E-briefing: Singapore Court of Appeal confirms the set aside of an Arbitral Award for Failure of the Arbitrator to Hear Witness Evidence
Why this is Important
In CBS v CBP  SGCA 4, the Singapore Court of Appeal (“SGCA”) affirmed the High Court’s setting aside of an arbitral award due to the failure of the arbitrator to hear pivotal witness evidence, despite a party’s request for it to do so. The Court ruled that such failure amounted to a breach of natural justice which affected the making of the Final Award. This case underscores the need for an arbitrator to comply with the applicable procedural rules during the conduct of the arbitration, as a breach of natural justice may result in the setting aside of an award.
The case involves the sale and purchase of 50,000 metric tonnes (MT) of coal between the respondent (the “Buyer”) and a Singapore company (the “Seller”) at a price of US$74 per MT. The transaction was covered by two separate sale and purchase agreements, both containing an arbitration clause to refer any dispute to arbitration under the Rules of the Singapore Chamber of Maritime Arbitration (“SCMA Rules”). The Seller also entered into an agreement with a Singapore-incorporated bank (the “Bank”), for all of the Seller’s trade debts to be assigned to the Bank.
The dispute arose from the second delivery of coal under the second sale and purchase agreement. The Bank issued the Buyer a Bill of Exchange for the payment of the second delivery of 20,000 MT of coal. The Buyer alleged that only 15,000 MT of coal was delivered and said that it would only pay US$61 per MT due to a reduced market price. In light of this, both Seller and Buyer met to discuss the outstanding payment and alleged shortfall (the “Meeting”). According to the Buyer, both parties agreed during the Meeting that payment would be at the rate of US$61 per MT. This was contested by the Seller. Thus, the Bank commenced arbitral proceedings with the SCMA against the Buyer.
The conduct of the arbitration
During the arbitration, the Buyer submitted its list of witnesses to the arbitrator. The list included six witnesses which the Buyer claimed were present at the Meeting. In turn, the arbitrator twice requested that the Buyer provide its reasoning for calling its witnesses and the need for their oral testimony. Additionally, the arbitrator sought both a detailed witness statement from each of the witnesses before he would decide on the necessity of an oral hearing and a brief from both parties on what constituted a breach of natural justice. Over the course of the proceedings, the Buyer asserted that (a) it was a breach of natural justice for an arbitrator to require a party to submit a witness statement in order to determine if an oral hearing was necessary; (b) there was a need to cross-examine the witnesses; and (c) the calling of witnesses was a right automatically conveyed to the Buyer under Rule 28.1 of the SCMA Rules.
The Buyer did not submit the requested information. A hearing was then held for oral submissions only, and no witness evidence was taken. The arbitrator eventually issued an award in favour of the Bank. The Buyer filed an application to set aside the Final award on the basis that there was a breach of natural justice.
The ruling of the Court of Appeal
In finding that the award was correctly set aside by the High Court, the Court of Appeal set out the four elements which must be established by a party which seeks to set aside the award for a breach of a rule of natural justice: (a) which rule of natural justice was breached; (b) how that rule was breached; (c) in what way the breach was connected with the making of the award; and (d) how the breach prejudiced the applicant’s rights.
Was there a breach of the rules of natural justice?
A party’s right to be heard in legal proceedings is a fundamental rule of natural justice. Article 18 of the Model Law states that each party shall have a “full opportunity” of presenting its case. What constitutes a “full opportunity” can only be meaningfully assessed within the specific context of the particular facts and circumstances of the case. The overarching inquiry is whether the proceedings were conducted in a fair manner. Here, Rule 28.1 of the SCMA Rules provided that unless the parties have agreed on a documents-only arbitration or that no hearing should be held, the Tribunal shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submissions. Therefore, although the arbitrator had the power to limit the oral examination of the witnesses, the arbitrator had no power to decide on a hearing for oral submissions only in absence of any agreement by the parties.
Such witness-gating as done here stands contradictory to the rules of natural justice, even if purportedly done for the benefit of efficiency or if a party is uncooperative. While Rule 25.1 of the SCMA Rules allows the tribunal discretion to manage the proceedings, this is not an unfettered power that overrides the rules of natural justice. Therefore, the arbitrator had no power to impose a condition that a party be required to show that its evidence had “substantive value” before he decided to allow or disallow it being adduced into the evidence through an oral hearing.
Did the breach affect the award?
The Court ruled that there was a connection between the breach of the rules of natural justice and the award rendered. The real cause for the arbitrator’s order was a misapprehension of his powers under the SCMA Rules. While the Buyer’s conduct may have been uncooperative or even dilatory, this was not a violation of the SCMA Rules or the real cause of the breach. The arbitrator’s direction resulted in the gating of all seven of the Buyer’s witnesses. In disallowing the witness evidence, the arbitrator breached the fair hearing rule and went on to find the Buyer liable for the entire sum claimed by the Bank based on the original contract price.
Did the breach cause prejudice to the Buyer?
The key question here is - would the breach have had a material impact on the arbitration or award, and did such defect have any effect on the party seeking to invoke it as a ground for setting aside the arbitral award? As the Buyer’s defence against the claim was that there was an agreement for the reduction in the price of coal that took place during the Meeting, the arbitrator’s refusal of witness evidence from the witnesses present during the Meeting did in fact prejudice the Buyer. The alleged agreement during the Meeting was a critical component of the Buyer’s defence.
Whilst the practice of witness-gating may, in certain instances, be permissible for reasons of efficiency, this must be balanced with the parties’ right to a fair hearing. CBS v CBP shows that an arbitrator’s powers are not unlimited. Parties to an arbitration must therefore be mindful that the arbitral process complies with the applicable arbitral rules, and, more importantly, does not breach the rules of natural justice. If this is the case, following the four-part test above, parties may face the risk of having the award set aside, resulting in significant time and cost expense.
The Harry Elias Partnership International Arbitration Practice
Harry Elias Partnership regularly provides advice on complex international commercial disputes. We have extensive experience in advising and successfully representing multinational entities in commercial arbitration. As a full-service Singapore law firm, we have full rights of audience before all tiers of Singapore Courts. We are therefore well placed to advise and support our clients in any arbitration-related court applications before the Singapore Courts.
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Head, International Arbitration
Partner | Harry Elias Partnership LLP
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Foreign Legal Associate | Harry Elias Partnership LLP
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