Parties to complex international arbitrations should take note. It is critically important to ensure that requests for relief in the written phases of the proceedings accurately capture all relief being sought. Late or informal amendments or requests to the arbitral tribunal can have significant consequences on award enforceability. Precision is key. Two cases from two different jurisdictions described below illustrate the tangible problems that can arise:
- The International Commercial Chamber of the Paris Court of Appeal partially set aside the final award in an ICC arbitration seated in Paris between the Commercial Bank Guinea Equatorial, Yves-Michel Fotso and Equatorial Guinea. In that case, the arbitral tribunal had awarded significant monetary sums which had not been claimed in the arbitration. The Paris Court of Appeal found that the arbitral tribunal had exceeded the mandate conferred upon it by the parties.
- The Singapore Court of Appeal in the matter of CAJ and Another v. CAI and Another found that the arbitral tribunal had improperly allowed a claim for an extension of time under the terms of the contract. The claim for an extension of time had not been formally made in the written pleadings but was only raised during post hearing submissions. The Singapore Court of Appeal partially set aside the arbitral tribunal’s award of an extension of time while keeping the remainder of the final award intact.
- An arbitral tribunal exceeding its jurisdiction or mandate places a final award under risk. An arbitral tribunal exceeding its jurisdiction and in so doing also acting in breach of natural of justice imperils a final award. There is now a sharper focus on excessive jurisdiction and breach of natural justice.1
CBGE and Yves-Michel Fotso v. Equatorial Guinea2
The Underlying Dispute and Arbitral Award
The dispute arose from a memorandum of understanding signed on December 17, 2012 (the “2012 Protocol”) between the Commercial Bank Guinea Equatorial (“CBGE”), its representative Mr Fotso, and the Republic of Equatorial Guinea (“Guinea”), following Guinea’s failure to comply with a previous arbitral award (the “2009 Award”). Under the 2012 Protocol, Guinea was obligated to make various payments. In July 2016, CBGE and Mr Fotso commenced an ICC arbitration seated in Paris seeking (i) termination of the 2012 Protocol, (ii) as a result of the termination, entitlement to the sums awarded by the 2009 Award and (iii) requesting other damages stemming from the non-performance of the 2012 Protocol which amounted to EUR 1,980,511.72. In a final award rendered on February 6, 2019, the arbitral tribunal (i) found that the breaches of the 2012 Protocol were not sufficient to justify its termination (ii) rejected the request for payment of the compensation due under the 2009 Award and (iii) awarded compensation for breaches in the amount of EUR 1,980,511.72. The tribunal also ordered Guinea to pay the balance due under the 2012 Protocol amounting to nearly EUR 18 million. This latter relief was controversial.
The Paris Court of Appeal Decision
On March 5, 2019, Guinea filed for partial annulment of the final award pursuant to Article 1520 of the French Code of Civil Procedure3 (“FCCP”) before the International Commercial Chamber of the Paris Court of Appeal (the “Court”).4 Guinea argued that no claim had been made in respect of payment of the balance due under the 2012 Protocol and so the arbitral tribunal had ruled “without complying with the mandate conferred upon it”. Further, Guinea argued that, in any event, because the arbitral tribunal had ruled upon a claim which was not made (and thus not even argued) during the course of the arbitration, there had not been “adversarial proceedings” in respect of the claim in violation of principles of due process under the FCCP and in violation of principles of international public policy.5 In response, CBGE and Mr Fotso conceded that there was not a specific claim made for the outstanding sums under the 2012 Protocol but argued that such a claim was “virtually comprised in the debates” between the parties during the arbitration.
The Court partially set aside the award on the basis of Articles 1520(3), (4) and (5) of the FCCP. The Court confirmed that: “The mandate of the arbitral tribunal, defined by the arbitration agreement, is mainly limited by the subject-matter of the dispute, as determined by the parties’ arguments”. The Court examined both the terms of reference and the parties’ legal submissions and noted that (i) CBGE and Mr Fotso had asked solely for the termination of the 2012 Protocol and to be compensated for the damages arising from the non-performance; (ii) no subsidiary or alternative claim had been made for the sums outstanding under the 2012 Protocol. The French judges concluded that CBGE and Mr Fotso had never asked to be awarded the sums outstanding under the 2012 Protocol and dismissed the argument according to which the request was “legally possible and virtually comprised in the debates” as it could not “make up for this deficiency”. The Court concluded that the arbitral tribunal had violated the applicable procedural rules and exceeded its mandate.
CAJ and Another v. CAI and Another Appeal6
The Underlying Dispute and Arbitral Award
The dispute related to two contracts whereby CAJ and CAK would construct a polycrystalline silicon plant owned by CAI through a subsidiary. Issues arose during construction, which remained unresolved as at the contractual date of mechanical completion, but rectification works were eventually carried out following instructions by CAI’s subsidiary. CAI commenced an ICC arbitration seated in Singapore, claiming liquidated damages for delay. In response, CAJ and CAK argued that (i) mechanical completion had been achieved on time and that (ii) any delay was a result of the rectification works such that CAI had waived its rights to seek liquidated damages or, alternatively, was estopped from making such a claim (the “Estoppel Defence”).
After the evidentiary hearing and in post hearing submissions, CAJ and CAK raised for the first time that in their view they were also contractually entitled to an extension of time (the “EOT Defence”). CAI objected to the EOT Defence and asked the arbitral tribunal to dismiss this argument on the basis of procedural unfairness. In its final award, the arbitral tribunal found that CAJ and CAK failed to achieve the mechanical completion on time, rejected the estoppel defence but accepted the EOT Defence finding that the rectification works had contributed to the delay. The Tribunal considered that CAI had been given the opportunity to respond to the EOT Defence in its written closing submissions and that CAJ and CAK were entitled to make use of the existing evidence in the Arbitration to justify the EOT Defence. The arbitral tribunal therefore decided to extend the time for mechanical completion by 25 days such that CAI was entitled to receive liquidated damages for 74 instead of 99 days.
The Singapore High Court’s decision7
CAI applied to the Singapore High Court (the “High Court”) to partially set aside the final award on the grounds that: (i) in allowing the EOT Defence, the arbitral tribunal had exceeded the scope of the parties’ submission; and (ii) the award was made in breach of natural justice. The High Court allowed the set aside application on the basis of three “natural justice breaches”: (i) CAI did not have a fair and reasonable opportunity to respond to the EOT Defence, as it was a “completely new defence which was factually and conceptually distinct from the Estoppel Defence”;8 (ii) the tribunal had relied substantially on its “professed experience” in reaching its decision on the EOT Defence, without explaining what this experience entailed or encompassed and the parties were not given proper opportunity to address the Tribunal on such grounds9 and (iii) the EOT Defence was not within the scope of the parties’ submissions to arbitration and had not been submitted to the Tribunal for determination.10 The High Court agreed to set aside the arbitral tribunal’s decision and consequentially ordered that “the number of days of delay in the Award for which liquidated damages are payable is to read as 99 days”.11
The Singapore Court of Appeal’s decision
CAJ and CAK challenged the High Court Judgment in the Singapore Court of Appeal (“SGCA”) arguing, amongst other things that:12 (i) the High Court “took too narrow a view” of the scope of the parties’ submission to arbitration, as well as the arbitral Terms of Reference, the pleadings and the draft Lists of Issues; (ii) CAI had been given a fair and reasonable opportunity to respond to the EOT Defence, and to address the chain of reasoning adopted by the arbitral tribunal. The SGCA held that it was of paramount importance to understand the true nature of the EOT Defence, which it found to be “a creature of a contractual provision” and “fact-sensitive” in nature.13 The SGCA noted that despite the EOT Defence being dependent on compliance with several contractual conditions, none of them were pleaded or addressed in the course of the arbitration until CAJ and CAK’s post hearing submissions so that the correct and anterior inquiry was as to when and how an arbitral tribunal would be entitled to rule on an unpleaded defence. The SGCA found that the arbitral tribunal should have invited submissions from the parties as to whether an amendment to the pleadings to include the EOT Defence should be allowed. Building on this interpretation, the SGCA held that the arbitral tribunal’s decision was in excess of its jurisdiction and in breach of natural justice:
- Excess of jurisdiction: underlining that the EOT Defence was “only raised for the first time” in CAJ and CAK’s post hearing submissions, the SGCA noted there was no room to argue that the EOT Defence was within the scope of the arbitration. It observed that “any proper interpretation (…) however broad” of the pleadings, the Lists of Issues and Terms of Reference would not allow the conclusion that the arbitral tribunal could adjudicate on a “specific and fact-sensitive contractual defence which had not been expressly raised”.14 Further, the SGCA noted that CAJ and CAK’s argument that the EOT Defence fell within the submission to arbitration simply because it was relevant to CAI’s overall claim for liquidated damages was untenable. The SGCA held that because the EOT Defence was not pleaded, CAI had no prior notice that it had to respond to the EOT Defence so that the EOT Defence could not fall within the scope of the parties’ submission.
- Breach of natural justice: the SGCA agreed with the High Court’s findings that CAI did not have a fair and reasonable opportunity to respond to the EOT Defence as it was a completely new defence; and that the fact that CAI had responded to the EOT Defence in its responsive post hearing submissions could not constitute a reasonable opportunity to present its case. Furthermore, the SGCA, emphasising that any claim for an extension of time is “fact-sensitive and subject to a variety of moving parts”, held that the arbitral tribunal’s prior experience would be immaterial in deciding on the appropriate extension of time in this case without analysis of pleadings, specific factual evidence and arguments to determine the proper extension of time to be granted.15 The SGCA concluded that the arbitral tribunal acted in breach of CAI’s natural justice rights.
1 For example, due process concerns can arise in expedited arbitration relating to dispensing with a hearing. In CBS v CBP [2021] SGCA 4, the Singapore Court of Appeal found that an arbitral tribunal’s refusal to hold a hearing on the request of a party was a breach of natural justice. The Court attached weight to the fact that the applicable arbitration rules required the arbitral tribunal to hold a hearing at a party’s request and emphasized that case management powers did not override rules of natural justice.
2 Decision of 22 February 2022, Paris Court of Appeal, International Commercial Chamber, Pole 5, Chamber 16, No. 21/2022.
3 Article 1520 of the FCCP provides that: “The action for annulment is only available if: 1° the arbitral tribunal wrongly upheld or declined jurisdiction; 2° the arbitral tribunal was not properly constituted; 3° the arbitral tribunal ruled without complying with the mandate conferred upon it; 4° due process was violated; or 5° recognition or enforcement of the award is contrary to international public policy.”
4 Applications for the setting aside of an award must be brought before the court of appeal that has territorial jurisdiction over the place where the award was rendered (Article 1519 FCCP). At the Paris Court of Appeal, cases involving the interests of international trade are now heard by the recently created international commercial chamber.
5 Guinea also argued that the award violated international public policy (Article 1520 (5)) FCCP, on the grounds that CBGE was not validly represented in the arbitration proceedings (as it should have been represented by its liquidators). In that regard, Guinea advanced that the arbitrators had declined to give effect to CBGE’s liquidation meaning that the award’s proceeds would not go as they should to the bank’s liquidators. The Court considered that its decision to set aside parts of the award would mean that no proceeds from the award would go to third parties and the award’s enforcement would therefore not breach international public policy.
6 CAJ And Another v. CAI And Another Appeal, [2021] SGCA 102 (the "SGCA Decision”).
7 CAI v. CAJ and another [2021] SGHC 21 (the “High Court Judgment”).
8 High Court Judgment at [90-100].
9 High Court Judgment at [172] and [175-176].
10 High Court Judgment at [182], [186] and [188-189].
11 High Court Judgment at [250-251].
12 CAJ and CAK arguments according to which CAI was precluded from seeking to set aside the award because its conduct in arbitration amounted to “hedging” (see the SGCA decision at [63-68]) and around the appropriate recourse are not discussed in this Alert (see the SGCA decision at [69-74])
13 SGCA Decision at [31] and [40].
14 SGCA Decision at [43-44].
15 SGCA Decision at [55].
