Setting Aside Arbitral Awards in Singapore: A Problem in the Standard of Review?

A Singapore High Court judgment is generally appealable as of right to the Singapore Court of Appeal. The aggrieved party may appeal on the basis that the High Court judge was wrong on the law or even on the facts. However, there is no such appeal on the merits for a Singapore international arbitration award. Under the Singapore International Arbitration Act (Cap. 143A), an international arbitration award may only be set aside on very limited grounds, namely:

  1. a party to the arbitration agreement was under some incapacity; or the arbitration agreement is not valid;
  2. the party against whom the award is invoked was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
  3. the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, or
  4. the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with Singapore law; or
  5. the subject-matter of the dispute is not capable of settlement by arbitration under Singapore law; or
  6. the award is in conflict with the public policy of Singapore; or
  7. the making of the award was induced or affected by fraud or corruption; or
  8. a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.

Two recent Singapore High Court decisions provide an excellent analysis of the Singapore courts’ approach in determining applications to set aside arbitral awards. In TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd, [2013] SGHC 186 (“TMM”), the application to set aside an award pursuant to two consolidated arbitrations failed. In BLB and another v BLC and others, [2013] SGHC 196 (“BLB”), the application to set aside an award similarly failed. However, the Honourable Justice Belinda Ang (“Ang J”) held that the arbitrator had failed to deal with certain counterclaims. Those issues were therefore remitted back to the tribunal for consideration.

In TMM, the Honourable Justice Chan Seng Onn (“Chan J”) neatly summed up the position of the Singapore courts and their pro-arbitration and pro-enforcement stance in the opening paragraphs of his judgment. However, Chan J also recognised the increasing difficulty and lengths to which courts have to go to in order to distinguish between meritorious and unmeritorious challenges.

“[1] However good or bad in the eyes of a party, the decision of an arbitral tribunal with the requisite jurisdiction is final and binding. This general proposition of law is a manifestation of the fundamental principle of interest reipublicae ut sit finis litium or finality in proceedings. Arbitration will not survive, much less flourish, if this core precept is not followed through by the courts. The integrity and efficacy of arbitration as a parallel dispute resolution system will be subverted if the courts appear unable or unwilling to restrain themselves from entering into the merits of every arbitral decision that comes before it. As is well-established under Singapore arbitration jurisprudence, the power to intervene in arbitrations generally, and more specifically to set aside awards, must and should only be exercised charily, in accordance with the rules under the applicable arbitral framework.

[2] Although parties have a right and expectation to a fair arbitral process and the courts should give maximum effect to these safeguards in deserving cases, parties must not be encouraged to dress up and massage their unhappiness with the substantive outcome into an established ground for challenging an award. Particularly for international commercial arbitrations under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), it is imperative that an application to set aside an award under s 24 read with Art 34(2) of the UNCITRAL Model Law for International Commercial Arbitration 1985 (“Model Law”) is not a guise for a rehearing of the merits. Unfortunately, as this case exemplifies, sieving out the genuine challenges from those which are effectively appeals on the merits is not easy under the present law. (emphasis added in bold)

In BLB, Ang J similarly noted that,

“[2] … The parties’ opposing positions embody a tension that is becoming increasingly apparent in the context of curial challenges to arbitral decisions. On one hand, the supervisory function of the court requires it to step in to provide relief in cases of genuine challenges. On the other hand, the linked principles of minimal curial intervention and finality in proceedings demand that this power of intervention be exercised warily and only in meritorious cases where statutorily prescribed grounds for setting aside have been established. This tension is further heightened when the losing party attempts to air its grievances before the court as complaints of breaches of natural justice or other established grounds of challenge and in doing so attempts to re-open the arbitration or traverse over the issues in the arbitration. The court must firmly resist any such attempts”.

Given such concerns, Ang J held that “in a borderline case the benefit of doubt would invariably favour the tribunal” (see paragraph [3]).

Extensiveness of review – is there a problem?

What is perhaps problematic is the extent of the review that the Singapore courts must/should engage in for such applications. The Singapore courts are obliged to accept and determine such applications. However, it cannot always engage in an exhaustive review of the arbitration proceedings and the award as if it were sitting as an appellate court. Such an approach would defeat the finality of arbitration proceedings. It would also increase the costs associated with arbitration and drag down the speed and efficiency of arbitration as a method of dispute resolution.

These concerns and considerations were considered in TMM. The High Court held that,

“[42] When a challenge is brought against an award, the court has a duty to entertain and engage the challenge. That is what the IAA and Model Law provide and that is what the court must do. If the complaint against the award is that the arbitral tribunal did too much or did not do what it was supposed to do, regardless of whether one couches the challenge under natural justice or excess of jurisdiction, the court is effectively asked to review the actions or inactions of the arbitral tribunal. Invariably, the court must look at the evidence on the record to determine the merits of the challenge. However, it does not follow, and neither do I accept, that this process always entails sifting through the entire record of the arbitral proceedings with a fine-tooth comb.

[45] The court should not nit-pick at the award. Infelicities are to be expected and are generally irrelevant to the merits of any challenge…

[126] Arbitrations are meant to be an efficient alternative to court litigation. This has, unfortunately, not been the case. … Especially for challenges against an award founded on the breach of natural justice, the court’s role is, in very general terms, to ensure that missteps, if any, are more than arid, hollow, technical and procedural (Soh Beng Tee at [98]). Any real and substantial cause for concern should be demonstrably clear on the face of the record without the need to pore over thousands of pages of facts and submissions. Otherwise, curial recourse against an award will be used (and abused) as an opportunity to invite the court to judge the full merits and conduct of the arbitration. As a further aside, an over-jealous scrutiny of the arbitral tribunal’s decision will also encourage parties to, via the statutorily permitted mechanism of curial recourse, tactically frustrate and delay the enforcement of the arbitral award. … This runs contrary to one of the original aims of arbitration as an expedient alternative dispute resolution mechanism.”

Similarly, in BLB, Ang J held that,

“…the degree of review that is appropriate in such cases…is ultimately a matter dependent on the type and nature of the challenge. Even so, the review should not involve a re-argument or re-trial of the arbitration. I must emphasise that it is not the role of the court to rake through the award and the record fastidiously with the view to finding fault with the arbitral process. Instead, “an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied” [emphasis added] (see Soh Beng Tee at [65(f)])”

In this respect, Ang J also noted that the review in TMM was “far more extensive than that undertaken in this [the BLB] case”. Ang J eventually held that (a) there was in fact a problem on the face of the award, (b) something was amiss and (c) to understand the award and arguments involved, “some degree of review was required”. This suggests some sort of threshold test whereby the court’s scrutiny takes place only after its discovery of some error “on the face of the award”.

Extent of review in recent cases

A review of recent arbitration case law in the Singapore courts provides a rough but helpful gauge as to the extent of review that the courts have engaged in. For the purposes of this exercise, we will focus on those applications to set aside which require factual examination of the proceedings and the award. In other words, we have not considered cases which involve the interpretation of the arbitration clause, or whether signatories are a party to the arbitration agreement or whether an arbitration clause had been incorporated into a separate agreement. A further caveat: we have roughly correlated the length of each judgment (based on the number of paragraphs) with the extent of review undertaken by the court. However, we have not taken into account how many of those paragraphs in each judgment were devoted to examining the factual record or the length of the relevant paragraphs.

The High Court’s judgment in TMM runs to 126 paragraphs. Chan J himself notes the extent of the problem involved in the review exercise,

“[126] … In these proceedings, TMM provided a compendious record of the Arbitration by way of two affidavits which ran into about 3,200 pages across eight volumes. Excluding oral submission captured in more than 1,300 pages of transcripts, TMM also tendered several rounds of written submissions which totalled 241 pages from cover to cover. I find this to be both unnecessary and unsatisfactory. … In the present case, taking the commencement of the Arbitration as the date at which the dispute arose, the parties’ dispute is already in its fifth year. If my decision is appealed, parties may well have to wait for several more months to finally resolve this dispute. … ”. (emphasis in bold)

Furthermore, oral arguments before the High Court in TMMstretched over several days, during which TMM’s counsel made substantial arguments in addition to their written submissions” (see paragraph [36]).

Also, notwithstanding Ang J’s observation that the review in TMT was in fact far more extensive than in BLB, the Singapore High Court’s decision in BLB still comes in at 104 paragraphs.

The Court of Appeal case of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd, [2007] 3 SLR(R) 86, the locus classicus for applications to set aside an award for breach of natural justice, is 99 paragraphs long.

The most recent Singapore Court of Appeal decision on breach of natural justice in L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd, [2013] 1 SLR 125 spanned 94 paragraphs (see our analysis of the case here). The High Court judgment which gave rise to the appeal (Lim Chin San Contractors Pte Ltd v L W Infrastructure Pte Ltd, [2012] 2 SLR 1040) took just 54 paragraphs. Even earlier in those proceedings, the High Court decision which had initially remitted an issue back to the arbitrator in the first place and from which arose the subsequent fights (Lim Chin San Contractors Pte Ltd v LW Infrastructure Pte Ltd, [2011] 4 SLR 455) involved an examination over only 53 paragraphs.

On the issue of pleadings, the Court of Appeal’s judgment in PT Prima International Development v Kempinski Hotels SA and other appeals, [2012] 4 SLR 98 took 78 paragraphs (our analysis of that case can be read here). The High Court decision below in Kempinski Hotels SA v PT Prima International Development, [2011] 4 SLR 633 was 118 paragraphs long.

The High Court decision in Quarella SpA v Scelta Marble Australia Pty Ltd, [2012] SGHC 166 was 59 paragraphs (our take on the case can be found here). This was despite it being an “easy case” in the sense that it was obvious that the applicant’s prospects of success were low. The learned judge made the very pointed remark that “besides examining the guidance of the [Singapore] Court of Appeal…Quarella would not have had to venture too far to find literature that would have indicated that the prospects of it succeeding in the setting aside application on this ground were dim” (see paragraph [54]).

Solution in the form of costs orders?

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, the Model Law and the IAA all contemplate that the enforcement and recognition of international arbitration awards will be subject to the scrutiny of the courts. It should not be the case that the relevant courts simply reject any application to set aside out of hand or based on the most cursory scrutiny. However, it cannot be such that,

“…curial recourse against an award will be used (and abused) as an opportunity to invite the court to judge the full merits and conduct of the arbitration. As a further aside, an over-jealous scrutiny of the arbitral tribunal’s decision will also encourage parties to, via the statutorily permitted mechanism of curial recourse, tactically frustrate and delay the enforcement of the arbitral award” (TMM at [126])

Thus far, the Singapore High Courts have not addressed this issue of whether failed challenges to arbitration awards merits special costs considerations. However, we do note that the Singapore Court of Appeal has held that indemnity costs would be awarded when a party institutes court proceedings in breach of an arbitration agreement, thereby necessitating an application for the stay of proceedings (see Tjong Very Sumito and others v Antig Investments Pte Ltd, [2009] 4 SLR(R) 732).

One way to discourage parties from launching unmeritorious challenges to arbitration awards is to penalize them in the form of costs orders. We have written about the Hong Kong courts’ approach to a failed challenge of an arbitral award. In particular, the Hong Kong courts take the default position that, save in special circumstances, indemnity costs will be awarded for an unsuccessful challenge to an arbitration award. The difference between an indemnity costs order and a standard costs order can be substantial, where the former could be twice that of the latter.

In this respect, the Hong Kong Court of Appeal had held in Gao Haiyan and Another v. Keeneye Holdings Ltd and Another [2012] HKCA 43 that, permitting the losing party to only pay costs on the lower standard basis would in effect cause the victorious party “to subsidise the losing party’s abortive attempt to frustrate enforcement of a valid award” (citing A v R [2010] 3 HKC 67 at [67] to [72]).

However, an indemnity costs order will still not be a full indemnity. Accordingly, the victorious party in the arbitration would still be out of pocket in defending an unmeritorious challenge against its award in the courts. Nonetheless, it may be argued that this is probably the most appropriate balance to be struck between all the competing considerations viz the finality of awards and the courts’ obligations to fairly consider applications to set them aside.

The Singapore courts may yet address this issue.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the KLRCA.
This entry was posted in Arbitration, Hong Kong, Singapore and tagged , , , , , , . Bookmark the permalink.

One Response to Setting Aside Arbitral Awards in Singapore: A Problem in the Standard of Review?

  1. Pingback: Challenge to Arbitrator for Apparent Bias – What happens if the final award is rendered before the court determines challenge? | Singapore International Arbitration Blog

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