The SICC partially set aside an SIAC arbitral award due to to a natural breach of justice while exercising its discretion to suspend the setting aside proceedings

In the case of CKG v CKH [2021] SGHC(I) 5, the arbitration concerned an agreement for the respondent to sell its timber concession interests in Indonesia to the claimant. The crux of the dispute concerns a signed and agreed Meeting Minutes of 8 April 2011 (“the Minutes”) which was also accepted by parties as an enforceable agreement. The Minutes set out the respondent’s obligation to pay a sum of IDR 75bn in five instalments for its various outstanding debt to the claimant.

The claimant’s case was that it could exercise a contractual set-off mechanism in Clause 4 of the Minutes to reduce its round log volume obligations owed to the respondent defendant, which was referred to as the “Debt-to-Log Conversion”.

The Tribunal found that there were breaches on both sides - there was a shortfall in the supply of logs by the claimant, and a failure on the part of the respondent to make the agreed payments. However, the claimant was not entitled to rely on the Debt-to-Log Conversion as it had not attempted to settle the dispute amicably as per Clause 4. The outstanding debt was the debt owed by the respondent to the claimant in relation to freight and taxes for logs already supplied (“the Principal Debt”), amounting to approximately IDR 50bn, which was never disputed by the respondent. The Tribunal did not refer to the Principal Debt again. The plaintiff thereafter applied for an additional award pursuant to Rule 29.3 of the SIAC Rules 2013 to addres inter alia the Principal Debt Issue. In response, the Tribunal found that it had no jurisdiction to address the Principal Debt issue, as the plaintiff made no “claim” for it in the arbitration.

The SICC’s Decision
The Singapore International Commercial Court ruled that the Tribunal failed to deal with the Principal Debt Issue, despite that this was a live issue between parties which could affect the plaintiff’s liability or the quantum of damages. While the Tribunal found that the plaintiff was not entitled to exercise the Debt-to-Log Conversion to set off its obligation to supply logs, it was clear that the Principal Debt remained due and owing to the plaintiff. It is self-evident that if the accrued debts could not be used as a set off against the plaintiff’s contractual obligations to deliver logs, they are still owing, with interest running and are still to be taken into account in awarding damages. The Tribunal’s failure to take this issue into account caused substantial prejudice to the plaintiff as the Award failed to deal with a significant issue which could affect the sums owing between the parties, and the costs of the arbitration. Moreover, the failure to deal with the Principal Debt Issue also amounted to a breach of natural justice. 

As a result, the Court exercised the discretion to suspend the setting aside proceedings for a period of time pursuant to Article 34(4) of the Model Law, so as to allow the Tribunal sufficient time needed to determine the Principal Debt Issue.