Damages Award Set Aside by Singapore CA On Basis It Was Made “arbitrarily”

In CEF/CEG v CEH [2022] SGCA 54, the Singapore Court of Appeal dealt with an appeal from a judgment of the High Court refusing to set aside an arbitration award (CEF and another v CEH [2021] SGHC 114).

This note deals generally with the main grounds raised before the Court of Appeal and focusses on one aspect of the lower court’s decision which was set aside, relating to the order for damages which practitioners would be well-advised to be mindful of when preparing damages claims.

Article 34(2)(a)(iv)

The appellants argued that an order of the Tribunal (the Transfer Order) was “uncertain, ambiguous and/or not enforceable” and therefore in breach of the parties’ arbitration agreement, the arbitral rules, and/or the Model Law.

The High Court considered that this provision could only apply to a breach of arbitral procedure, whereas the complaint was in effect a complaint concerning the substance of the order, and that the party had in any event waived its right to rely on this provision.  Further, there was no authority, and nothing in the Model Law or the ICC Rules, which supported the proposition that an arbitral award could be set aside merely on the basis that it was unenforceable or unworkable, and that in any event the Award was not unworkable.

The Court of Appeal agreed with the High Court.

Article 34(2)(a)(iii)

The appellants argued that the Transfer Order was a decision on a matter beyond the scope of the submission to arbitration.

The High Court rejected the contention that Art 23 of the ICC Rules required the Terms of Reference to state in detail every single head of claim that was advanced in the arbitration, but that even if it did impose such a requirement on the parties, the Terms of Reference were broad enough to bring counter-restitution of the Plant in specie within the scope of the submission to arbitration.  Further, the appellants had waived their rights to rely on Art 34(2)(a)(iii) of the Model Law.

The Court of Appeal agreed with the High Court, stating [68] that “An issue which surfaces in the course of an arbitration and which is known to all the parties is within the scope of the submission to arbitration even if it is not part of any memorandum of issues or pleading.”

Article 34(2)(a)(ii) (and/or s 24(b) of the IAA)

The appellants argued that the award had been issued in breach of natural justice and/or the fair hearing rule; the transfer of title to various plant had not been a live issue in the Arbitration, and the appellants had not been afforded an opportunity to present their case on the same.

The High Court declined to set aside the order on the basis that it was tainted by a breach of natural justice. The issue of counter-restitution in specie had been live throughout the arbitration, and having failed to present their case on counter-restitution in specie during the arbitration, the appellants could not now argue that the Tribunal had acted in breach of the fair hearing rule.

The Court of Appeal agreed with the High Court.

Order for Repayment

In relation to an order to repay on the basis of diminution in value of various plant, the appellants submitted that the Tribunal had, in breach of the “no evidence rule”, determined that the diminution in value of the Plant amounted to F$54.5m without any evidence from the parties on the current value of the Plant.  Further, that the Tribunal had also failed to give the parties a reasonable opportunity to present their case on that issue.

The High Court held that the Tribunal did not breach the fair hearing rule in making the order to repay since the diminution in value of the plant had been a live issue in the Arbitration from the very outset and the appellants could well have presented their case on the same if they had so desired.  Further, the “no evidence rule” should not be accepted as part of Singapore law, and even if it were to be accepted as a free-standing rule of natural justice, it could not apply to a situation where, as in the present case, the Tribunal had no evidence before it on a material issue of fact simply because the party who bore the burden of proof on that issue had failed to adduce such evidence.

The Court of Appeal agreed with the High Court, stating [102] that:

“the “no evidence rule” should not be adopted as part of Singapore law, as to do so would run contrary to the policy of minimal curial intervention in arbitral proceedings (AKN and another v ALC and others and other appeals [2015] 3 SLR 488 at [37]–[38]). Further, it would not add anything to the existing grounds for setting aside an award but would instead be (as the Judge stated) “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”.”

Section 24(b) of the IAA (alternatively Articles 34(2)(a)(ii) and/or 34(2)(a)(iv) of the Model Law)

The appellants argued that the contents of the Award taken as a whole did not contain adequate reasons for the Tribunal’s decision, and that the Award therefore ought to be set aside.

The High Court rejected the appellants’ contention that the Award and its contents were inadequately reasoned. As far as the Transfer Order was concerned, it was clear that the Transfer Order was enforceable and workable, and no further explanation was required on the Tribunal’s part.  Further, taken as a whole, the Award did provide sufficient reasons to inform the parties of the bases on which the Tribunal had reached its decision on the essential issues.

The Court of Appeal agreed with the High Court.

The Damages Order

The appellants submitted that the Tribunal had rejected and/or found the respondent’s evidence in support of its five heads of reliance loss to be deficient. Despite this, it inexplicably proceeded to adopt a “flexible approach” and to award the respondent 25% of each head of reliance loss, without first telling the parties it would be doing so or giving them the opportunity to address the Tribunal on the same.  Had the Tribunal indicated beforehand that it would apply this flexible approach, the appellants would have had the opportunity to decide whether to ask the respondent to produce the source documents, or to take a forensic risk by resting their defence only on the burden of proof.

The High Court held that the fair hearing rule had not been breached as the appellants could have advanced an alternative case on the quantum of the respondent’s reliance loss, but had refused to do so.  Further, even if the “no evidence rule” were accepted as a freestanding rule of natural justice, the Tribunal did have evidence before it to justify the order for damages.

The Court of Appeal disagreed with the High Court, stating [116]:

“the Tribunal’s chain of reasoning in respect of the Damages Order was not one which the parties had reasonable notice that the Tribunal could adopt, nor did it have a sufficient nexus to the parties’ arguments.”

The following reasons were articulated by the Court of Appeal:

  • That a reasonable litigant in the appellants’ shoes could not have foreseen the possibility of reasoning of the type revealed in the Award [117]

“The Tribunal had expressly stated that there were deficiencies in the respondent’s evidence due to the respondent’s failure to produce the relevant supporting documents or to explain how the existing documents substantiated its claim.  In our view, both parties would have expected that the Tribunal would only award the respondent loss that the respondent could prove. They would have expected that if the Tribunal disagreed with the appellants about the state of the evidence adduced by the respondent in support of its reliance loss, it would award the respondent its claim in its entirety, ie, it would then award 100% of the respondent’s claim for reliance loss. Similarly, if the Tribunal were to award 25% of the claim for reliance loss, this would be because the respondent had only proved 25% of its claim for reliance loss (and failed to prove the other 75%). In our view, a reasonable litigant in the appellants’ shoes could not have foreseen the possibility of reasoning of the type revealed in the Award – ie, that the Tribunal, having noted all the deficiencies in the respondent’s evidence, would then go on to adopt a figure of 25% of the amount claimed as being the loss incurred. Instead, the parties would have expected the Tribunal to dismiss the claim for reliance loss in its entirety.”

  • The Tribunal’s chain of reasoning did not have a sufficient nexus to the parties’ arguments. The Tribunal justified its reasoning with reference to the “flexible approach” in Robertson Quay Investment Pte Ltd v Steen Consultants Pte Ltd and another [2008] 2 SLR(R) 623, where the Court stated at [28]–[30]:

“The law, however, does not demand that the plaintiff prove with complete certainty the exact amount of damage that he has suffered. …

“Accordingly, a court has to adopt a flexible approach with regard to the proof of damage. Different occasions may call for different evidence with regard to certainty of proof, depending on the circumstances of the case and the nature of the damages claimed. There will be cases where absolute certainty is possible, for example, where the plaintiff’s claim is for loss of earnings or expenses already incurred (ie, expenses incurred between the time of accrual of the cause of action and the time of trial), or for the difference between the contract price and a clearly established market price. On the other hand, there will be instances where such certainty is impossible, for example, where the loss suffered by the plaintiff is nonpecuniary in nature, or is prospective pecuniary loss such as loss of prospective earnings or loss of profits (see generally McGregor on Damages at paras 8-003–8-064). The correct approach that a court should adopt is perhaps best summarised by Devlin J in the English High Court decision of Biggin & Co Ld v Permanite, Ld [1951] 1 KB 422 (“Biggin”), where he held (at 438) that: “[W]here precise evidence is obtainable, the court naturally expects to have it. Where it is not, the court must do the best it can.”

The Court of Appeal concluded that the Tribunal should not have randomly selected a figure of 25% [119]:

“…even the respondent acknowledged that, on the “flexible approach”, the Tribunal had to first be satisfied that the respondent’s evidence was “more likely to be true than not” in order to award any damages to the respondent. In our view, therefore, the Tribunal’s reliance on the “flexible approach” in Robertson Quay had no connection to the issue before the Tribunal of what the appropriate award for the respondent’s alleged reliance loss should be. Once the Tribunal found that the respondent had not proved its reliance loss, the only appropriate percentage to award was 0% – the “flexible approach” did not allow the Tribunal to randomly select a figure of 25%.”

  • The breach of natural justice was connected to the making of the Award [121]:

we consider that this breach of natural justice was connected to the making of the Award (BZW at [62]), as the Tribunal awarded the respondent 25% of its claimed reliance loss based on the “flexible approach”. In our view, this breach of natural justice prejudiced the appellants’ rights. Had the Tribunal informed the parties of its intention to apply the “flexible approach” in this manner, the appellants would have had the opportunity to inform the Tribunal of its objections to such an approach, or the appellants would have had the opportunity to decide whether to ask the respondent to produce the source documents or to take a forensic risk by resting their defence only on the burden of proof. This compliance with the rules of natural justice could reasonably have made a difference to the outcome of the Arbitration (BZW at [63])”

Further, the Court of Appeal refused to remit the matter to the Tribunal to reconsider the assessment instead of setting aside the Damages Order stating [124] that “In this case, we are satisfied that a reasonable person would not have that necessary confidence after having assessed how the impugned decision had been arrived at.”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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