Case Summaries

CDM and anor v CDP [2021] SGCA 45


5 May 2021

Case Summary

CDM and anor v CDP [2021] SGCA 45
Civil Appeal No 53 of 2020


Decision of the Court of Appeal (delivered by Steven Chong JCA):

Outcome: Court of Appeal dismisses the appeal against the decision of the Judge below that an arbitral award should not be set aside. The appellants had sought to set the award aside on grounds of excess of jurisdiction and/or breach of natural justice. The Court of Appeal finds, in light of the parties’ pleadings, agreed list of issues (“ALOI”), evidence adduced, and submissions in the arbitration, that none of the grounds for setting aside relied on by the appellants is made out. The Court of Appeal also declines to adopt the position in Hong Kong, where there exists a default position that a party which has unsuccessfully sought to set aside an arbitral award will be liable to pay the successful party’s costs on an indemnity basis.

Pertinent and significant points of the judgment

  • The jurisdiction of an arbitral tribunal is, for the most part, defined by the pleadings filed in the arbitration. While the Notice of Arbitration and the Statement of Claim lay out the dispute from the claimant’s perspective, it would be incorrect to treat them as exhaustively defining the jurisdiction of the tribunal: at [1].
  • The fact that a party to arbitration has formed the view that the tribunal had decided the dispute on a matter which it perceived as not being the “focus” or “crux” of the dispute is not a basis for asserting that the tribunal had acted in excess of jurisdiction: at [44].
  • While the category of “exceptional circumstances” attracting indemnity costs is not closed, it would do violence to the notion of such circumstances having to be “exceptional” if every instance of an award being challenged unsuccessfully could be said to, at least presumptively, be an “exceptional” circumstance warranting indemnity costs. More fundamentally, such an approach is not reflective of Singapore’s approach to indemnity costs. Thus, rather than create a presumption that indemnity costs apply in every instance where an application to set aside has been unsuccessful, the setting-aside context should be merely one of the factors the Court takes into consideration when deciding whether or not to order indemnity costs: at [53].

Background to the appeal

1. The appellants and respondent entered into the following agreements on 9 June 2013:

a. A contract (“the Contract”) between the first appellant and the respondent where the respondent agreed to design, build, launch, equip, commission, test, complete, sell, and deliver to the first appellant a Self-Erected Tender Rig and a Derrick Equipment Set (collectively, the “Hull”); and

b. A company guarantee by the second appellant in favour of the respondent in respect of the Contract.

2. After having entered into the Contract, the parties entered into a number of addenda to the contract. Addendum No. 2 was entered into on 24 September 2014. Of central importance to the present appeal is Article 6(d) of Addendum No. 2, which varied the payment term in the Contract such that 10% of the total contract sum (the “Fourth Instalment”) would become payable upon “launching and receipt of [the] invoice issued by the [respondent-builder]”. A further stipulation in Addendum No. 2 provided that “launching [was] subject to prior approval by the [ship classification society], [the first appellant], and [the respondent] collectively”.

3. On 20 January 2015, the respondent purported to launch the Hull into the water for the purposes of Art 6(d) of Addendum No. 2. That same day, the first appellant’s project manager emailed the respondent stating, inter alia, that it “[did] not consider the floating as launching”. Following the disputed launch on 20 January, various meetings involving the parties’ representatives were held on 21 January, 7 April, and 28 April 2015 (collectively, the “Construction and Progress Meetings”). The purpose of the Construction and Progress Meetings was, among other things, to iron out and update various outstanding items or deficiencies in the construction of the Hull that the first appellant required the respondent to remedy. It was the respondent’s position that by 28 April 2015, all outstanding issues and/or deficiencies in relation to the Hull had been resolved.

4. On 3 May 2015, the Hull was launched (the “second launch”). On 5 May 2015, the respondent demanded payment of the Fourth Instalment. As payment continued to be withheld, the respondent issued a default notice on 3 August 2016 pursuant to the terms of the Guarantee requesting that the appellants pay the Fourth Instalment. As payment was still not forthcoming, the respondent commenced arbitral proceedings (the “Arbitration”) against the appellants. The Notice of Arbitration was filed on 26 September 2016. Following the usual exchange of pleadings, an oral hearing took place between 21 and 25 May 2018, where both sides called factual and expert witnesses. Thereafter, detailed written closing and reply submissions were exchanged.

5. The central issue in question at the Arbitration was, for present purposes, whether the respondent (the claimant in the Arbitration) was entitled to the Fourth Instalment. The Tribunal found that the respondent, first appellant, and the relevant ship classification society had collectively given their approval for the launch of the Hull, with the first appellant having given its approval on 28 April 2015 for the second launch on 3 May 2015. The Tribunal found that the minutes of the Construction and Progress Meetings that took place on 7 and 28 April 2015 recorded that the respondent had resolved all the remaining items which the first appellant required the respondent to remedy before the Hull was considered to be in “[l]aunching condition”. The Tribunal also found that the minutes recorded the first appellant’s clear acceptance that the outstanding requirements had been met. By its acceptance that the outstanding issues had been resolved, the Tribunal found that the first appellant had also given its approval for the second launch. The Tribunal thus found that there was no valid reason for the appellants to withhold payment of the Fourth Instalment. Accordingly, in its award (the “Award”), the Tribunal ordered the appellants to, inter alia, pay the respondent the sum of US$13.9m (ie the Fourth Instalment) with interest.

6. The appellants then applied to set aside the part of the Award relating to the respondent’s claim for the Fourth Instalment under the Contract:

a. First, relying on Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) as set out in the First Schedule to the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”), the appellants argued that the Award had been made in excess of the Tribunal’s jurisdiction.

b. Second, the appellants alleged that the Award had been made in breach of the right to present their case, in violation of Article 34(2)(a)(ii) of the Model Law and/or in breach of the rules of natural justice, in violation of s 24(b) of the IAA.

7. The Judge dismissed all of the appellants’ attempts to impugn the Award in their entirety, finding that they were not borne out by the record from the Arbitration. The appellants appealed, making two broad arguments:

a. First, that the Tribunal had acted in excess of its jurisdiction in finding that there had been the requisite approval in April 2015 for the second launch of the Hull in May 2015. Accordingly, the Tribunal had also exceeded its jurisdiction in finding that the Fourth Instalment had fallen due.

b. Second, that the Tribunal had acted in breach of natural justice and the appellants’ right to be heard because the ground that the Tribunal had relied on, ie that approval had been given for the second launch, was not in issue in the Arbitration. Accordingly, the appellants had been denied the opportunity to present their case on that issue.

The Court of Appeal's decision

8. The Court of Appeal dismissed CA 53 of 2020.

9. While the appellants relied on (a) an excess of jurisdiction and/or (b) a breach of natural justice to justify setting aside the impugned segments of the Award, the factual matrix for both grounds was in fact identical. Put another way, the breach of natural justice alleged by the appellants required the Tribunal to have exceeded its jurisdiction, because the appellants accept that if they had the opportunity to engage the issues which had in fact been placed before the Tribunal, it would follow that the Tribunal could not have acted in excess of jurisdiction. Thus, the appellants failing to establish that the Tribunal had acted in excess of its jurisdiction would necessarily be fatal to their breach of natural justice argument: at [16].

10. The question of what matters were within the scope of the parties’ submission to arbitration was answerable by reference to five sources: the parties’ pleadings, ALOI, opening statements, evidence adduced, and closing submissions at the Arbitration. Having reference to those sources, it was clear beyond peradventure that the issue as to whether the parties had approved the second launch such that the Fourth Instalment became payable was squarely before the Tribunal. There was thus no basis to contend that the Tribunal had exceeded its jurisdiction in making that finding: at [18].

11. The appellants made three arguments in support of their assertion that the Tribunal had exceeded its jurisdiction in considering whether approval had been granted for the launch of the Hull in May 2015. First, it was contended that the Tribunal had erred in finding that the Hull had been “launched”, as was required in Contract Addendum No. 2, as the Hull had only been “floated” or “undocked and later docked again”. Second, the appellants argued that the respondent’s only alternative argument made at the Arbitration, apart from the respondent’s primary case that the Hull had been launched in January 2015, was one arising out of estoppel. On this argument, any reference to the launch in May 2015 pertained only to the context of estoppel, and did not provide a basis for the Tribunal to make its finding that the obligation to pay the Fourth Instalment had been triggered. Third, the appellants claimed that even if there had been reference made to the second launch and approval for the second launch, such reference was not the “crux” or “focus” of the parties’ cases in the Arbitration: at [41].

12. None of the appellants’ arguments was persuasive:

a. Turning to the appellants’ first argument, it is trite that a Court determining an application to set aside an arbitral award on the basis of an alleged excess of jurisdiction is not concerned with the merits of the dispute, but only with the process. The correctness or otherwise of the tribunal’s decision is not in issue. Rather, the key question lies in determining the ambit of the tribunal’s jurisdiction.

b. As for the appellants’ second argument, that the only alternative case pursued by the respondent in the Arbitration was one of estoppel, this was simply untrue. As is evident from the extracts above, the second launch was squarely before the Tribunal and issue had been joined by both parties on it. Moreover, the respondent’s arguments on estoppel were in an altogether different and separate segment of the relevant pleadings.

c. The appellants’ third argument is similarly untenable. The fact that a party to arbitration has formed the view that the tribunal had decided the dispute on a matter which it perceived as not being the “focus” or “crux” of the dispute is not a basis for asserting that the tribunal has acted in excess of jurisdiction. Whether or not a particular facet of a dispute is identified by a party as being the nub of a dispute may come down to the competence and ability of counsel to sift through material and identify the central issues. Moreover, even the best-intentioned and most able counsel may find themselves blinkered in focusing only on areas which they and their clients deem to be the most significant. Accordingly, a tribunal deciding a dispute based on an issue which is allegedly not the “crux” or “focus” of the proceedings is neither here nor there so long as that issue does in fact fall within the scope of parties’ submission to arbitration: at [42]–[44].

13. If an issue has been submitted to the tribunal for adjudication, the fact that parties might not have made extensive submissions on it does not somehow remove that issue from the tribunal’s jurisdiction: at [45].

14. Given the Court of Appeal’s conclusion that the Tribunal had not exceeded its jurisdiction, there was no need to consider the breach of natural justice alleged by the appellants in any detail. That argument was rendered unsustainable and fell in limine given that the appellants had ample opportunity to address the second launch, and did in fact do so: at [47].

15. The Court then considered whether there should be a presumption of indemnity costs in the event of an unsuccessful application for setting aside an arbitral award. A number of Hong Kong cases had taken the position that there should be such a presumption. The respondent in this case had sought costs on an indemnity basis below, though it withdrew that submission on appeal: at [48]–[51].

16. The Court of Appeal was not persuaded that there should be a default position that an unsuccessful application to set aside will attract indemnity costs. It adopted the reasoning of Belinda Ang J in BTN and another v BTP and another [2021] SGHC 38, that it was well established in Singapore that the imposition of costs on an indemnity basis was “dependent on there being exceptional circumstances to warrant a departure from the usual course of awarding costs on a standard basis”: at [52].

17. While the Court has a broad discretion to award costs, particularly in exceptional circumstances (under O 59 r 5 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“ROC”)), there is nothing in both the caselaw and the ROC which suggests that an entire area should be presumptively hived-off as attracting costs on an indemnity basis purely because of the subject matter it concerns. Rather, the assessment of whether indemnity costs are warranted turns on a highly fact-specific assessment of the totality of the facts and circumstances. This is, after all, a corollary of the circumstances having to be “exceptional” before indemnity costs are warranted. While arbitration is a distinct species of dispute-resolution, applications for setting aside, enforcement, or other relief before the courts would engage the courts’ jurisdiction. It would be neither appropriate nor permissible for parties to seek to engage the jurisdiction of the courts to set aside an award, but at the same time insist on different treatment from other cases before the courts in terms of costs. A party seeking relief from the Court, even if in the context of an application to set aside an arbitral award, was, like any other litigant, a party before the Court, and bound by the Court’s rules: at [53]–[54].

18. Moreover, the Hong Kong position fails to recognise that the limited avenues available to challenge an arbitral award are statutorily provided for in the same way as a right of appeal against a decision of the court below. There is no principled reason to draw any distinction between the two in assessing whether exceptional circumstances exist for the purpose of awarding indemnity costs. In deciding whether to order indemnity costs, the Court should have regard to all the circumstances of the case, and whether a party has behaved unreasonably. Had the respondent maintained its submission for costs on an indemnity basis, the Court of Appeal would have found that the threshold for awarding costs on an indemnity basis had not been crossed : at [55]–[57].

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.