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China Machine New Energy Corp v Jaguar Energy Guatemala LLC and Another [2020] SGCA 12

In this case, the Court of Appeal clarified that a party’s right under Article 18 of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) to a ‘full opportunity’ of presenting its case is not unlimited and provided guidance on the correct approach to alleged violations of due process by the Tribunal.

The Model Law has the force of law in Singapore under section 3 of the IAA.

The parties’ dispute related to the construction of a power plant by the appellant contractor (CMNC) for the respondent owners (Jaguar) pursuant to an Engineering, Procurement and Construction Contract (EPC Contract). The EPC Contract provided for disputes to be referred to a Singapore seated arbitration conducted under the 1998 Rules of Arbitration of the International Chamber of Commerce.

When CMNC failed to meet certain deadlines under the EPC Contract, Jaguar commenced arbitration under the EPC Contract claiming, among other relief, the cost of completing the power plant. The Tribunal awarded Jaguar the vast majority of its claims. CMNC applied to the High Court to set aside the award contending among other things that the Tribunal mismanaged the arbitral proceedings relating to document production thereby impeding CMNC from being given a full opportunity to present its case under Article 18 of the Model Law. CMNC argued that the award should be set aside under Article 34(2)(a)(ii) of the Model Law and section 24(b) of the IAA, which provide, respectively, that the supervisory court may annul an award if the party against whom the award is invoked was “unable to present his case ”, or where that party’s rights are prejudiced because a “breach of the rules of natural justice occurred in connection with the making of the award ”. The High Court declined to set aside the award. CMNC appealed.

The Court of Appeal distilled the following key principles regarding the scope of Article 18 of the Model Law:

  • the Article 18 right to a ‘full opportunity’ of presenting one’s case is not an unlimited one. It is impliedly limited by considerations of reasonableness and fairness so that it would not be abused by the parties seeking to delay and prolong proceedings;
  • what constitutes a ‘full opportunity’ is a contextual inquiry that can only be meaningfully answered within the specific context of the particular facts and circumstances of each case;
  • the overarching inquiry is whether the proceedings were conducted in a manner which was fair, and the proper approach a court should take is to ask itself if what the Tribunal did (or decided not to do) falls within the range of what a reasonable and fair minded Tribunal in those circumstances might have done;
  • in undertaking this exercise, the court must put itself in the shoes of the Tribunal. This means that (1) the Tribunal’s decisions can only be assessed by reference to what was known to the Tribunal at the time, and it follows from this that the alleged breach of natural justice must have been brought to the attention of the Tribunal at the material time; and (2) the court will accord a margin of deference to the Tribunal in matters of procedure and will not intervene simply because it might have done things differently; and
  • if a party intends to contend that there has been a fatal failure in the process of the arbitration, then there must be fair intimation to the Tribunal that the complaining party intends to take that point at the appropriate time if the Tribunal insists on proceeding.

On that approach, having examined in detail the Tribunal’s exercise of its discretion in the particular circumstances of the dispute, the Court of Appeal rejected CMNC’s various complaints individually and also cumulatively as a basis on which the award should be set aside on grounds of breach of natural justice. The Court of Appeal’s judgment reaffirms the Singapore courts’ policy of minimal curial intervention and their reluctance to interfere with the exercise of the Tribunal’s procedural discretion where there is a rational basis for the decisions it has reached.

An AN Group (Singapore) PTE Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33

In this case, the Court of Appeal clarified the applicable standard of review in respect of a claim which is subject to arbitration albeit in the context of an insolvency setting.

The appellant, AnAn Group (Singapore) Pte Ltd (AnAn) entered into a global master repurchase agreement (GMRA) with the Respondent, VTB Bank (Public Joint Stock Company) (VTB). The GMRA was in substance, a loan from VTB to AnAn against which AnAn had to provide a collateral. The GMRA was governed by English law and contained an arbitration clause which provided for arbitration to be conducted under SIAC Rules.

VTB alleged multiple events of default under the GMRA and applied to wind up AnAn on the basis of AnAn’s failure to repay the statutory demand (winding up application) of approximately USD170 million.

AnAn resisted the winding up application, disputing the debt that was claimed by VTB.

Before considering the disputed debt, the main point of contention before the High Court was the applicable standard of review. Whereas a debtor seeking to resist a winding up application would ordinarily be required to raise ‘triable issues’ (i.e., demonstration of a substantial and bona fide dispute) relating to the disputed debt, AnAn argued that because the GMRA contained an arbitration agreement, the applicable standard was to demonstrate a prima facie dispute which fell within the scope of that arbitration agreement. The High Court concluded that, notwithstanding the existence of the arbitration agreement in the GMRA, AnAn was required to establish ‘triable issues’ in relation to the debt. AnAn appealed.

Upon considering the position on the applicable standard of review in other jurisdictions, the Court of Appeal determined that when a court is faced with either a disputed debt or a cross claim that is subject to an arbitration agreement, the prima facie standard should apply. The Court of Appeal confirmed that winding up proceedings will be stayed or dismissed as long as (1) there is a valid arbitration agreement between the parties; and (2) the dispute falls within the scope of the arbitration agreement, provided that the dispute is not being raised by the debtor in abuse of the court’s process. The Court of Appeal stated that the bona fides of the debtor in raising the dispute would remain a relevant factor in determining whether there has been an abuse of process, however, emphasised that the threshold for abusive conduct is very high.

On the issue of determination of the appropriate order to be made, the Court of Appeal stated that the court should ordinarily dismiss the entire winding up application, as a stay of the winding up application carries in itself severe consequences for the debtor. However, if the creditor is able to demonstrate legitimate concerns about the solvency of the company as a going concern, and that no triable issues are raised by the debtor or if there is evidence to show that the debtor is paying off other creditors to the detriment of the applicant creditor without a legitimate explanation for differential treatment of creditors, the court can grant a stay (as opposed to a dismissal) of the winding up proceedings.

Having determined the applicable standard of review, the Court of Appeal held that AnAn had prima facie demonstrated that the debt was disputed and that the dispute was governed by the arbitration clause in the GMRA. The Court was satisfied that there was no abuse of process on AnAn’s part and there were no legitimate concerns regarding the solvency of AnAn.

In the circumstances, the Court of Appeal dismissed the winding up application. The Court of Appeal’s judgment provides an important clarification on the interaction between the arbitration and insolvency regimes and highlights the pro arbitration stance of the courts in Singapore.

Other key developments

Amendments to the International Arbitration Act

On 1 December 2020, the International Arbitration (Amendment) Act 2020 (Amendment Act)1 came into force. The Amendment Act amends the International Arbitration Act (Cap 143A) (IAA) in two respects as discussed below, reflecting the Singapore government’s steadfast efforts to introduce incremental legislative amendments to ensure that Singapore remains a leading arbitration destination.

Default mode for appointment of arbitrators in multi party scenarios

Most leading arbitral rules contain provisions regarding appointment of arbitrators in multi party scenarios. Where the parties have not agreed upon a set of arbitral rules, the procedural law of the seat of the arbitration becomes critical to determine the method of appointment of arbitrators. Prior to the Amendment Act, the IAA did not provide for any default mechanism for appointment of arbitrators for arbitrations with three or more parties and three arbitrators. Section 9B of the IAA was introduced to address this lacunae.

Under section 9B, the default procedure is for the claimant or the claimants by agreement (if there is more than one claimant) to appoint an arbitrator and for the respondent or the respondents by agreement (if there is more than one respondent) to appoint an arbitrator. The two arbitrators appointed by the parties must by agreement appoint the third arbitrator, who is to be the presiding arbitrator.

Section 9B also provides for the timelines within which each of the arbitrators must be appointed.

The claimant(s) must appoint an arbitrator on or before the date of sending of the request for arbitration and inform the respondent(s) of the appointment on the date when the request for arbitration is sent to the respondent(s), while the respondent(s) must appoint an arbitrator and inform the claimant(s) of the appointment within 30 days after the date of receipt of the request for arbitration by the respondent, or by the last respondent to receive the request if there is more than one respondent. Subsequently, the two arbitrators appointed by the parties must appoint an arbitrator within 60 days after the date of receipt of the request for arbitration by the respondent, or by the last respondent to receive the request if there is more than one respondent.

If the claimant(s) or the respondent(s) fail to appoint an arbitrator, or fail to inform the counterparties of the appointment, within the time limit stipulated, the ‘appointing authority’ (i.e., the President of the Court of Arbitration of the Singapore International Arbitration Centre (SIAC), upon the request of any party, must appoint all three arbitrators and designate any one of the arbitrators as the presiding arbitrator. Where the first and second arbitrators are unable to agree on the appointment of the third arbitrator within the specified period of time, the appointing authority must, upon the request of any party and having regard to all relevant circumstances, appoint the third arbitrator, who shall be the presiding arbitrator.

Power to enforce obligations of confidentiality

Prior to the Amendment Act, unless the parties agreed otherwise, the parties and the Tribunal had an implied duty of confidentiality under common law, not to disclose confidential information obtained in the course of the proceedings or use such information for any purpose other than the dispute.

In light of the centrality of confidentiality to arbitration proceedings, section 12(1)(j) of the IAA was introduced explicitly recognising the powers of the Tribunal to enforce confidentiality obligations, by making orders or giving directions, where such obligation exist by virtue of the parties’ written agreement, any written law or rule of law (including common law) or any rules of arbitration (including institutional rules) agreed to by the parties. Section 12A(2) of the IAA was also amended to empower the High Court or a judge with the same powers to make orders for enforcing confidentiality obligations.

It is imperative to note that these amendments do not codify the contents and scope of confidentiality related obligations but only seek to strengthen the parties’ ability to enforce existing confidentiality obligations in cases of breach.

Proposals that have not yet been implemented

The Amendment Act introduces only two of the four proposals put forth for consultation in 2019 by the Singapore government through the Ministry of Law. The Ministry of Law will continue to study the two remaining proposals namely (1) allowing the parties, by mutual agreement, to request the arbitrator(s) to decide on jurisdiction at the preliminary award stage; and (2) allowing a party to arbitral proceedings to appeal to the High Court on a question of law arising out of an award made in the proceedings, provided the parties have agreed to opt in to this mechanism. It remains to be seen if these proposals will be implemented into law.