E-briefing: Singapore Court: Arbitral Tribunals have the power to order US-style Attorneys’ Eyes Only Disclosure
Singapore Court: Arbitral Tribunals have the power to order US-style Attorneys’ Eyes Only Disclosure
The decision: The High Court in China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another  SGHC 101 held that an arbitral tribunal had the power to issue an “attorneys’ eyes only” (“AEO”) disclosure order. The court declined the applicant’s request to set aside the tribunal’s award on the basis that the AEO order resulted in a breach of natural justice. This decision affirms the broad case management powers which arbitral tribunals can exercise in Singapore-seated arbitrations.
The decision also provides rare analysis of applications to set aside arbitral awards on the basis of alleged use of guerrilla tactics.
The background: The underlying arbitration award on which this application was based arose from a complex dispute over the construction of a coal-fired power plant in Guatemala. The applicant (“CNMC”) agreed to construct the Plant for the Respondents (“Jaguar”) for approximately US$450m.
After a series of alleged breaches and delays, the relationship between the parties descended into acrimony. Jaguar terminated the construction contract, which led to numerous fiery emails and letters, culminating in a violent confrontation where Jaguar’s security guards deployed plastic pellet guns and pepper spray against CMNC’s employees. Jaguar also alleged that CNMC harassed and intimidated potential witnesses in the arbitration.
The arbitration: The dispute between the parties was subject to arbitration under the 1998 Rules of Arbitration of the International Chamber of Commerce (“ICC”) and was to be conducted in Singapore on an expedited basis.
Jaguar commenced arbitration on 28 January 2014. In its Statement of Case, Jaguar said that it was withholding production of 13 documentary exhibits (in addition to redacting its witness statements) as CMNC had engaged in a series of threatening actions against Jaguar and their contractors during and after the default termination. Thus, Jaguar had concerns that if CMNC was to discover the identity of Jaguar’s contractors, and certain other sensitive material such as the addresses of witnesses, that information could be misused to interfere with the construction project or the arbitration.
Jaguar indicated that it was only willing to disclose the material on an AEO basis to CMNC’s counsel of record and their experts. After CNMC’s counsel indicated they would be unlikely to agree, Jaguar requested the tribunal to make the order. In support of the request, Jaguar’s witnesses alleged that CMNC had offered money to contractors and suppliers in exchange for not working with Jaguar, and had physically intimidated Jaguar’s contractors, suppliers and employees. CMNC opposed the request for reasons including that an AEO order would be procedurally unfair, and that the concept of AEO disclosure, a feature of US dispute resolution, should not be imported into international arbitration.
The Tribunal granted Jaguar’s request for the AEO disclosure order, directing that a two-stage process would apply to the disclosure of the disputed documents (“the AEO Regime”), as follows:
- the documents would first be disclosed to CNMC’s external counsel only;
- CNMC could apply to the tribunal for specified employees of CNMC to view the documents for the purpose of giving instructions to counsel, subject to conditions (e.g. undertaking as to confidentiality).
The AEO Regime therefore contained a built-in safeguard which CMNC could resort to if its counsel needed instructions from its employees on specific documents for the purpose of conducting its case in the arbitration. However, CMNC never applied under the second stage of the AEO Regime for its employees to view the documents.
The tribunal then made its award, predominantly in Jaguar’s favour.
CNMC’s application to set aside the award: CMNC applied for the award to be set aside. Its application included the following grounds:
the Award was made in breach of the rules of natural justice (pursuant to Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) and s 24(b) of the International Arbitration Act (“IAA”)), as the AEO Regime deprived CNMC of a reasonable opportunity to present its case;
Jaguar’s “guerrilla tactics” render it appropriate to set aside the Award for breach of public policy (pursuant to Art 34(2)(b)(ii) of the Model Law).
Singapore courts adopt a policy of minimal curial intervention in dealing with allegations of breach of natural justice. In the context of an alleged breach arising from a procedural or case-management decision of the tribunal, the applicant must show “a material breach of procedure serious enough that it justifies the exercise of the court’s discretion to set aside the award”. Even where a breach is found, a court must consider whether any prejudice is due to that breach or to the applicant’s own choices or failings, which the court held reflects the settled principle that the applicant must show “a causal nexus” between the breach of natural justice and the award. The court also affirmed that a tribunal has a wide and flexible power to make procedural decisions. CNMC failed to prove the AEO Regime fell foul of these principles.
The court observed that the AEO order is not entrenched in our jurisprudence. That is not the same as saying it is not an appropriate order in international arbitration. The tribunal was empowered to impose an AEO order pursuant to Art 20(7) of the 1998 ICC Rules, or in the alternative, the tribunal was entitled to do so pursuant to its broad powers of case management under Art 19(2) of the Model Law.
Guerilla tactics in international arbitration: CMNC submitted that Jaguar employed guerrilla tactics in bad faith prior to and in the course of the arbitration. The court noted that the concept of guerrilla tactics in arbitration has not been explored in Singapore jurisprudence.
“Guerrilla tactics” refers to the use of illegal or unethical means with the aim of obstructing, delaying, derailing or sabotaging an arbitration.
The three types of tactics referred to in the authorities are:
- extreme guerrilla tactics which involve severe criminal acts and blatant abuse of state authority;
- common guerrilla tactics which amount to obvious misconduct, including bribery, intimidation and harassment of arbitrators and witnesses, wiretapping and other surveillance methods, fraud, delay tactics and frivolous challenges;
- “rough riding”, which are not guerrilla tactics but which violate the very spirit of international arbitration, including withholding evidence and ambushing the opposing parties with evidence.
The court noted an arbitral award may already be set aside on the basis of certain guerrilla tactics under Art 34(2)(b)(ii) of the Model Law (for breach of public policy) and s 24(a) of the IAA (where the award is induced by fraud or corruption). However, not all guerrilla tactics would fall within these two bases for setting aside an award. If the court agreed with CMNC, this would implicitly expand the categories of conduct on the basis of which an arbitral award may be set aside. The court expressed doubts over whether this was consistent with the philosophy of the Model Law and the IAA, and dismissed CMNC’s submission.
Arbitral tribunals have a wide and flexible power to make procedural decisions. Therefore, parties who allege that a tribunal’s procedural decision caused a breach of natural justice will have to meet a high threshold to set aside an arbitral award on that basis.
Not all allegations of “guerrilla tactics” can form the basis for an application to set aside an arbitral award.
Partner, Eversheds Harry Elias LLP