Corporate & Commercial Litigation
Family and Probate
Notes from the Bar – Arbitration, rules of natural justice and gating of witnesses
One advantage of international arbitration in Singapore is that the Final Award is final and not subject to any appeals. Parties know that once the Final Award is issued, the Final Award will not be subject to the uncertainties normally associated with appeals to an appellate court. But what happens when the manner in which the arbitration was conducted was unfair to one party? This is where the national court of the seat of the arbitration steps in and exercise its supervisory function as shown in the recent Singapore High Court decision of CBP v. CBS [2020] SGHC 23.
The Plaintiff (the "Buyer") in this case is a company incorporated in India. It entered into two agreements with the Seller for the purchase of 2 parcels of coal. There were no disputes arising from the first agreement. The dispute arose from the second agreement which relates to the sale of 20,000 MT of coal.
Pursuant to its finance arrangements with its bank, the Seller assigned the accounts receivables from the second agreement to the Defendant (the "Bank").
The Buyer defaulted on payment. After initially asking more time to make payment, the Buyer suddenly changed tack and claimed that out of the 20,000 MT, only 15,000 MT were delivered. The Buyer also said that due to a drop in market price, it was now only willing to pay US$61 per MT instead of the contractual price of US$74 per MT.
Thereafter, there was a meeting between the Buyer's representatives and the Seller's representatives. The Buyer alleged that at this meeting, there was a global settlement where the Seller allegedly agreed to a price reduction to US$61 per MT for the coal supplied pursuant to both the first and second agreements.
It appears that the Seller disputes the existence of such a global settlement agreement and the Bank commenced arbitration against the Buyer.
The arbitration clause in the second agreement provides for the arbitration to be governed by the Arbitration Rules of the Singapore Chamber of Maritime Arbitration (3rd Edition, 2015) ("SCMA Rules"). A sole arbitrator was appointed pursuant to the SCMA Rules.
After arbitration was commenced, the Buyer was late in the filing of its defence and asked for a 8-week extension of time. The Bank objected to the request but the arbitrator granted a 2-week extension of time for the Buyer to file its defence and counterclaim.
When the Buyer finally submitted its defence and counterclaim, the Buyer also submitted its list of witnesses. In that list, the Buyer named a total of seven witnesses, out of which six were persons whom the Buyer claimed were present at the meeting when the alleged global settlement arose.
The Bank then took the position that there was no necessity for the witnesses to be called and that the dispute turned primarily on the contractual interpretation of the documents. The Bank proposed that the arbitration should proceed on a documents-only basis.
Following the Bank's proposal, the arbitrator asked the Buyer to provide its position and reasons for calling the seven witnesses and the need for their testimony. To this, the Buyer's response was that an oral hearing was required and necessary. The Buyer did not furnish any further arguments why this was so.
The arbitrator was not satisfied with the answer and asked the Buyer again to provide a descriptive basis of what the Buyer expects to develop with the introduction of the proposed witnesses. Again, the Buyer's response was a rather vague assertion that there was a need to examine the witnesses.
Eventually, the arbitrator directed that before he could rule on whether the proceedings should be a documents-only arbitration or if an oral hearing was necessary, he required detailed written statements from each of the Buyer's names witnesses.
The Buyer then responded to say that it was a breach of natural justice by the arbitrator to require a written statement from each of the witnesses before deciding whether to hold an oral hearing. The Buyer further emphasized that a few of the witnesses referred to were the Seller's representatives.
Eventually the arbitrator directed that pursuant to Rule 28.1 of the SCMA Rules, there will be an oral hearing since parties did not agree to a documents-only arbitration. However, the arbitrator ruled that pursuant to the same rule, there would be no witnesses presented at the hearing.
The arbitrator then proceeded to conduct the oral hearing by telephone. The oral hearing lasted for 10 minutes. The arbitrator proceeded to issue a Final Award allowing the Bank's claim and dismissing the Buyer's counterclaim.
The Court's Decision
The Court held that if a party wishes to challenge an arbitration award as having contravened the rules of natural justice, that party needs to establish four requirements;
Which rule of natural justice was breached;
How it was breached;
In what way was the breach connected to the making of the award; and
How the breach prejudiced its rights.
First and foremost, the Court noted that unless the parties to an arbitration agrees, the arbitral tribunal cannot decide on its own accord to hold a documents-only arbitration. It is clear that Rule 28.1 of the SCMA Rules provide that an oral hearing must be held unless parties agree otherwise.
Thus, if a party wishes to present witness testimony, an oral hearing must be held whether for that party to lead the evidence or for the other party to cross-examine the witnesses. The Court held that it is only when all parties have decided not to lead oral evidence or cross-examine any of the witnesses that a hearing only for oral submissions may be held.
And if the parties agree that there is no need for oral submissions as well, then that arbitration becomes what is known as a documents-only arbitration.
'Gating' of witnesses
The Bank argued that the arbitral tribunal has to power to refuse or limit the appearance of witnesses giving oral testimony, or to 'gate' such witnesses. In support of its argument, the Bank relied on Rule 25.1 of the SCMA Rules which enables the arbitrator to decide on the arbitration procedure, including all procedural and evidential matters.
In this regard, the Court noted that unlike the LMAA Terms or the IBA Rules which permits the tribunal to limit certain types of evidence, the SCMA Rules do not expressly provide for any witness gating powers.
And while an arbitral tribunal has the obligation to ensure the "just, expeditious, economical and final determination of the dispute" (Rule 25.1 of the SCMA Rules), the paramount consideration that the tribunal must have is to ensure the just determination of the dispute. An expeditious and economical determination of the dispute cannot be at the expense of a just determination of the dispute.
Therefore, even if an arbitral tribunal has the power to gate witnesses in the interest of efficiency, it is not an absolute power and cannot be used to override the rules of natural justice which demands that the parties must be afforded a fair hearing.
The High Court found that by denying the Buyer the chance to call all seven witnesses, the arbitrator had breached the rules of natural justice. The Final Award was thus set aside by the High Court.
Our Comments
We think that the Court's decision is correct and well balanced. At the end of the day, it is the arbitrator's job to move the proceedings expeditiously, but at the same time, to ensure that it is fair and just to both parties.
From the perspective of users of arbitration, this decision should be welcomed as it would be a useful guide to future tribunals when faced with a situation where one party seeks a documents-only arbitration while the other demands an oral hearing.
Please feel free to contact us if you have any queries arising from the above.
Photo by Bill Oxford on Unsplash
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