Singapore Court of Appeal sets aside award for breach of natural justice, refusing remission to tribunal

Background

In Vietnam Oil and Gas Group v Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) and another appeal [2025] SGCA 50, the Singapore Court of Appeal (“CA”) partially set aside a Singapore arbitral award that had awarded substantial damages to a sanctioned Russian company, Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) (“PM”). The CA also set aside the High Court’s order to remit the award to the arbitral tribunal for further consideration.

The CA found that the arbitral tribunal (“Tribunal”) had breached the fair hearing rule when it ruled on the termination notices issued by PM, and that the Tribunal’s finding lacked reasonable nexus to the parties’ cases. The CA also held that remission was not the appropriate remedy, owing to the serious nature of the Tribunal’s breach of the fair hearing rule, as well as how pivotal the Tribunal’s impugned decision was to the award.

This decision by the CA provides important guidance on the limits of arbitral discretion and the circumstances in which remission will be appropriate.

Facts of the Case

The case arose out of a project to construct a thermal power plant in Vietnam (the “Project”). The owner of the Project was Vietnam Oil and Gas Group (“PVN”). PM was part of the contractor consortium (the “Consortium”). PVN and the Consortium had entered into an EPC Contract governed by Vietnamese law (the “EPC Contract”), with disputes to be referred to arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”) for the time being in force.

In January 2018, sanctions were imposed by the United States Office of Foreign Assets Control (the “US Sanctions”) against PM. PM subsequently issued a notice to PVN pursuant to the terms of the EPC Contract asserting that the imposition of the US Sanctions constituted a force majeure event. After negotiations on how to arrange payments to PM without breaching the US Sanctions failed, on 28 January 2019, PM issued a notice of termination of the EPC Contract on the ground that substantially all the works in progress was prevented for a continuous period by reason of force majeure (“First Notice”). A few days later, on 8 February 2019, PM issued a second notice of termination on the ground of prolonged non-payment (“Second Notice").

PM claimed monetary relief it was entitled to as a result of the termination of the EPC Contract, as well as payment of the sums due and owing under the EPC Contract. PVN contended that PM had wrongfully terminated the EPC Contract because the US Sanctions did not amount to a force majeure event. As PM had, by the First Notice, wrongfully repudiated the EPC Contract, the Second Notice was not a valid termination notice.

The Tribunal issued an award (the “Final Award”) finding that the First Notice was without basis. The Tribunal found that the Second Notice was valid and had the effect of overriding and superseding the First Notice. The Tribunal awarded PM substantial damages.

The High Court Proceedings

PVN applied to set aside the Final Award. The High Court judge (“Judge”) held that there were grounds for setting aside as the Tribunal had: (1) acted in excess of jurisdiction; and (2) acted in breach of natural justice by breaching the fair hearing rule.

The Judge found that that the Tribunal’s reasoning at paragraph 548 of the Final Award - that PM must have intended for the Second Notice to have replaced or supplemented the First Notice - had no nexus to the parties’ cases. Neither did the Tribunal give the parties the opportunity to be heard on the approach that it eventually took in coming to its determination. Further, neither party had advanced this contention as part of their respective cases. Instead of setting aside the Final Award, the Judge considered it appropriate to make an order for remission as it could eliminate the grounds for setting aside.

Both parties filed cross-appeals against the Judge’s decision: PM against the finding that there were grounds to set aside the Final Award, and PVN against the remission order.

The Court of Appeal’s Decision

A number of issues arose before the CA for consideration, namely: (i) whether the Tribunal’s finding in the Final Award breached the fair hearing rule; (ii) whether the Tribunal exceeded its jurisdiction in coming to said finding; and (iii) whether the Judge erred in making the remission order.

Whether the Tribunal’s finding breached the fair hearing rule

It is trite law in Singapore that a party challenging an arbitration award for breach of the rules of natural justice must establish four elements: (a) the specific rule of natural justice that was breached; (b) how it was breached; (c) how the breach was connected to the making of the award; and (d) how the breach prejudiced the party’s rights. (John Holland Pty Ltd (formerly known as John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 1 SLR(R) 443 at [18]; BZW and another v BZV [2022] 1 SLR 1080 at [59]; CJA v CIZ [2022] 2 SLR 557 at [68]).

The CA stated that for the fair hearing rule to be satisfied, the Tribunal’s chain of reasoning should have sufficient nexus to the case advanced by the parties, and parties must be given reasonable notice of that line of reasoning that the Tribunal might adopt.

An arbitral tribunal may rely on a particular chain of reasoning if: (1) it arises from parties’ express pleadings; (2) it is raised by reasonable implication by parties’ pleadings; (3) is brought to the opposing party’s actual notice despite not being pleaded; or (4) reasonably flows from the arguments advanced by the parties.

The principles described above involves fairness, requiring the arbitral tribunal to provide all parties a reasonable opportunity to present their cases and to respond to opposing arguments. (Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 at [65(a)] and [65(d)]). The degree of opportunity granted will depend on whether the issue concerns a question of fact, law, or mixed fact and law. (Phoenixfin Pte Ltd v Convexity Ltd [2022] 2 SLR 23)

The CA found that the Tribunal’s chain of reasoning involved making separate findings of law and fact – the first finding being that, as a matter of Vietnamese law, the Second Notice issued while the EPC Contract remained could override and supersede the invalid and unlawful First Notice - neither party argued this case. The second factual finding was that PM must have intended for the Second Notice to replace or supplement the First Notice when PM issued the Second Notice before the First Notice took effect.

The CA found that there was no reasonable nexus between the parties’ arguments and evidence and the Tribunal’s chain of reasoning. PVN could not have reasonably anticipated the Tribunal’s factual and legal conclusions as they were neither advanced nor directly addressed by either party; additionally, the factual element were at odds with the position taken by PM. PVN was therefore not given a fair opportunity to address them.

The CA further held that the Tribunal’s finding was pivotal to the outcome of the arbitration. As such, the Tribunal’s failure to bring its contemplated chain of reasoning to the notice of the parties had prejudiced PVN. Consequently, the CA affirmed the Judge’s finding that the fair hearing rule had been breached.

Whether the Tribunal exceeded its jurisdiction

Having held that there was a breach of the fair hearing rule, the CA did not need to decide whether the Tribunal had exceeded its jurisdiction. The CA nevertheless set out its provisional views on the matter.

The principle in Article 34(2)(a)(iii) of the Model Law holds that the Tribunal has no jurisdiction to decide any issue that has not been referred to it for determination by the parties. It follows that the Final Award may be set aside if the Tribunal had exercised a power it did not possess.

The CA opined that the question of whether the Second Notice overrode, superseded, replaced or supplemented the First Notice could be seen as a logically anterior issue to the Second Notice’s validity. At least in principle, this was an issue within the scope of the parties’ submission to arbitration. However, the Tribunal ought to have alerted the parties to the specific issue on hand.

In essence, there were two overlapping notices of termination. The question was as to their interaction and impact or effect on one another. As far as the parties expressly sought determination of whether the EPC Contract could be or was terminated by the Second Notice, it would have been within the Tribunal’s mandate to consider the point, and did not exceed the Tribunal’s jurisdiction.

Notwithstanding the above, to the extent that a tribunal draws its jurisdiction from an agreed fact or the agreement of the parties, it may not be consistent with the jurisdiction of the tribunal to go behind such agreed facts and make a finding to the contrary.

Whether the Judge erred in making the order for remission

The CA reiterated that remission of an award may be appropriate when the identified defect can be cured. In deciding the appropriate remedy, the court’s fundamental concern is in preserving the integrity of the arbitral process, and not the correctness of the tribunal’s reasoning or result. DJP and others v DJO [2025] 1 SLR 576 at [50]). In setting aside the Judge’s remission order, the CA held as follows:

First, where the defect in question would cause a fair-minded observer to reasonably apprehend that the tribunal may be unable to afford the parties a fair process in its determination on the remitted issues, remission will usually be inappropriate.

Added scrutiny would be applied where the tribunal has already decided on that issue as there may be justifiable concerns about questions of prejudgment amounting to apparent bias.

Given that the tribunal had previously decided a point in breach of the fair hearing rule, a reasonable observer might be concerned about the prospect of the tribunal being improperly influenced by anchoring and confirmation biases when asked to reconsider the very same point.

The CA held that considering the Tribunal’s decision was made despite knowing the parties’ expert evidence had not addressed the specific legal scenario, this raises concerns of prejudgment. Remission would have caused the Tribunal to be vulnerable to a complaint of apparent bias.

Second, if the breach is in respect of a point or points that are central to the award, the analysis of one’s continued confidence in the tribunal is affected.

The CA had found that the Tribunal’s decision was pivotal as it went to the heart of the dispute on liability. But for the Tribunal’s decision, PM could have been found to have wrongfully terminated the EPC Contract. This would have led to findings on substantial heads of damages, including termination payments, repatriation and preservation costs.

Third, remission would be inappropriate if it would require an amendment of a party’s pleadings in circumstances that would be manifestly unfair to the other party.

Here, PM would likely be required to change its case, since it would not be able to maintain that the Second Notice was not intended to withdraw the First Notice if it intended to adopt the Tribunal’s reasoning at para 548 of the Final Award. This renders it impossible to conclude that the matter could fairly be remitted.

Comment

This decision underscores the Singapore courts’ commitment to upholding the integrity of the arbitral process, particularly the right to a fair hearing. Tribunals must ensure that their reasoning is anchored on the parties’ cases and that the parties are given a fair opportunity to address any novel approaches taken by the tribunal.

It is significant to note that remission of an award to the tribunal is not automatic. Where breaches are serious and central to the dispute, and there is a risk of apparent bias from the tribunal, the courts may elect to set aside the award instead. Parties should be prepared to address issues relating to the substantive fairness of remission versus setting aside.

*The authors would like to thank Aaron Kwok, trainee solicitor at CMS Holborn Asia, for his assistance with the preparation of this article.