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Nature of Matter

Arbitration – Award – Recourse against award

Case Summary

CAJ v CAI is an appeal against the decision of the High Court in CAI v CAJ [2021] SGHC 21 which had partially set aside an arbitral award on the basis the rules of natural justice had been breached. The relevant facts of the case can be found published in the March 2021 newsletter at CAI V CAJ and anor [2021] SCHC 21. Unless otherwise indicated, the definitions set out in the case report for CBP v CBS are adopted.

For this case report, we focus on the following issues before the Court of Appeal:

(1) whether the Tribunal had exceeded the scope of the parties’ submission to arbitration by ruling on the EOT Defence.

(2) whether the Tribunal had acted in breach of natural justice by ruling on the EOT Defence.

(3) whether the respondent was precluded from seeking to set aside the award on the basis of its conduct in the Arbitration

The Court of Appeal dismissed the appeal as it found as follows:

1. It was paramount to understand the true nature of the EOT Defence.

- GC 40 (i.e. the EOT provision) contractually allows the time for mechanical completion to be extended, thereby setting a new date for completion from which liquidated damages will begin to run in the event of further delay. Its invocation is subject to specific express conditions, and there is also the procedural requirement that the appellants submit a notice of a claim for an extension of time, along with the requisite particulars justifying such extension. A defence based on GC 40 is therefore necessarily fact-sensitive.

- The EOT Defence was a creature of a contractual provision. In order to rely on GC 40, it was incumbent on the appellants to satisfy the contractual conditions stipulated therein. It would follow such a defence would have to be pleaded. In this instance, GC 40 required the appellants to provide express notice of their claim to the respondent at the relevant time (ie, as soon as reasonably practicable after the commencement of the event or circumstance that allegedly caused the appellants delay). In other words, the claim for an extension of time must have been made contemporaneously and not at the Arbitration. However, the appellants did none of this.

- Despite the appellants’ invocation of GC 40 being dependent on the fulfilment of several conditions, none of them was pleaded. None of the issues was canvassed in the course of the Arbitration until the appellants’ written closing submissions. In light of this, the relevant inquiry was not whether the Tribunal had the power to invite the parties to address it on the EOT Defence by way of evidence and/or submissions. Instead, the correct and anterior inquiry was as to when and how a tribunal would be entitled to rule on an unpleaded defence.

- To decide on the EOT Defence which was not pleaded and given its fact-sensitive nature, the correct procedure would have been for the Tribunal to invite submissions from the parties as to whether an amendment to the pleadings to include the EOT Defence should be allowed. Any such invitation would also involve an application by the appellants to amend the defence to plead the EOT Defence with full particulars. This step would have to be undertaken prior to the Tribunal’s consideration as to whether fresh evidence and/or submissions should be permitted to address the EOT Defence. If allowed, it would lead to various consequential orders such as consequential amendments to the respondent’s pleadings, specific discovery, leave to adduce fresh evidence (both factual and expert) to meet the new EOT Defence, and recalling witnesses for cross-examination. This was not done at any stage of the Arbitration.

- In the present case, when the Arbitration was declared closed, it was common ground the EOT Defence remained unpleaded and there was also no ruling by the Tribunal that the appellants were allowed to rely on the EOT Defence. As such, at this time, the respondent was none the wiser as to whether the Tribunal would entertain the EOT Defence.

Excess of jurisdiction

2. On the issue whether, by ruling on the EOT Defence, the Tribunal had exceeded the scope of its jurisdiction, the Court of Appeal held as follows:

- The EOT Defence was only raised for the first time in the appellants’ written closing submissions in the Arbitration.

- It is accepted the court should not construe the parties’ pleadings, the Lists of Issues and the Terms of Reference too narrowly. However, it was impermissible for the appellants to invite the court to adopt a broad reading of the pleadings, the Lists of Issues and the Terms of Reference in order to read into them a defence which was not pleaded. Any proper interpretation of these documents, however broad, could not possibly allow the Tribunal to adjudicate on a specific and fact-sensitive contractual defence which had not been expressly raised. The purpose of adopting a broad interpretation of these documents is to avoid an inflexible and rigid analysis of the issues raised in the arbitration, so that issues which arise from or are natural consequences of the pleaded issues are not excluded.

- The Court of Appeal rejected the appellants’ suggestion that the EOT Defence fell within the scope of the submission to arbitration simply because it would have a bearing on the respondent’s claim for liquidated damages. There can be no serious dispute that many defences could have an impact on the extent of a claim for liquidated damages. If the appellants’ submission was correct, many unpleaded defences which somehow have a bearing on claims for damages (liquidated or otherwise) would automatically fall within the scope of the submission to arbitration. Such an approach does not make sense, and would undermine the very purpose of pleadings.

- In this case, the appellants submitted that since the parties had made substantive arguments in relation to the EOT Defence in their written closing submissions, the EOT Defence fell within the scope of the submission to arbitration. The Court of Appeal rejected this argument as the overriding consideration would be to determine whether the relevant issues had been properly pleaded before the tribunal.

- It was common ground the EOT Defence did not feature anywhere except in the appellants’ written closing submissions in the Arbitration. Thus, it would have been plain and obvious that, until then, the respondent simply had no prior notice that it had to deal with the EOT Defence. The EOT Defence would only fall within the scope of the parties’ submission to arbitration upon the introduction of the EOT Defence (by way of an amendment to the pleadings, if so permitted by the Tribunal) and not any earlier. Absent this process, the EOT Defence could not possibly fall within the scope of the parties’ submission to arbitration. Therefore, the Court of Appeal held that the High Court was correct in finding that the Tribunal’s decision on the EOT Defence had been made in excess of jurisdiction.

Breach of Natural Justice

3. The High Court found two related breach of natural justice: (i) the respondent did not have a fair and reasonable opportunity to respond to the EOT Defence (the “Primary NJ Breach”), and (ii) the Tribunal had relied substantially on its professed experience in reaching its decision on the EOT Defence but did not explain what its experience entailed or what it encompassed, and the parties were not given any opportunity to address the Tribunal on the same (the “Secondary NJ Breach”). The Court of Appeal agreed with the High Court’s findings:

Primary NJ Breach

- Preliminarily, the High Court rejected the appellants’ submission that they had raised the defence of partial estoppel in the Arbitration (ie, that the respondent was estopped from enforcing any right to liquidated damages after the date by which the appellants would have completed the rectification works but for the Admitted Instruction).

- The EOT Defence was a completely new defence, which was factually and conceptually distinct from the Estoppel Defence. The latter was based on an equitable doctrine, whereas the former hinged on a contractual entitlement based on GC 40. Although the practical effect of both defences might have been the same, their different legal and factual bases meant they could be dealt with differently. Specifically, the respondent could deal with the Estoppel Defence simply by relying on GC 3.9 (a provision requiring any waiver to be in writing). Thus, although the appellants had raised some facts, evidence and arguments as to the time that the rectification works would have taken but for the Admitted Instruction, this was not in issue in any meaningful way during the Arbitration. The respondent did not have reasonable notice that it was necessary to engage with this issue until the EOT Defence belatedly appeared in the appellants’ written closing submissions. As such, the respondent did not have a fair and reasonable opportunity to respond to the EOT Defence.

- This breach of natural justice was connected to the making of the arbitral award and materially prejudiced the respondent’s rights. If the respondent had been given the opportunity to lead further evidence, test the appellants’ evidence and tender further legal submissions, this could have reasonably made a difference to the Tribunal’s determination.

Secondary NJ Breach

- There was no reason to disturb the High Court’s finding that the Tribunal had not actually relied on any of the evidence adduced by the appellants in the Arbitration when it granted the 25-day extension of time. In any event, even if the Tribunal had purported to rely on some of the evidence already adduced in the Arbitration (ie, the Tribunal only partially and not solely relied on its experience), the Tribunal did rely on its “experience” to some extent in arriving at its decision to grant a 25-day extension of time. So long as the Tribunal’s decision on the EOT Defence was based in part on its “unarticulated experience”, in relation to which the respondent had not been afforded any opportunity to address, that in itself constituted a breach of natural justice.

- The fact that the Tribunal’s reason for granting a 25-day extension of time to the appellants made no sense at all only served to highlight (i) the importance of the parties’ pleadings, evidence and submissions in supplementing the Tribunal’s purported “experience”; and (ii) the prejudice suffered by the respondent when the Tribunal failed to invite the parties, especially the respondent, to address the Tribunal on its purported “experience”.

The Hedging Argument

4. The appellants argued that the respondent was precluded from seeking to set aside the Award because its conduct in the Arbitration amounted to “hedging” i.e. although the respondent had asked the Tribunal not to consider the EOT Defence, it also made substantive submissions on the merits of the EOT Defence.

5. On this issue, the Court of Appeal held that the High Court correctly rejected this argument:

- The EOT Defence was foisted upon the respondent at the eleventh hour in the Arbitration. There can be no dispute that, on the facts, the respondent had seriously opposed the raising of this new defence. Saddled with this unpleaded defence which had been belatedly raised by the appellants, the respondent did its best to meet the new defence by objecting to it and raising several threshold arguments. It would be manifestly unfair to treat the respondent’s reaction as equivalent to a fair opportunity to address the EOT Defence, or as an attempt to hedge its position.

- While the respondent referred only to procedural unfairness (ie, breach of natural justice) and did not expressly mention excess of jurisdiction, the Tribunal nevertheless had sufficient notice of the gist of the respondent’s objection, ie, that the EOT Defence was new and unpleaded. Such an objection was equally relevant to the excess of jurisdiction point. It was not necessary in this case for the respondent to have explicitly identified the specific ground for setting aside (eg, breach of natural justice or excess of jurisdiction). It was sufficient that the respondent had set out the substance of its objection.

- It was not necessary for the respondent to have specifically intimated to the Tribunal that it intended to commence setting aside proceedings if its objections were ignored. At the time when the Arbitration was declared closed, there was no indication by the Tribunal that it was agreeable to allowing the EOT Defence. The first time the respondent was made aware of this was when the Award itself was delivered. Prior to that, it would be wrong to expect the respondent to indicate to the Tribunal that any decision to permit the EOT Defence would be vigorously challenged in court. Until an adverse ruling was made by the Tribunal in relation to the EOT Defence, it would be premature for the respondent to alert the Tribunal of any potential challenge to its decision. It was more than sufficient and appropriate that the respondent had, in its written closing submissions in the Arbitration, clearly set out the reasons why it objected to the Tribunal’s consideration of the EOT Defence.