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By Justin Gan, Sarah Kuek – Stephenson Harwood (Singapore) Alliance

This is the first Singapore case to discuss confidentiality protections concerning document production in the arbitration context. It also discusses (a) the effect of an agreement for arbitration to be conducted within a short fixed timeframe and natural justice considerations, (b) whether there is an implied duty of good faith in arbitration, and (c) whether an arbitral tribunal is under a duty to investigate allegations of corruption.

Background

China Machine New Energy Corporation ("CMNC") and Jaguar Energy Guatemala LLC ("Jaguar Energy") entered into a Lump-Sum Turnkey Engineering, Procurement & Construction Contract dated 29 March 2008 ("EPC Contract") for the construction of a power plant in Guatemala.

About a year and a half later, CMNC, Jaguar Energy and AEI Guatemala Jaguar Ltd ("AEI", together "Jaguar") entered into a deferred payment security agreement ("DPSA") to provide Jaguar Energy with the option of issuing debit notes to CMNC instead of making certain milestone payments under the EPC Contract. These debit notes were to be secured by security interests over assets of both Jaguar Energy and AEI, the sole shareholder of Jaguar Energy.

In October 2013, disputes arose between the parties. CMNC failed to meet certain milestones in the construction of the power plant, in particular two scheduled take-over dates, under the EPC Contract. Jaguar issued a number of notices to CMNC requiring it to take corrective measures. CMNC did not take such corrective measures.

In December 2013, Jaguar terminated the EPC Contract and assumed control of the construction site in order to complete the project itself.

Arbitration

Jaguar commenced arbitration against CMNC in Singapore on 28 January 2014 for liquidated damages and costs required to complete construction of the plant ("completion costs"). CMNC counter-claimed on the basis that it had exercised certain Step-In Rights under the DPSA and Jaguar was not entitled to terminate the EPC Contract.

The arbitration agreement expressly provided for arbitration of disputes under the EPC Contact to be completed within a tight timeframe. On 25 November 2015, the Tribunal issued its final Award. The Tribunal held Jaguar validly terminated the EPC Contract and allowed Jaguar's claim for liquidated damages and completion costs. CMNC's counterclaims were dismissed.

Setting aside

On 26 February 2016, CMNC applied to set aside the Award. CMNC argued:

1. It had been deprived of the opportunity to present its case, primarily because of an "attorney eyes only" ("AEO") order made in the document production phase of the arbitration: IAA s.24(a), Model Law Art.34(2)(a)(ii). CMNC also argued that the Tribunal failed to consider an argument it had made with respect to one of its counterclaims and that there was therefore a breach of natural justice.
2. The Tribunal had not treated parties equally: Model Law Art.18, 34(2)(a)(iv).
3. Jaguar had breached an implied duty to arbitrate in good faith. Further, the Tribunal had acted in breach of the agreed arbitral procedure by failing to restrain Jaguar's bad faith conduct and the Award should therefore be set aside: Model Law Art.34(2)(a)(iv). Alternatively, Jaguar's alleged "guerilla tactics" meant the Award conflicted with public policy: Art.34(2)(b)(ii), IAA s.24(b).
4. The Tribunal breached its duty to investigate certain corruption allegations and/or the Award was induced or affected by corruption. The Award was therefore in conflict with public policy: Art.34(2)(b)(ii), IAA s.24(b).

CMNC's application was dismissed.

Judgment

The Court reaffirmed and emphasized its policy of minimal curial intervention to allegations of breach of natural justice, and the Tribunal's wide power to control procedure.

Natural justice / reasonable opportunity to present case

CMNC's arguments focused on the AEO order made, which permitted Jaguar to disclose certain documents to only CMNC's professional advisors, but not CMNC. CMNC said this breached established rules and norms of court and arbitral proceedings, and was in any event inappropriate and denied it the opportunity to know the evidence against it and to properly present its case.

The AEO order related to some of Jaguar's exhibits to its Statements of Case, and some of CMNC's specific disclosure requests which Jaguar was ordered to meet. Jaguar alleged that CMNC had engaged in threatening actions against Jaguar and Jaguar's contractors. It was concerned that if CMNC obtained the details of those contractors through documents produced in the arbitration it would interfere with the plant and the arbitration.

The Court rejected CMNC's arguments:

• The Tribunal was empowered and entitled to impose an AEO order under the ICC Rules 1998 and under its broad case management powers.
• There was some evidence of CMNC's interference with Jaguar's completion of the Project before the Tribunal. The Tribunal took "a preliminary view on the risk of CMNC misusing documents, and imposed the AEO Regime on that basis".
• The Tribunal had of its own volition imposed additional safeguards in the AEO order which expressly allowed CMNC to apply for documents to be shown to particular CMNC employees for the purpose of giving instructions to counsel. CMNC never made such application, despite the Tribunal's repeated reminders.
• In any event CMNC agreed to the timelines for preparation of the case after the AEO order was in place. CMNC's complaint that it did not have sufficient time to review the documents did not arise from the AEO Regime. Rather, its agreement in the arbitration agreement to an arbitration conducted within a short fixed timeframe "required the procedural timelines for the Arbitration to be compressed with concomitant implications for the quality of due process that could be afforded to the parties within that framework".
• The suggestion that the Tribunal had not considered CMNC's DPSA arguments was incorrect as the Court found, on the evidence submitted, the Tribunal had considered and rejected CMNC's case.

Equal treatment – Model Law Art.18

The Court disagreed with CMNC's argument that the Tribunal had not treated parties equally in making the AEO order. The Tribunal made the AEO order because it reasonably considered, based on evidence submitted, that there was a risk that CMNC could misuse documents produced. However, the Tribunal had also safeguarded CMNC's interests by allowing CMNC to apply to the Tribunal in the event it wished for particular employees to view particular documents. CMNC never made such an application.

Implied duty of good faith

CMNC argued parties to an arbitration agreement have an implied duty to arbitrate in good faith, which Jaguar breached by employing alleged "guerilla tactics", which the Tribunal failed to restrain. CMNC therefore argued that the Tribunal had breached the agreed arbitral procedure.

The Court did not reach a conclusion on whether such an implied duty exists, but commented as follows:

• An arbitration agreement does not necessarily impose a general obligation of good faith.
• It may imply such a duty, depending on its interpretation under its governing law.
• In Singapore, there is no general "good faith" principle in contract law.
• Parties have a duty to co-operate in the arbitral process, but it is unclear if that is the same as a duty to arbitrate in good faith.

The Court found that Jaguar had not employed supposed "guerilla tactics" or acted in bad faith. It therefore did not have to determine whether an implied duty existed.

• CMNC alleged that Jaguar had harassed and intimidated CMNC's potential witnesses. The Court held that so-called "guerilla tactics" would have to involve a conscious tactical decision to employ illegal or unethical means with an intended aim of obstructing, delaying, derailing or sabotaging arbitration. CMNC's allegations, even taken at their highest, related to matters before the commencement of the arbitration.
• On the facts there was insufficient evidence of bad faith. The Tribunal had determined Jaguar acted lawfully in seizing the construction site and terminating CMNC's access to a shared data room.

The Court also declined to recognise that an Award may be set aside on the basis of alleged "guerilla tactics", where those tactics fell outside the recognized grounds for setting aside.

Corruption

Three days before the merits hearing in the arbitration, an independent commission in Guatemala released a report stating one of Jaguar's representatives (and a witness in the arbitration) had bribed government officials in relation to the dispute with CMNC and to the project, by making payments under "consultancy contracts". That representative was charged with corruption.

In response, Jaguar withdrew that portion of its claim that related to a consultancy contract, which did not form part of the Award. Nonetheless, CMNC argued the Award should be set aside as the Tribunal had failed to investigate the corruption allegations.

The Court rejected CMNC's arguments:

• It accepted that a Tribunal has a duty to investigate an allegation of corruption if this affects the issues under consideration in the arbitration, which if proven would render the award unenforceable as contrary to public policy in certain circumstances.
• The Tribunal was not under such a duty here as the corruption allegations had no bearing on the issues in the arbitration.
• Even if the Tribunal had been under such a duty in this case and it had failed to investigate the allegations of corruption, that failure had to be causally linked to the Award. There was no such link in this case.