General Division of Singapore High Court finds grounds for setting aside of arbitral award not established

25 February 2022

CNQ v CNR [2021] SGHC 287

In CNQ v CNR, the General Division of the Singapore High Court affirmed an arbitration award issued by the International Chamber of Commerce (“ICC”), refusing to set it aside on various alleged grounds of natural justice and inability to present its case.

The court reinforced key legal principles pertinent to the setting aside of an arbitral award.

Allen & Gledhill Partners Tay Yong Seng and Ng Si Ming successfully defended the ICC arbitration award in the High Court.

Background 

A seller (“Seller”) entered into a sale and purchase agreement to sell goods to a buyer (“Buyer”). The goods in question were specialised optical fibre materials for industrial use. The Buyer failed to accept the Seller’s goods.

In the ICC arbitration proceedings, the Seller claimed against the Buyer for breach of contract. The ICC arbitration tribunal found that the Buyer wrongfully refused to accept the Seller’s goods, and awarded substantial damages to the Seller.

In the High Court, the Buyer did not challenge its liability for breach of contract, but sought to set aside the part of the arbitral award dealing with damages.

The Buyer’s initial grounds for challenge when it filed the setting aside application were that (a) it was unable to present its case (under Article 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration read with section 3 of the International Arbitration Act 1994 (“IAA”)), and (b) there was a breach of the rules of natural justice in connection with the making of the award by which the Buyer’s rights were prejudiced (under section 24(b) of the IAA).

To justify its case on the above grounds, the Buyer contended in its affidavit and written submissions, filed prior to the oral hearing, that among others, (i) the Tribunal had failed to deal with the Buyer’s objection to the “hypothetical market price” approach advanced by the Seller in support of its damages claim, (ii) the Tribunal failed to address the fundamental problems with the Seller’s evidence on its “hypothetical market price” approach, and (iii) contrary to the Seller’s “hypothetical market price” approach, there was in fact an actual market for the goods (which would have reduced the damages payable), but the Tribunal failed to consider the factual evidence and admissions about the actual market.

At the actual oral hearing before the Judge, the Buyer raised a new argument on pleadings. The Buyer now argued that the Seller had only pleaded a claim under section 50(2) of the Sale of Goods Act 1979 (“SOGA”), but the Tribunal had instead awarded damages based on section 50(3) of the SOGA. The Buyer alleged that this SOGA pleading issue caused the Buyer to be unable to present its case (“SOGA Pleading Issue”). The Buyer also relied on the SOGA Pleading Issue to raise a further new ground for its setting aside application - that the tribunal had exceeded its jurisdiction.

Section 50 of the Sale of Goods Act provides:

50(1) Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for non-acceptance.

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been accepted or (if no time was fixed for acceptance) at the time of the refusal to accept.

Decision of the High Court

The High Court dismissed the setting aside application. The court held that none of the grounds raised for setting aside the award were established. In any event, the Buyer had not suffered prejudice from the matters complained of.

In relation to the SOGA Pleading Issue, the court did not agree with the Buyer’s interpretation of the arbitral award. The court construed the award as one in which the Tribunal had awarded damages under section 50(2) of the SOGA, but had used a measure of damages analogous with section 50(3) of the SOGA. Moreover, this specific measure of damages (under section 50(3)) had been fully canvassed between the parties in the course of the arbitration. As a result, the judge held that none of the grounds for setting-aside were established, and that the buyer had not suffered prejudice from the matters complained of.

The High Court also dismissed the other grounds for challenge put forward by the Buyer. The Buyer had attempted to infer from the arbitral award that the Tribunal had treated the Buyer’s objections to the Seller’s claims for damages as either withdrawn or conceded. The High Court held that the Tribunal had indeed considered the Buyer’s objections, and rejected them on the merits. Hence, the Buyer again did not suffer a breach of natural justice and was not unable to present its case. 

Key takeaways

Two important takeaways from the court’s decision are noted below.

First, a party applying to set aside an award should raise the challenge points early in the supporting affidavit, and not seek to take the other side by surprise at the oral hearing itself. 

A major plank of the Buyer’s arguments was based upon the SOGA Pleading Issue, which had not been raised it in its originating summons, affidavits or written submissions. Instead, the SOGA Pleading Issue was only raised for the first time at the oral hearing, more than five months after the setting aside application was filed. Similarly, the excess of jurisdiction (also based on the SOGA Pleading Issue) was raised for the first time at the oral hearing.

The High Court noted that there was “some element of surprise to the Seller” resulting from the Buyer introducing the SOGA Issue at such a late juncture. Nevertheless, in the specific circumstances of this case, the High Court allowed the SOGA Issue to be dealt with on its merits. However, the High Court confined this finding to the facts, and cautioned that other cases may merit stricter treatment.

Separately, the Court observed that the late raising of the SOGA Pleading Issue suggested that the Buyer had not felt aggrieved about the Tribunal’s references to section 50(3) of the SOGA when it received the award, but only took issue with this later.

Second, technical points on pleadings are not usually favourably considered.

The High Court took a purposive view with regard to the pleading of damages. The court held that it was sufficient for the Seller to plead its claim for damages generally (in the Request for Arbitration and Terms of Reference of the Tribunal), without specifying a precise measure of damages or method of quantifying damages. 

Subsequently, in witness statements, the Seller put forward a specific measure of damages which the tribunal eventually accepted. That measure of damages was within the scope of the submission to arbitration (and in that regard there was no excess of jurisdiction), and the Buyer had a full, fair, and reasonable opportunity to be heard on it (and so there was no breach of natural justice).

In any event, the Buyer had not suffered any prejudice by the Seller’s pleadings.  The Buyer contended that the Seller should have pleaded its claim for damages under section 50(3) of the SOGA (instead of section 50(2)). However, even if the Seller’s claim for damages was made under section 50(3) SOGA, given the findings of fact made in the award, the Tribunal would still have arrived at the same measure of damages. The court found that it was difficult to imagine what further submissions the Buyer could have made in response to a section 50(3) claim that it had not already made to the Tribunal.

In short, the Seller’s pleading did not make any difference to the result reached by the Tribunal. The High Court thus refused to set aside the Tribunal’s award.