Court sets aside $2m arbitration award in rare case of cancellation

In a rare case cancelling an arbitration award, the top court here set aside US$1.48 million (S$2 million) awarded to a bank as a breach of natural justice and, in doing so, affirmed a High Court judgment.

The sum had been payable by the India-based buyer of 20,000 tons of coal who had failed to remit the sum to a Singapore bank that had inherited the trade debt.

The buyer had refused to pay the bank, claiming it had not received the full supply of coal and that there had been a subsequent agreement with the seller to pay less for the coal.

The bank started an arbitration under Singapore Chamber of Maritime Arbitration (SCMA) Rules. In the course of the proceedings, the buyer sought to present witnesses to give evidence of what had transpired at a meeting about the price reduction.

The sole arbitrator called for the buyer to submit the proposed witness statements for him to evaluate first but the buyer refused, insisting on his right to call witnesses. The arbitrator then convened a hearing for oral submissions only.

The buyer withdrew from further participation in the hearing, in which the arbitrator found that all 20,000 tons of coal had indeed been delivered, and that there had been no subsequent agreement for an adjustment of the price to be paid.

He allowed the bank's claim for the US$1,480,400 due, as well as interest.

The buyer successfully challenged the award in the High Court, which set aside the award. The bank appealed.

The Court of Appeal, comprising Chief Justice Sundaresh Menon, Judge of Appeal Judith Prakash and Judge of the Appellate Division Quentin Loh, affirmed the judgment, finding natural justice rules had been breached as the buyer did not have the "full opportunity" to present its case.

The breach was not merely technical or inconsequential but had prejudiced the buyer.

"The buyer here was unequivocal in requesting a hearing for the presentation of oral evidence as to what transpired at the December 2015 meeting and the buyer was acting within its legal rights to do so," wrote Justice Loh on the court's behalf.

"None of this means that an arbitral tribunal is helpless or impotent in managing the case and regulating the evidentiary process. Even in arbitral rules such as the SCMA Rules it is commonplace to find provisions conferring broad case management powers upon a tribunal," he added.

The court said that unless parties had agreed on a documents-only arbitration or that no hearing be held at all, the arbitrator was obliged to hear oral evidence as requested by a party.

Explaining further, the court held the tribunal's power to limit the oral examination of witnesses as part of general case management powers cannot override natural justice rules.

The SCMA Rules do not explicitly confer a broad and unqualified power on the tribunal to shut out or "gate" witnesses, it added.

"On the facts of the present case, the alleged oral agreement at the December 2015 meeting was a critical component of the buyer's defence against the bank's claim. When the witness evidence of the buyer in relation to that meeting was shut out altogether, it is plain that the buyer was prejudiced," said the court.

The appellant bank was represented by Allen & Gledhill lawyers led by Mr Peh Aik Hin, while the buyer was defended by lawyers led by Mr Clarence Lun, who are now with Fervent Chambers LLC.