Singapore High Court rejects attempt to set aside an award for breach of an alleged agreed arbitral procedure

First posted on Singapore International Arbitration Blog, January 8, 2015

The Singapore High Court recently delivered another pro-arbitration, pro-enforcement decision in Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd, [2014] SGHC 220 (“Triulzi v Xinyi”).

The plaintiff’s i.e. Triulzi Cesare SRL (“Triulzi”) decision to challenge an adverse ICC award arose chiefly out of a dispute as to whether “witness statements” include expert reports/opinions and whether the parties had agreed not to file expert reports.

Triulzi argued that the Tribunal’s conduct during the arbitral proceedings gave rise to “a number of serious breaches…which had caused it prejudice”. The Singapore High Court summarised the alleged breaches as follows (see paragraph [17]):

“…(a) on the basis of Art 34(2)(a)(iv) of the Model Law in that the Tribunal’s decision to admit Xinyi’s expert witness statement was in breach of the parties’ agreed arbitral procedure (“Issue 1”);

(c) on the basis of Art 34(2)(b)(ii) of the Model Law in that the decision of the Tribunal not to apply the United Nations Convention on the International Sale of Goods (“the CISG”) as the applicable law of the three contracts does not accord with the public policy of Singapore (“Issue 3”).”

The High Court considered that “the nub of the complaints for Issues 1 and 2 [were] the same in that they [were] challenges to the procedural orders or directions made in the course of the arbitral proceedings rather than a challenge to the making of the Award” (see paragraph [19]). The High Court also considered that Issue 1, and in particular, whether there was an agreement to dispense with expert evidence, was a threshold issue (see paragraph [70]).

This post will therefore focus on the challenge under Article 34(2)(a)(iv) of the Model Law given the novelty of this issue before the Singapore courts.

Background to ICC arbitration and Triulzi’s complaint

Triulzi entered into 3 contracts with the defendant, Xinyi Group (Glass) Company Limited (“Xinyi”). These contracts were for Triulzi to sell, and for Xinyi to buy, 3 glass sheet (industrial) washing machines. Disputes arose between the parties over defects in the first 2 machines which had been delivered and installed at Xinyi’s premises. The dispute included the repeated failures of the so-called acceptance test (8 hours continuous operations) and the inability to rectify the identified defects in the machines.

Xinyi therefore contractually cancelled the contracts, refused delivery of the final machine and, in the ICC arbitration, claimed a refund of the purchase price paid for the 3 machines in the ICC arbitration. Triulzi counterclaimed on the basis that Xinyi failed to make full payment for 2 of the machines and refused to take delivery of the third and final machine.

Triulzi’s challenge under Issue 1 was pursuant to Article 34(2)(a)(iv) of the Model Law which provides that:

“Article 34. Application for setting aside as exclusive recourse against arbitral award

…”

The specific complaints made by Triulzi were that (see paragraph 22):

“(a) Conduct prior to 22 April 2013: (i) The Tribunal admitted Xinyi’s expert witness statement in breach of the parties’ purported agreed arbitral procedure to file only factual witness statements.

(b) Conduct at the evidential hearing on 25 April 2013: (i) The Tribunal’s refusal to admit Triulzi’s expert witness statement on 25 April 2013 was tantamount to a failure to afford Triulzi a reasonable opportunity to respond to Xinyi’s expert witness, thereby resulting in a denial of a fair hearing.”

As such, Triulzi claimed it suffered prejudice because (see paragraph [23):

“(a) Triulzi was prevented from advancing arguments to the Tribunal that the machines in dispute had complied with the contractual technical specifications, and that any non-performance was due to Xinyi’s lack of maintenance and the very dirty environment of Xinyi’s facility; and

(b) Triulzi was prevented from refuting the Tribunal’s reliance on Xinyi’s expert evidence concerning the contractual requirement to run the subject machines for 8 hours in the conduct of the acceptance test.”

Events during arbitration giving rise to Triulzi’s application to set aside the award

The Tribunal had circulated a draft procedural timetable to both parties on 10 December 2012 which provided that “Witness Statements” were to be filed by 28 January 2013 and that the evidentiary hearing was to take place from 18 to 21 February 2013. The parties then attended a Case Management Conference before the Tribunal held on 11 December 2012 (the “CMC”). It was finally decided that the “Filing of Witness Statements” was to be by 25 March 2013 and that the substantive hearing dates were to be fixed for 22 to 25 April 2013.

Parties also decided at that stage to adopt the IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”). Our post on disclosure in arbitration and the use of the IBA Rules is here.

In a subsequent email dated 13 December 2012, the Tribunal stressed that “[t]he Arbitration should be completed and Award issued by 27 May 2013. The Tribunal intends to follow the agreed timelines strictly”. Subsequently, on 22 March 2013, the filing and exchange of the witness statements was extended to 1 April 2013.

On 1 April 2013, Xinyi filed “the expert witness statement of Dr Bao Yiwang (“Dr Bao”) along with other factual witness statements” (see paragraph [28]).

On 2 April 2013, Triulzi wrote to the Tribunal to request the exclusion of Dr Bao’s statement. This was on the basis that “it was indicated to the Tribunal at the CMC that the parties would not be filing any expert witness statements and that, consequently, the Procedural Timetable did not provide a timeline for expert witness statements to be filed”. Triulzi submitted that it was the parties’ “agreement” to dispense with expert evidence and that it (Triulzi) had no notice of Xinyi’s intention to file Dr Bao’s expert report (see paragraph [29]).

In the alternative, Triulzi requested that it be allowed to engage an expert to inspect the two washing machines at Xinyi’s facility and to file a reply expert report. In this respect, Triulzi applied for the substantive hearing dates in April to be vacated for eight weeks to allow for the expert’s inspection and the filing of the reply expert report (see paragraph [30]).

The Tribunal replied on 4 April 2013 stating that the minutes of the CMC “contained no record of any agreement that the parties would not be filing expert evidence” (see paragraph [31]).

On 5 April 2013, Xinyi responded to say that “it had never indicated at the CMC that it would not file any expert witness statements. There was no agreement between the parties to dispense with expert evidence” (see paragraph [32]).

The Tribunal issued directions on the same day admitting Dr Bao’s expert report and gave Triulzi until 4pm on 15 April 2013 (i.e. 10 days) to file its reply expert report (see paragraph [34]).Triulzi did not file any reply expert report before this deadline.

The Tribunal then convened a hearing on 16 April 2013 to give parties further directions. At that hearing, Triulzi disclosed an email from one Jonathan Peter Wigg and indicated that it intended to call him as its expert witness. In that same email, Mr Wigg stated that his availability would only have be from early June 2013 onwards. Triulzi also disclosed an email which stated that an application made in Italy for a visa to China should be submitted one month before the date of travel (see paragraph [36]). Nonetheless, the Tribunal refused to vacate the hearing dates (see paragraph [37]).

Subsequently, on the last day of the substantive hearing (25 April 2013), Triulzi applied to adduce the expert report of a Dr Alberto Piombo dated 22 April 2013. It was explained that the report was also received by Triulzi’s counsel on the morning of 25 April 2013.

Xinyi objected to the application to adduce Dr Piombo’s report on the basis that “(a) Triulzi had, by its own conduct, elected not to file an expert witness statement having missed the original and extended deadlines for doing so; and (b) Dr Bao had already testified. [Xinyi’s counsel] surmised that Dr Piombo’s Report would have been prepared with the benefit of Dr Bao’s Report, including evidence given under cross-examination” (see paragraph [40]).

Triulzi’s counsel then took the view that he would be guided by the Tribunal as to whether Dr Piombo’s report would be admitted. In the absence of any compelling reasons to admit the report, the Tribunal held that it would not admit Dr Piombo’s report.

Decision of the High Court on breach of “agreed arbitral procedure” (Article 34(2)(a)(iv))

The High Court in Triulzi v Xinyi held that “complaints against procedural orders or directions cannot give rise to the setting aside of an award unless the procedural orders or directions in question resulted in a breach of an agreed arbitral procedure or a breach of natural justice (ie, the procedural nature of the right to be heard), as a result of which a party’s rights have been prejudiced (see s 24(b) of the IAA)” (see paragraph [19]).

Furthermore, the High Court held at paragraph [20] that “there can be no basis whatsoever to set aside the Award under Art 34(2)(a) of the Model Law and s 24(b) of the [International Arbitration Act] if Triulzi’s complaints are not premised upon circumstances attributable to the Tribunal”.

In other words, the alleged breaches of the “agreed arbitral procedure” or of natural justice cannot be self-induced by the plaintiff seeking to set aside the award. The High Court explained at paragraph [51] that,

“…Article 34(2)(a)(iv) of the Model Law is not engaged if the non-observance of either an agreed procedure (Art 19(1)) or the minimum procedural requirements of Art 18 is not due to circumstances attributable to the arbitral tribunal but is derived from the applicant’s own doing. A helpful commentary that stresses the same point is made in respect of the purpose of Art 18 in the UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration (United Nations, 2012) (“the 2012 Digest”) at p 98, para 7:

… The purpose of article 18 is to protect a party from egregious and injudicious conduct by an arbitral tribunal, and it is not intended to protect a party from its own failures or strategic choices. …”

Furthermore, the High Court held that it “cannot be the case that any breach of an agreed arbitral procedure, even that of a technical provision or minor formality, will invariably result in an award being set aside. Most supervising courts inquire into the materiality of the procedural requirements that was not complied with and the nature of the departures from the parties’ agreed arbitral procedures” (see paragraph [54]).

Finally, the Singapore courts retain a discretion “to refuse to set aside an award even if there was a breach of the agreed procedure” (see paragraph [60] et seq). This is notwithstanding the observation of the Singapore Court of Appeal that where prejudice was shown, the court ought not to exercise its discretion to refuse to set aside an award, see CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 at [100]). But conversely, even in the absence of prejudice, the Singapore court could exercise its discretionary power to set aside the award for breach (see paragraph [64]).

Concurrently, the Singapore court must take care to avoid allowing an applicant to seek a “second bite at the cherry” and/or to use “the setting-aside procedure to raise new arguments that were not previously before the tribunal”. Accordingly, “a supervising court would not hesitate to scrutinise how the parties had approached their case in the arbitration and, in particular, to review the respective issues and arguments that had been put before the tribunal” (see paragraph [67]).

The High Court also stressed the competing factors to the right to a fair hearing (i.e. a reasonable opportunity to be heard). It held at paragraph [131] that,

“…the arbitral tribunal’s case management powers are not without limits. The exercise of case management powers is subject to the rules of natural justice which includes the right to be heard. However, this right only encompasses a reasonable opportunity to present one’s case, the fair hearing rule, which must be considered in light of other competing factors. For instance, the Tribunal is also obligated under Art 22(1) of the ICC Rules 2012 to “make every effort to conduct the arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute.”

Weight must be accorded to “the practical realities of the arbitral ecosystem such as promptness and price” (see TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [103]).”

The High Court found that there was no agreement to dispense with expert evidence and Triulzi’s application to set aside the award on the basis of Article 34(2)(a)(iv) therefore “fail[ed] in limine” (see paragraph [88]):

– The High Court noted that Triulzi sought to rely on evidence which was only raised in its application to set aside but which had not been brought to the attention of the Tribunal (see paragraph [76]).

– The Tribunal had confirmed that there was no record of the alleged agreement reached at the CMC (see paragraph [31] and [77]).

– Triulzi’s could not rely on the IBA Rules on the Taking of Evidence in International Arbitration for its argument that “Filing of Witness Statements” only encompassed factual witness statements and that this was distinct from an “Expert Report”.

The High Court dismissed this argument and noted, amongst others, that this argument went further than Triulzi’s position during the course of the arbitration and thereby constituted an impermissible “second bite at the cherry” (see paragraph [80]).

– The High Court also considered that a Procedural Timetable pursuant to Article 24 of the ICC Rules 2012 was “established by the arbitral tribunal and not by way of an agreement by the parties” and that this “falls under the arbitral tribunal’s exercise of its case management powers” (see paragraph [84]). As such, Triulzi could not rely on the direction on the “Filing of Witness Statements” in the Procedural Timetable “to deduce the existence of an agreed procedure to dispense with expert witness”. Such an approach “[did] not cohere with the nature of a procedural timetable under the ICC Rules 2012”.

The High Court also observed that even if Dr Bao’s report had been admitted in breach of an agreed procedure, the (theoretical) exclusion of that report would not have “reasonably made a difference to the deliberations of the Tribunal” (see paragraph [100] and [105]). In this respect, the Tribunal did not rely upon Dr Bao’s evidence and treated it as a “matter of conjecture” as he was not an expert in industrial washing machines (paragraph [102]. In the main, Dr Bao’s report was not material to the Tribunal’s determination of the relevant issues. (see paragraph [103] and [104]).

Conclusion

Triulzi v Xinyi confirms that the Singapore court will generally not interfere with matters that are within the discretion of an arbitrator’s case management powers. This is consistent with the Singapore court’s position in the recent case of PT Central Investindo v Franciscus Wongso and others and another matter, [2014] SGHC 190 (“PTCI”) at [69] to [71] (our detailed analysis of the case can be found here).

Triulzi v Xinyi sheds further light on Singapore’s robust public and judicial policy on arbitration and enforceability of awards. It is worth noting though:

1. As a matter of nomenclature, witness statement(s) tend to refer to the written testimony of factual witnesses. The experts’ testimonies are in the form of a report or opinion and experts are not classed together with (factual) witnesses. This is because factual witnesses and expert “witnesses” perform different roles in an arbitration.

In this respect, we note that the IBA Rules define the terms separately and as follows:

“‘Expert Report’ means a written statement by a Tribunal Appointed Expert or a Party-Appointed Expert”

“‘Witness Statement’ means a written statement of testimony by a witness of fact”

2. It is not altogether clear why the Tribunal refused to vacate the hearing dates save that it had given notice to the parties on 13 December 2012 that it expected the parties to strictly adhere to the Procedural Timetable (see paragraph [27]).

The Singapore High Court has noted at [136] that in accordance with “Art 30(1) of the ICC Rules 2012, the Tribunal was required to render its final award six months from the Terms of Reference, ie 28 May 2013, and this also contributed to the urgency of the matter”. However, Article 30(2) of the ICC Rules 2012 also provides that “[t]he [ICC] Court may extend the time limit pursuant to a reasoned request from the arbitral tribunal or on its own initiative if it decides it is necessary to do so”. While the High Court has held that it was immaterial that the Tribunal had issued the award after 28 May 2013 – the fact remains that the Award was issued after 28 May 2013 (i.e. on 12 August 2013).

This can be contrasted to a situation in which, for example, parties have agreed to the expedited procedure rules under Rule 5.2 of the SIAC Rules. In those circumstances, the Tribunal is obliged to render an award within 6 months of its constitution (and not simply from the Terms of Reference). In those circumstances, we would suggest that a Tribunal would have legitimate grounds to refuse to vacate the hearing dates for 2 months since that extension would very likely create an insurmountable hurdle preventing the Tribunal from rendering its award within the timeframe stipulated.

Furthermore, unlike Article 30(2) of the ICC Rules 2012, Rule 5.2(d) of the SIAC Rules provides that “[t]he award shall be made within six months from the date when the Tribunal is constituted unless, in exceptional circumstances, the Registrar extends the time”. As such, one critical difference between the ICC Rules and the SIAC expedited procedure is that the SIAC Rules are silent as to whether that the tribunal, acting on its own initiative, is able to apply to the Registrar to have the timelines extended, or whether the Registrar is able to extend timelines on her own motion.

This is not to say that there were no compelling reasons for the Tribunal’s refusal to vacate the hearing and extend the timelines. It was, however, not apparent from the High Court’s decision whether such reasons did in fact exist and, if so, what those reasons were.

For further information, please contact:

Jonathan Choo
Partner, Head of International Arbitration and Dispute Resolution
Olswang Asia LLP
+65 9832 3880
jonathan.choo@olswang.com
@singarbitration
Singapore International Arbitration Blog