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By Charis Wang, Fullerton Law Chambers LLC

Facts:

1. The plaintiff (the “Buyer”) agreed to buy 50,000 metric tonnes (“MT”) of coal from the Seller at a price of US$74 per MT. The coal was to be delivered in two tranches, each tranche recorded in a separate sale and purchase contract.
2. The first tranche had been delivered and paid for. However, for the second tranche, the Buyer contended that it was only supplied 15,000 out of 20,000 MT of coal from the Seller. The Buyer was also informed by the Seller that all of its trade debts had been assigned to the defendant (the “Bank”).
3. The Bank sought payment for the 20,000 MT but the Buyer failed to pay. The Buyer thereafter alleged that (a) only 15,000 MT had been supplied to it, and it had to source for 5,000 MT elsewhere, and (b) it would only pay US$61 per MT instead as the market price of the coal had been reduced.
4. Both the Seller and the Buyer met (the “Meeting”) to discuss over the issue of the outstanding payment and short delivery. The Buyer claimed, which both the Bank and the Seller denied, that a global settlement was reached by way of an oral agreement that the price of the coal would be revised to US$61 per MT for all 50,000 MT.
5. The Bank commenced arbitration proceedings against the Buyer, claiming the outstanding price and late payment interest. The Buyer objected to the jurisdiction of the proceedings, but the sole arbitrator found that he had the jurisdiction to deal with the merits of the Bank’s claim.
6. The Buyer filed a “reply on merits”, under protest to the tribunal’s jurisdiction, and submitted a list of seven named witnesses, six of whom were persons who were present at the Meeting. The Buyer also counterclaimed for the losses procuring the 5,000 MT from the open market.
7. The arbitrator asked the parties to consider a documents-only arbitration, which commonly refers to an arbitration without an oral hearing. No cross-examination of any witnesses or oral submissions were allowed.
8. The Buyer submitted that an oral hearing was necessary to cross-examine these witnesses, some of whom were representatives of the Seller. The Buyer relied on rule 28.1 of the Rules of Singapore Chamber of Maritime Arbitration (“SCMA Rules”), which provides that an arbitrator “shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submissions”, unless parties have agreed on a documents-only arbitration. The Buyer also objected to the arbitrator’s requirement of requiring the Buyer to submit witness statements when, as argued by the Buyer, it was a breach of the rules of natural justice to do so before deciding whether an oral hearing would be held.
9. The arbitrator proceeded to conduct an oral hearing via telephone, without allowing for witnesses to be present as the Buyer was regarded to have failed to provide witness statements, and the Buyer’s counterclaim was not heard as the Buyer failed to deposit the necessary funds. The Buyer did not participate in the telephone hearing. The arbitrator allowed the Bank’s claim in full, and found there was no oral agreement for a price adjustment. The Buyer applied to set aside the arbitrator’s award in entirety.

Decision

10. The Buyer submitted that there was a breach of the rules of natural justice because it had not been afforded a fair chance to be heard and to present its case. Since the Buyer never agreed to a documents-only arbitration, an oral hearing must be held for the presentation and/or cross-examination of witnesses. The Bank, on the other hand, submitted that the arbitrator had the power under rule 28.1 of the SCMA Rules to dispense with witnesses even when one of the parties insist on the need for witness testimony.
11. The Court held that rule 28.1 does not support the Bank’s assertion that the arbitrator was given the power to reject all of the Buyer’s witnesses. Instead, the SCMA Rules envisage that if parties have not agreed to a documents-only arbitration, parties must be allowed to call witnesses to give evidence.
12. As regards the arbitrator’s decision to gate all of the Buyer’s witnesses, the Court held that, as the SCMA Rules do not contain a witness-gating provision, the arbitrator’s decision was not justified when it was obvious that the purported oral agreement was fundamental to the Buyer’s defence, and four out of seven witnesses were either from the Seller or another entity, rendering it impracticable to obtain witness statements unless subpoenaed.
13. The Court therefore held that the rule of natural justice which requires parties to be given a fair hearing and a fair opportunity to present its case was breached.
14. The Court further held that the breach of the fair hearing rule was directly connected to the making of the award. The Court found that the arbitrator was acting under the misapprehension of his powers to ‘gate’ the buyer’s witnesses under rule 28.1 of the SCMA Rules. The arbitrator also did not have the power under SCMA Rules to see the Buyer’s witness statements before deciding whether to allow them to present such evidence at the oral hearing.
15. Lastly, while the Court found that there was no shortfall in delivery of 20,000 MT, the Court was satisfied that there was some actual or real prejudice suffered by the Buyer as a result of the arbitrator’s decision to gate all of its witnesses, the evidence of which could shed light on the purported oral agreement and could have operated to defeat part of the Bank’s claim in the arbitration.
16. The Court therefore set aside the arbitrator’s award.