In brief
The principles of natural justice in the context of international arbitration are well established. Every party has the fundamental right to be heard – i.e. the right to present its case, and the right to respond to the case against it. Consequently, a party deprived of such a right will succeed in an application to set aside an arbitral award if the breach of this fundamental right was connected to the making of the award, and if the party making the application had been prejudiced by the award.
In CAI v CAJ [2021] SGHC 21, the General Division of the Singapore High Court (“Court“) was asked to set aside part of an arbitral award, on the basis that the tribunal had wrongly accepted an extension of time (“EOT”) defence that was raised by the defendants for the very first time in its written closing submissions. While the claimant did respond to the new EOT defence in its own written closing submissions, the defence had not been raised during the oral hearing and so there had been no opportunity to adduce evidence or to cross-examine witnesses on the requested EOT. In its award, the tribunal accepted that there was “no direct evidence” before it on the issue, but nonetheless considered itself “capable of fairly and reasonably determining” an appropriate EOT, in view of its own “experience in these matters”.
The Court ultimately decided to set aside this part of the arbitral award because, inter alia:
- The claimant did not have a fair and reasonable opportunity to present its case in respect of the EOT defence; and
- The tribunal’s decision was not backed by any evidence, and any reliance on its professed experience was not explained.
Key Takeaways
While the fact sensitive nature of such an application means that the judgment will largely be confined to its particular factual matrix, there are certain general principles which can be distilled:
Regarding the reasonable opportunity to present one’s case
- A party responding to the case made against it is entitled to have notice of the case to which it is expected to respond.
- In situations where there are two possible defences (separately, “Defence A” and “Defence B“), and the defendant raises Defence B belatedly, the claimant will not be placed on notice of Defence B just because the practical effect of Defence B is analogous to that of Defence A, and this is particularly so in situations where Defence A and Defence B have different legal and factual elements.
- In this regard, the claimant is not expected to “guess what the defendants’ case might have been or to pursue and respond to all possible defences that the defendants had not explicitly raised in the Arbitration.“
- Additionally, the focus is on whether the claimant had the opportunity to present the necessary evidence and propositions of law required to respond to Defence B.
- To this end, the fact that Defence A and Defence B are based on the same facts and evidence would not assist the defendant in arguing that the claimant had a reasonable opportunity to present its case.
- Moreover, “[a] chance to respond to the counterparty’s legal submission on a newly raised defence cannot constitute a reasonable opportunity to present one’s case if the evidence that might support one’s arguments had not been adduced during the arbitral proceedings.“
Hedging / the duty to give fair intimation to the tribunal
- A party is not allowed to hedge its position against an unfavourable arbitral award, and must:
- give fair intimation to the tribunal; and/or
- seek to suspend the arbitral proceedings
once it knows that the tribunal has taken a step in the conduct of the proceedings which it considers to be a breach of procedural fairness.
- The principles relating to hedging (as set out by the Court of Appeal in China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another[2020] 1 SLR 695) were reiterated by the High Court:
“An aggrieved party cannot complain after the fact that its hopes for a fair trial had been irretrievably dashed by the acts of the tribunal, and yet conduct itself before that tribunal “in real time” on the footing that it remains content to proceed with the arbitration and obtain an award, only to then challenge it after realising that the award has been made against it.“
- In essence, a party who presents itself as a “ready, able and willing” party, and chooses to carry on with arbitration proceedings, does so at its own peril and cannot claim that the proceedings had been irretrievably tainted by a breach of natural justice.
- However, this duty to give fair intimation to the tribunal only arises upon actual breaches of the rules of natural justice, and not on the prospect of a potential breach.
Chain of reasoning
- A breach of natural justice also occurs in situations where the tribunal adopts a chain of reasoning which it did not give the parties an opportunity to address.
- In the present case, the tribunal’s decision on the EOT defence was problematic because: (i) it was not backed by any evidence; and (ii) the tribunal did not elucidate or explain the professed experience on which it relied.
- Elaborating on the rules of natural justice, and in particular the opportunity to comment on the tribunal’s proposed line of reasoning, the Court held that:
“… the rules of natural justice do require, even in an arbitration conducted by an expert, that matters which are likely to form the subject of decision, in so far as they are specific matters, should be exposed for the comments and submissions of the parties. … If [an arbitrator] is to any extent relying on his own personal experience in a specific way then that again is something he should mention so that it can be explored. It is not right that a decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him.”
- Accordingly, the tribunal’s reliance on its own experience without first: (i) telling the parties that it would be doing so; and (ii) explaining what this experience entailed, amounted to a breach of natural justice.
Excess of jurisdiction
- While not related to the breach of natural justice, it bears highlighting that an arbitral tribunal’s jurisdiction is demarcated by what the parties had agreed to submit to the tribunal for determination.
- In the present case, the Court found that the tribunal had acted in excess of its jurisdiction. The EOT defence was not among the issues submitted for the tribunal’s determination as:
- it was only raised at the eleventh hour; and
- was not referred to in the defendants’ pleadings, the Terms of Reference or the defendants’ list of issues.
- As such, the Court granted the claimant’s application to set aside the tribunal’s decision on the EOT defence, and the defendants were liable to pay an additional 25 days’ worth of liquidated damages (amounting to approximately SGD 20 million).
Further Comments
This case highlights the importance of procedural fairness and the Court’s unwillingness to allow one party to “ambush” another party, whether intentionally or otherwise.
To this end, parties are advised to formulate their cases early and to submit their pleadings in accordance with given timelines, so as to avoid having their cases characterised as an “afterthought”. Where new legal or factual arguments arise during the course of proceedings, these should be brought to the attention of the other party and the court or tribunal as soon as possible, so that adequate steps may be taken to afford all parties an equal opportunity to be heard on the issue.
