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Arbitral award held to be outside the scope of the arbitration

In Convexity Ltd v Phoenixfin Pte Ltd. and others [2021] SGHC 88, the Singapore High Court set aside an arbitral award on grounds of breach of natural justice, as the Tribunal allowed the introduction of an unpleaded issue for determination without the parties’ agreement. 

The claimant brought arbitral proceedings to claim fees payable under a services agreement from the first respondent. Nine days before the evidentiary hearing, the first respondent applied to amend its defense and counterclaim to plead the penalty issue, by alleging that certain clauses in the services agreement would be penalty clauses under English law. The claimant objected to the amendment as it was made late in the day, and would cause irreparable prejudice. During the evidentiary hearing, the Tribunal decided not to allow the first respondent’s proposed amendments. Nevertheless, at the hearing of the oral reply submissions, the Tribunal asked that the claimant’s counsel address the penalty issue. Subsequently, the Tribunal issued its final award, which dismissed the claimant’s claims on the sole basis of the penalty issue. The Tribunal held that the parties had agreed that the penalty issue would be an issue in the arbitration, irrespective of the pleadings.

Breach of natural justice
The Court held that the introduction of the penalty issue was a breach of natural justice. The Tribunal inaptly thought that the claimant had agreed to the respondent’s amendment and failed to consider the claimant’s objections to the same. Consequently, it has caused the claimant real prejudice, as the introduction of the issue would have made a difference to the outcome of the proceedings.

Parties should be careful to ensure that all material issues are raised and pleaded at an early stage of the proceedings. This is to avoid having the arbitral award being set aside for a breach of natural justice or for being outside the scope of the Tribunal’s jurisdiction.

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