions.
[37] First, Ms Ang stated that the heart of the issue on the validity of the NOR comprised three elements: (a) whether or not the Vessels were in fact in every respect physically ready; (b) whether or not TMM’s rejection of the NOR was justified; and (c) whether or not TMM’s rejection of the NOR amounted to a repudiatory breach. One of the elements which the Arbitrator did not address was the law on repudiation. According to Ms Ang, the law on repudiation is that a person should not accept what he thinks is a repudiatory breach unless it is so plainly obvious that the other party has repudiated. Even if the items in the Spreadsheets had all been repaired, the Arbitrator ought to have considered whether TMM had evinced such an unambiguous intention not to perform the MOAs before concluding that TMM had repudiated the MOAs. He did not. She stressed that on the face of the NOR and the surrounding circumstances, there could be no inference of an intention by TMM to repudiate the MOAs. In other words, there was a “missing link” in his reasoning.
[38] Second, Mr Andrew Chan (“Mr Chan”), second counsel for TMM, clarified that the issues raised by Ms Ang and himself not only showed apparent bias. They also showed that the Arbitrator had disregarded TMM’s submissions or failed to try to understand them, thereby depriving TMM of a right to be heard. While an arbitral tribunal is not expected to understand all submissions put forth by counsel, Mr Chan stressed that the law requires the arbitral tribunal to show that it has attempted to understand the submissions. If the arbitral tribunal did not even try to comprehend the submissions, and swept them under the carpet as if they were not there, that would have deprived the party making the submissions of the opportunity to be heard.
Issues
[39] TMM’s submissions on the right to be heard and apparent bias had numerous overlaps. It was not clear when a submission went towards establishing the breach of one rule or the other or both. To be fair to both Ms Ang and Mr Chan, the same facts can often sustain both grounds. Thus, putting aside the labels, the two major complaints of TMM can be broadly characterised as:
(a) The Arbitrator had breached the rules of natural justice by disregarding and ignoring TMM’s submissions; and/or not fully explaining his reasons for his conclusions; and/or making findings which were not in issue before him and/or not applying his mind fully to the issues before him.
(b) The Arbitrator had exceeded his jurisdiction by determining an issue which was not listed in the MOI, that is, the issue of whether cl 11 of the MOAs was a condition which if breached entitled PRM to terminate the MOAs.
[40] TMM’s arguments on natural justice can be further grouped into four categories, each establishing an independent duty of the arbitral tribunal:
(a) the duty to give reasons and explanations;
(b) the duty to attempt to understand the parties’ submissions;
(c) the duty to deal with every argument presented; and
(d) the duty to not look beyond the parties’ submissions.
[41] I must point out that in addition to natural justice, TMM’s arguments in categories (c) and (d) actually straddled another ground for challenge, viz, excess of jurisdiction pursuant to Art 34(2)(a)(iii) of the Model Law. This is because arbitral awards that fail to deal with issues that should have been dealt with, or dealt with more issues than ought have been dealt with are infra petita and ultra petita respectively: Fouchard, Gaillard and Goldman on International Commercial Arbitration (Emmanuel Gaillard and John Savage eds) (Kluwer Law International, 1999) at para 987. Although there is no Singapore decision that explicitly states that awards infra petita may be challenged under Art 34(2)(a)(iii), it would appear from the Court of Appeal’s decision in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (“CRW”) at [31] and [33] that Art 34(2)(a)(iii) covers such awards. As such, I will deal with the arguments on both the natural justice and excess of jurisdiction bases.
Analysis
General principles for curial scrutiny
[42] When a challenge is brought against an award, the court has a duty to entertain and engage the challenge. That is what the IAA and Model Law provide and that is what the court must do. If the complaint against the award is that the arbitral tribunal did too much or did not do what it was supposed to do, regardless of whether one couches the challenge under natural justice or excess of jurisdiction, the court is effectively asked to review the actions or inactions of the arbitral tribunal. Invariably, the court must look at the evidence on the record to determine the merits of the challenge. However, it does not follow, and neither do I accept, that this process always entails sifting through the entire record of the arbitral proceedings with a fine-tooth comb.
[43] In the seminal decision of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”), the Court of Appeal cautioned (at [65(c)–(f)]):
[44] To that I would add the observations in the English High Court case of Atkins Limited v The Secretary of State for Transport [2013] EWHC 139 (TCC) where Akenhead J stated [at 36]:
[45] The court should not nit-pick at the award. Infelicities are to be expected and are generally irrelevant to the merits of any challenge: see IRB Brasil Resseguros SA v CX Reinsurance Company Ltd [2010] EWHC 974 (Comm) (“IRB Brasil”) at [47]. In Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 (“Zermalt”), Bingham J stated (at 14):
[46] Bingham J’s statement has been cited with approval in numerous English decisions and represents the prevailing approach in England: see for eg, ABB AG v Hochtief Airport GmbH and another [2006] 2 Lloyd’s Law Rep (“Hochtief”) at [64]; IRB Brasil at [31]; and Fidelity Management SA & Ors v Myriad International Holdings BV & Or [2005] EWHC 1193 (Comm) at [2].
[47] It should also not be forgotten that one of the main reasons for choosing arbitration is the fact that arbitrators are commercially minded persons with expertise and experience with the subject-matter which may be extremely technical. Their value to the parties comes from their knowledge of the trade, and not necessarily their knowledge of the law. Some may have a legal background, but the legislation and rules usually do not prescribe a law degree or training as a prerequisite for appointment as an arbitrator. This is not a suggestion that a lower standard is expected of such arbitrators but a reminder that if parties have agreed to appoint specific individuals to preside over their disputes, they should be held to their agreement to the fullest extent possible.
[48] There may be a potential objection to the general use of English authorities which I might as well dispose of now. I am cognisant that the English arbitration regime is governed by the English Arbitration Act 1996 (“1996 Act”) and not the Model Law. The 1996 Act is – it could be said – a different creature from the Model Law. For that reason, some might consider English decisions as unhelpful, and that regard should be had instead to other common law jurisdictions which have adopted the Model Law such as Australia, Malaysia and Hong Kong.
[49] I accept all of that. Nevertheless, while it would be justified to treat English decisions on arbitration with some degree of caution, to ignore them completely would be throwing the baby out with the bathwater. The 1996 Act was, after all, drafted with close regard to the Model Law: see Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill (February 1996) (Chairman: Lord Justice Saville QC) (the “DAC Report”) at para 4. There are therefore numerous similarities in language and philosophy. That is also why the English courts occasionally refer to the Model Law: see for eg Sovarex SA v Romero Alvarez SA [2011] 2 Lloyd’s Rep 320; and Sea Trade Maritime Corporation v Hellenic Mutual War Risks Association (Bermuda) Ltd (The “Athena”) [2006] 2 Lloyd’s Rep 147. Good judicial common sense should dictate whether an English decision should be of meaningful persuasive value. If an issue falls to be decided under the 1996 Act in the same way and under the same principles that would apply under the Model Law and IAA, I can see no reason militating against a Singapore court having regard to a decision of the English court on that point.
[50] On the intensity of curial scrutiny, the prevailing English approach is undoubtedly instructive because it is informed by the principle of minimal curial intervention which is similarly, if not equally, forceful in England (see the DAC Report at para 22; and Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221 at [26]–[27]) as it is in Singapore (see Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 (“Tjong”) at [29]). Similarly, the English arbitration cases on natural justice are also useful as the concept of natural justice under the English arbitration regime is not any different from that under the Singapore arbitration regime.
Excess of jurisdiction
The law
[51] The law on setting aside an award on the ground of excess of jurisdiction under Art 34(2)(a)(iii) of the Model Law is relatively settled. It has been clearly explained in a handful of Court of Appeal decisions, the most recent being PT Prima International Development v Kempinski Hotels SA and other appeals [2012] 4 SLR 98 (“Kempinski”). According to the wording of Art 34(2)(a)(iii), there is an excess of jurisdiction if the arbitral tribunal deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or decides on matters that are outside of the scope of the submission to the arbitration. Although “matters” is not defined in the Model Law, the Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 (“PT Asuransi”), in interpreting Art 34(2)(a)(iii), held (at [37]) that the arbitral tribunal “has no jurisdiction to decide any issue not referred to it for determination” [emphasis added]. Thus, the determination of an issue which has not been submitted to arbitration will also render that part of the award liable to be set aside under Art 34(2)(a)(iii).
[52] In some cases, whether a particular matter or issue in dispute has been submitted to the arbitral tribunal is contentious. Sometimes, as in the present case, the parties will submit a memorandum of issues. However, that may not be exhaustive proof of the matters that are within the arbitral tribunal’s jurisdiction. In the first place, memoranda of issues may contain catch-all provisions which give arbitral tribunals the discretion to decide on matters which are not expressly listed. Indeed, in the present case, the MOI conferred on the Arbitrator the discretion to rely on additional facts or law which are necessary to decide the dispute. Furthermore, as stated in Kempinski at [33], pleadings and its contents are also relevant as they illuminate the matters that have been submitted to the arbitral tribunal. In fact, Kempinski recognised (at [47]) that “any new fact or change in the law arising after a submission to arbitration which is ancillary to the dispute submitted for arbitration and which is known to all the parties to the arbitration is part of that dispute and need not be specifically pleaded”. Hence, an issue which surfaces in the course of the arbitration and is known to all the parties would be considered to have been submitted to the arbitral tribunal even if it is not part of any memorandum of issues or pleadings.
[53] Last but not least, even if a party is able to show that the arbitral tribunal exceeded its jurisdiction pursuant to Art 34(2)(a)(iii) of the Model Law, the award may still not be set aside. The crucial question in every case, as the Court of Appeal puts it in CRW at [32], is “whether there has been real or actual prejudice to either (or both) [or all] of the parties to the dispute”. As the editors of Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5th Ed, 2009) stated at para 10.40 (which was cited by the court in CRW with approval at [32]), “[t]he significance of the issues that were not dealt with has to be considered in relation to the award as a whole”.
The facts
[54] I cannot agree with Ms Ang’s submission that the Arbitrator did not have the jurisdiction to determine whether cl 11 of the MOAs was a condition or not. Paragraph 15 of the MOI sets out the main issues in the arbitration:
[55] The words in paragraph 15 of the MOI suggest that the issues set out in the MOI are intended to assist in the identification of the main areas of contention. The list is inclusive, rather than exclusive or exhaustive. Paragraph 16 erases any doubt to the contrary:
[56] In my view, TMM’s case is untenable for these reasons alone. But even if the issues in the MOI were exhaustive, I would have found that whether cl 11 amounted to a condition or not was an issue which would fit comfortably into the sixth issue in the list which reads:
[57] The parties had, pursuant to issue (6), asked the arbitral tribunal to determine whether TMM’s refusal to accept the NOR was a repudiatory breach. In these circumstances, it was certainly open to the Arbitrator, in reading issue (6), to take the view that he ought to determine whether cl 11 was a condition because that would have a bearing on the question of whether TMM had repudiated the MOAs. Moreover, it is clear from the parties’ submissions in the Arbitration that the nature of cl 11 was in issue. TMM in fact made reference to those submissions in its submissions before me. Last but not least, for the reasons mentioned at [67]–[69] below, it is beyond question that the nature of cl 11 was always in issue between the parties. The Arbitrator therefore did not exceed his jurisdiction as understood under Art 34(2)(a)(iii).
Rules of natural justice
[58] It is trite that natural justice demands faithful observance of the two famous maxims, audi alteram partem and nemo iudex in causa sua. However, what does affording an opportunity to be heard exactly entail? Does it require the arbitral tribunal (a) to give parties a chance to respond to every single argument raised by their opponents or every factual and legal premise which the arbitral tribunal intends to rely on, and (b) to address all the arguments canvassed and evidence its consideration by explaining why it accepted or rejected each argument? Similarly, does the rule against being a judge in his own cause preclude an arbitrator from forming an opinion before the conclusion of the arbitration and if he does so, must he recuse himself?
[59] These are painstakingly obvious questions. Yet, the law in Singapore has not developed clear answers, albeit it has provided some broad guiding principles. In Soh Beng Tee, the Court of Appeal surveyed decisions on natural justice from multiple Commonwealth jurisdictions, and summarised (at [65]) a list of principles which the court should have regard to when confronted with a natural justice challenge to an award. These include:
(a) Arbitrators who exercise unreasonable initiative without the parties’ involvement may attract serious and sustainable challenges.
(b) The failure of an arbitrator to refer every point for decision to the parties for submissions is not invariably a valid ground for challenge. A court may only intervene in instances where:
(i) the impugned decision reveals a dramatic departure from the parties’ submissions;
(ii) involves an arbitrator receiving extraneous evidence;
(iii) adopts a view wholly at odds with the established evidence adduced by the parties; or
(iv) the conclusion is unequivocally rejected by the parties as being trivial or irrelevant.
(c) The arbitral tribunal is entitled to embrace a solution or conclusion which lies somewhere in between the parties’ submissions. It is not bound to take an either/or approach. The arbitral tribunal may do so even without apprising the parties of its thinking or analysis, so long as it is based on evidence that is before the arbitral tribunal. It is only where the arbitral tribunal’s reasoning involves a dramatic departure from what has been presented to it that the arbitral tribunal should consult the parties on its thought process before finalising the award.
[60] In my view, the emphasis in Soh Beng Tee is on the extent of departure from the evidence and submissions before the arbitral tribunal without any advance notice. The more surprising the decision and its reasoning – ie the more inexplicable it is in the light of the evidence and submissions – the more likely it is that the arbitral tribunal has crossed from permissible discretionary decision-making into the forbidden territory of impermissible breach of natural justice. In terms of practical application, the question remains: what is – in the words of the court in Soh Beng Tee – a “dramatic departure” or “unreasonable initiative” by the arbitral tribunal? What is the level of departure or unreasonableness beyond which it can be said that the rules of natural justice have been breached?
[61] Perhaps it is because the requirements of natural justice ultimately depend on the circumstances of each case (Russell v Duke of Norfolk [1949] 1 All ER 109 at 113) that the test for when the line has been crossed is inherently vague. To borrow the words of Ungoed-Thomas J in Lawlor and Others v Union of Post Office Workers [1965] Ch 712 at 718, the content of the rules of natural justice is generally “lacking in precision”.
[62] Nevertheless, I shall attempt to delineate the content and scope of the four sub-rules of natural justice relied upon by TMM (see [40] above). I should re-state at the outset that TMM recycled some of the factual allegations across multiple sub-rules. In the interest of avoiding excessive repetition, I have placed the allegations under the sub-rule which in my view best encapsulates the heart of the argument.
Duty to not look beyond submissions
(1) The law
[63] In Pacific Recreation Pte Ltd v SY Technology Inc [2008] 2 SLR(R) 491, the Court of Appeal held (at [30]) that a court or arbitral tribunal might be in breach of the rules of natural justice if it decided a case on a ground not raised or contemplated by the parties. That is uncontroversial. There is, however, a nuanced difference between deciding the dispute on a ground that has never been expressly raised or contemplated, and deciding the dispute on a premise which, though not directly raised, is reasonably connected to an argument which was in fact raised. In this regard, I gratefully adopt the observation of Tomlinson J in Hochtief at [72]:
[64] There is also some support from the New Zealand High Court’s decision in Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (“Rotoaira”) which was cited favourably in Soh Beng Tee at [57]. After a survey of English and New Zealand cases, the court in Rotoaira stated (at 463):
[65] I accept that there might be – and probably are – authorities suggesting the contrary. There is no uniformity in the authorities on the extent to which the arbitral tribunal may decide a pleaded issue using premises not argued by the parties but which were reasonably connected to arguments canvassed by the parties. The interpretation of authorities is further compounded by the fact that natural justice cases almost inevitably turn on the individual facts of the case. Nevertheless, the foundational principle which courts should not lose sight of is that parties who choose arbitration as their preferred system of dispute resolution must live with the decision of the arbitrator, good or bad. Commercial parties appoint arbitrators for their expertise and experience, technical, legal, commercial or otherwise. These arbitrators cannot be so straightjacketed as to be permitted to only adopt in their conclusions the premises put forward by the parties. If an unargued premise flows reasonably from an argued premise, I do not think that it is necessarily incumbent on the arbitral tribunal to invite the parties to submit new arguments. The arbitral tribunal would be doing nothing more than inferring a related premise from one that has been placed before it.
(2) The facts
[66] As mentioned earlier in the context of Art 34(2)(a)(iii) of the Model Law (see [54]–[56]), I disagree with the submission that the Arbitrator had, in determining the nature of cl 11 of the MOAs, dealt with an issue outside of the scope of submissions. I also disagree with the submission that because the point that cl 11 was a warranty, and not a condition or innominate term, was not part of either party’s submissions, the Arbitrator’s determination that cl 11 was a collateral warranty occasioned a breach of the rules of natural justice.
[67] First, at the very least, as TMM conceded in its written submissions in these proceedings, whether cl 11 was a condition or an innominate term was an issue before the Arbitrator:
[68] Curiously, although TMM stated that “it was neither party’s case that Clause 11 was a warranty”, the converse is actually true. In the same paragraph 485 of PRM’s submissions that TMM cited, PRM made it clear that its case was that cl 11 was not a condition, but either a warranty or an innominate term which had the effect of a warranty:
[69] I could go on. Indeed, there is an entire section entitled “Warranties and Conditions” that comes shortly after the above extracted paragraphs. Thus, not only was the nature of cl 11 in issue, it was expressly part of PRM’s case that the breach of cl 11 did not entitle termination of the MOAs because cl 11 was a warranty. This is not even a case where the impugned argument is only reasonably connected to and not actually part of any party’s submissions. It is curious and ambitious of TMM to submit that the issue of whether cl 11 was a warranty was never in issue in the Arbitration.
[70] But even if TMM was right, and the only issue which it had put before the Arbitrator was whether cl 11 was a condition or innominate term, I do not think that it can be said that the Arbitrator, in deciding that cl 11 was a collateral warranty, had deprived TMM of its right to be heard. TMM’s submission as can be inferred from the extract above appears to be that because its case had restricted the possibility of cl 11 being either a condition or an innominate term simpliciter, the Arbitrator was bound to find that cl 11 was an innominate term if he did not think that it was a condition. I cannot see the principle or logic behind this restraint. The finding that cl 11 was a collateral warranty was not only reasonably connected to the arguments raised by both parties; it was a reasonable follow-through from his finding that cl 11 was not a condition.
[71] Accordingly, I reject the argument that the Arbitrator’s determination that cl 11 was a warranty had deprived TMM of its right to be heard.
Duty to deal with every argument presented
(1) The law
[72] An arbitral tribunal is not obliged to deal with every argument. It is neither practical nor realistic to require otherwise. Toulson J summed up neatly the extent of the arbitral tribunal’s obligation in Ascot Commodities NV v Olam International Ltd [2002] CLC 277 at 284 (see also Hochtief at [80]):
[73] All that is required of the arbitral tribunal is to ensure that the essential issues are dealt with. The arbitral tribunal need not deal with each point made by a party in an arbitration: Hussman (Europe) Ltd v Al Ameen Development and Trade Co [2000] 2 Lloyd’s Rep 83 (“Hussman”) at [56]. In determining the essential issues, the arbitral tribunal also should not have to deal with every argument canvassed under each of the essential issues.
[74] What then is considered “essential”? This is not easy to define. Notwithstanding, in my view, arbitral tribunals must be given fair latitude in determining what is essential and what is not. An arbitral tribunal has the prerogative and must be entitled to take the view that the dispute before it may be disposed of without further consideration of certain issues. A court may take a contrary view ex post facto, but it should not be too ready to intervene.
[75] It may be queried whether the line between issues and arguments is too fine. I do not think so. An argument is a proposition that inclines towards a specific conclusion. It typically contains reasons or premises, either factual or legal or both, which are presented as driving one towards a particular conclusion. An issue, on the other hand, is a topic. It is non-prescriptive, and usually expressed as a question.
[76] In proposing that the issue should be determined in its favour, a party may submit different arguments that could operate cumulatively or independently. As long as one argument resolves the issue, there is no justification for insisting that the arbitral tribunal go on to consider the other arguments which have been rendered academic. In SEF Construction Pte Ltd v Skoy Connected Pte Ltd [2010] 1 SLR 733 (“SEF”), Judith Prakash J held (at [60]) that “[n]atural justice requires that the parties should be heard; it does not require that they be given responses on all submissions made.” I completely agree. It is the right to be heard and not a right to receive responses to all the submissions or arguments presented that is protected. Although SEF was about a curial review of an adjudicator’s decision under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed), I find that it applies equally to arbitrations.
[77] It should be emphasised that an issue need not be addressed expressly in an award; it may be implicitly resolved. Resolving an issue does not have to entail navigating through all the arguments and evidence. If the outcome of certain issues flows from the conclusion of a specific logically prior issue, the arbitral tribunal may dispense with delving into the merits of the arguments and evidence for the former. Using a claim in tort as an example, if the arbitral tribunal has found that there is no duty of care, it follows of course that there can be no breach of a duty of care and consequently, damages. The arbitral tribunal is not obliged to pursue a moot issue and consider the merits of either the standard of care or the claim for damages.
(2) The facts
[78] The Arbitrator dealt with all the essential issues. The dispute between the parties was over the purported repudiation of the MOAs. The essential issues were therefore those which touch on whether TMM’s actions amounted to a repudiation of the MOAs and if so, whether the repudiation was justified. Hence, once the Arbitrator took the position that PRM’s failures in respect of the repairs (if any) only amounted to a breach of a warranty and not a condition, TMM was accordingly not entitled to reject delivery of the Vessels. TMM’s rejection of the NOR and refusal to take and complete delivery therefore amounted to a wrongful repudiation of the MOAs. Thus, the essential issues were addressed.
[79] Although TMM submitted the Arbitrator did not deal with certain issues, the resolution of those issues flowed from his decision on other issues. It was therefore not necessary for him to expressly deal with those issues. It was not essential that the Arbitrator expressly rendered a decision on the issues of whether PRM was obliged to (a) arrange for ABS to issue a class certificate with DP-1 Class notation for the Vessels, and (b) ensure that the DP system was functioning and operational. This is because he had already found that the Vessels were sold “as is where is” and not “by description”. In other words, because the Vessels did not have DP-1 capabilities at the time of purchase, the operability of the DP-1 system and its classification were inconsequential to TMM’s right to reject to the NOR. In the Arbitrator’s view, the obligation to effect the repairs listed in the Spreadsheets, including the DP-1 system, was not a condition. He set out his explanations at, inter alia, paragraphs 86, 99 and 117 of the Award.
[80] TMM had one more arrow in its bow (see [37] above). Ms Ang argued that the Arbitrator did not determine whether TMM had evinced an unambiguous intention not to perform the MOAs which is the test for repudiation. In my judgment, the Arbitrator did deal with this issue. At paragraphs 119 to 123 of the Award, he explained that TMM’s wrongful rejection of the NOR coupled with its failure to make funds available to pay the balance 90% purchase price evinced an unequivocal intention not to perform the MOAs. In his words, TMM “failed to prove they had the wherewithal to honour their contractual obligations”. To this, Mr Chan and Ms Ang then argued that the Arbitrator did not explain how TMM’s obligation to make funds available had arisen in the first place, thereby making its failure to do so a repudiatory breach. Apparently, the complaint is that TMM’s obligation to make funds available to complete the transaction had not arisen at the point that the Arbitrator said it had repudiated the MOAs because the deadline of 36 hours to tender the balance of the purchase price had not passed. If TMM was not obliged to make payment at the time of its rejection of the NOR, the fact that it did not do so cannot be evidence of repudiation. That is how I understood Ms Ang and Mr Chan’s submissions.
[81] I struggled with this submission because it was clear in the Award that the Arbitrator stated that the parties had agreed to pay the balance 90% purchase price into an account with the Development Bank of Singapore (“DBS”). Mr Chan protested that the Arbitrator was simply reciting facts and not making any finding. When I suggested that the language used by the Arbitrator was more imperative rather than descriptive, Mr Chan then said that the Arbitrator’s statement did not amount to a finding of an obligation as “it only says an agreement.” With respect, this submission is difficult to follow. The Arbitrator’s statement was:
[82] It is clear that the Arbitrator’s statement was referring to cl 3 of the MOAs which states that:
[83] The Arbitrator interpreted cl 3 of the MOAs as requiring TMM to ensure the 90% of the purchase price was paid to PRM’s account in DBS on the date of closing and delivery but no later than 36 hours after the issuance of the NOR, viz, 28 October (Mexican Time) or 29 October (Singapore Time). It is not disputed that TMM was not going to place any funds with DBS because the allegedly remaining defective items in the Spreadsheets were not fully repaired according to TMM. Until those defective items were repaired, TMM was not going to make any payment. Since PRM was taking the position that the requirements in Addendum No 1, and more importantly the completion of the repairs in the Spreadsheets, were not a condition for delivery and since PRM was also disputing whether the items were defective as alleged, the on-going stalemate would necessarily result in no funds being placed by TMM with DBS in any event, whether or not TMM was minded to wait out the 36 hours or longer, after receiving a rejection of its NOR. In short, from the perspective of PRM, TMM was never going pay the balance of 90% of the purchase price based on the NOR as issued and TMM was clearly refusing to take delivery. As a matter of fact, no funds were parked in PRM’s DBS account at any time within that material window. In that context, and without descending into the merits of the Arbitrator’s construction of the payment obligation in the MOAs which appears to be of a type which is fairly standard in the industry (see Iain Goldrein QC et al, Ship Sale and Purchase (Informa, 6th Ed, 2012) at para 5.17.1), it seems incongruous that TMM could argue there was no operative payment obligation which the Arbitrator could have pegged his conclusion of repudiatory breach onto. Parenthetically, it bears noting that in its closing submissions in the Arbitration, TMM had actually stated:
[84] To close the loop, TMM also argued that it refused to make payment pending its request for the repairs to be completed first because it would otherwise lose interest on funds parked in a suspense account. TMM’s position was that the Arbitrator had completely ignored this in his conclusion. I do not agree. The Arbitrator construed the agreement as imposing a “strict obligation” on TMM to ensure that funds were transferred into PRM’s DBS account. Accordingly, the reasons why TMM did not make funds available within 36 hours of the presentation of the NOR, or the fact that it had funds available elsewhere which TMM said showed that it had the wherewithal to complete the transaction, are beside the point. The Arbitrator found that no funds were made available within the requisite window as required by cl 3 of the MOAs. This led the Arbitrator to then conclude that TMM had displayed an intention to repudiate the MOAs. It should also be mentioned that cl 13 of the MOAs states that “should the Purchase Price not be paid in accordance with Clause 3, the Sellers have the right to cancel the Agreement …”.
[85] As the transcripts show, the real core of the submission which Ms Ang was driving at is that the Arbitrator had misunderstood the law on repudiation:
[86] Even if the Arbitrator had misapplied the law on repudiatory breach, that does not justify setting aside the Award. It cannot be the law that every time there is an error of law, the arbitral tribunal must be taken to have ignored the submissions of the party which is relying on that error. In any event, for reasons which I shall elaborate on (see [94]–[96] below), it is also not accurate for TMM to claim that the Arbitrator did not consider whether TMM’s actions and conduct amounted to a repudiatory breach.
[87] For the above reasons, I cannot agree with Ms Ang’s submission that the essential issues were not addressed.
Duty to attempt to understand submissions
(1) The law
[88] The relevant authority cited to me by TMM on this point is Andrew Ang J’s decision in Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd [2010] SGHC 80 (“Front Row”). The gist of the plaintiff’s case in Front Row was that the arbitrator had disregarded its case by ignoring two representations in its counterclaim for misrepresentation in the arbitration. The arbitrator had disregarded the representations as he took the view that the plaintiff had abandoned reliance on the two representations by the close of its case, a finding which the plaintiff characterised as “inexplicable”. After perusing the pleadings and submissions, Ang J agreed with the plaintiff that it had not abandoned the representations. The arbitrator was therefore in breach of the audi alteram partem rule by dismissing the counterclaim without considering the plaintiff’s arguments on the other representations.
[89] In arriving at his decision, Ang J found attractive a series of Australian decisions on building adjudication which proposed that natural justice requires the adjudicator to “attempt to understand and address the issues”; “[endeavour] to understand and deal with the issues”: see Timwin Construction v Façade Innovations [2005] NSWSC 548; and Brodyn Pty Ltd v Davenport [2004] NSWCA 394. I have no difficulty agreeing with the proposition that to ensure that the right to be heard is effectively safeguarded, an arbitral tribunal must demonstrably have at least attempted to comprehend the parties’ arguments on the essential issues. However, it is also clear that the inquiry should not be side-tracked by the explicability of a decision alone. The inexplicability of the decision is only one factor which goes towards proving that the arbitral tribunal did not in fact properly attempt to consider or comprehend the parties’ arguments. As Ang J ultimately concluded in Front Row at [39]:
[90] Indeed, the central inquiry in all such cases is whether the award reflects the fact that the arbitral tribunal had applied its mind to the critical issues and arguments. Ang J set aside part of the award because he was not persuaded that the arbitrator had “had regard to the submissions of parties and the material before him in arriving at his decision”: Front Row at [45]. Front Row does not stand for the proposition that a decision which is inexplicable is evidence that the arbitral tribunal had necessarily not applied its mind to the parties’ submissions. The general principle that errors of law do not found a basis for challenging an award would also be denuded of any significant meaning if the court is too fixated with the explicability of a decision.
[91] An assessment of whether the arbitral tribunal had attempted to understand the parties’ submissions is effectively an investigation into the inner workings of the respective arbitrator’s minds. Ostensibly, the arbitral tribunal may, after applying its mind, fail to comprehend the submissions or comprehended them erroneously, and thereby come to a decision which may fall to be characterised as inexplicable. In my view, such a situation falls short of a breach of the rules of natural justice, particularly when one is cognisant of the diverse types of arbitrators that may be appointed by parties (see [47] above). There is no clear bright line separating a decision which was made without any attempt to understand a party’s submissions on the one hand, and a decision which was made with a concentrated attempt which proved futile or ineffective not because of a want of desire to understand on the part of the arbitrator on the other. In the difficult cases, any distinction which can be drawn will invariably be very fine. Hence, it is usually not profitable to refer to the outcome of other court decisions as supportive authorities.
(2) The facts
[92] TMM claimed that the Arbitrator had not tried to understand its arguments as evidenced by his apparent confusion and conflation of the rejection of the NOR with the repudiation of the MOAs. According to TMM, if the Arbitrator had tried to understand TMM’s arguments, he would have realised that TMM’s case was that it was rejecting the NOR, and not terminating the MOAs.
[93] With respect, I am unable to see the logic of this submission. In the first place, the facts do not support the distinction which TMM has drawn. In the email exchanges between the parties at the relevant time of issuance and subsequent rejection of the NOR (see [11]–[16] above), it was clear that TMM’s primary if not sole reason for rejecting the NOR and not taking delivery was its insistence on receipt of evidence that the items in the Spreadsheets were repaired. With PRM insisting that the repairs were not a condition precedent to the issuance of a NOR and that in any event those repairs were completed, if TMM did not want to give the impression that it was stonewalling and did not intend to carry on with the MOAs, it could have accepted delivery of the Vessels and claimed damages if the repairs were indeed incomplete. Instead, it took the position then that on a proper construction of the MOAs with the respective Addendum No 1, the items in the Spreadsheets must be repaired before the Vessels could be said to be physically ready in every respect in accordance with cl 5 of the MOA. In these circumstances, the Arbitrator’s view that TMM’s continued refusal to accept delivery amounted to a repudiation of the MOAs is not inexplicable.
[94] Furthermore, to say that the Arbitrator ought to have appreciated the distinction which TMM made had he tried to understand TMM’s case, a failure of which amounts to failing to attempt to understand TMM’s submissions, is essentially to force the Arbitrator to accept – and not just consider or comprehend – its argument. That goes far beyond the test in Front Row which only requires the arbitral tribunal to have applied its mind to the submissions. It is also very different from saying that the Arbitrator had not invested the requisite effort to consider TMM’s submissions in arriving at his decision. No party has a right to expect the arbitral tribunal to accept its arguments, regardless of how strong and credible it perceives its own arguments to be.
[95] The Arbitrator was entitled to hold that by wrongfully rejecting the NOR and insisting that the completion of repairs is a condition precedent to the issuance of a valid NOR, and not having made the requisite funds available to complete the sale, TMM had demonstrated its intention to repudiate the MOAs. While TMM is entitled to draw the distinction between rejecting the NOR and not repudiating the MOAs for tactical reasons, that does not foreclose the Arbitrator from continuing with the natural path of the analysis after finding that TMM had wrongfully rejected the NOR, particularly since the issue of whether TMM had committed a repudiatory breach was explicitly listed in the MOI. Indeed, it is unfathomable that the Arbitrator would have taken the approach and analysis which he did if he had not applied his mind to the essential issues and TMM’s submissions.
[96] Natural justice only protects the parties’ right to be heard. It is an important right that arbitral tribunals must respect diligently and which the courts will protect unreservedly. However, that right does not extend to functioning as a guarantee that the arbitral tribunal will comprehend or appreciate the parties’ submissions and endorse the reasonableness, cogency and appeal of any party’s arguments. In so far as that is how I understood TMM’s case, I reject the claim that the Arbitrator had failed to attempt to understand TMM’s submissions.
Duty to give reasons and explanations
(1) The law
[97] The arbitral tribunal is generally bound to give reasons for its decision. This is provided for in Art 31(2) of the Model Law. However, Art 31(2) is silent on the content of this duty. The travaux préparatoires to the Model Law too contain minimal elaboration (see Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration: Report of the Secretary General (25 March 1985) (A/CN.9/264) at pp 65–67; and Report of the United Nations Commission on International Trade Law on the Work of its Eighteenth Session (3–21 June 1985) (A/40/17) at paras 251–252. Nevertheless, it has been suggested that failure to give reasons would be a breach of Art 31(2) and may render the award liable to be set aside or enforcement may be refused on the grounds that it was not in accordance with the arbitral procedure or public policy: Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (Sweet & Maxwell, 3rd Ed, 2009) at para 6-063; and Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Kluwer Law International, 2012) (“Waincymer”) at para 16.9.1.
[98] As far as I am aware, there is no authority in Singapore which directly touches on the scope of an arbitral tribunal’s duty to give reasons and explain its decision. There is a suggestion in the High Court decision of Prestige Marine Services Pte Ltd v Marubeni International Petroleum (S) Pte Ltd [2012] 1 SLR 917 at [39] that the inadequate provision of reasons by an arbitral tribunal is a mere error of law. I agree with that suggestion and would go on to add that given that it is trite that the court normally does not intervene in an award under the IAA on the basis of errors of law per se, it must follow that an allegation of inadequate reasons and explanations is therefore generally not capable of sustaining a challenge against an award. This is so even if one characterises inadequacy of reasons and explanations as a breach of the rules of natural justice.

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TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd

Laws this judgment relies on

Grounds of decision

Introduction

Facts

Background

The Memorandum of Agreement

The Notice of Readiness

The Arbitration

The Memorandum of Issues

TMM’s case in the Arbitration

PRM’s case in the Arbitration

The Award

The present proceedings

Parties’ submissions

TMM’s written submissions

Breach of the rules of natural justice

(1) Lack of opportunity to be heard

(2) Apparent bias

Issues falling outside the scope of submission

PRM’s written submissions

Oral submissions

Issues

Analysis

General principles for curial scrutiny

Excess of jurisdiction

The law

The facts

Rules of natural justice

Duty to not look beyond submissions

(1) The law

(2) The facts

Duty to deal with every argument presented

(1) The law

(2) The facts

Duty to attempt to understand submissions

(1) The law

(2) The facts

Duty to give reasons and explanations

(1) The law