New Defense Raised during Closing Submission – Arbitration Award Set Aside Due to Breach of Natural Justice

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Natural justice concepts are well known in international arbitration. Each party has a fundamental right to be heard – namely, the right to present one’s argument and respond to the case brought against it. As a result, a party denied of such a right would prevail in an appeal to set aside an arbitral award if the infringement of this fundamental right occurred in rendering the award and if the party filing the application suffered a detriment as a result of the award.

The Singapore Court recently issued an opinion on commercial arbitration in light of natural justice principles. The court’s ruling demonstrates how disagreements between parties about their opportunities or circumstances during the arbitration process are linked to a violation of the Natural Justice principle.

Case summary

In CAI v CAJ [2021] SGHC 21 CAI, The claimant applied to the Singapore High Court to partially set aside an arbitral award made in breach of the principles of natural justice. The defendants, CAJ and CAK, raised an ‘extension of time’ defense (EOT defense) in closing submissions. However, such defense was not raised during the hearing, and as a result, the parties were unable to present their evidence or cross-examination during the requested extension. It is noted that the effect of the successful EOT defense would reduce the amount of liquidated damages payable by the defendants by approximately 20 million US dollars. The claimant applied to set aside the tribunal’s decision on the grounds that: CAI did not have a fair and reasonable opportunity to present its case in respect of the EOT defense, and the tribunal’s decision was not backed by any evidence.

Although the tribunal acknowledged that it has “no direct evidence” on the subject, it found itself capable of fairly and reasonably determining an adequate extension of time based on its own experience in these matters. The court determined that the extension of time defense was an entirely new defense brought at a quite belated stage where the claimant lacked a sufficient and adequate opportunity to present its case. The tribunal’s reliance on its own knowledge without notifying the parties and specifying what that experience entailed constituted a violation of natural justice. Additionally, the court determined that the tribunal operated beyond its jurisdiction.

Finally, the court determined that the arbitration award was revoked concerning an extension of time based on the following:

The claimant has no opportunity to fairly and appropriately present evidence in connection with the dispute for an extension of time request.

The tribunal’s decision was not backed by any evidence, and any reliance on the tribunal’s professed expertise was not justified.

Significant issue

A party responding to a claim brought against it is entitled to notice of the dispute.

In the present case, the tribunal’s decision on the extension of time defense was controversial because (i) it was unsupported by evidence; and (ii) the tribunal made no attempt to illustrate or justify the professed knowledge upon which it depended.

While not directly relevant to the violation of natural justice, it is worth noting that an arbitral tribunal’s authority is defined by the matters submitted to the tribunal for resolution by the parties.

A party is not permitted to hedge its stance against an adverse arbitral award and is required to: notify the tribunal in a timely manner; and/or request suspension of the arbitral proceedings.

While the criteria defining a breach of natural justice are well-established, how these principles are interpreted in particular substantive contexts is likely to vary. The court would recognize ” the possibility of the outcomes for a rational and reasonable tribunal under such circumstances”[A1] [1].

For example, in CAI v CAJ, “rational and fair-minded” conduct required a tribunal to allow parties to make new claims regardless of how late in the process they were.

References:

https://www.pinsentmasons.com/out-law/analysis/singapore-courts-provide-guidance-claims-regarding-breaches-natural-justice-arbitration
https://www.lexisnexis.co.uk/legal/news/singapore-award-made-on-defence-brought-during-closing-submissions-partially-set-aside-for-breach-of
https://www.google.com/search?client=safari&rls=en&q=New+Defence+raised+during+Closing+Submissions+%E2%80%93+Arbitral+Award+set+aside+for+Breach+of+Natural+Justice&ie=UTF-8&oe=UTF-8
[1] “the range of what a reasonable and fair-minded tribunal in those circumstances might have done”.

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New Defense Raised during Closing Submission – Arbitration Award Set Aside Due to Breach of Natural Justice