Early dismissal under Rule 29 of the SIAC Rules: when is it a breach of natural justice for an arbitral tribunal to dismiss a party’s case without a full evidentiary hearing?
Insights
In DBO and others v DBP and others [2023] SGHC(I) 21, the Singapore International Commercial Court has found that an arbitral tribunal did not breach natural justice in dismissing a party’s case summarily pursuant to Rule 29 of the SIAC Rules, without a full-fledged evidentiary hearing.
Introduction
Under Rule 29.1 of the Arbitration Rules of the Singapore International Arbitration Centre (6th Edition, 1 August 2016) (“SIAC Rules”), a party may apply to a tribunal for early dismissal of a claim or defence on the basis that the claim or defence is “manifestly without legal merit”. Derived from Rule 41(5) of the ICSID Arbitration Rules, the term “manifestly” is generally understood to limit the applicability of Rule 29.1 of the SIAC Rules to cases where the claim or defence is plainly or obviously unmeritorious, while the specific reference to “legal merit” is understood to mean that the procedure is not to be invoked where the case requires the tribunal to delve into disputed factual allegations. Given that such summary disposal applications are typically disposed of without the oral testimony of witnesses, questions may arise as to whether a tribunal which dispenses with a full-fledged evidentiary hearing is liable to the charge that it has failed to afford the parties adequate opportunity to be heard.
In DBO and others v DBP and others [2023] SGHC(I) 21 (“DBO”), the applicants argued that the arbitral tribunal (“Tribunal”) had breached natural justice by dismissing their case in an early dismissal application, despite there being an alleged “critical disputed fact” which the applicants said warranted a full hearing on the evidence. They thus sought to have the Tribunal’s award (“Award”) set aside pursuant to s 24(b) of the International Arbitration Act and/or Article 34(2)(a)(ii) of the Model Law (among other grounds). The Singapore International Commercial Court dismissed the application, finding that there had been no breach of natural justice.
Background
The applicants were the borrowers and guarantors under a Facility Agreement, while the respondents were the lenders and their Agent and Security Agent. Under the Facility Agreement, the lenders had extended the borrowers a loan (the “Loan”). The dispute between the parties broadly arose from the applicants’ contention that they were not obligated to repay the Loan or make payment under the Facility Agreement because the said Agreement had been frustrated in the context of the COVID-19 pandemic. The dispute was referred to arbitration under the SIAC Rules.
The respondents brought an early dismissal application under Rule 29.1 of the SIAC Rules, seeking a summary dismissal of the applicants’ claim and defence that the Facility Agreement had been discharged by frustration. At the hearing of the early dismissal application, the applicants sought to introduce a pleading that there was a collateral contract between the parties to the effect that the funds for repaying the Loan would come only from certain specific income sources (the “Collateral Contract”). The Tribunal permitted the applicants to introduce this “Collateral Contract” argument to their pleadings, but ultimately found (among other things) that the Collateral Contract could not be made out on the facts relied upon by the applicants. For this and other reasons, the Tribunal found that the Facility Agreement had not been discharged by frustration and issued a Partial Award in favour of the respondents.
The applicants applied to have the Partial Award set aside. They alleged that the Tribunal had breached natural justice and deprived them of their right to present their case, by summarily dismissing their case based on frustration on the basis that the Collateral Contract did not exist, when the existence of the Collateral Contract was a “critical disputed fact”.
The decision
A coram consisting of the Honourable Justice Chua Lee Ming, the Honourable Justice Thomas Bathurst and the Honourable Justice Zhang Yongjian refused to set aside the Partial Award. In its grounds of decision, the Court reasoned that “the factual premises supporting the existence of the alleged Collateral Contract were distinct from the existence of the Collateral Contract itself” (at [44]). The Tribunal was bound to assume, and had rightly assumed, the existence of the facts asserted by the applicants in support of the Collateral Contract, but it was not bound to assume that the Collateral Contract existed.
In coming to this decision, the Court distinguished the case of CBS v CBP [2021] 1 SLR 935 (“CBS”), which the applicants had referred to. CBS concerned an arbitration commenced under the Rules of the Singapore Chamber of Maritime Arbitration. The buyer of a shipment of coal asserted that it was not obligated to make a certain payment for the shipment to the appellant bank (who was the assignee of the seller’s trade debt) because, among other things, the buyer had reached a subsequent agreement with the seller to pay a lower price for the coal (the “Subsequent Agreement”). The buyer requested a hearing for witnesses to give evidence regarding the meeting where it was said that the Subsequent Agreement had been reached. The arbitrator, without hearing this witness evidence, convened a hearing for oral submissions only, and allowed the bank’s claim. The Court of Appeal found that the arbitrator’s denial of the buyer’s witness evidence constituted a breach of natural justice, and upheld the High Court’s decision to set aside the arbitrator’s award.
The Court in DBO rejected the suggestion that the case at hand was similar to CBS, noting that in that case, the underlying facts supporting the alleged Subsequent Agreement were in dispute. In contrast, in the present case, the Tribunal’s conclusions did not depend on any disputed underlying facts. The Tribunal had assumed the underlying facts as pleaded by the applicants to be true, but had found that the Collateral Contract could not be made out on those facts.
The Court further noted that even if the “manifestly without legal merit” threshold under Rule 29.1 of the SIAC Rules had required the Tribunal to assume that the Collateral Contract existed, the Tribunal’s failure to do so would have been an error of law, and not a breach of natural justice.
Comment
DBO appears to be the first reported decision of the Singapore Courts dealing with the application of the principles of natural justice to a tribunal’s decision under Rule 29.1 of the SIAC Rules. The decision highlights that while natural justice requires a tribunal to afford the parties a “full opportunity” of presenting their cases (China Machine New Energy Corp v Jaguar Energy Guatemala LLC and another [2020] 1 SLR 695 at [104]), this does not necessarily require a tribunal to convene a full evidentiary hearing and to hear witness testimony in every case. In the context of an early dismissal application, a tribunal may fairly conclude that the claim or defence is unsustainable if it does not hold water even when the truth of the pleaded facts are assumed in favour of the party whose case is sought to be summarily dismissed.
Setia Law’s Danny Ong, Bethel Chan and Mazie Tan acted for the respondents. The decision is under appeal.
