Singapore International Commercial Court

1 By an Originating Summons dated 25 November 2020, the plaintiff, which was the Respondent in the arbitration to which the Originating Summons relates ("the Arbitration"), sought the setting aside of paragraphs 491-492 and 519-524, together with the dispositive section ("the Dispositive Section"), or parts of it, of a Final Arbitral Award dated 21 August 2020, corrected by two Memoranda of Corrections to the Final Award dated 2 October 2020 and 5 November 2020 ("the Award") in which the arbitral tribunal ("the Tribunal") found that the plaintiff was liable to the defendant in damages amounting to US$8,512,789.88 and IDR15,126,969,785 whilst the defendant was liable in damages to the plaintiff in the lesser sum of IDR29,918,809,545.86. Interest was awarded on the sums in question and the plaintiff was ordered to pay the defendant's costs and the defendant's costs of the Arbitration. The application is made on the basis that the Tribunal failed to consider and take into account a debt owed by the defendant to the plaintiff in relation to freight and taxes for logs already supplied ("the Principal Debt") which, it is said, when put into the equation constituted by the claims, set-offs and cross claims asserted by the parties, would have resulted in a net sum being owed by the defendant to the plaintiff, and which would then have impacted on the interest and costs figures set out in the paragraphs of the Award to which reference has been made. The plaintiff also submits that, not only did the Tribunal fail to determine the amount of the Principal Debt ("the Principal Debt Issue") but it also failed to decide an issue as to the rate of interest to be awarded on the plaintiff's counterclaim for freight due after 21 December 2011("the Freight Interest Issue").

2 The basis of the application for the setting aside of the Award is that the Tribunal failed to exercise the authority that the parties had granted to it pursuant to Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Arbitration ("the Model Law") read with section 3 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) ("IAA") (which provides that the Model Law shall have the force of law in Singapore) and/or that a breach of natural justice occurred in connection with the making of the Award by which the rights of the plaintiff had been prejudiced, in breach of section 24( b ) of the IAA. It is said that the Tribunal failed to consider the issues (namely the Principal Debt Issue and the Freight Interest Issue) which had been submitted to it for determination infra petita under Art 34(2)(a)(iii) of the Model Law and/or went against the agreed position of the parties, which also constituted a breach of natural justice.

3 The terms of Article 34 of the Model Law, so far as relevant, read thus:

4 Section 24( b ) of the IAA reads thus:

5 The defendant's position is that the application is in substance a disguised appeal against the substantive findings of the Tribunal which the court should not countenance:

(a) The defendant also submits that the Principal Debt Issue was raised by the plaintiff only as a defence to the defendant's claim for the breach of outstanding log supply obligations, as part of the Debt-to-Log Conversion which enabled the plaintiff, in defined circumstances (which on the Tribunal's finding, did not apply here), to set off the Principal Debt against its obligations to supply logs, on an agreed Debt-to-Log Conversion ratio. The basis of the Debt-to-Log Conversion and the parties' respective rights for the supply of logs and payment were set out in the agreed Minutes of a Meeting on 8 April 2011 ("the 8 April Meeting Minutes"), signed by the parties and which was accepted as an enforceable agreement between them.

(b) The defendant contended that the Principal Debt issue was not raised as a defence to any claim for damages for undersupply of logs as opposed to a defence on the Debt-to-Log Conversion. There was no pleaded counterclaim for the Principal Debt, which in itself was said to be a requirement for a set-off. The defendant submitted that in those circumstances, it was not possible for the Tribunal to consider whether there could be an equitable set-off of the Principal Debt against damages for breach of the supply obligation and that therefore there was no failure by the Tribunal to consider an issue and no breach of natural justice.

(c) The defendant further submits that there was no sufficient evidence to support the Principal Debt and that, as the defence would have failed, there was no prejudice to the plaintiff in the matter not being decided.

(d) The Freight Interest Issue was determined by the Tribunal with a grant of interest, albeit not at the contractual rate, which was the plaintiff's primary case, but at the alternative rate which it sought.

6 The parties referred to a number of authorities, but there was no real difference in the submissions as to the principles to be applied in an application of this kind, although there was a difference of emphasis, as might be expected.

7 The authorities are clear in saying that there is no room for the court to interfere with an award on the basis of mistakes made by the arbitrators, whether in determining issues of law or in their function as finders of fact. When parties agree to go to arbitration, they accept, for better or worse, the appointed tribunal and the limitations to the right of challenge that are imposed by the particular law or rules which govern the arbitration in question. The policy which the court adopts is one of minimal curial intervention, and an essentially pro-arbitration approach which reads awards without seeking to construe them as a statute or adopting an overly technical stance, with a view to according them the finality that an arbitration is intended to bring about: see TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [125], Soh Beng Tee & Co Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (" Soh Beng Tee ") at [91].

8 It is common ground that, where a party challenges an award on the ground of a breach of natural justice, four questions arise, namely: which rule of natural justice was breached; how that rule was breached; the connection between the breach and the making of the award; and how the breach prejudiced the challenging party's rights: Soh Beng Tee at [29] affirming John Holland Pty Ltd v Toyo Engineering Corp [2001] 1 SLR(R) 443. Counsel for the defendant emphasised the need for "actual or real prejudice" as a result of any apparent breach as meaning that it "must, at the very least, have actually altered the final outcome of the arbitral proceedings in some meaningful way" ( Soh Beng Tee at [91]). Serious errors of law and/or fact do not of themselves amount to a breach of the rules of natural justice.

9 Whereas Article 34(2)(a)(iii) of the Model Law refers to awards which deal with matters outside the scope of the arbitration, it is also common ground that a tribunal is bound to consider all the issues that are raised by the parties in the reference. To fail to consider an important issue that has been pleaded is a breach of natural justice because, in such a case, the arbitrator would not bring his or her mind to bear on an important aspect of the dispute before the tribunal ( AKN v ALC [2015] 3 SLR 488 (" AKN ") at [46]). In CRW Joint Operation v PT Perusahan Gas Negara (Persero) TBK [2011] 4 SLR 305 (" CRW "), the Singapore Court of Appeal expressly stated that a failure on the part of a tribunal to decide matters submitted to it, was a failure to exercise the authority that the parties had granted and could therefore be a breach of Article 34(2)(a)(iii). This does not mean a failure by an arbitral tribunal to deal with every issue referred it will render the award liable to be set aside. The significance of the issue that was not decided has to be considered in relation to the award as a whole and the question of prejudice to the complaining party.

10 The defendant emphasised the reference made by the Singapore Court of Appeal in AKN to the need for a consideration of the pleaded issues as an essential feature of the rule of natural justice enshrined in the Latin adage, audi alteram partem . The primary places in which to ascertain what was in issue are the pleadings and the list of issues. Whilst the Court of Appeal in AKN stated that it would usually be a matter of inference, rather than of explicit indication, that the arbitrators had wholly omitted an important issue, that inference, if it was to be drawn, must be shown to be clear and virtually inescapable. It is clear, however, that there is no requirement for an issue to be pleaded as such, if there plainly is an issue which has been raised before the tribunal, and which the tribunal ought to resolve in order to do justice between the parties. Where natural justice is concerned, each party must have the opportunity to put its case and have it determined by the chosen tribunal with the other party given a full opportunity to meet it. In the Singapore Court of Appeal decision in BLC and others v BLB and another [2014] 4 SLR 79, the court considered the pleadings, the lists of issues and the parties' written submissions in order to determine what was truly in issue between the parties, and it may be necessary to look at the way in which the case is put in opening and closing oral submissions also.

11 In my judgement, it is clear that the court must look at the conduct of the reference as a whole in order to determine whether the arbitrators have or have not considered an important issue placed before them. If a party seeks to put forward a case which it did not make before the tribunal, but, on seeing the result, wished it had made, that would be a misuse of the right of challenge because there would be no breach of the rules of natural justice at all. If, however, there was an issue which was common ground between the parties and was therefore not the subject of express pleading, but which the tribunal ignored, forgot or overlooked, there would be a breach of natural justice in the arbitrators' failure to take it into account, if it was material in the overall context of the arbitration.

12 It is common ground that the application of Article 34(2) of the Model Law and the application of section 24( b ) of the IAA leads to the same result.

13 The dispute which led to the Arbitration concerned an agreement for the defendant to sell all of its interests in certain timber concessions in Indonesia to the plaintiff in exchange for US$8m and a three-year supply of round logs for use in the defendant's plywood factory. On 18 September 2009, the parties concluded a Master Agreement which annexed four documents, including, inter alia , the Round Logs Supply Memorandum of Agreement ("the MOA") and a Reconciliation and Settlement Deed dated 18 December 2009. The MOA provided that the plaintiff should supply specified quantities of round logs on a Free-on-Board basis alongside jetties in Sumatra and for the defendant to bear all local, national or other taxes, including but not limited to, Provisi Sumber Daya Hutan ("PSDH") and Dana Reboisasai ("DR") which were initially payable by the plaintiff at the point of logging or export. The Reconciliation Deed was intended to compromise several existing obligations owed by the parties and their failures prior to entry into the Master Agreement. The terms of the Reconciliation Deed required the parties to pay various sums to each other and for the plaintiff to deliver logs to the defendant (distinct from the obligations in the MOA), such logs being termed the "Barter Trade Logs" and "Infrastructure Logs".

14  The most important document upon which much of the dispute centred was the signed and agreed Meeting Minutes of 8 April 2011 ("the 8 April Meeting Minutes"). The Tribunal referred to this as an enforceable agreement. The terms are as follows:^[1]

(a) The defendant was to repay the plaintiff the "sum of IDR 75 Billion for its outstanding debt (PSDH/DR, Freight) and future shipment's PSDH/DR and freight", as set out in Clause 1 of the 8 April Meeting Minutes. This debt arose from the obligations the defendant owed under the MOA and was to be repaid in five monthly instalments which ranged from IDR10bn to IDR20bn per month. The payment deadlines were set at the end of each month, from April 2011 to August 2011 respectively (the "Clause 1 Payment Deadlines");

(b) The defendant's repayment of those five instalments would be "closely monitored". The defendant was to pay interest of "2% net per month" for any failure to repay and/or late repayment of the monthly instalments; the charges were to be "cumulative until all amounts due is fully paid".

(c) Clause 3 of the 8 April Meeting Minutes also stated that starting from 1 September 2011, the defendant is "fully committed to pay on time and without any delay to settle all outstanding debt arises [sic]". The same 2% net interest rate was to accrue on any shortfall.

(d) The plaintiff and/or its affiliates reserved the right to exercise a contractual set-off by 15 November 2011 via a mechanism set out in Clause 4 of the 8 April Meeting Minutes:

15 It can be seen from this that the defendant agreed to pay the plaintiff the sum of IDR75bn (approximately US$5.17m) in respect of outstanding debt (PSDH/DR and freight) for shipments already made and for PSDH/DR and freight on shipments to be made. Provision was made for payment in five instalments between 30 April 2011 and 30 August 2011 with a specified rate of interest for late payment. Further provision as to the interest rate was made for the plaintiff's protection if, by 15 November 2011, there was still a shortfall in payments made. At that point the plaintiff had the option to cease further shipments, or to reduce the volume of shipments by reference to the amount of outstanding debt in a "Debt-to-Log" Conversion, as per the mechanism under Clause 4. During the relevant period, between April and 15 November 2011, as found by the Tribunal, there was both a shortfall in the supply of logs by the plaintiff and a failure on the part of the defendant to make the agreed payments. It was on 20 December 2011 that the plaintiff wrote to the defendant informing the latter that it had fulfilled and discharged its log delivery obligations under the MOA and was invoking its right under the Debt-to-Log Conversion to convert the outstanding sums (which is the Principal Debt referred to at [1]) owed by the defendant to it to discharge its outstanding log supply obligations, whether owed prior to or after 15 November 2011. In other words, the plaintiff was drawing a line under the obligations owed by each party to the other.

16 For present purposes, the key issue which was determined by the Tribunal appears at paragraph 339-383 of the Award. There, the Arbitrators determined that the plaintiff's obligations to supply round logs under the MOA remained unaltered until 15 November 2011, so that it was in breach in failing to supply the agreed quantity of logs in that period. The Debt-to-Log Conversion right could not be exercised before that. In the same period, the Tribunal found that the defendant was in breach in failing to make the monthly payments as set out in the 8 April Meeting Minutes. It also found that any failure to make those payments would result in the imposition of the cumulative interest charge of 2% net per month. Any failure after 1 September 2011 to pay sums in respect of log deliveries thereafter would also attract the same interest charge.

17 The Tribunal held that an attempt to settle all or any outstanding matters in an amicable manner in accordance with the last part of Clause 4 was a pre-requisite of the exercise of any of the options given to the plaintiff in that clause. Thus, the plaintiff was obliged to continue making deliveries of logs under the MOA until 15 November 2011 and thereafter, until attempts at reasonable settlement had failed. Ongoing shipments were found to be a commercial requirement for the defendant to earn the revenue it needed to pay sums owing to the plaintiff. Thus, the plaintiff could not unilaterally invoke Clause 4 of the 8 April Meeting Minutes to reduce or cease log supply before 15 November 2011, regardless of whether or not the defendant met its payment obligations; nor could it reduce or cease supply on 15 November 2011 without having first attempted negotiations relating to the defendant's outstanding debt. In consequence, the plaintiff breached Clause 4 of the MOA by terminating round log supply after 15 November 2011, without attempting an amicable settlement, and was not entitled to lower its log supply commitment under the MOA commensurate with the defendant's outstanding debt for PSDH/DR and freight charges by an ex post facto exercise of the Debt-to-Log Conversion under the 8 April Meeting Minutes. In acting as it did, the plaintiff repudiated the MOA. Having so decided, at paragraph 383, the Tribunal stated that it did not need to address the defendant's argument that the plaintiff should have set off debts it owed to the defendant in its Debt-to-Log calculations before ceasing log supply. The Tribunal never again referred to the Principal Debt in the context of the claims made by the defendant against the plaintiff.

18 Notwithstanding all that is said by the defendant to the contrary to this court, the evidence establishes that it was effectively common ground between the parties in the arbitration that, at the time of the 8 April Meeting Minutes, the sum which was owing in respect of past debt for freight, PSDH/DR and other taxes, was of the order of IDR50bn, and as at mid November 2011 was somewhat higher than that (the Principal Debt). The Tribunal also noted at para 247 of its Award that the defendant submitted that the total outstanding PSDH/DR debt as at 8 April was approximately IDR50bn. It also appears from the evidence adduced to the Tribunal by the expert appointed by the plaintiff that some 52% of the sum owing consisted of freight rather than PSDH/DR. It was always common ground and a fundamental premise of all the parties' arguments relating to the construction of the 8 April Meeting Minutes that there was a significant sum owing in respect of past debts due under the MOA. The existence of these debts was the premise upon which the plaintiff argued that it could set off that debt against its obligations to supply logs on the basis of the Debt-to-Log Conversion rate, and the defendant's case that the plaintiff could not.

19 Although there were multiple other issues between the parties in relation to Barter Trade Logs and Infrastructure Logs, the Debt-to-Log Conversion set- off is where the argument was focused in relation to the parties' claims in relation to MOA short delivery of logs and non-payment. No further mention was made of the Principal Debt by the Tribunal in calculating the final net sums due to the parties on their respective claims, defences and counterclaims in quantifying the damages.

20 The Tribunal determined all the other disputes between the parties, including a number of counterclaims made by the plaintiff. In discussing all of the plaintiff's counterclaims, including the three successful counterclaims for PNT/ Forestry Tax paid on behalf of the defendant, a netting-off balance under the Reconciliation Deed, unpaid freight charges under Clause 9 of the Reconciliation Deed and Clause 7 of the MOA, the Tribunal referred at paragraph 499 of the Award to the plaintiff's primary claim for the compound interest of 2% per month under Clause 3 of the 8 April Meeting Minutes, as well as its alternative claim for simple interest at 5.33%.The Tribunal at paragraph 511 stated that it did not find the Clause 3 rate to be appropriate to the first two of those counterclaims and instead applied the same rate as used for the defendant's successful claims of 5.33% per annum . The Tribunal there said nothing about the claim for interest on the successful counterclaim for freight charges.

21  In relation to that successful claim for freight charges after December 2011 in relation to the delivery of other logs (which the Tribunal treated as logs delivered under the MOA), the Tribunal also awarded the plaintiff simple interest at the rate of 5.33% per annum , rather than the contractual rate of 2% per month . No reasoning was given in respect of the decision on interest due on the freight charges, as opposed to the rate of interest on sums due under the other two counterclaims, but an Award was made of interest in the Dispositive Section as part of a composite paragraph dealing with interest on all three successful counterclaims.^[2]

22 Following the issue of the Award, the plaintiff requested the Tribunal to make an additional award pursuant to Rule 29.3 of the Arbitration Rules of the Singapore International Arbitration Centre(5th ed, 2013) ("the SIAC Rules") ("the Request"). The plaintiff sought an award in respect of:

(a)  the Principal Debt of IDR50bn or US$4.4m (which were equivalent at the relevant rate of exchange at the time);

(b) the contractual interest on the Principal Debt from the date of each breach by the defendant in making payment in accordance with Clause 1 of the 8 April Meeting Minutes up to the date of full payment; and

(c) the contractual interest on the counterclaim for freight charges incurred after 2011 to the date of full payment by the defendant.

23 In making that application, the plaintiff relied on many of the features upon which it relied in its application to this court. It highlighted that the Tribunal had determined that mutually outstanding contractual obligations were owed between the plaintiff and the defendant as recorded in the 8 April Meeting Minutes.

24 It pointed to the Tribunal's finding at paragraph 348 of the Award that the outstanding debt as at 8 April 2011 was not IDR75bn but approximately IDR50bn and at paragraph 349 of the Award, and that contractual interest ran on that debt at a net rate of 2% per month. It drew attention to the absence of any dispute by the defendant of the mutual obligations or as to the existence of the Principal Debt.

25 The only point of difference between the parties at the hearing was how the Principal Debt fell to be taken into account in relation to the plaintiff's log supply obligations, which the Tribunal had decided by holding that the Debt-to-Log Conversion was not operable prior to 15 November 2011 and prior to an attempt at amicable settlement.

26 The underlying premise of the Principal Debt had never been in issue, although the exact quantum was not agreed, and issue of evidence arose in relation to it.

27 There were only two possible situations. Either the Debt-to-Log Conversion would operate on a global basis to compromise all the plaintiff's log supply obligations whether before or after 15 November 2011 or, if it did not so operate, then the Principal Debt fell to be taken into account, with its accrued interest under Clause 2 of the 8 April Meeting Minutes, against damages or compensation payable for undersupply as at 15 November 2011. The Tribunal had failed to take the Principal Debt into account at all, having decided against the plaintiff on the operability of the Debt-to-Log Conversion and thereby also failed to take into account the interest accruing thereon.

28 In its response, the defendant took essentially two points. The first was that there was no pleaded counterclaim for the Principal Debt, in the event that the Debt-to-Log Conversion was rejected by the Tribunal, nor was the matter addressed as such by the experts. The second point taken was that the defendant did not concede that the taxes and freight which constituted the Principal Debt were payable and that the plaintiff had not proved that it had made payment for the taxes.

29 The Tribunal's response dated 5 November 2020 ("the Decision on the Additional Award Application") is illuminating. It denied the request for an additional award. The Tribunal first referred to Rule 29.3 of the SIAC Rules which, it stated, was based on Article 33(3) of the Model Law and which provided that a party could, "by written notice, request the Tribunal to make an additional award as to claims presented in the arbitral proceedings but not dealt with in the award." The Tribunal then provided brief reasons for its refusal:^[3]

30 In relation to the Freight Interest Issue, the Tribunal declined the request, stating that this counterclaim has been dealt with in paragraph 512 of the Award.

31 For the Principal Debt Issue, whilst the first reason given requires closer consideration, the crucial point that is made relates to the distinction drawn between a "claim" and a "defence". Whether or not this is too narrow a construction of the Rules is something I need not decide. A party may however claim a set-off by way of defence, without making a "claim", "counterclaim" or "cross-claim". The Tribunal effectively decided that it had no jurisdiction under the SIAC Rules because no "claim" had been made by the plaintiff in respect of the Principal Debt.

32 Regardless of that, when the first reason is examined, it is clear that the Tribunal accepted that the Respondent (the plaintiff) did raise its entitlement to the Principal Debt for pre-December 2011 taxes and freight in two ways: first, as a defence to the defendant's claim for failure to supply logs (the Debt-to-Log Conversion defence); secondly, as a defence to any damages claim for failure to supply logs.^[4]