In this case, Bagadiya Brothers (Singapore) Pte Ltd, the plaintiff, has made an application to the Singapore High Court (“SHC”) via originating summons to set aside the award in an arbitration proceeding in favour of Ghanashyam Misra & Sons Pte Ltd, the defendant.
The SHC had found the arbitrator was in breach of the rules of natural justice on a particular issue. Therefore, instead of deciding on the Plaintiff’s application, SHC used the power available under Article 34(4) of the UNCITRAL Model Law on International Arbitration (“Model Law”) to suspend the setting aside proceedings and to remit the award to the arbitrator for re-deliberation on the said issue.
Facts:
1. The plaintiff is a company incorporated in Singapore that carried out the business of international
trade of various commodities. The defendant, on the other hand, is a company incorporated in India
and carried out the business of mining and trading iron ore.
2. Some time in 2017, both parties entered into two contracts described as the Tiger Shanxi Contract
and Asia Ruby Contract (collectively referred to herein as “Contracts”) for the sale of iron ore fines.
Under the Contracts, the parties had agreed on base prices of the iron ore fines per dry metric ton
(“base/original price”) although the contracts also contained a price adjustment clause. The price
adjustment clause described how the base price would be adjusted in the event that the iron content,
impurities and physical specifications of the iron ore fines delivered to the plaintiff deviated from the
contractual specifications. Also, the said clause gives the right to the plaintiff to reject the entire cargo
or to renegotiate the price, if the iron content of the iron ore fines fell below a certain percentage.
3. When the iron ore fines were discharged at the port, it was undisputed that the iron ore fines were
defective. So, pursuant to the price adjustment clause, the parties agreed to an addendum to the
Contracts to revise the final price of the iron ore fines payable by plaintiff to defendant ("Addenda").
The terms of the Addenda are that plaintiff would pay provisional prices of the iron ore fines and try to
sell the iron ore fines "as is" or by blending it with other cargoes, to improve the realisation from the
sale of the iron ore fines locally in China. The final price payable of the iron ore fines would be the
actual amount realised from their sale, after deducting the relevant costs. Payment of the provisional
price would be offset against the final price (“price adjustment mechanism”).
4. Ultimately, the iron ore fines were sold to third parties called Glencore International AG (“Glencore”)
in their capacity as the plaintiff’s agent. The plaintiff then made a provisional payment to defendant,
which is lower than what the parties had agreed to under the Addenda.
The arbitration proceedings and findings: -
5. Following the lower payments, defendant commenced arbitration proceedings against plaintiff. The
defendant claimed that the final price of the sale of the iron ore fines should be the original price
under the Contracts because plaintiff had failed to intimate the price at which the iron ore fines were
sold to Glencore. Therefore, the parties should “revert” to the original price because plaintiff should
be presumed to have utilised the entirety of the iron ore fines for its own gain.
6. The plaintiff, on the other hand, claimed that the final price should be determined by the actual price
of the iron ore fines blended with plaintiff’s own cargoes which had been sold in various quantities on
different dates and at different prices to Glencore, as per the Addenda. Pursuant to the price
adjustment clause, since there has been a trigger event, the parties' agreement on the final price vide
the Addenda is valid and superseded the original price stipulated in the Contracts. So, the final price
should be calculated as per the prevailing market price of the same blended iron ore fines, which is
less than the provisional payment paid to defendant. The plaintiff then counterclaimed against
defendant in the arbitration proceedings.
7. In the arbitration proceedings, defendant argued that the defective iron ore fines had been sold to
Glencore as a buyer rather than an agent. On the contrary, plaintiff contended otherwise and
sought to adduce evidence of invoices from Glencore (“Glencore invoices”) to show that Glencore
had only acted as an agent of plaintiff in the sale of iron ore fines. The arbitrator did not grant leave
for Glencore invoices to be admitted on the grounds that it was adduced too late.
8. The arbitrator decided in favour of defendant and found that plaintiff was in breach of the Contracts
and the Addenda by amongst others, failing to pay the provisional price as agreed under the
Addenda. As a result, the title from the iron ore fines had not passed from defendant to plaintiff.
Therefore, effectively plaintiff had acted as defendant’s agent in the onward sale of iron ore fines
to third parties and thus, owed defendant fiduciary duties. The plaintiff was obliged to account to
defendant on the said sale.
9. By unilaterally calculating the final price of the iron ore fines plaintiff had breached its fiduciary duties
to defendant. The plaintiff had failed to keep defendant informed of, amongst others, who the iron ore
fines had been sold to and the payment terms on which they had been sold.
10. The arbitrator went on further and found that the price adjustment calculation mechanisms under the
Addenda were "vague and ambiguous" in reference to s 8 (1) of the Sale of Goods Act 1979 (UK)
(“SOGA”). So, she had applied s 8 (2), which means plaintiff was obliged to pay defendant a
“reasonable price”. S 8 reads:-
“8 Ascertainment of price. (1) The price in a contract of sale may be fixed by the contract, or may be
left to be fixed in a manner agreed by the contract, or may be determined by the course of dealing
between the parties. (2) Where the price is not determined as mentioned in sub-section (1) above
the buyer must pay a reasonable price. (3) What is a reasonable price is a question of fact dependent
on the circumstances of each particular case.”
11. Finally, the arbitrator decided that the final price of the iron ore fines is the original price under the
Contracts with revision pursuant to the price adjustment mechanism due to the cargo defect.
However, since plaintiff had breached the fiduciary duty as stated above, the actual amount of the
proceeds realised from the sale of iron ore fines to the third parties was immaterial. The role of
Glencore as a buyer/agent of plaintiff was not necessary to determine.
High Court proceedings and findings:-
12. During the hearing of the application, the SHC was most interested in the issue of s 8 SOGA above.
13. The basis of plaintiff’s setting aside application is that the arbitrator breached the rules of natural
justice in granting the Award as plaintiff had been unable to present its case. The arbitrator failed
to decide on the primary issue, not whether the price adjustment mechanism/clause was
ambiguous, but rather the final price of the iron ore fines should be based on the Contracts and/or
the Addenda. Any reference made to the SOGA during the arbitration had been to provisions other
than s 8, and in relation to issues unrelated to the final price of the iron ore fines. The arbitrator had
deprived the parties of a reasonable opportunity to be heard on these issue and thus committed a
breach of the rules of natural justice.
14. The defendant on the other hand contended the above and its claim in the arbitration proceedings
had effectively based on s 8(1) SOGA even though it was not expressly pleaded. Both parties had
indirectly based each of their cases on s 8 SOGA where defendant was in the position that the price
of the iron ore fines had been “fixed” by the Contracts and plaintiff’s reliance on the price adjustment
mechanisms/clause was the latter part of s 8(1) SOGA. However, the arbitrator rejected both of the
parties arguments and adopted s 8(2) SOGA instead. Alternatively, defendant requested that the
Award be remitted back to the arbitrator under Art 34(4) of the Model Law so that the arbitrator
would be confined to re-considering her decision on the final price of iron ore fines, and nothing
more.
15. In deciding the matter, S Mohan J stated that the mere fact that the arbitrator applied s 8 (1) SOGA
and concluded that the price adjustment mechanism/clause was vague and ambiguous did not
itself, amount to a breach of the rules of natural justice that prejudiced the rights of the parties.
In this regard:-
15.1. The arbitrator’s conclusion on the price adjustment mechanism/clause derived from
defendant’s argument that it has become “unworkable” due to plaintiff’s failure to inform
defendant of the prices of the iron ore fines sold to the third parties and thus, the mechanism
could not be relied upon to calculate the final price of the iron ore fines. In this regard, the
parties cannot be said to not have reasonable notice of arbitrator’s reliance on s 8(1) SOGA.
15.2. It is open for the arbitrator to reject the parties’ arguments and depart from the methods of
calculation proposed by the parties and adopt the second limb of s 8(1) SOGA i.e. where
the price may be determined by the course of dealing between the parties. Although, the
arbitrator concluded that this is inapplicable since the parties did not dispute that there had
been no prior dealings between the parties.
16. The breach of natural justice, in this case, lay in the arbitrator’s failure to allow the parties a
reasonable opportunity to be heard, in adopting a chain of reasoning based on s 8(2) SOGA.
In this regard, SHC held:-
16.1. The concept of a “reasonable price” of s 8(2) SOGA was neither raised nor submitted
by the parties. Although both parties had proposed various alternative methods for
calculating the final price of the iron ore fines, there was no evidence that the parties
had contended that these calculations were “reasonable” prices. On the contrary, the
parties’ positions throughout the arbitration were that the final price of the iron ore fines
had been fixed in some way by the contracts and/or the Addenda.
16.2. Had the arbitrator intended to adopt s 8(2) SOGA, she was obliged to ensure that the
parties had been put on notice to address that chain of reasoning as well as inviting the
parties to address her on what would constitute a “reasonable price” of the iron ore fines.
16.3. Even though there was a link between the arbitrator’s reliance on s 8(2) of the SOGA,
and her rejection of the parties’ cases under s 8(1) SOGA, did not necessarily constitute
an effective notice because it was not part of either party’s case in the first place.
16.4. What constitutes a “reasonable price” is a question of fact dependent on the circumstances
of each particular case per s 8(3) SOGA. Thus, a party needs to be able to question the
evidence produced in support of the issue as well as have the chance to itself introduce
relevant rebuttal evidence.
17. The Court went further to give reasoning in its decision not to set aside the award and to remit the
award to the arbitrator tribunal instead. The arbitrator is then to decide whether to accept further
evidence and/or submissions on the issue of what constitutes a "reasonable price" for the Iron Ore
Fines within the meaning of s 8(2) and s 8(3) SOGA. In this regard:
17.1. The Court was allowed to do so as defendant has proposed it as an alternative to the
set-aside.
17.2. The arbitrator’s breach of natural justice involved a sufficiently discrete and standalone
factual issue – namely, what would constitute a “reasonable price” within the meaning
of s 8(2) SOGA. The arbitrator does not need to re-open her findings of facts on other
matters for the purposes of determining the said issue.
17.3. The arbitrator's failure to afford the parties an opportunity to present their cases on
s 8(2) SOGA was essentially a procedural misstep that occasioned a process failure.
A reasonable person cannot be said to no longer have confidence in the arbitrator’s
ability to come to a fair and balanced conclusion on the remitted issues.
17.4. There was no suggestion that the arbitrator had failed to accord the parties an opportunity
to be heard on s 8(2) SOGA out of a desire for haste, or that she had acted partially or
one-sided. In the circumstances, the totality of the Arbitrator’s conduct did not raise questions
as to her ability to decide any remitted issues fairly, objectively, and even-handedly.
17.5. There was no allegation by the parties that the arbitrator had acted in excess of her
jurisdiction in adopting s 8(2) SOGA. s 8 of the SOGA was generally within the scope of
the disputes referred to the arbitrator, given that the final price of the iron ore fines was
indubitably an issue in dispute.
Conclusion
18. This case ultimately reaffirmed Singaporean Courts’ position that the jurisdiction is favourable to
arbitration proceedings. Instead of setting aside the award in its entirety, it ordered the parties to
refer the part of the matter back to the arbitration proceedings for further determination. The SHC
has shown its willingness to utilize the Model Law in doing so.
SINGAPORE Office
1 North Bridge Road #16-03 High Street Centre
Singapore 179094
Cell +65 9751 0757
Tel +65 6324 0060
Fax +65 6324 0223