SICC dismisses application to set aside arbitral award on grounds of invalidity of arbitration agreement and breach of rules of natural justice

6 September 2022

CPU v CPX [2022] SGHC(I) 11

In CPU v CPX, the Singapore International Commercial Court (“SICC”) dismissed an application to set aside an arbitral award on the grounds that the underlying arbitration agreement was invalid by reason of the applicants’ incapacity, and that there had been a breach of the rules of natural justice due to a failure of the arbitral tribunal to accord a fair hearing to the applicants.

Allen & Gledhill Partner Chong Yee Leong acted for the successful respondent in the case.

Facts

The respondent and the third applicant were parties to a joint venture agreement pursuant to which the respondent would invest in the third applicant’s mining business. Following a series of disagreements arising from the joint venture, a Settlement Contract and subsequently a Supplemental Settlement Contract (collectively, “Contracts”) were entered into between the respondent on the one hand and the first applicant (a director of the third applicant) and second applicant (a son of the first applicant and a director of the third applicant) on the other. The Contracts were governed by the laws of India.

Pursuant to the arbitration clause under both Contracts (“Arbitration Agreements”), the respondent commenced arbitration proceedings under the Rules of the Singapore International Arbitration Centre (“SIAC Rules”), claiming that the applicants had breached various obligations under the Contracts. In its final award (“Award”), the tribunal (“Tribunal”) determined that the applicants had breached their obligations under the Contracts and were therefore liable to pay damages to the respondent.

Dissatisfied with the Tribunal’s decision, the applicants applied to the SICC to set aside the Award. Among other things, the applicants argued that the Tribunal had exceeded its jurisdiction as the Arbitration Agreements under the Contracts were invalid under Indian Law, due to the presence of coercion and/or duress exercised upon the first and second applicants. Further, it was alleged that the first and second applicants had suffered mental illnesses that affected their ability to make a rational decision in the face of such coercion and/or duress. The applicants also argued that there had been a breach of the rules of natural justice due to the Tribunal’s refusal to allow the applicants to adduce further evidence in the form of two expert medical reports detailing the mental illnesses suffered by the first and second applicants (“Medical Reports”) pursuant to a procedural order granting the applicants leave to submit a supplementary witness statement in response to a statement set out in a specific paragraph of a witness statement of the respondent’s managing director (“Procedural Order”).

Exclusion of Medical Reports from evidence

Under section 24(b) of the International Arbitration Act, a court may set aside an award if “a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced”. The applicants submitted that by refusing to admit the Medical Reports, the Tribunal denied the applicants their right to a fair hearing. The court rejected the applicants’ complaint for the following reasons.

First, the Tribunal’s decision to exclude the Medical Reports was an exercise of a case management power within the Tribunal’s jurisdiction. The court was of the view that the Tribunal’s decision fell well within the range of what a reasonable and fair-minded tribunal in those circumstances might have done. In particular, the Tribunal had the discretion to determine the relevance, materiality and admissibility of all evidence sought to be introduced, and the Medical Reports fell outside the permissible scope of the terms of the Procedural Order. Further, the applicants submitted the Medical Reports on the very eve of the evidentiary hearing despite having had ample opportunity to do so during discovery or the exchange of witness statements.

Second, the applicants did not raise any objections to the Tribunal’s decision at the time, nor at any time before publication of the Award.

Third, even if the Medical Reports ought to have been admitted in evidence, their contents lacked any legal or factual weight, such that they could not have reasonably made a difference to the findings of the Tribunal. Crucially, there was nothing to suggest that the applicants were suffering from mental illnesses of such severity and extent that they were incapable of understanding the effect of the Contracts (or of making a rational decision) at the material time. No relevant prejudice was suffered by the applicants.

Finally, the applicants conceded that they could have adduced the Medical Reports during the first applicant’s examination-in-chief but had “missed doing so”. In other words, the fact that the Medical Reports were not ultimately admitted into evidence was at least partly, if not wholly, a result of the applicants’ own conduct during the evidentiary hearing.

Incapacity of applicants and/or invalidity of Arbitration Agreements under Indian law

Under article 34(2)(a)(i) of the UNCITRAL Model Law on International Commercial Arbitration as adopted in Singapore (“Model Law”) (“Article 34(2)(a)(i)”), a court may set aside an arbitral award if a party to the arbitration agreement “was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State”. The court observed that the enquiry under Article 34(2)(a)(i) is essentially concerned with the existence or validity of an arbitration agreement, and consequently the issue of whether the arbitral tribunal has jurisdiction.

The court noted that the first time the applicants had fleshed out their ground of challenge under Article 34(2)(a)(i) was in their written submissions filed just three days before the hearing of the main application. Although the applicants had the opportunity to elaborate on the ground of challenge under Article 34(2)(a)(i) in their affidavit served with the originating summons, they did not do so. Their omission left the respondent “none the wiser” about the applicants’ case until the eleventh hour. On that basis alone, the court said that it was arguable that the applicants should be precluded from relying on this ground of challenge.

Nonetheless, even on the merits of the applicants’ case, the court found the applicants’ challenge to be unmeritorious. First, the ground of challenge was relied upon by way of an objection to the Tribunal’s jurisdiction. Contrary to the provisions of the Model Law and the SIAC Rules, the applicants did not raise their objection by the time they submitted their statement of defence. This precluded the applicants from raising the challenge subsequently. Second, the available evidence fell far short of establishing any relevant conduct that might amount to duress or coercion that might vitiate the Contracts.

Practical impact

This case highlights the importance of raising any objections in relation to any allegations of breach of natural justice early and preferably shortly after the procedural decision of the tribunal that was being impugned. This is meant to alert the tribunal to any possible unhappiness that a party may have in relation to any procedural decision and to rectify any breach (if any). Otherwise it would be difficult for a party to succeed in any subsequent challenge to the arbitral award.

Reference materials

The judgment is available on the Singapore Courts website www.judiciary.gov.sg.