By Christine Ong and Tan Yi Lei - Virtus Law LLP, with assistance from Michelle Lam
Nature of Matter
Applications to set aside an arbitral award on the basis that there has been a breach of natural justice.
Case Summary
The applicant hired the respondent as the main contractor for the construction of a two-storey semi-detached house situated in Jalan Sedap. The completion date was scheduled on 25 June 2010, and there was delay - the completion certificate was only issued on 8 March 2011. The applicant also alleged that there were defects that required rectification.
The applicant commenced arbitration in October 2012 in respect of the delay in completion and defects. The respondent counterclaimed for S$135,676.58, being the outstanding sum allegedly owed by the applicant for works carried out and S$54,304 for labour costs.
On 17 July 2017, the sole arbitrator wrote to parties to inform that the award was ready for collection from 25 July 2017. Parties however, did not pay the arbitrator’s outstanding fees – the respondent failed to pay S$48,902.08 as it alleged it was facing financial difficulties and the applicant failed to pay S$9,027.09 to the arbitrator. Finally on 17 May 2018, the arbitrator released the award to the parties even though he had not been paid his outstanding fees and expenses.
The arbitrator awarded the applicant $156.25 of the $89,215.26 claimed for alleged discrepancies between the condition of the house and the construction drawings issued by the architect; $42,979.06 of the $374,305.24 claimed for the alleged costs of rectifying various defects in the works; and rejected the applicant’s claim for loss of rental, loss of value of the property and claim for liquidated damages. The respondent succeeded in its counterclaim for outstanding works and additional labour costs and was awarded $98,797.34. A net sum of $59,558.37 was therefore due from the applicant to the respondent.
On 16 August 2018, the applicant filed an application for the award to be set aside in its entirety on the basis that the arbitrator had failed to decide certain issues submitted to him for his determination and there were various breaches of natural justice by the arbitrator. The applicant later clarified in submissions that she was only seeking to set aside parts of the awards. She was not seeking to set aside the parts of the award that deal with the arbitrator’s determination on the claim of discrepancies between the completed works and the construction drawings as well as the arbitrator’s determination of the respondent’s counterclaim. Instead, she was seeking the setting aside of the rest of the award.
On 7 September 2018, the respondent filed an application for leave to enforce the arbitral award which was granted ex-parte. The applicant then filed a separate application seeking to set aside the order of court granting the respondent leave to enforce the award.
Ruling
The Court dismissed both the applicant’s setting aside applications and found that the applicant’s allegations of breaches of the rules of natural justice were but disguised attempts to challenge the merits of the award.
The Court distilled 5 broad issues to be determined:
- Did the arbitrator fail to determine the issue of whether the applicant was entitled to general damages for delay (“First Issue”);
- Did the arbitrator fail to consider submissions before he decided the question of the validity of the delay certificates and the extension of time granted to the respondent (“Second Issue”);
- Did the arbitrator exhibit apparent bias in the dismissal of the applicant’s claim for loss of value of the property (“Third Issue”);
- Did the arbitrator exhibit apparent bias in rejecting the evidence of the applicant’s expert witness on the claim for damages for defects (“Fourth Issue”); and
- Did the arbitrator exhibit apparent bias in rejecting the evidence of the applicant’s expert witness on the issue of quantification of damages for rectification works (“Fifth Issue”).
Applicable principles
There are 2 pillars to natural justice.
First, the arbitrator must be disinterested and unbiased. The test is whether “there are circumstances which would give rise to a reasonable suspicion or apprehension in a fair-minded reasonable person with knowledge of the relevant facts that the tribunal was biased”
Second, the parties must be given adequate notice and opportunity to be heard. The overriding burden is on the applicant seeking to set aside the award to show that a reasonable litigant in his shoes could not have foreseen the possibility of reasoning of the type revealed in the award.
Further, the applicant must also show that the breach of natural justice caused “some actual or real prejudice” meaning that it must, at the very least, have actually altered the final outcome of the arbitral proceedings in some meaningful way.
First Issue
The applicant submitted that while she failed in her claim for contractual liquidated damages resulting from the delay, it was a breach of natural justice for the arbitrator to not have gone on to determine whether there should be an extension of time granted to the respondent for the completion of the works and consequently, consider whether general damages should flow from the same.
The Court found that the applicant’s pleaded case in the arbitration did not include a claim for general damages for delay and it was not an essential issue necessary for the arbitrator to decide. In the absence of a pleaded case for general damages, it cannot be said that the issue of general damages was essential to the resolution of the dispute. In this regard, an arbitrator will only be found to have acted in breach of natural justice for having failed to consider an issue in the dispute before him only if the issue was essential to the resolution of the dispute.
Second Issue
The applicant submitted that there was a breach of natural justice because the arbitrator failed to refer to one set of her submissions in the award even though the arbitrator said that he would do so at an interlocutory hearing. This showed that the arbitrator failed to consider critical issues in the arbitration.
The Court rejected this submission given that the arbitrator did refer to the submissions in his award. Further, both parties had the opportunity to canvass full arguments to the arbitrator and had done so. Many of the applicant’s arguments in the submission also did not have to be dealt with by the arbitrator given that the said arguments would not have made a difference to the arbitrator’s decision. All that is required of the arbitral tribunal is to ensure that the essential issues are dealt with. In determining the essential issues, the arbitral tribunal did not have to deal with every argument canvassed under each of the essential issues.
Third Issue
The applicant’s claim for loss of value was based on the argument that the defects prevented the property from being sold between October 2012 and April 2013 when its market value was between S$6.8m and S$7m. Due to the defects, the 2 offers received were only S$6.187m in October 2012 and S$6.3m in April 2013. The applicant submitted there was a breach of natural justice by the arbitrator not accepting the evidence that was tendered by the applicant as to the value of the property being about S$7m.
First, the applicant relied on a text message sent by a bank officer which stated “Ok max 7m if brand new” as evidence of the market value of the property. The applicant submitted that the arbitrator’s failure to accept the text message as evidence showed double standards because the arbitrator had referred to other pieces of hearsay evidence in his award as evidence of the market value of the property (i.e. an email from another property agent offering S$6.18m for the property). The Court found that the arbitrator’s decision as regards weight to be given to the text message was unimpeachable. Further, the Court found that the arbitrator did not rely on the aforementioned email to determine the value of the property, the arbitrator only made a finding that the applicant had not proven what the value of the property was as there was never any proper valuation report provided by a qualified valuer.
Next, the applicant submitted that the arbitrator demonstrated apparent bias by posing a long series of questions to the applicant’s property valuation expert (“Mr Goh”), showing that he had already made up his mind about the valuation of the property and had shut his mind to Mr Goh’s evidence. The Court did not agree that there was apparent bias given that the questions were mostly raised after the cross-examination of Mr Goh, during re-examination. In particular, the Court highlighted that Mr Goh was allowed to answer fully, including by providing an explanation of relevant factors, and the applicant’s counsel had further re-examined Mr Goh on these points.
Next, the applicant submitted that the arbitrator had preferred his own knowledge over the experience of Mr Goh. The Court did not agree with this submission given that the arbitrator did give reasons for his non-reliance on Mr Goh’s evidence. The Court found that it was appropriate for the arbitrator to consider the appropriate reliance to be placed on Mr Goh’s evidence and the arbitrator was not bound to accept Mr Goh’s evidence just because the respondent did not call an expert to provide expert evidence.
Next, the arbitrator had relied on “a well-known fact” in his award to state that leaving defects in a building unrepaired would cause the defects to deteriorate. The applicant submitted that this point was not advanced by the respondent in the arbitration and therefore did not form part of the respondent’s case. If the arbitrator wanted to rely on this, he should have invited parties to address him on it and the applicant was thus deprived of an opportunity to demonstrate that the arbitrator’s reliance was misplaced. The Court dismissed this submission without hesitation for the following reasons:
- An arbitrator, like a judge, is entitled to rely on his common sense when determining issues – the “well-known fact” being plainly a matter of common sense;
- On the facts, this point was raised by the respondent’s building surveyor expert and corroborated by the architect at the arbitration;
- Further, no prejudice would have arisen even if the arbitrator invited the applicant to address him on the “well-known fact” given that the applicant had in the first place, failed to prove the causative link between her failure to sell the property at her expected price of S$7m and the defects in the property. The arbitrator’s reference to the “well-known fact” in dealing with mitigation was simply irrelevant.
Fourth Issue
The applicant submitted that she was prevented from presenting her evidence on defective works, in the form of the evidence of her building surveyor expert (“Mr Chin”) as the arbitrator sought to rely on the architect’s evidence. The applicant further submitted that the arbitrator failed to appreciate that the architect was not a neutral party since he had been appointed and paid by the applicant herself.
The Court found that on the facts that it could not be said that the applicant was prevented from presenting her evidence when the arbitrator had actually provided her with an opportunity to remedy the problems with her evidence by providing her with the option of recalling the architect and adducing evidence from him in relation to the claim for defective works. Summarily, the arbitrator was concerned that Mr Chin was not instructed to consider previous correspondence and documents between parties and therefore may not be able to determine whether a complaint of defective work was a defect or whether it was as a result of the architect’s design or an agreed variation. Further, Mr Chin had only inspected the property after certain defects had already been rectified and made good which cast doubt as regards Mr Chin’s evidence on the issue. In the circumstances, the arbitrator informed parties that the architect’s evidence may be relevant to the issue of what was a defective work. The applicant also presented her evidence of the defects through Mr Chin and then decided to present further evidence of the defects through the architect. The Court therefore found that the arbitrator could not have been said to have prevented the applicant from presenting her evidence on defective works.
Further, the Court found that there was no merit in the applicant’s allegation that the arbitrator failed to recognise that the architect was not a neutral witness just because he had been appointed by the applicant. The Court pointed out that this was not a complaint that may be raised by the applicant given that any bias, if any, would be in her favour. The Court also found that it was preposterous to suggest, without any evidence, that a professional man would not testify truthfully just because he had been appointed and paid by that party. In any event, such a criticism would equally apply to Mr Chin, the applicant’s own witness.
Fifth Issue
Finally, on the issue on the arbitrator’s treatment of the applicant’s quantum expert’s (“Mr Teo”) expert evidence. The applicant submitted that the arbitrator exhibited apparent bias against Mr Teo because he did not accept Mr Teo’s evaluation but preferred the respondent’s expert (“Mr Wong”) evidence instead.
On review of the award, the Court found that the respondent had provided concrete examples to show why Mr Wong’s evidence was to be preferred whereas the applicant had only made “sweeping and unsubstantiated remarks” on how Mr Wong’s evidence was arbitrary and inaccurate. The arbitrator therefore had good basis for preferring Mr Wong’s evidence over Mr Teo’s evidence. Further, the Court found that the arbitrator’s assessment and consequent rejection of Mr Teo’s evidence was not cursory and that the arbitrator had set out the submissions made by both parties before coming to a decision on which experts’ view should be preferred.
Even if the applicant’s argument was that the arbitrator had not given sufficient reasons for rejecting Mr Teo’s evidence, the lack of detailed reasons was not a sufficient basis for the court to come to a view that the arbitrator breached the rules of natural justice – natural justice requires that parties should be heard but it does not require that they be given responses on all submissions made.