Singapore High Court finds award issued in breach of natural justice and clarifies when remission of award justified

Reproduced from Practical Law with the permission of the publishers. For further information visit www.practicallaw.com.

In Vietnam Oil and Gas Group v Joint Stock Company (Power Machines – ZTL, LMZ, Electrolisa Energomachexport) [2024] SHGH 2024, the Singapore High Court made the rare finding that an arbitral award was issued in breach of natural justice. It remitted the award to the Tribunal for further consideration, rather than setting it aside.

The Singapore High Court has remitted an arbitral award to the tribunal because it breached the principles of natural justice.

The dispute arose from the construction of a power plant for Vietnam Oil and Gas Group (PVN). The project was disrupted when a member of the respondents' consortium, Power Machines (PM), was placed on the United States sanctions list, causing subcontractors to stop work.

PM purported to terminate the contract (First Termination Notice), stating that the sanctions constituted force majeure. PM then issued a second termination notice (Second Termination Notice) because PVN allegedly defaulted in making outstanding payments. PVN contested PM's right to terminate and the dispute was referred to arbitration in Singapore under the SIAC Arbitration Rules.

In its final award, the tribunal decided that the First Termination Notice was defective because the sanctions did not constitute force majeure but that the Second Termination Notice was effective.

PM obtained leave to enforce the award in Singapore, which PVN then applied to set aside. It argued that the award breached the rules of natural justice because the decision on the validity of the Second Termination Notice was based on arguments that the parties did not raise and did not have the chance to respond to.

The Singapore High Court agreed that the award was made in breach of natural justice. However, it decided to remit the award to the tribunal, rather than set aside the award. It did so on the basis that:

• Remitting the award would eliminate the grounds for setting aside.
• The tribunal had made other findings, including as to PM's entitlement to payments, which were valid and setting aside the award would set aside many of those other findings.
• There was no reason to believe that the tribunal would not be able to address the remitted issue fairly.

The decision is significant as it demonstrates the utility of the power to remit awards, rather than set them aside, in appropriate cases. It is also a reminder to parties looking to bring tactical challenges that even where natural justice concerns are upheld, they may not necessarily result in an award being set aside. At the same time, it is also another reminder to arbitrators that arguments must be in play if they are to form any part of the reasoning in an award.

Case: Vietnam Oil and Gas Group v Joint Stock Company (Power Machines - ZTL, LMZ, Electrosila Energomachexport) and another matter [2024] SGHC 244 (24 September 2024)Opens in a new window (Chua, J).

The Singapore High Court has remitted an arbitral award to the tribunal because it breached the principles of natural justice.

The dispute arose from the construction of a power plant for Vietnam Oil and Gas Group (PVN). The project was disrupted when a member of the respondents' consortium, Power Machines (PM), was placed on the United States sanctions list, causing subcontractors to stop work.

PM purported to terminate the contract (First Termination Notice), stating that the sanctions constituted force majeure. PM then issued a second termination notice (Second Termination Notice) because PVN allegedly defaulted in making outstanding payments. PVN contested PM's right to terminate and the dispute was referred to arbitration in Singapore under the SIAC Arbitration Rules.

In its final award, the tribunal decided that the First Termination Notice was defective because the sanctions did not constitute force majeure but that the Second Termination Notice was effective.

PM obtained leave to enforce the award in Singapore, which PVN then applied to set aside. It argued that the award breached the rules of natural justice because the decision on the validity of the Second Termination Notice was based on arguments that the parties did not raise and did not have the chance to respond to.

The Singapore High Court agreed that the award was made in breach of natural justice. However, it decided to remit the award to the tribunal, rather than set aside the award. It did so on the basis that:

• Remitting the award would eliminate the grounds for setting aside.
• The tribunal had made other findings, including as to PM's entitlement to payments, which were valid and setting aside the award would set aside many of those other findings.
• There was no reason to believe that the tribunal would not be able to address the remitted issue fairly.

The decision is significant as it demonstrates the utility of the power to remit awards, rather than set them aside, in appropriate cases. It is also a reminder to parties looking to bring tactical challenges that even where natural justice concerns are upheld, they may not necessarily result in an award being set aside. At the same time, it is also another reminder to arbitrators that arguments must be in play if they are to form any part of the reasoning in an award.

Case: Vietnam Oil and Gas Group v Joint Stock Company (Power Machines - ZTL, LMZ, Electrosila Energomachexport) and another matter [2024] SGHC 244 (24 September 2024)Opens in a new window (Chua, J).