BSM V BSN AND ANOTHER MATTER [2019] SGHC 185
In the recent High Court decision of BSM v BSN and another matter [2019] SGHC 185 (“BSM v BSN”), the High Court dismissed two applications to set aside two separate but related arbitral awards. BSM v BSN is a useful reminder of (a) how difficult it is to set aside arbitral awards, and (b) the availability of remission (in certain instances) as an “alternative” to setting aside.
I. BACKGROUND
In brief, BSM v BSN involved three companies (BSP, BSM and BSN) and two separate contracts ([7] – [8] BSM v BSN).
1. BSM and BSP had entered into an equipment purchase contract.
2. In the arbitration between BSM and BSP (the “BSP Arbitration”), BSP claimed that BSM had breached the contract by failing to make payment for equipment BSP had delivered.
3. BSM and BSN had entered into a technical service contract.
4. In the arbitration between BSM and BSN (the “BSN Arbitration”), BSN claimed that BSM had breached the contract by failing to make payment for services rendered.
5. BSP and BSN are collectively referred to as the “Companies”.
The Tribunal found in favour of BSN and BSP and rendered the BSP Award and the BSN Award (collectively, the “Awards”).
II. The Setting aside applications
Before the High Court, BSM applied to set aside both arbitral awards for the BSP Arbitration and BSN Arbitration.
For both Arbitrations, BSM relied on the following grounds to set aside the Awards ([2] BSM v BSN):
1) A breach of natural justice under s. 24(b) of the International Arbitration Act (the “IAA”); and
2) An inability to present its case within the meaning of Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”).
In addition, for the BSP Award, BSM also relied on an additional ground: an alleged failure to adhere to the arbitral procedure as agreed by the Parties contrary to Art 34(2)(a)(iv) Model Law ([3] BSM v BSN).
In this regard, counsel for BSM clarified that BSM was advancing on its two strongest points: the “Wasted Costs Issue” and the “Limitation of Liability” issue ([4] BSM v BSN).
A. ISSUE 1: The Wasted Costs Issue
The “Wasted Costs Issue” concerned whether the Tribunal had failed to deal with the costs of the Companies’ last minute amendments, despite having reserved costs ([14] BSM v BSN). BSM submitted that the Tribunal, in failing to deal with this issue, had committed a breach of natural justice ([15] BSM v BSN).
The High Court observed that based on the face of the Tribunal’s Awards, the Tribunal “… had in mind only the main claim and counterclaim… Accordingly, the Tribunal’s costs awards did not cover the costs that were reserved. Such an omission could be considered under Art 34(4) of the Model Law…” ([19] BSM v BSN).
The Parties then agreed pursuant to Art 34(4) Model Law that the High Court had the jurisdiction to suspend the setting aside applications and remit the Wasted Costs Issue to the Tribunal. The setting aside applications were adjourned, and the Wasted Costs Issue was remitted to the Tribunal ([21] BSM v BSN).
In due course, the Tribunal rendered additional Awards dealing with the Wasted Costs Issue ([26] BSM v BSN). It suffices to state that the additional Awards make clear that the Tribunal was not with BSM on the issue of wasted costs, and accordingly, the High Court found that BSM had not made out its case on breach of natural justice (making clear that it was beyond the remit of the court to review the merits of the Tribunal’s decision) ([26] - [27] BSM v BSN).
We pause here to observe that in BSM v BSN, “but for” the availability of remission, BSM “may have” succeeded in its setting aside application. The inverted commas are important, for it is not easy to succeed in setting aside applications, as is made clear by how the High Court dealt with the “Limitation of Liability” issue.
B. ISSUE 2: The Limitation Issue
The “Limitation of Liability” issue concerned whether the Tribunal had failed to cap the damages awarded in accordance with the relevant contractual provisions ([5] BSM v BSN).
Observing that a right to be heard as an aspect of natural justice under s. 24(b) IAA overlaps with the right to present a party’s case within the meaning of Art 34(2)(a)(ii) Model Law, the High Court briefly recapped the duties of a Tribunal at [30] – [32] BSM v BSN.
It suffices to state that after hearing the Parties, the High Court found that:
1. In respect of the BSP Arbitration, BSM and BSP had the opportunity to argue on the relevant clauses ([40] BSM v BSN), and that BSM’s arguments were really an invitation for the court to review the merits of the Tribunal’s decision, which is impermissible. As the High Court held, “… The crux of the matter was whether the Tribunal had considered the parties’ arguments and made a finding that a reasonable litigant could have foreseen. …” ([45] – [46] BSM v BSN).
2. In respect of the BSN Arbitration, BSM and BSN had the opportunity to argue on the relevant clauses ([51] BSM v BSN), and found that there was no breach of natural justice. Again, the High Court stated that “… The Tribunal’s findings were one that a reasonable litigant in the shoes of BSM and BSN could have foreseen and the conclusion reached by the Tribunal was a conclusion that reasonably flowed from the parties’ arguments in relation to the respective articles. … In any case, there is no recourse for BSM even if this court disagrees with the Tribunal’s reasoning on the Limitation Issue” ([55] – [56] BSM v BSN).
C. Issue 3: The Parties’ Agreed Arbitral Procedure
On the issue of an alleged failure to comply with the Parties’ agreed arbitral procedure in the BSP Arbitration, this argument was not pursued given the outcomes on the previous two issues ([3] – [4] and [57] BSM v BSN). Nevertheless, the High Court proceeded to address the issue to “… show that this particular ground is also hopeless” ([57] BSM v BSN).
In this regard, the High Court made clear that there must be a “… material breach of the agreed procedure serious enough to justify the exercise of the court’s discretion… This will often, though not invariably, require proof of actual prejudice (i.e., whether the procedural breach complained of could reasonably be said to have altered the final outcome of the arbitral proceedings in some meaningful way)…” ([59] BSM v BSN).
Once again, the High Court found that there was no breach: the Parties had the opportunity to submit on the issue, and the court is not permitted to review the merits of the Tribunal’s findings ([66] – [69] BSM v BSN),
III. SIGNIFICANCE
While arbitration has its upsides (such as, e.g., confidentiality), parties should be careful to note that errors of fact and/or law (in general) cannot form a basis for a setting aside applications. This is important to bear in mind, as most arbitration rules do not have an appeal mechanism. It is therefore prudent to consider the implications of agreeing to arbitration versus litigation in court, and to give careful thought to how the relevant arbitration clause is drafted.
In addition, BSM v BSN also makes clear that it is not easy to succeed in establishing a breach of natural justice or a breach of an agreed arbitral procedure. This comes as no surprise, given the plethora of decisions in this regard. Nevertheless, our view is that BSM v BSN should not be taken as standing for the proposition that parties should never craft bespoke arbitration clauses. Once again, our view is that parties should always consider carefully their dispute resolution clauses, and not to simply assume that a “standard” clause suffices.
Lastly, BSM v BSN is a useful reminder to parties that prior to setting aside an arbitral award, or in defending a setting aside application, they should consider if remission is available as an alternative. If remission is available, it can be an extremely powerful tool.
Tags: International Arbitration Act; UNCITRAL Model Law on International Commercial Arbitration; Setting aside; Arbitral awards, Breach of natural justice; Remission
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.