Singapore

Case updates

BZW and another v BZV [2022] SGCA 1

In the case of BZW and another v BZV, the Singapore Court of Appeal stated the law on the fair hearing rule and upheld the decision of the Singapore High Court to set aside a Singapore International Arbitration Centre (SIAC) award on the basis that there was a breach of natural justice.

The case involved a shipbuilding contract for the construction and delivery of a vessel to the respondent. After the appellants delivered the vessel to the respondent, the respondent commenced arbitration against the appellants claiming: (a) liquidated damages arising from the delay in delivery (“Delay Claim”); and (b) damages for the installation of contractually inadequate generators (the “Rating Claim”). Both the Delay Claim and Rating claim were dismissed by the tribunal.

The Court of Appeal, agreeing with the High Court, found that there had been a breach of the fair hearing rule as the tribunal had failed to apply its mind to the essential issues arising from the parties’ arguments and adopted a chain of reasoning that had no nexus with the parties’ submissions.

In respect of the Delay Claim, the Court found that, apart from the prevention principle, there was no indication anywhere in the award that the tribunal adopted as part of its reasoning any aspects of the appellants’ six other defences. Whether the prevention principle applied as a defence turned on three questions which the tribunal ought to have posed to itself in the context: (i) did the respondent commit an act of prevention; (ii) was there a mechanism in the contract to claim an extension of time arising from the act of prevention; and (iii) did the act of prevention cause the delay. In failing to apply its mind to the essential issues on the prevention principle, the tribunal expressly stated that it did not need to deal with the issue of extension of time and did not apply its mind to the causation point.

As to the Rating Claim, the tribunal found that the upgrade of the vessel generators was a reasonable explanation why there has been a modification fee in the contract and the pleadings and evidence pointed to the conclusion that the parties understood the vessel’s generators had to be upgraded from IP23 to IP44. These findings could only mean that the tribunal was rejecting the appellants’ defence that delivering the vessel with IP23-rated generator was not a breach of contract. However, the tribunal then stated that there was no breach by the appellants because the respondent itself had confirmed that IP23 was fit for purpose – this was never the appellants’ case and the Court considered that such finding would in any event have no nexus to the issue before the tribunal which was whether the installation of IP23-rated generators was in breach of contractual obligation.

In dismissing the appeal, the Court of Appeal stated that a breach of the fair hearing rule could arise from a tribunal’s failure to apply its mind to the essential issues arising from the parties’ arguments. However, the Court accords the tribunal “fair latitude” to determine what is and is not an essential issue and an award will not be set aside unless such failure is a clear and virtually inescapable inference from the award.

A breach of the fair hearing rule can also arise from the chain of reasoning which the tribunal adopts in its award. The Court of Appeal stated that to comply with the fair hearing rule, the tribunal’s chain of reasoning must be: (i) one which the parties had reasonable notice that the tribunal could adopt; and (ii) one which has a sufficient nexus to the parties’ arguments.

A party has reasonable notice of a particular chain of reasoning (and of the issues forming the links in that chain) if: (i) it arose from the parties’ pleadings; (ii) it arose by reasonable implication from their pleadings; (iii) it was unpleaded but arose in some other way in the arbitration and was reasonably brought to the party’s actual notice; or (iv) it flowed reasonably from the arguments actually advanced by either party or was related to those arguments. To set aside an award on the basis of a defect in the chain of reasoning, a party must establish that the tribunal conducted itself either irrationally or capriciously such that “a reasonable litigant in his shoes could not have foreseen the possibility of reasoning of the type revealed in the award”.

CEF and CEG v CEH [2022] SGCA 54

In CEF and CEG v CEH, the Singapore Court of Appeal considered a number of orders made in an International Court of Arbitration (ICC) arbitral award and partially set aside the award, again on the basis that there has been a breach of the fair hearing rule.

This case involved a dispute concerning contracts to provide engineering equipment and services to design and build a steel-making plant on a site in Ruritania. Disputes over the construction and production capabilities of the plant arose and the contracts were terminated. The appellants and the respondent commenced arbitrations against each other with the appellants alleging wrongful repudiation and the respondent claiming misrepresentation.

In 2019, the tribunal issued its award finding that the respondent was entitled to recission of the contracts and made various orders including an order to retransfer the title to the plant to the appellants, an order for the appellants to repay the contract price to the respondent and an order for the appellants to pay damages for the appellants’ misrepresentation. In the award, the tribunal noted that there were deficiencies in the respondent’s evidence with regard to the proof of its reliance loss but nonetheless proceeded to award the respondent, 25% of each claimed head of reliance loss, applying a “flexible approach”.

The appellants applied to the Singapore High Court to set aside the award and the application was dismissed.

On appeal, the Court of Appeal referred to the earlier case of BZW and another v BZV on the fair hearing rule and considered that the tribunal’s chain of reasoning regarding the award on damage was not one which the parties had reasonable notice that the tribunal could adopt, nor did it have a sufficient nexus to the parties’ arguments. The Court found that the parties would have expected that the tribunal would only award the respondent’s loss that the respondent could prove and the case law relied on by the tribunal to adopt “flexible approach” was only contained in the respondent’s reply post-hearing submission and it was not even the respondent’s submission that the tribunal could rely on the “flexible approach” to award a certain percentage of the respondent’s total claim.

It should be noted however that the Court of Appeal decided that the “no evidence rule” should not be adopted as part of Singapore law. This rule which has sometimes been applied in Australia and New Zealand means that an award which contains findings of fact made with no evidential basis at all is liable to be set aside for breach of natural justice. The Court of Appeal has refused to apply the “no evidence rule” as it would run contrary to the policy of minimal curial intervention in the arbitral proceedings and considered that it would not add anything to the existing grounds for setting aside an award but would instead be an impermissible invitation to the Courts to reconsider the merits of a tribunal’s findings of fact.

The cases of BZW and another v BZV and CEF and CEG v CEH represented the rare and exceptional instances where the Court of Appeal decided to set aside arbitral awards for breach of justice. In both judgments, the Singapore Court has nonetheless reaffirmed its pro-arbitration policy, and emphasised the principle that plain error of law and facts and inadequate reasons and explanations given in the awards are generally not capable of sustaining a challenge against an arbitral award. In order to set aside an award for breach of fair hearing, it has to be manifestly clear that the reasoning of the arbitral award is clearly detached from the parties’ case and submissions.

York International PTEL Ltd vs VOL Ltd [2022] SGHC 153

In the case of York International, the Singapore High Court allowed an application under Section 21(9) of the Arbitration Act and determined that the tribunal had no jurisdiction to issue a further award after issuing an arbitral award that included certain conditional reliefs on the grounds that it was functus officio.

The case concerned a dispute arising from a purchase agreement for water-cooled dual centrifugal chillers for a district cooling plant on Sentosa Island. The plaintiff claimed for outstanding payments and the defendant counterclaimed for damages due to the failure of the chillers which the defendant was liable to pay under a main contract to design, construct and maintain the Sentosa cooling plant (“Main Contract”). The parties agreed to resolve their dispute through ad hoc arbitration.

The arbitration proceedings commenced in Singapore and the arbitrator issued an award titled “Final Award” in 2014 in which he found that the plaintiff was liable to the defendant for the damages under the Main Contract but noted that the defendant had not yet paid for the claims under the Main Contract. The arbitrator therefore made the relevant part of his orders for relief conditional upon the defendant making the payment.

The defendant later settled its claim under the Main Contract and sought payment from the plaintiff but the plaintiff refused to make payment on the basis that the defendant had not provided satisfactory evidence of payment under the Main Contract.

The defendant applied to the arbitrator for a further award to determine the sums to be paid by the plaintiff and the plaintiff contended that the arbitrator did not retain any jurisdiction after the “Final Award” in 2014.

In deciding that the arbitrator was functus offio (Latin phrase meaning that once an arbitrator renders a decision regarding the issues submitted, he lacks any power to reexamine the decision), the Court considered that an award can be final and conclusive in its terms where it clearly provides for specific relief even though it may be conditional. Whilst this might present difficulties for enforcement purposes, the Court considered that it did not prevent it from being an award which bound the parties. As the arbitrator did not expressly reserve any jurisdiction in the 2014 award and has intended for it to be fully dispositive of all issues in the arbitration, the Court found that the award was final and fully resolved all the disputes that formed the subject of the arbitration.

 

Other key developments

Conditional fee agreements allowed in Singapore

Following the passing of the Legal Profession (Amendment) Bill on 12 January 2022, lawyers in Singapore can enter in conditional fee agreements (“CFAs”) from 4 May 2022, with the passing of the Legal Profession (Conditional Fee Agreement) Regulations.

A CFA is a mutually agreed arrangement for the payment of fees. Under the new CFA framework in Singapore, examples of CFAs that parties may enter into include “win, more fee”, “no win, no fee” and “no win, less fee” agreements. Contingency fee agreements, which are agreements where lawyers agree to accept an agreed percentage of the sum or damages recovered by a client are still prohibited under Singapore law. In other words, the uplift fee in a CFA cannot be a percentage of the damages in an arbitral award.

CFAs can be entered into for international and domestic arbitration proceedings, some proceedings in the Singapore International Commercial Court and related court and mediation proceedings. This includes work done for the purposes of, and before, the contemplated proceedings, such as preliminary advice, negotiations or the settlement of disputes.

A number of safeguards are put in place to mitigate the risk of any potential abuse:

• a lawyer is required to provide information on the CFA to the client before entering into a CFA; and
• the CFA must include various prescribed terms including:
  - the particulars of any uplift fee, if applicable;
  - that lawyers and clients must comply with the cooling-off period of five days after a CFA is entered into, during which either party may terminate the agreement via a written notice
  - that any variation of the CFA must be in writing and expressly agreed to by all parties to the CFA; an
  - that on termination during the cooling-off period, the client is not liable for any remuneration or costs incurred during the cooling-off period.

The Law Society of Singapore has issued its Council’s Guidance Note 5.6.1 of 2022 on Conditional Fee Agreements which took effect on 1 August 2022. The Guidance Note provides a sample CFA and a summary of topics a practitioner may encounter when preparing a CFA. The Law Society recommends practitioners to remind their clients of their rights to seek independent legal advice before entering into a CFA.