3 September, 2016
The High Court of Singapore has, in the recent decision of JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] SGHC 126, set aside an SIAC arbitral award on the basis that there had been a breach of natural justice in the arbitration which had caused prejudice to the plaintiff, JVL Agro Industries Ltd ("JVL").
The High Court found that the Tribunal failed to grant JVL a fair hearing by dismissing JVL's claim on an issue which the defendant Agritrade International Pte Ltd ("Agritrade") had never advanced as part of its case and which was only put to JVL's counsel in the course of his oral closing submissions.
The background
In March to August 2008, the parties entered into 29 contracts for the sale and purchase of palm oil. In the second half of 2008, due a fall in the market price of palm oil, the parties agreed to a “price-averaging” arrangement, which involved keeping the 29 contracts on foot but deferring performance of the contracts. At the same time, the parties would continue entering into new contracts to buy palm oil at the prevailing market price. Each time there was to be a new shipment of palm oil, the parties would discuss and agree on: (a) the quantity of palm oil to be shipped; and (b) the ratio in which the palm oil comprising that cargo was to be attributed to the old and new contracts – which would in turn allow the parties to compute an adjusted unit price for the palm oil.
The effect of the "price-averaging" arrangement was to average down the overall unit price of the palm oil.
By June 2010, all but 5 of the contracts had been discharged through the "price-averaging" arrangement. Agritrade refused to perform the 5 remaining contracts, JVL issued notices of default under those 5 contracts. Subsequently, after the parties agreed to refer the dispute to arbitration under SIAC Rules, the JVL commenced arbitration for Agritrade's breach of its delivery obligations under the 5 remaining contracts.
In the arbitration, Agritrade's defence was that the "price-averaging" arrangement made rendered each disputed contract void for uncertainty. Its alternative defence was that even if they were not void for uncertainty, they had been mutually terminated.
On the first day of the arbitration hearing, Agritrade abandoned the mutual termination defence, relying solely on the uncertainty defence. The High Court found that at this point, all Agritrade's eggs were in the "uncertainty basket" and that if the Tribunal were to hold that the 5 contracts were sufficiently certain to be binding, Agritrade could not, on its own case, escape being found liable to JVL.
The Tribunal’s Award
In October 2013, the Tribunal delivered its final award. The 3 members of the Tribunal unanimously dismissed the uncertainty defence, finding that the 5 disputed contracts were sufficiently certain to be binding.
Yet, the majority of the Tribunal dismissed JVL's claim.
In dismissing JVL's claim, the majority considered the question of whether the parol evidence rule precluded Agritrade from relying on the price-averaging arrangement and concluded that the “price-averaging” arrangement was a collateral contract, which was an exception to the parol evidence rule and thus was in law capable of varying the parties’ performance obligation under the disputed contracts.
This was not an argument made by Agritrade at any time during the course of the arbitration, despite (as the High Court found) having had numerous opportunities to do so.
JVL subsequently applied to the High Court of Singapore to set aside the Tribunal’s award under section 24 of the International Arbitration Act.
The Court’s decision
Taking as the starting point the Tribunal's unanimous finding that the 5 disputed contracts were sufficiently certain to be valid and binding (which was not disputed in the High Court proceedings), Justice Coomaraswamy ultimately found that the majority of the Tribunal, in finding that the "price-averaging" arrangement was a collateral contract and thus, an exception to the parol evidence rule, had failed to give JVL an opportunity to be heard on this issue, which prejudiced JVL.
The learned Judge arrived at the above conclusion through the following line of reasoning:
- Under the parol evidence rule, unless one of the limited number of exceptions applies, a party to a contract which has been reduced into documentary form cannot rely on evidence extrinsic to the document to vary, contradict, add to or subtract from the contract.Therefore, the 5 disputed contracts, being valid and binding, cannot be varied by the "price-averaging" arrangement unless such arrangement fell within one of the established exceptions to the parol evidence rule;
- Neither party had put the parol evidence rule or its exceptions into play. In fact, it was the Tribunal that raised the issue during the evidential phase of the arbitration;
- Despite the above and despite having the burden of doing so because of the fundamentally adversarial nature of arbitration, Agritrade never advanced the collateral contract exception as part of its case, whether formally on the pleadings or even informally through its submissions. The learned Judge highlighted 5 rounds of written and oral submissions in which Agritrade had the opportunity, but failed, to do so.Agritrade also never adduced any evidence on the collateral contract exception;
- In addition, the learned Judge found that the Tribunal never directed JVL to address the collateral contract exception;
- Yet, despite the above, the Tribunal went on to find, in its final Award, that the "price-averaging" arrangement constituted a collateral contract, and therefore an exception to the parol evidence rule. The learned Judge held that this finding was “determinative” of the ultimate issue before the Tribunal, i.e. whether Agritrade was liable to JVL for breach of the 5 disputed contracts.
In the circumstances set out above, the learned Judge found that the Tribunal had impermissibly relieved Agritrade of its entire burden and therefore, the majority of the Tribunal had exercised "unreasonable initiative" in making its Award. Accordingly, the learned Judge held that there had been a breach of the rules of natural justice; and
The learned Judge found that JVL suffered prejudice because, as a result of the breach of natural justice, the Tribunal had been deprived of arguments or evidence that couldreasonably have made a difference to the Tribunal's decision.
Conclusion
This decision serves as a timely reminder that tribunals should always ensure that each party has the opportunity to fairly present its case and to address the other party’s submissions and evidence before the tribunal comes to a final decision.
Moreover, if it appears to the tribunal that there is an issue which neither party has raised or advanced but the tribunal feels is relevant to the ultimate issue before them, the tribunal should expressly make that known to the parties and give each party the chance to adduce evidence and make submissions in respect of that issue.
For further information, please contact:
Prakash Pillai, Partner, Clyde & Co
prakash.pillai@clydeco.com
