Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd

Facts of the case

Fairmount Development Pte Ltd (hereinafter “Fairmount”), the Respondent-developer in the present appeal, had employed Soh Beng Tee & Co Pte Ltd (hereinafter “SBT”), the Appellant as the main contractor for the construction project of a condominium, including mock-up units and a substation, to be completed by 1 February 1999. The formal contract was entered into on 26 February 1998 modelled after the Singapore Institute of Architects’ Articles (“the SIA Articles”) and the SIA Conditions.

During the construction, SBT had filed for numerous extensions of time, however, Mr. Daniel Law of M/s Archurban Architects Planners, representing the Architect had granted a mere five-day extension up to 6 February 1999.

SBT failed to complete the project by such time and consequentially, it was served with delay certificates in May and July 1999, issued by Mr. Daniel Law. The delay certificates claimed Fairmount’s entitlement to claim liquidated damages for the delay.

SBT submitted a revised plan to Fairmount and the Architect, committing to complete the project by 21 December 1999. Regardless, Mr. Daniel Law issued a written notice to SBT declaring it to be in failure of its duty to proceed with due diligence and expedition. Fairmount also issued a Termination certificate within another month and terminated SBT’s employment on 9 November 1999.

The Grounds laid by Fairmount to justify the Termination were as follows:

– Fairmount was entitled as a matter of contract to rescind its employment of SBT as Mr. Law had issued the Termination Certificate, in consonance with S. 32(2) of the SIA Conditions.

– Fairmount was entitled to terminate the project as SBT was in repudiatory breach of its agreement to complete the project.

Further, Fairmount claimed a $1.5m performance bond provided by SBT, along with $3,212,113.16 in damages. SBT rejected this claim and invoked the arbitration clause in the SIA Conditions, claiming damages itself for a wrongful repudiation of employment.

The Arbitration proceedings ruled in favour of SBT and adversely against Fairmount, who then filed an application in the High Court seeking to set aside the Arbitrator’s award. The grounds for this application were as follows:

– The Arbitrator had dealt with an issue outside the scope of submission (“the jurisdiction issue”);

– The Arbitrator had deprived Fairmount of its natural justice right to be heard on an issue so critical that it was relied upon to resolve the matter by the Arbitrator (“the natural justice issue”).

The High Court ruled in favour of Fairmount on the natural justice issue but adversely on the jurisdiction issue. The trial judge held this to be a sufficient ground to set the entire award aside.

SBT then preferred an appeal against the trial judge’s decision with the Court of Appeal.

Issues involved in the case

Whether the decision to set time at large was a breach of the rules of natural justice and further, whether the Disputed Issue was alive during the arbitration or was it, in the words of the trial judge, “entirely the arbitrator’s own idea”;

If there was indeed a breach of natural justice, how it affected the Award; and

Whether the breach caused prejudice to Fairmount or was it merely technical.

Arguments Advanced

The Appellant, SBT had appealed only against the trial judge’s decision affirming a breach of the rules of natural justice, that was the ground for setting aside of the Arbitral Award. With regards to the issue of whether the Disputed Issue, i.e. the issue of the time being set “at large”, was alive during the arbitration or not, SBT relied on several paragraphs of its amended statement of claim (“ASOC”). SBT pleaded that time was set at large as a result of various acts by Fairmount’s work-clerks and/or site staff that prevented SBT from completing the construction project on time and resulted in a delay of about 809 days by causing unreasonable interference and disruptions. SBT showed that references were made in this regard in its written submissions.

The Respondent, Fairmount argued that the reasons given by SBT for why the time was at large were not identical to the ones given by the Arbitrator in his decision, and since the issue was not a live one, Fairmount had been deprived of its right of a fair hearing. It argued that because the Arbitrator had decided on a point that was neither pleaded nor argued, it was denied an opportunity to present the necessary evidence to counter his conclusion, due to which it had faced an adverse ruling, which was prejudicial against it.

Both Counsels had acknowledged that the parties had not strenuously debated whether time was at large during the oral-hearing phase, rather they were largely focused on the amount of time, if any, that SBT might be entitled to as a result of Fairmount’s alleged acts of prevention.

The judgment of the New Zealand High Court in Trustees of Rotoaira Forest Trust v Attorney-General [1999] 2 NZLR 452 (“Rotoaira”) was referred to for the natural justice issue, and that of Cameroon Airlines v Transnet Limited [2004] EWHC 1829 (Comm) was cited to define substantial injustice or prejudice. A plethora of judgments was referred to by each party.

Judgement and Reasoning

The Court of Appeal allowed SBT’s appeal and ruled in its favour, having found that no breach of the rules of natural justice had taken place. The Bench held the “Disputed Issue” to have been alive at the time of the Arbitration and upheld the Arbitrator’s discretion to choose a path that had not been submitted by either party’s Counsels without it being called his new invention.

The Bench held that even if in arguendo, it may be assumed that there was such a breach, there still would be no causal nexus or critical connection between the breach and the Award, i.e. the breach would not have affected the Award anyway.

Further, such a purported breach would also fail to prejudice Fairmount to any significant extent as the same result would’ve been reached in any case, even if the Arbitrator was not in breach, as he was indeed found not to be.

The Court observed that fair hearing includes the right to be heard and equality of treatment, but not arid, hollow, technical, or procedural objections that don’t prejudice any party. Further, it stated that a remedy can or should only be made available when actual prejudice has taken place. The Court found that in this case, any prejudice suffered by Fairmount was equally its fault as that of SBT as they had both failed to present satisfactory evidence in front of the arbitrator as to how much time would SBT be entitled to. It was not the arbitrator’s act that prejudiced it, as he had asked the parties to submit their supplemental submissions as well.

The Court further found that the same result would have been obtained even if the Arbitrator had “acted properly”, which the Court found that he did. This was so because the conclusion of SBT’s Termination not being valid had not been reached on the basis of the time being set at large. Rather, it was reached on the basis of the Termination Certificate being invalid as it had been issued by the wrong person, Mr. Daniel Law who was not rightfully authorized to issue the certificate. The time being set at large was rather an effect of it. Once the certificates were held invalid, Fairmount itself was found in breach of the contract when it purported to terminate SBT’s employment under cl. 32(2) of the SIA Conditions as the validity of the Termination Certificate was an essential prerequisite.

Further, it also held that the real reason why SBT had not been held in repudiatory breach by the Arbitrator was because time was not of the essence and the delays on SBT’s part were insufficient to show any intention on SBT’s part to not carry out its obligations.

It also observed that parties to an arbitration appoint an expert in the field as an arbitrator as they intend to rely on his expertise, therefore, it would be wrong for the courts to blindly and mechanically apply the rules of natural justice in a way that requires the arbitrator to put every conclusion up to the parties at each step along the way. Thus, it held that an arbitrator is entitled to come to his own conclusions or draw his own inferences from the primary facts.

In addition, the Court also observed that Fairmount had had ample opportunity to present its submissions and evidence against the Disputed Issue in its written and supplemental replies as time being set at large had been brought up multiple times in SBT’s submissions. Fairmount itself had opted not to take the opportunities, therefore, the Court held that any prejudice that may have resulted could not be attributed to the Arbitrator’s alleged failure to act properly.

In scrutinizing the precedents laid, especially Rotoaira, the Bench observed that these cases must be read in the context of the particular case as well as the current judicial climate that promotes minimal curial intervention, i.e. courts should not interfere with the arbitral process without good reason.

Thus, the Court laid emphasis upon the importance of the policy of minimal curial intervention to promote the expediency, independence, and effectiveness of arbitration, which includes the principle that to qualify as “prejudice” in an arbitral proceeding, there must be more than technical unfairness.

Author(s)

Kkanika Sharma

Student at AIL, Mohali