Singapore Arbitration Series - Part 2 : Challenge to Arbitration Award is Mostly Rejected by Court of Appeal - CEF v CEH [2022] SGCA 54

Singapore Arbitration Series – Part 2

Challenge to Arbitration Award is Mostly Rejected by Court of Appeal - CEF v CEH [2022] SGCA 54

As Singapore continues to cement its position as one of the world’s preferred seats of arbitration, it is perhaps unsurprising that we are seeing an increasing number of arbitration-related cases in the Singapore courts.

This series of articles aims to provide a quick overview of the cases and summarise the takeaways from each of them. Here, we review the second decision, CEF v CEH [2022].

To view the 1^st part of the Singapore Arbitration Series, please click here.

Case 2: CEF v CEH [2022] SGCA 54

CEF was contracted to design and build a steel-making plant for CEH, and disputes arose following delays in the construction and the plant’s inability to achieve the agreed production target.

Arbitration ensued and an award was made largely in CEH’s favour – the majority of the tribunal found that CEH had been induced to enter into the contract by CEF’s misrepresentations. The tribunal also made the following orders:

• a transfer of the title to the plant by CEH to CEF (the “Transfer Order”);
• CEF to repay the contract price to CEH, less certain amounts (the “Repayment Order”); and
• CEF to pay CEH damages under the Misrepresentation Act (the “Damages Order”).

CEF applied to set aside these orders on the following grounds:

• On the Transfer Order, CEF argued that it was:
  • uncertain, ambiguous and/or unenforceable;
  • a matter beyond the scope of the submission to arbitration; and/or
  • issued in breach of the rules of natural justice and/or the fair hearing rule.
• On the Repayment Order, CEF argued that the tribunal had:
  • breached the “no evidence rule” when determining the diminution in value of the plant without any evidence from the parties on the current value of the plant; and
  • failed to give parties a reasonable opportunity to present their case on that issue.
• As for the Damages Order, CEF argued that it was not given a reasonable opportunity to present its case or evidence on the loss/expense allegedly incurred by CEH, and hence the order was made contrary to natural justice.

More generally, CEF also argued that the contents of the award did not contain adequate reasons and therefore ought to be set aside under section 24(b) of the International Arbitration Act, or Art. 34(2)(a)(ii) or Art. 34(2)(a)(iv) of the Model Law.

The Court of Appeal dismissed most of CEF’s arguments, upheld the Transfer Order and the Repayment Order, but did set aside the Damages Order.

As regards the Transfer Order and the Repayment Order, it was found that the issues in question were in fact submitted to arbitration and were live issues throughout the arbitral proceedings. Notably, the Court of Appeal rejected CEF’s novel argument that an arbitral award may be set aside for uncertainty, ambiguity or unenforceability under Art 34(2)(a)(iv) of the Model Law – these grounds do not fall within the scope of the provision, and therefore do not constitute grounds for setting aside an arbitral award under the Model Law.

CEF’s attempt to introduce the “no evidence rule” in Singapore also met with no success. Such a rule has previously been applied in Australia and New Zealand, to the effect that an award which contains findings of fact made with no evidential basis is liable to be set aside for breach of natural justice. The Court of Appeal decided against adopting this rule as part of Singapore law, in line with Singapore’s policy of minimal curial intervention in arbitral proceedings.

The Court of Appeal also found that CEF had waived its right to challenge the Transfer Order because it failed to raise the ground for challenge in the arbitration. In arriving at this view, the Court of Appeal noted that an order for CEH to transfer the title to the plant back to CEF was a live issue throughout the arbitration – if CEF believed that such an order was contrary to the agreed arbitral procedure, fell outside the scope of the parties’ submission to arbitration or would be unenforceable, such arguments ought to have been raised with the tribunal. By failing to do so, it waived its right to challenge on such grounds altogether.

Where CEF succeeded was in relation to the Damages Order. In the Damages Order, the tribunal noted that there were deficiencies in CEH’s evidence as regards proof of its reliance loss, but nevertheless awarded 25% of each head of loss by applying a “flexible approach”.

The Court of Appeal accepted CEF’s argument that the tribunal’s reasoning in this regard was not one of which the parties had received reasonable notice. Nor did it have a sufficient nexus to the parties’ arguments. Given the deficiencies in CEH’s evidence, the parties’ reasonable expectation was that the tribunal would only award CEH the loss which it could prove, instead of applying a “random” figure of 25%. There was, therefore, a breach of natural justice which prejudiced CEF’s rights, and the Damages Order was accordingly set aside.

Finally, the award was not set aside for failing to contain adequate reasons – whether a given decision is sufficiently reasoned is a matter of degree, and an allegation of insufficient reasons and explanations is generally not capable of sustaining a challenge against an award.

Key takeaways:

• Even if an issue was not expressly set out in the terms of reference at the start of the arbitration, if it surfaces in the course of the arbitration and is known to all parties, it is still capable of falling within the scope of the parties’ submission to arbitration. If any party chooses not to make submissions on it, it will only have itself to blame and cannot thereafter argue that it was deprived of a fair hearing.
• Where a remedy sought is within the parties’ contemplation and a live issue during the arbitral proceedings, a party who wishes to mount any challenge in connection with the nature of such remedy (be it excess of jurisdiction or otherwise) should consider raising such challenge before the tribunal. Otherwise, it risks being deemed to have waived its rights in connection with the challenge altogether.
• The “no evidence rule”, which has previously been applied in Australia and New Zealand, is not applicable in Singapore.

To view the 1^st part of the Singapore Arbitration Series, please click here.