Singapore courts confirm policy of Minimal Curial Intervention in Arbitrations

Syahrul Bahiah examines Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86, a recent decision from across

 


 

 

BACKGROUND FACTS

The respondent, Fairmount, was a developer of a condominium project and had employed the appellant, Soh Beng Tee (SBT) as its main contractor for the construction of the condominium.  The contract was modelled on the standard terms of the Singapore Institute of Architects Articles and Conditions of Building Contract.

 

One Mr. Law of M/s Archurban Architects Planners issued various certificates and decisions relating to the contract works, including a written notice to SBT dated 21 September 1999 which declared that SBT had failed to proceed with due diligence and expedition and one month later, a termination certificate. On 9 November 1999, Fairmount terminated SBT’s employment under the contract. Fairmount then claimed on a S$1.5million performance bond provided by SBT and a further S$3.2million from SBT as damages.

 

SBT rejected these claims by Fairmount, disputed the termination of its employment, claimed for damages for wrongful termination of its employment and referred the dispute to arbitration.

 

 

THE ARBITRATION

The three main issues referred to arbitration were (i) whether Fairmount had rightfully terminated SBT’s employment pursuant to the terms of the contract; (ii) if not, whether Fairmount had rightfully terminated SBT’s employment on the ground that SBT was in repudiatory breach of its obligation to complete the project with diligence and due expedition; and (iii) whether Fairmount was entitled to liquidated damages for SBT’s delay in completing the project.

 

The arbitrator found that the issuance of the termination certificate was in itself invalid as the wrong person had issued it. Under the terms of the Building Contract, one Mr. Tan Cheng Siong was expressly named as the project architect.  It is pertinent to note that the arbitrator found that SBT had not waived its right to insist, nor was it estopped from insisting, that the correct person should issue the termination certificate. This is in keeping with the position that termination procedures provided for in a contract must be followed strictly.

 

The Arbitrator then went on to determine whether SBT had failed to proceed with due diligence and expedition and whether SBT had been improperly denied an extension of time.  The Arbitrator decided that SBT should have been given an extension of time and that Fairmount had committed acts of prevention that had set time for the performance of the project at large, and that SBT was entitled to a reasonable time to complete the project.

 

Following on from this decision, the Arbitrator found that Fairmount could not rely on SBT’s alleged repudiatory breach to justify the termination of SBT’s employment because time was not the essence of the contract and that as Fairmount could not rightfully rescind its employment of SBT, it followed that the claim for liquidated damages by Fairmount was unsustainable.

 

 

PROCEEDINGS IN THE HIGH COURT

Fairmount applied to the High Court to set aside the Award.  It argued that the Arbitrator’s decision to set time at large rather than determine the reasonable extension of time that SBT was entitled to (“the Disputed Issue”) was not an issue that had been submitted for arbitration and therefore the decision ran foul of the Singapore Arbitration Act (“the jurisdiction issue”). Further, Fairmount was also deprived of putting forward a case against setting time at large and this was in breach of its right to be heard and was also contrary to the Singapore Arbitration Act (“the natural justice issue”).

 

The High Court judge did not agree with Fairmount on the jurisdiction issue and held that a finding that time was at large would not be necessarily be unanticipated or extraordinary or completely outside the contemplation of the parties when questions of delay had to be considered. While parties might not have conducted their respective cases on the basis that various acts of the Architect and/or Fairmount had led time to being at large, the central dispute was, in the end, about the time period within which SBT had to complete its work. Therefore the decision that time was at large was not a matter beyond the scope of issues submitted for arbitration.

 

It is necessary to note here that the issue of time being at large was pleaded by SBT in its Amended Statement of Claim and denied by Fairmount in its Defence.

 

On the natural justice issue, the High Court judge found in favour of Fairmount and held that there had been a breach of Fairmount’s right to be heard. The High Court held that as the Disputed Issue was not a live issue before the Arbitrator, Fairmount had been deprived of an opportunity to be heard and deprived of the chance to present the requisite evidence to the tribunal on what would have constituted a reasonable time for SBT to complete the works. The High Court judge found that Fairmount was prejudiced because the consequence of the Arbitrator’s decision to set time at large was that SBT was held not to be in breach of its contractual and common law obligations, and that Fairmount had in turn wrongfully repudiated its contract with SBT. The High Court judge also observed that a breach of natural justice of itself created prejudice that would be suffered by one of the parties.

 

The High Court judge then set aside the entire award and refused an application for an additional award, holding that it would be futile to ask the Arbitrator to issue an additional award since the whole basis on which the Arbitrator had set time at large was that he did not have the evidence on which to make an award on the exact number of additional days to which SBT would be entitled to under the contract.

 

 

THE APPEAL

SBT appealed against the decision of the High Court on the natural justice issue. Fairmount on the other hand did not appeal against the High Court’s decision on the jurisdiction issue.

 

In allowing SBT’s appeal, the Court of Appeal held that a party challenging an arbitration award on the grounds that it had contravened the rules of natural justice had to establish (a) which rule of natural justice was breached; (b) how it was breached; (c) in what way the breach was connected to the making of the award; and (d) how the breach prejudiced its rights.

 

In direct contrast to the decision by the High Court, the Court of Appeal held that a breach of the rules of natural justice of itself did not create prejudice. The complainant must not only show that there has been a breach of natural justice, but also that the breach had caused some actual or real prejudice on the part of the complainant.

 

It has to be noted that the Court made it clear that actual or real prejudice, whilst lower than substantial prejudice, did not embrace technical or procedural irregularities that had cause no harm in the final analysis.

 

In essence, the Court held that before there can be curial intervention on an arbitration award, the breach of the rules of natural justice had to, at the very least, actually alter the final outcome of the arbitral proceedings in some meaningful way.

 

The Court of Appeal held that before an Award would be set aside for breach of natural justice, there must have been a causal nexus between the breach and the Award. The Court found that there was no such causal nexus, and that the Arbitrator’s finding that time was set at large was only in relation to whether the Architect had properly assessed SBT’s application for the extension of time. This finding had no effect on whether Fairmount could rely on the termination certificate to rescind its employment with SBT. The question as to whether Fairmount could rely on the termination certificate had been answered when the Arbitrator found that the termination certificate and delay certificates issued by Mr. Law were invalid as they had been issued by the wrong person. Therefore, there would not have been any appreciable difference in the outcome even if the breach had not occurred.

 

If the same result could or would have ultimately been attained, or if it could be shown that the complainant could not have presented any ground-breaking evidence and/or submissions regardless, the bare fact that the Arbitrator might have inadvertently denied one or both parties some technical aspect of a fair hearing would almost invariably be insufficient to set aside the award.

 

Ultimately, it is clear that it was the sanctity of the award that was the overriding concern of the Singapore Court of Appeal. The fact that parties have the right to present their respective cases and to respond to the case against them was acknowledged by the Court. The Court was quite clear in saying that arbitrators who base their decisions on matters not submitted or argued before them and arbitrators who exercise unreasonable initiative without the parties’ involvement may attract serious and sustainable challenges.

 

However, the Court was mindful of the current judicial climate in Singapore to the effect that the courts should not interfere with the arbitral process without good reason and that there should be minimal curial intervention. This, the Court observed, was underpinned by two principal considerations : firstly, that there is a need to recognise the autonomy of the arbitral process by encouraging finality so that its advantage as an efficient alternative dispute resolution process is not undermined, and secondly, having opted for arbitration, parties must have acknowledged and accepted the attendant risks of having only a very limited right of recourse to the courts and that the courts are not discharging an appellate function save in very limited circumstances provided for by statute.

 

To achieve this delicate balance between ensuring the integrity of the arbitral process and ensuring that the rules of natural justice are complied with in the arbitral process, the Court adhered strictly to the narrow scope and basis for challenging an arbitral award that had been expressly provided for under the Arbitration Act.

 

The Court held that, in so far as the right to be heard is concerned, not every failure by the arbitrator to refer every point for decision to the parties for submissions is a ground for challenge.  There must have been a dramatic departure from the submissions and the decision must have adopted a view wholly at odds with the established evidence adduced by the parties. The overriding burden is on the applicant to show that a reasonable litigant in his shoes could not have foreseen the possibility of reasoning of the type revealed in the award and only in these limited circumstances would the arbitrator’s decision be considered unfair.

 

 

CONCLUSION

The Singapore Court of Appeal has made a clear statement that as a matter of both principle and policy, the courts will seek to support rather than frustrate or subvert the arbitration process and will promote the two primary objectives of the Act - to respect and preserve party autonomy and to ensure procedural fairness. These two objectives are not easily reconciled but in sending a resonant message that arid, hollow, technical or procedural objections that do not prejudice any party would not be countenanced, the Court of Appeal has made it clear that complainants should not view the courts as an appeals tribunal.

 

 

SYAHRUL BAHIAH ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 
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