by Pradeep Nair, Associate, Singapore, Wei Ming Tan, Senior Associate, Singapore and Lakshanthi Fernando, Managing Director, Singapore.
ThisarticleisproducedbyCMSHolbornAsia,a Formal Law Alliance between CMS Singapore and Holborn Law LLC.
Can an arbitral award be set aside on the grounds of fraud or breach of public policy on the basis that a successful party failed to call certain witnesses and/or failed disclose certain internal documents it did not consider relevant to the arbitration? This was the issue that confronted the Singapore High Court (the “Court”) in BVU v BVX  SGHC 69.
In response to spiralling food prices and growing concerns about scarcity, the South Korean govern- ment embarked on a project to secure long-term lines of food supply from international sources to supple- ment domestic food supply (the “Project”). The De- fendant, a state-owned company, was appointed to spearhead the Project (the “Purchaser”). The Pur- chaser was introduced to the Plaintiff (the “Supplier”) which recommended that the Purchaser procure food from South America (the “Products”). After gov- ernmental approval was obtained, the Purchaser and Supplier formally entered into an agreement (the “Agreement”).
The material terms of the Agreement were as follows: E The Supplier shall be the Purchaser’s “most preferred Supplier”;
E The Agreement would commence on 1 October 2012 for a period of 20 years (or until terminated in accordance with the termination clause);
E The Purchaser would use its “best commercially reasonable effort to order and purchase” the Prod- ucts during the course of the Agreement in accor- dance with the forecast range which was defined to be a “[m]inimum of 1,000,000 tons in total per annum”;
E The Agreement was to be governed by the “rules of the Vienna Convention on Contracts for the In- ternational Sale of Goods” and that disputes arising out of or in connection with the Agreement were to be finally settled by Singapore-seated arbitration in accordance with the ICC Rules.
A few months after the Agreement was signed, the Purchaser informed the Supplier that it had entered into a Memorandum of Understanding with one of the Supplier’s competitors. Subsequently the Pur- chaser provided the Supplier with a forecasted range that was well below the forecast range in the Agree- ment and began a public tender process for the supply of Products (which it invited the Supplier to take part in).
The Supplier commenced arbitration against the Purchaser claiming USD 2.25m in damages plus in- terest for various breaches of the Agreement among other requests for relief. Before the oral hearings for the arbitration took place, the Purchaser indicated that it would only call one factual witness and not three other individuals who the Supplier had identi- fied in its Statement of Claim as being involved in the negotiations for the Agreement. The Supplier ap- plied to the arbitral tribunal for an order that the Pur- chaser procure the attendance of these three individuals as witnesses in the arbitration but this ap- plication was not successful.
The hearing proceeded with the Purchaser calling its sole factual witness, who was not involved in negoti- ations leading to the Agreement but who was, at the time of the arbitration, responsible for the purchase and sale of the Products and for monitoring the per- formance of the Agreement with the Supplier. The Purchaser also called on two expert witnesses to give their opinions on comparative and Korean Law.
The award was subsequently issued in favour of the Purchaser by the majority of the tribunal with one dissenting opinion.
On the balance of the parties’ arguments, the major- ity concluded, amongst other things, that a reason- able person in the same circumstances as the parties would not expect that the Purchaser’s obligation to use “best commercially reasonable effort” to purchase Products under the Agreement would require the Purchaser to act in contravention of Korean public procurement law. The majority further considered that the Purchaser had satisfactorily discharged its ob- ligations under the Agreement by calling a public ten- der and inviting the Supplier to participate.
While the majority found that the Purchaser was not in breach of the Agreement, the dissenting arbitrator held that adverse inferences ought to be drawn in re- spect of the Purchaser’s decision not to produce its employees who were involved in the contractual ne- gotiations of the Agreement and that the Purchaser was in breach of the Agreement because the parties had not anticipated that purchases under the Agreement would only be made by way of conducting public tenders.
Post-award applications before the Singapore High Court
After the award was issued, the Supplier’s Korean solicitors were able to reach out to one of the three witnesses who the Purchaser declined to call as a wit- ness in the arbitration to give evidence in favour of the Supplier for the purpose of setting aside the Award (the “Witness”). The Supplier subsequently applied to the Court to set aside the award on the basis that as a result of the Purchaser’s failure to call the Witness to give evidence in the arbitration: (1) The award was induced or affected by fraud or cor- ruption; and (2) The award is in conflict with the pub- lic policy of Singapore.
The Supplier then procured the issuance of a sub- poena to the Witness to disclose certain categories of documents, which were all essentially the Purchaser’s internal documents (the Witness was unable to dis- close these documents without a subpoena as he was subject to confidentiality obligations as an employee of the Purchaser). The Purchaser applied for the sub- poena to be set aside. The Court then directed that the applications for setting aside the Award and the subpoena be heard together.
The Supplier’s application to set aside the Award After a review of local cases, the Court observed that a high threshold had to be met for an award to be set aside for fraud or a contravention of public policy and that in order for the non-disclosure or suppression of evidence to warrant the setting aside of an award, three requirements have to be satisfied:
E It must be shown that there is deliberate conceal- ment aimed at deceiving the arbitral tribunal;
E There must be a causative link between the delib- erate concealment and the decision in favour of the concealing party; and
E There must not have been a good reason for the non-disclosure.
The Court ultimately found that the Supplier failed to make out all of the requirements above. We highlight the following key observations of the Court:
E The disclosure obligations of a party in an arbitra- tion are not as wide as those in common law jurisdic- tion court proceedings. In the latter case, there is a continuing obligation to disclose documents relevant and material to the case, including documents which have the potential to adversely affect the party’s own case or support the counterparty’s case.
E Under the IBA Rules on the Taking of Evidence in International Arbitration (which governed the pro- cedural aspects of the arbitration), the Purchaser was not under a general obligation to produce all docu- ments that could be relevant and material to its case or to call particular witnesses unless it was seeking to rely on his or her testimony.
E The Tribunal had already thoroughly considered the question of whether the Witness should be called
to give evidence in the arbitration. By the Purchaser’s own admission, the Witness’s purpose was “to further corroborate” factual allegations – suggesting that the Witness’s testimony was not material but at best cu- mulative.
E In any event, it appeared to the Court that the Tri- bunal had invited submissions from the parties on whether certain witnesses (including the Witness) should be called to give evidence and ultimately de- cided that it would not direct the witnesses to give ev- idence. In the circumstances, it seemed to the Court that the Supplier had simply been unable to persuade the Tribunal to secure the attendance of the Witness, as opposed to a case where the Purchaser had fraud- ulently suppressed the Witness’s evidence.
E There is no obligation to call a particular witness in international arbitration and the decision to take the risk of having an adverse inference drawn (in the event the decision is made not to call a witness) is part of the adversarial process and not unconscionable conduct.
The Supplier’s application to set aside the subpoena
The Court noted that the threshold for setting aside a subpoena, which is not easily surmountable, was crossed in the present case. Given the Court’s observa- tions on the setting aside application, it concluded that the documents sought via the subpoena were legally irrelevant and/or unnecessary for the determination of the setting aside application. The Court also held that the subpoena was an abuse of process as it was an at- tempt by the Supplier to reopen the arbitrated dispute though a backdoor appeal on the merits.
E In reiterating the high threshold for the setting aside of an arbitral award, the Singapore Courts are once again reaffirming its support of party autonomy and finality in international arbitration.
E This case highlights the different disclosure regimes under common law litigation and interna- tional arbitration and the different disclosure obliga- tions a party is subject to under each adjudication mechanism.
E Parties should be mindful of their potential future disclosure obligations when deciding on a particular dispute resolution mechanism in their contracts. Had this dispute been subject to the exclusive jurisdiction of the Singapore Courts, both parties would have been obliged to disclose all relevant and material doc- uments, even documents detrimental to their case and helpful to their counterparty’s case.
E If the parties to a Singapore seated arbitration have concerns about the production of documents, they should seek curial assistance as soon as possible and while the arbitration is ongoing (under section 13 of the International Arbitration Act) as opposed to wait- ing until the outcome of the arbitration. The latter approach is likely to be perceived – as it was in this case – as an attempt to re-arbitrate the merits of the substantive dispute.