30 August 2018
China Machine New Energy Corporation v Jaguar Energy Guatemala LLC
 SGHC 101
In China Machine New Energy Corporation v Jaguar Energy Guatemala LLC, the Singapore High Court declined to set aside an arbitral award, finding that an attorney-eyes-only (“AEO”) order, the scope of which the arbitral tribunal then limited before lifting the order altogether, did not amount to a breach of natural justice.
In March 2008, China Machine New Energy Corporation (“CMNC”) and Jaguar Energy Guatemala LLC (“Jaguar”) entered into an Engineering, Procurement and Construction Contract (“EPC Contract”) pursuant to which CMNC would construct a power plant for Jaguar for US$450 million (“Project”).
The EPC Contract provided for disputes to be resolved by arbitration in Singapore, under the 1998 Rules of Arbitration of the International Chamber of Commerce. Among other things, clause 20.2 of the EPC Contract (“Clause 20.2”) provided that:
- the arbitrators “shall” have 90 days to reach a decision after the selection of the third arbitrator, but may have up to an additional 90 days if additional time is necessary to reach a decision;
- in determining the extent of examination of evidence and other pre-hearing matters, the arbitrators shall endeavour to the extent possible to streamline the proceedings and minimise the time and cost of the proceedings; and
- it is the parties’ intent “that the arbitration shall be conducted expeditiously”.
The parties’ relationship broke down after delays in the completion of the Project. In December 2013, Jaguar terminated the EPC Contract and CMNC’s access to a shared online document platform where the parties would upload documents relating to the Project. A violent confrontation between Jaguar’s guards and CMNC’s employees also occurred.
Jaguar filed a request for arbitration in January 2014 (“Arbitration”). Jaguar also applied for and obtained an “attorney-eyes only” order (“AEO Order”) in respect of certain documents disclosed by Jaguar which contained sensitive information such as the identity of Jaguar’s contractors and the full addresses of witnesses (“AEO Designated Material”). The arbitral tribunal (“Tribunal”) directed that a two-stage process would apply to the disclosure of those documents (“AEO Regime”): first, they would be disclosed to external counsel only (including CMNC’s experts), and secondly, CMNC would be entitled to apply to the Tribunal for its employees to be given access to AEO Designated Material for the purpose of giving instructions to counsel. In March 2015, upon CMNC’s application, the AEO Regime was lifted completely.
Three days before the commencement of the main evidentiary hearing in July 2015, a report alleging that a Jaguar representative and one of Jaguar’s witnesses in the Arbitration had bribed government officials in relation to Jaguar’s dispute with CMNC and the completion of the Project (“Corruption Allegations”) was published.
The main evidentiary hearing was heard in July 2015, and the Tribunal rendered its award (“Award”) in November 2015. The Tribunal unanimously found that Jaguar had validly terminated the EPC Contract for default by CMNC and allowed Jaguar’s claim for liquidated damages and the costs of completion. The Tribunal ordered CMNC to pay Jaguar a sum of US$129 million, interest and costs.
CMNC applied to set aside the Award in the Singapore High Court. Among other things, CMNC alleged that: (a) the Award was made in breach of the rules of natural justice as the AEO Regime deprived CMNC of a reasonable opportunity to present its case, and was in breach of the UNCITRAL Model Law on International Commercial Arbitration; (b) Jaguar had breached its obligation to arbitrate in good faith, and the Tribunal failed to restrain Jaguar from doing so; and (c) the Award was in conflict with public policy as Jaguar had engaged in “guerrilla tactics” in the Arbitration and the Tribunal had failed to investigate allegations of corruption and fraud and/or the Award was induced or affected by corruption.
Decision of the Singapore High Court
The Singapore High Court rejected CMNC’s arguments and dismissed the setting aside application.
The court rejected CMNC’s claim that the imposition of the AEO Regime amounted to a breach of its right to natural justice, which breach prejudiced its rights. First, the court observed that the Tribunal was bound to give effect to Clause 20.2, which provided for an expedited arbitration. Thus, due process had to be followed within the strictures that the parties had placed on the Tribunal. The parties knew that the EPC Contract was highly complex and should have foreseen that complicated disputes which might arise would be subject to an expedited procedure. Secondly, the Tribunal had found that there was a possibility that disclosed documents could be used for ulterior and improper purposes which could interfere with the Project or the Arbitration. Bearing in mind the deep distrust and acrimony, including violence, which formed the backdrop to the imposition of the AEO Regime, it could not be said that the Tribunal had no basis for imposing the AEO Regime. Thirdly, the second stage of the AEO Regime safeguarded CMNC’s interest as access could be granted to specific employees of CMNC upon application for the purpose of taking instructions. The court observed that CMNC had never made such an application.
Obligation to arbitrate in good faith
The court also rejected CMNC’s argument that the Award should be set aside on the basis that Jaguar had breached an implied duty to arbitrate in good faith by employing guerrilla tactics in the Arbitration. The court noted that while an arbitration agreement includes a duty to cooperate in the arbitral process, what is less clear is whether it is the same as or falls under a duty of good faith. Nevertheless, even if Jaguar did bear an implied duty to arbitrate in good faith, Jaguar did not breach this duty. The court observed that guerrilla tactics refer to the use of illegal or unethical means with the aim of obstructing, delaying, derailing or sabotaging an arbitration. It is insufficient that the acts merely have an adverse effect on an arbitration or a party’s case in an arbitration. On the facts, the Tribunal found that the alleged guerrilla tactics, which included seizure of the construction site and termination of CMNC’s access to the shared online document platform, had been done lawfully through a valid termination for default. In response to CMNC’s claim that Jaguar had acted illegally and improperly in securing the eviction of CMNC’s employees from the site, the court found that there was no evidence that this was done to affect CMNC’s case in the Arbitration. In any event, these alleged guerrilla tactics had occurred before the Arbitration.
Finally, in relation to the Corruption Allegations, the court observed that while an arbitral tribunal may have a duty to investigate allegations of corruption in appropriate cases, a duty to investigate did not arise on the facts of the case. The Tribunal had found that the Corruption Allegations had not been proven in any court and did not have any bearing on the issues in the Arbitration. This was a finding of fact which was not subject to appeal. Thus, the court concluded that there was no link between any breach by the Tribunal of a duty to investigate the Corruption Allegations and the Award which would warrant setting aside the Award.
This decision reaffirms the Singapore courts’ policy of minimal curial intervention when dealing with allegations of breach of natural justice. It is noteworthy that the court expressed doubt on the argument that an expedited arbitration required additional vigilance regarding due process from an arbitral tribunal. Thus, parties considering an expedited arbitration should have regard to the potential complexity of any potential disputes arising from the underlying contract. While an expedited procedure may result in a quicker resolution of a dispute, this could come at the expense of the quality of due process.