The latest case of PhoenixFin Pte Ltd. and others v. Convexity Ltd. is the culmination of a series of Court of Appeal of Singapore cases setting out the significance of pleadings in arbitration. The court held that pleadings in arbitration are important especially when an issue is of mixed fact and law and can be the basis for a finding of breach of natural justice warranting the setting aside of the arbitral award. This is notwithstanding the common belief that there is an amount of flexibility in the approach to pleadings in arbitration such that pleadings may take the back seat in arbitration proceedings.
The series of instructive cases begin with the case of CDM and another v. CDP (CDM).[1] There, the Court of Appeal of Singapore (SGCA) identified five factors that have to be considered in determining whether a matter was within the scope of parties’ submission to arbitration: the parties’ pleadings, agreed list of issues, opening statements, evidence adduced, and closing submissions at the arbitration.[2]
This was then developed in CAJ and another v. CAI and another appeal (CAI)[3] where the SGCA held that the arbitral tribunal’s ruling on an unpleaded defence, which was fact-sensitive and did not feature anywhere in the arbitration except in the appellants’ written closing submissions, was outside the scope of jurisdiction and in breach of natural justice.[4]
These cases culminated in PhoenixFin Pte Ltd. and others v. Convexity Ltd (Convexity).[5] where the SGCA affirmed the setting aside of an arbitral award that was based on an unpleaded issue, although the tribunal had, prior to the issuance of the award, ostensibly given parties an opportunity to address it on the unpleaded point.
The team at Morgan Lewis Stamford LLC acted for the successful parties in two of the aforementioned cases (i.e., CDM and Convexity). The three cases are examined in detail below.
CDM
In CDM, the central issue was whether the launch of a vessel had been approved such that the respondent was contractually entitled to an instalment payment (Fourth Instalment). The arbitral tribunal held inter alia that the first appellant had given its approval for the launch on 3 May 2015 (Second Launch) and there was no reason for the Fourth Instalment to be withheld by the appellants.
Though the Statement of Claim and Notice of Arbitration did not make any reference to the Second Launch being a basis for due payment of the Fourth Instalment, the SGCA held that the Second Launch fell within the scope of the parties’ submission to arbitration because it was expressly addressed in the appellants’ Statement of Defence and Counterclaim, subsequent pleadings, the agreed list of issues, parties’ opening statements, the evidence in the arbitration, and parties’ closing submissions.[6]
The SGCA held that in determining whether a matter was within the ambit of a tribunal’s jurisdiction, the court should have reference to five sources: the parties’ pleadings, agreed list of issues, opening statements, evidence adduced, and closing submissions at the arbitration.[7]
Accordingly, the SGCA found no basis to set aside the tribunal’s award in CDM.
CAI
In CAI, the SGCA clarified that pleadings have a role to play in arbitration. There, the appellants raised an unpleaded defence for the first time in their written closing submissions that they were entitled to an ex post facto extension of time to complete their obligations under the contracts with the respondents (EOT Defence). The arbitral tribunal granted the EOT Defence in its arbitral award.
The SGCA considered that the EOT was fact-sensitive and must be pleaded.[8] The appellants had not done so and only raised it for the first time in its written closing submissions. As a result, the respondent simply had no prior notice that it had to deal with the EOT Defence.[9]
Notably, the SGCA highlighted what the party hoping to enforce the arbitral award should have done—the appellants in CAI should have applied to amend their pleadings to include the EOT Defence, subject also to compliance with any other directions and consequential orders made by the tribunal.[10] The SGCA rejected arguments that the respondent could or should have pursued other courses of action after the EOT Defence was raised in the appellants’ written closing submissions, such as objecting to it, seeking for formal amendment of pleadings by the appellants or requesting for further directions from the tribunal. The burden lies in the appellants to redress the failure to plead the EOT Defence so that it could be properly advanced in the arbitration.[11]
Convexity
The decision of Convexity was heard by Chief Justice Sundaresh Menon, Court of Appeal Justice Judith Prakash, and Court of Appeal Justice Steven Chong.
In this case, the respondent sought payment of US$2.8 million (Make-Whole Amount) and accrued interest under Clauses 10.2 and 11 of a Services Agreement between parties.
After the pleadings, agreed list of issues and list of witnesses had been filed in the arbitration, the first appellant sought to amend its pleadings to inter alia, plead that Clauses 10.2 and 11 of the Services Agreement were unenforceable penalty clauses (Penalty Issue). The arbitral tribunal dismissed the first appellant’s application for amendment (the Amendment Application) at the end of the third day of the evidentiary hearing. However, the tribunal later unilaterally reinserted the Penalty Issue at the oral reply hearing. In the arbitral award, the tribunal dismissed the respondent’s claim on the basis of the Penalty Issue.
The SGCA found that the arbitral tribunal’s ruling was in breach of natural justice, outside the scope of submission and contrary to the arbitral procedure. The court found that by rejecting the Amendment Application, the Penalty Issue stayed outside the scope of the arbitration proceedings.[12]
Importantly, the SGCA firmly rejected the appellants’ argument that the breach was remedied by subsequent attempts by the tribunal to ostensibly afford the respondent an opportunity to be heard on the Penalty Issue—by requesting for further written submissions on the Penalty Issue and directing that there be a limited cross-examination of only the respondent’s witnesses (collectively, the Tribunal’s Remedial Attempts).[13]
The SGCA held that the crux was that the Penalty Issue was an issue of mixed fact and law.[14] Accordingly, the first appellants should have fleshed out both the factual and legal issues underpinning the Penalty Issue in its pleadings so that the respondent could respond accordingly and not be taken by surprise.[15] Providing more time for legal submissions is insufficient.[16] The appellants’ failure to establish the factual underpinning of their case on the Penalty Issue in particular meant that the respondent did not know the evidentiary basis for the appellants’ contention and did not have an opportunity to respond to the appellants’ case.[17]
The SGCA also came to the view that the arbitral tribunal had wrongly reversed the burden of proof by the Tribunal’s Remedial Attempts.[18] The burden was on the appellants to show why the disputed clauses were penalty clauses as a matter of fact in light of the applicable legal principles.[19] However, the tribunal had a preconceived view on how she intended to decide the Penalty Issue; she assumed that the clauses were presumptively proscribed penalty clauses and reversed the burden of proof by requiring the respondent to show why the clauses were not penalty.[20]
The SGCA thus agreed that there was a breach of natural justice and the Penalty Issue was outside the scope of submission.[21]
On this basis, the SGCA also found that there was a breach of agreed procedure. Though an arbitral tribunal has some latitude in determining its own procedure, this must be circumscribed by the rules of natural justice.[22] The agreed procedure in Convexity was that parties had to have an adequate opportunity to deal with the issue in question. In the circumstances of the case, the tribunal’s failure to require the appellants to establish the factual basis of their case meant that the respondent was denied an opportunity to adequately respond to the Penalty Issue, in breach of the arbitral procedure.[23]
Convexity is illuminating because it highlights the importance of pleadings in arbitration which should not be overlooked.
Counsels should rethink how to approach pleadings in arbitration proceedings. Unlike the constant refrain that pleadings are of secondary importance in arbitration, pleadings are significant especially where an issue is of mixed fact and law. While there may be no formalistic reference to pleadings in arbitration, pleadings are key in the court’s determination of whether a party was given reasonable opportunity to address a particular issue. If the issue had not been pleaded, the court may find that a party was deprived of such opportunity.
Convexity was also a decision which examined the adequacy of a tribunal’s attempt at remedying a breach of natural justice. In this regard, it is important to appreciate the distinction between issues that are purely legal and issues that are of mixed fact and law. For the former, any late introduction of such an issue in the arbitration may be remedied by inviting further legal submissions on the same. For the latter, material facts must be pleaded and particularised, disclosure may need to be given, documents sought and expert evidence adduced and tested. Thus, in a situation like Convexity where there was a late introduction of an issue of mixed fact and law, a simple attempt by the tribunal to remedy the belated introduction by inviting “further submissions” on the same at the end of the arbitration proceedings may be insufficient.
It seems from CAI and Convexity that the court would expect that if an arbitral tribunal is interested to relook at an unpleaded issue, pleadings must first be amended, further evidence and witness must be adduced and the issue must be tried afresh. The responsibility may also lie in the party seeking to enforce the arbitral award to advise and guide the tribunal as to the particular steps that should be taken to ensure the unpleaded issue is fully ventilated in the arbitration. A failure to do so could lead the arbitral award being set aside for breach of natural justice.
Further, Convexity also highlights the importance for an aggrieved party to stick to its guns about the breaches by the tribunal and be careful in waiving any breaches. In the SGCA’s judgment, the court took pains to outline the respondent’s repeated objections to the tribunal’s breaches and reservation of its position, including the respondent’s refusal to lead new evidence for the Penalty Issue when the tribunal made the Tribunal’s Remedial Attempts. The SGCA held that the respondent’s acts were reasonable, cannot be faulted and cannot be deemed as a waiver of the tribunal’s breaches.[24]
The jurisprudence in Singapore on the setting aside of an arbitral award is extensive despite the judicial philosophy being strongly pro-arbitration. Given the illuminating principles featured in CDM, CAI, and Convexity, these cases are likely to be influential in how other jurisdictions approach the setting aside of arbitral awards on the grounds of breach of natural justice.
Morgan Lewis Stamford LLC acted for the respondent in the appeal in Convexity. It was led by litigation partner Daniel Chia, with senior associate Yanguang Ker and associate Jeanette Wong.
[1] CDM and another v. CDP [2021] 2 SLR 235
[2] Id. at [18]
[3] CAJ and another v CAI and another appeal [2021] SGCA 102 (CAI)
[4] Id. at [26], [29], [43], [52], [62]
[5] PhoenixFin Pte Ltd and others v. Convexity Ltd [2022] SGCA 17
[6] CDM at [46]
[7] Id. at [18]
[8] CAI at [31]
[9] Id. [52]
[10] Id. at [52], [61]
[11] Id. at [61]
[12] Convexity at [49]
[13] Id. at [65]
[14] Id. at [46]
[15] Id. at [46], [52]
[16] Id. at [52]
[17] Id. at [54], [64], [68]
[18] Id. at [65]
[19] Id. at [66]
[20] Id. at [67]
[21] Id. at [68], [70], [71]
[22] Id. at [74], [75]
[23] Id. at [75]
[24] Id. at [55] to [63]