Singapore Court of Appeal Affirms Decision Partially to Set Aside Arbitral Award for Breach of Natural Justice and Excess Jurisdiction

In the recent case of CAJ & CAK v CAI [2021] SGCA 102, the Singapore Court of Appeal allowed an application to set aside an arbitral award, stating that this was a “classic case of a breach of natural justice” when it allowed a defence to be introduced for the first time in the closing submissions stage.

In this case, the Respondent (CAI) hired the Appellants (CAJ and CAK) to construct a polycrystalline silicon plant. CAI commenced arbitration proceedings against CAJ and CAK, claiming liquidated damages from CAJ and CAK on the basis that they had caused a 144-day delay in the completion of the plant. During the closing submissions, CAJ and CAK argued for the first time that they were contractually entitled to an extension of time, which would reduce the amount of liquidated damages (the “EOT Defence”). CAI objected to the EOT Defence because raising it at this stage was procedurally unfair as it prevented CAI from addressing the issue. However, the tribunal accepted the EOT Defence on grounds that CAI was preferred the opportunity to respond to the defence in its written closing submissions.

CAI applied to set aside the final award in part claiming that the tribunal had exceeded its jurisdiction and the final award was in violation of the principles of natural justice.

Decision of the High Court
The High Court allowed the set aside application as CAI did not have a fair opportunity to respond to the EOT Defence and the EOT Defence was beyond the scope of the parties’ submission to arbitration.

Decision of the Court of Appeal
The Court of Appeal affirmed the High Court’s decision and enunciated that while the EOT Defence did not constitute a “new claim” beyond the Terms of Reference of the arbitration, the fact sensitive nature of the EOT Defence meant that the tribunal should have invited submissions from the parties about whether “an amendment to the pleadings to include the EOT Defence should be allowed”. Moreover, defences would not generally be encompassed within the arbitration unless specifically pleaded or acknowledged within the Terms of Reference. Therefore, the Court of Appeal agreed with the High Court that CAI suffered from a breach of natural justice as CAI did not have the opportunity to lead further evidence and cross examine CAJ and CAK’s evidence on this issue and make submissions which could have reasonably impacted the tribunal’s decision.

Takeaway
Though the court acknowledged that applications to set aside should only be granted in exceptional cases, this decision underscores the importance to put forward all issues and arguments at an early stage to allow the counterparty to test or adduce relevant evidence. This would avoid the risk of having the award challenged on grounds of breach of natural justice.