SIArb Newsletters

Nature of Matter

Setting aside of Arbitral Award; Breach of Natural Justice; Tribunal’s Powers and Peremptory Orders

Case Summary

1. The defendant, the owner of a vessel (“Owner”), claimed against the plaintiff charterer (“Charterer”) for an amount of US$248,338.24 in the arbitration. The Owner was awarded a partial/interim award in the sum of US$48,658.74. Ten months after the partial award was made, the Owner sought to recover the remaining sum of its claim and served further submissions for the balance.
2. Without hearing the Charterer on the time it would need to prepare and serve its defence submissions, the arbitrator issued a final and peremptory order that the Charterer serve its defence submissions by a specified date and hour, failing which they would be barred from advancing any positive case by way of defence or counterclaim and from adducing any positive evidence in the matter, and that it would then simply be for the Owner to prove its case.
3. Subsequently, the Charterer failed to serve its defence within the time stipulated. The arbitrator then directed that the Charterer’s defence submissions would not be admitted into evidence, and that the claim would be determined based on the Owner’s evidence.
4. The arbitrator made the second/final award (“Second Award”) without hearing witnesses and on a documents-only basis as requested by the Owner in its email.
5. The Charterer applied to set aside the award on the basis of a breach of natural justice.

6. The High Court set aside the Second Award.
   
   Powers of an ad hoc arbitrator to make and enforce peremptory orders and how such powers should be exercised
   
   
7. The High Court began by observing that the powers of an arbitrator derive from: (i) the arbitration agreement between the parties; (ii) a statute in force at the choice of seat; and (iii) the arbitral rules governing the arbitration. As the seat was Singapore, and no arbitral rules were chosen by parties, the arbitrator should have looked to the Model Law before considering whether to make or enforce any peremptory orders.
8. Articles 23 and 25 of the Model Law read together provide that where a respondent fails to communicate his statement of defence within the period of time agreed by the parties or determined by the arbitral tribunal, without showing sufficient cause, then the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegation.
9. Based on Articles 23 and 25, the arbitrator should have, at the first stage, consulted both sides before determining the period of time for communicating the statement of defence in the absence of agreement. At the second stage, when considering whether the party in default has shown sufficient cause for the failure to communicate the statement of defence within the period fixed, the arbitrator must hear both parties.
   
   Whether the arbitrator acted within his powers, and exercised them in accordance with the principles of natural justice
   
   
10. The High Court found that the arbitrator acted in breach of natural justice because the arbitrator, amongst others:
    a Failed to give the Charterer any opportunity to provide input on the time needed to serve defence submissions;
    b Failed to determine insufficiency of cause for the purported default by the Charterer; and
    c Failed to give the Charterer an opportunity to address him orally or in writing on the question of sufficiency of cause before proceeding to make his peremptory order.
11. The peremptory order was therefore made and enforced in breach of the fair hearing rule.
12. As the making of the peremptory order led to the arbitrator making the Second Award without receiving any evidence or submissions from the Charterer, the High Court found that the breach of natural justice was connected to the making of the Second Award and prejudiced the Charterer’s rights.
13. The High Court also declined the Owner’s request for the matter to be remitted to the arbitrator as an alternative to setting aside. The High Court stated that this was not a case of mere oversight in failing to give a party a reasonable opportunity to be heard on some aspect of a dispute. Rather, the peremptory order and the exclusion of the defence submissions appeared to be the product of a haste out of keeping with the time accorded to the Owner for its submissions. This would affect the Charterer’s confidence in the arbitrator to decide the matter fairly if remitted.