Singapore Court of Appeal clarifies grounds for setting aside arbitral awards and applicability of ‘no evidence rule’ in Singapore (CEF and CEG v CEH)

*This analysis was first published on LexisNexis on 29 July 2022.

Arbitration Analysis: In CEF and CEG v. CEH [2022] SGCA 54, the Singapore Court of Appeal dealt with a variety of orders in an arbitral award to determine whether they should be set aside. The appeal raised a number of novel points, with the appellants alleging that the orders were, inter alia, ‘uncertain, ambiguous, impossible and/or unenforceable’, in breach of the ‘no evidence rule’ applied to findings of fact made without evidential basis, and in breach of the fair hearing rule. The court found that ambiguity in or unenforceability of an award were not proper grounds for setting it aside, and that the ‘no evidence rule’ is not appropriate under Singapore law as it contravenes the principle of minimal curial intervention. The court also expounded on how an arbitral tribunal’s chain of reasoning can result in a breach of the fair hearing rule. 

What are the practical implications of this case?

This landmark Singapore Court of Appeal decision addresses several issues of interest on the setting aside of arbitral awards. This includes (a) whether an award should be set aside on the basis of it being ‘uncertain, ambiguous, impossible and/or unenforceable’; (b) the applicability of the ‘no evidence rule’ to set aside awards for containing findings of fact with no evidential basis; and (c) how a breach of the fair hearing rule could arise from a tribunal’s chain of reasoning.

What was the background?

The first appellant is a multinational company which designs, builds and sells plants for the iron and steel industry. It is the parent of the second appellant. The respondent manufactures hot-rolled steelcoils and carries on business on the premises of its parent, a major steelmaker (“Parent”). In 2011, the appellants were contracted to design and build a steel-making plant (“Plant”) for the respondent (“Contract”).

In 2016, the parties’ relationship broke down after delays in the construction of the Plant and the failure of the Plant to achieve its production target. The parties each initiated action against the other. This led to a consolidated arbitration in October 2016 (“Arbitration”). An award was issued in 2019 with various orders in favour of the respondent (“Award”).

The three-member tribunal (“Tribunal”) found that the respondent had been induced to enter into the Contract by the appellants’ misrepresentations, and that the respondent was entitled to rescission:-

  • the appellants were to pay the respondent the contract price, less two loans extended to the respondent and after taking into account the respondent’s use of and the diminution in value of the Plant (“Repayment Order”).
  • the respondent was to transfer title to the Plant to the appellants in return for payment under the Repayment Order (“Transfer Order”).
  • the appellants were to pay the respondent sums denominated in an unknown currency totalling R$176,245,250 (“Damages Order”).

The appellants applied to the Singapore High Court to set aside the Award on the basis of breach of natural justice under section 24(b) of the International Arbitration Act (“IAA”) and other grounds under Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). The High Court judge (“Judge”) dismissed the appellants’ application.

The appellants appealed the Judge’s decision to the Court of Appeal (“Court”).

What did the court decide?

Transfer Order – Uncertain, Ambiguous, Impossible, Unenforceable

The Court declined to set aside the Transfer Order on the allegation that it was “uncertain, ambiguous, impossible and/or unenforceable”.

As a starting point, the Transfer Order would not be set aside because it was allegedly unenforceable. Rather, an award becomes unenforceable because it has been set aside.

The appellants’ reliance on article 41 of the ICC Arbitration Rules (“Art 41”) was misplaced. Art 41 seeks to ensure that the procedural requirements of enforcement are satisfied, but a tribunal does not have the duty to accurately predict or guarantee whether a judicial authority will subsequently enforce an award.

The Transfer Order was also not uncertain or ambiguous. In any case, uncertainty or ambiguity is not a basis to set aside an award under Art 34(2)(a)(ii) to (iv) of the Model Law. The Transfer Order was also not impossible or unworkable; neither did the appellants provide authority to justify setting aside an award for impossibility or unworkability.

The Transfer Order did not contain decisions on matters beyond the scope of submission to the Arbitration. An issue which surfaces in the course of arbitration and which is known to all the parties is within the scope of submission to arbitration even if it is not part of any memorandum of issues or pleading: TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at para [52] (“TMM Division”). The counter-restitution of the Plant in specie was a natural consequence of the respondent’s counterclaim for rescission. The appellants were not denied a reasonable opportunity to submit on the issue of the transfer, and how such transfer would be effected.

Repayment Order – No Evidence Rule

The Court declined to set aside the Repayment Order on the basis that it was issued in breach of the ‘no evidence’ rule or the fair hearing rule.

The ‘no evidence rule’ is a rule sometimes applied in Australia and New Zealand to set aside an award containing findings of fact with no evidential basis at all for breach of natural justice.

The Court held that the ‘no evidence rule’ should not be adopted as part of Singapore law as doing so would be contrary to the policy of minimal curial intervention in arbitral proceedings: AKN and Anor v ALC and Ors [2015] 3 SLR 488 at paras [37]-[38]. Further, it would not add anything to the existing grounds for setting aside but would be “an impermissible invitation to the courts to reconsider the merits [of] a tribunal’s findings of fact as though a setting-aside application were an appeal”.

In any event, the ‘no evidence rule’ was inapplicable as appellants bore the burden of proof to adduce evidence on proving the diminution in value of the Plant.

Damages Order – Fair Hearing Rule

The Court set aside the Damages Order on the basis of a breach of the fair hearing rule.

The Tribunal had ordered a 25% recovery of the damages the respondent sought even though it had found the respondent’s evidence to support its reliance loss to be deficient. The Tribunal decided to adopt a ‘flexible approach’ in awarding damages without first informing the parties or giving them the opportunity to address the Tribunal. The Court found that the Tribunal’s chain of reasoning was not (i) one which the parties had reasonable notice it would adopt; nor did it (ii) have sufficient nexus to the parties’ arguments, giving rise to a breach of the fair hearing rule: BZW and Anor v BZV [2022] SGCA 1 at para [60(b)].

Award was sufficiently reasoned

Finally, the Court declined to set aside the Award on the allegation that it did not contain sufficient reasons for the Tribunal’s decision. The Court found that, on the whole, the Award did provide sufficient reasons to inform the bases on which the Tribunal reached its decision on the essential issues. Whether a given decision is sufficiently reasoned is a matter of degree and must be considered in the circumstances of each case – even if no reasons were given in an award, this would not invariably cause the award to be set aside for breach of natural justice: AUF v AUG [2016] 1 SLR 859 at paras [77]-[79]. An allegation of inadequate reasons and explanations is generally not capable of sustaining a challenge against an award: TMM Division at para [98].

About Wei Ming Tan

International Disputes Lawyer / Of Counsel at CMS Holborn Asia
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