Arbitrator asking for further submissions not a breach of natural justice

Recognizing that the arbitration process is dynamic, it is generally not wrong for an arbitrator to seek further submissions from parties to dispose the case fairly and justly; rather than, as claimed by the applicant in the case of COD v COE [2022] SGHC 126, a breach of agreed procedure and of natural justice.

Facts
COE was contracted to make and deliver to COD two identical fibre rope cranes (the “Cranes”). After the contracted delivery dates for the Cranes had passed, COD terminated each of the contracts due to alleged non-compliance with contractual specifications and requirements.  Subsequently, COE commenced arbitration proceedings alleging breach of contract on the basis of wrongful refusal to take delivery of the Cranes. COE sought specific performance and payment of the balance contract price of the Cranes, with damages in the alternative.

The arbitrator decided that while the Cranes did not comply with contractual specifications for weight, this was not sufficiently material to justify COD’s termination. COD’s termination was thus wrongful. However, instead of grating specific performance, the arbitrator decided that damages were the just and appropriate remedy, and invited further submissions on the quantum of damages. The arbitrator ultimately awarded damages to COD based on the purchase price of the Cranes together with variation orders that increased the price, less the scrap value as set out in COE’s witness statement quantification. 

On 10 September 2021, COD sought to set aside the whole of the final award on the following grounds:
(i)             Breach of natural justice in relation to the question of damages, as the measure of damages
                adopted by the arbitrator had not been pleaded and/or COD was not given the opportunity
                to put in evidence in relation to it.
(ii)            The arbitrator had proceeded contrary to the arbitral procedure agreed by parties, namely
                to have only one tranche of hearing without bifurcation of liability and quantum.

Decision  
The High Court determined the following:
(i)             In relation to COD’s contention that the arbitrator unilaterally bifurcated the arbitration into
                liability and quantum phases when the parties agreed on the basis of a single hearing,
                the Court held that the arbitrator did not bifurcate the hearing as there was only one
                evidentiary hearing. Moreover, a departure from the agreed procedure must not be allowed
                to deprive arbitrators of their procedural discretion and control of proceedings.
(ii)            In relation to COE’s claim for damages based on the formula which was introduced only after
                the interim award, the Court noted that new or more detailed or alternative methods for
                calculating damages may be introduced other than by formal amendment of pleadings, and
                the question is whether the other party had sufficient notice and opportunity to deal with it. 
                The Court found that COD had ample opportunity to consider whether it wanted to
                challenge the assertion that COE was not able to find buyers for the Cranes or to contend for
                a higher scrap value. However, COD did not seek leave to supplement its witness statements
                whether orally or in writing, nor did COD seek to put in any further evidence.
(iii)           Correspondingly, given that COE’s claimed measure of damages was introduced prior to the
                evidentiary hearing, there can be no question that COD was given a fair and reasonable
                opportunity to respond to it.
(iv)           COD also contended that the arbitrator failed to consider its arguments concerning the
                availability of a market for the Cranes. The Court found that COE had proven there was no
                available market for the Cranes on a balance of probabilities. If it was disputed by COD, its
                contentions to the contrary should have been canvassed in its submissions made prior to the
                interim award. But this was not done.

Takeaway
It is clear that courts will not engage with what is substantially an appeal on the legal merits of an arbitral award, but disguised as a challenge to process failures during the arbitration. Further, arbitral awards are not meant to be read microscopically, but generously. While an arbitrator is not under any general obligation to disclose what he is minded to decide so that the parties may have a further opportunity of criticising his mental processes before he finally commits himself.