Witness gating pitfalls and possible solutions concerning
11 January 2022
The article was first published in the December 2021 edition of the ACICA Review.1 The Australian Centre for International Commercial Arbitration (ACICA) releases its Review bi-annually, providing arbitration news and updates.
In the recent case of CBS v CBP [2021] SGCA 4 (‘CBS v CBP’), the Singapore Court of Appeal confronted the issue of ‘witness gating,’ the practice of an arbitrator excluding witnesses from giving oral evidence at the final hearing. In considering whether such conduct constituted grounds for setting-aside an award, the Court provided salutary lessons for counsel and arbitrators alike about how to balance the perennial tension between an arbitrator’s robust use of procedural discretion and the natural justice principle enshrined in Article 18 of the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’).
Brief summary of the case
CBS v CBP concerned the sale of coal from Australia pursuant to two sale and purchase agreements (‘SPAs’).
Those SPAs referred disputes to Singapore-seated arbitration under the Rules of the Singapore Chamber of Maritime Arbitration 2015 (‘SCMA Rules’).
The seller of the coal (the ‘Seller’) had entered into an Accounts Receivable Purchase Facility with a bank incorporated in Singapore (the ‘Bank’), which provided for the assignment of the seller’s trade debts to the Bank, including in respect of the two SPAs.
The first shipment of 30,000 metric tonnes (‘MT’) proceeded without incident but problems arose in respect of the second shipment of 20,000 MT. The second shipment was duly delivered but, in short, the buyer of the coal (the ‘Buyer’) failed to pay. While the Buyer initially admitted the debt (citing temporary cash flow issues and poor market conditions for delay in payment) the Buyer later performed a volte face, alleging that it received only 15,000 MT and also that, given the steep decline in the price of coal, it was ‘not inclined’ to pay for the coal at the prices in the second SPA.
The Buyer then offered to bear some of the price fluctuation and proposed a settlement meeting with the Seller, which took place in December 2015. What happened at that meeting was ultimately disputed. The Buyer alleged that the parties had reached an oral agreement for a reduced price of coal for the full 50,000 MT. The Seller and the Bank denied that any such agreement was reached.
The Bank commenced arbitration under the SCMA Rules, before a sole arbitrator, seeking payment in full at the original price. During the arbitration, the Buyer engaged in tactics which the Singapore Court of Appeal later described as ‘dilatory’ and ‘less than cooperative, to say the least’.2 This included an unmeritorious jurisdictional objection, a challenge to the award dismissing that objection – that challenge being brought in the Indian Courts not the Courts of the seat of arbitration – and non-participation by the Buyer right up until just before the hearing. At that point, the Buyer then suddenly informed the arbitrator that it intended to contest the claim on its merits, albeit under protest as to his jurisdiction.
The Buyer eventually submitted a statement of defence and list of witnesses. The Buyer stated that it needed to call seven named witnesses, six of which were present at the December 2015 settlement meeting where, according to the Buyer, the parties had agreed to a reduction in the price.
The crucial juncture for the case then came when the arbitrator sought the parties’ submissions as to whether an oral hearing was necessary. The Bank said no hearing was necessary because the dispute turned on issues of contractual interpretation, and the Buyer had not explained the reasons for calling the seven proposed witnesses. The Buyer said it needed a hearing to examine witnesses, but aside from referencing its pleadings, the Buyer did not give any further detail as to ‘its position/ reasons for calling the 7 witnesses and/or the need for their oral testimony’.3
The arbitrator then repeated his request for a ‘descriptive basis of what [the Buyer] expects to develop with the introduction of the proposed witnesses,’ but the Buyer did not elaborate further, beyond reiterating the necessity of examining the witnesses. The arbitrator then wrote to the parties as follows:4
Before I rule on whether the arbitration will be on documents only or an oral hearing is necessary I require the following:
a. Detailed written statements from each of the witnesses [the Buyer] plans to call...
b. A brief submitted separately by [the Bank] and [the Buyer] regarding what constitutes ‘breach of natural justice’ under the laws of Singapore.
Thereafter followed a chain of correspondence demonstrating two fundamentally opposing views on what the SCMA Rules and the rules of natural justice required in terms of holding a hearing for the presentation of evidence by witnesses. Those opposing positions are explained below (noting they remained fundamentally the same all the way through to the Court of Appeal). Ultimately, however, the Buyer refused to put on witness statements and, after a peremptory order, the arbitrator made a ruling that there will be a hearing for oral submissions only but not for examination of witnesses because the Buyer had failed to explain the value of presenting those witnesses. The hearing proceeded, but, in protest, the Buyer did not attend. There was no witness testimony and the arbitrator later rendered an award allowing the Bank’s claim in its entirety.
The scene was thus set for a setting-aside show down in the Singapore Courts and the ventilation of the two opposing views foreshadowed above, both going to the question of whether the Buyer was granted a ‘full opportunity’ of presenting its case pursuant to Article 18 of the Model Law.
The Bank’s view – which reflected the ultimate approach taken by the arbitrator – was essentially this
1. The arbitrator had wide-ranging witness-gating powers such that, if he was not satisfied that there was value in the witness evidence proposed to be led at the hearing, he could preclude it in its entirety;
2. This discretion, it was said, was apparent in two key provisions of the SCMA Rules. The first was Rule 28.1, which provides that:
28.1 Unless the parties have agreed on a documents-only arbitration or that no hearing should be held, the Tribunal shall hold a hearing for the presentation of evidence by witnesses, including expert witnesses, or for oral submissions.
On the Bank’s case, this Rule provides that if the parties do not agree on a documents-only arbitration, the arbitrator has discretion to decide whether to hold a hearing for the presentation of witness evidence or only for oral submissions – in other words, the ‘or’ should be read disjunctively.
3. The second was Rule 25, which gave the arbitrator broad case management powers in the following terms:
25.1 The Tribunal shall have the widest discretion allowed by the [Singapore International Arbitration] Act (where the seat of the arbitration is Singapore) or the applicable law (where the seat of the arbitration is outside Singapore) to ensure the just, expeditious, economical and final determination of the dispute.
25.2. Subject to these Rules, it shall be for the Tribunal to decide the arbitration procedure, including all procedural and evidential matters subject to the right of the parties to agree to any matter.
While the Singapore Court of Appeal clearly had some sympathy for the arbitrator, in light of the Buyer’s uncooperative approach,5 it found itself unable to agree with the Bank. The Court instead agreed with the Buyer that the arbitrator’s conduct, on these facts, constituted a breach of the Buyer’s right to a full opportunity to present its case.6 There were three crucial elements of the Court’s reasoning:
1. Rule 28.1 of the SCMA Rules had to be read holistically, not disjunctively, such that:
(a) unless the parties have agreed a documents only arbitration, then the Tribunal must hold a hearing for the presentation of evidence by witnesses; and
(b) unless the parties have agreed that no hearing should be held, then a hearing must be held for oral submissions.7
Rule 28.1 did not give the arbitrator the power to gate witnesses, condition their appearance on having first provided a witness statement or otherwise choose the type of hearing in the absence of an agreement. The Buyer was unequivocal in seeking a hearing to present oral evidence and was entitled to that hearing under this provision.8
2. While broadly worded case management powers like those in Rule 25 allow tribunals to limit the oral examination of witnesses, they do not grant tribunals unfettered powers that otherwise override the rules of natural justice. This was evident not only from prior authority but from the words in Rule 25 itself that the arbitrator had the widest discretion ‘allowed by’ the Singapore International Arbitration Act,9 an Act which of course contains clear natural justice constraints.10
3. The arbitrator’s mission was to balance efficiency and efficacy against the right to be heard, and this balance would turn on the precise facts and circumstances of each case.11 On the facts here, the Court felt the arbitrator went too far. The Court was satisfied that the Buyer had made sufficiently clear, through its pleadings, the purpose and importance of the seven named witnesses it intended to call – namely, that they would be giving evidence as to what happened at the December settlement meeting and whether there was an oral agreement to amend the price. In those circumstances, it could not count against the Buyer that it refused to furnish witness statements.12 The Court accepted that the tribunal had the power under the SCMA Rules to ask for witness statements but noted that this was to help facilitate the presentation of evidence at the oral hearing not, as the arbitrator used it, for the purposes of determining whether or not he would hold an oral hearing in the first place. Rule 28.1 required that oral hearing to take place.13
The Court said that, in these circumstances, the arbitrator’s denial of the entirety of the witness evidence of the Buyer fell outside the range of what a reasonable and fair-minded tribunal might have done in similar circumstances and therefore constituted a breach of natural justice.14
So what can we learn from this case with the benefit of hindsight?
Lessons for parties and counsel
Many arbitral rules do not contain the ambiguity present in Rule 28.1 of the SCMA Rules. The 2021 Australian Centre for International Commercial Arbitration Rules (“ACICA Rules”), for example, require a hearing for the presentation of evidence by witnesses, including expert witnesses, and/or for oral argument ‘if either party so requests’.15 Rule 28.1 of the SCMA Rules itself has now been overhauled to similar effect.16 The enduring lesson for parties, therefore, lies not in the specific rules but in the Bank’s requests for the arbitrator to invoke its broad procedural discretion to exclude the entirety of the witness evidence of the Buyer.
Requests for such robust exercises of the tribunal’s procedural discretion have always been risky business in arbitration in light of the natural justice principles identified by the Court of Appeal (principles which are made explicit in some institutional rules – the ACICA Rules, for example, make it clear in articles 25.1 and 25.2 that the Arbitral Tribunal’s discretion as to how to conduct proceedings is subject to equal treatment of the parties and affording the parties a reasonable opportunity to present their case). Because of those principles, the Bank’s short term win in having that evidence excluded came at a heavy ultimate price. The practical lesson for parties and counsel is perhaps to think twice about seeking to exclude evidence in its entirety. Seeking to limit the extent of the evidence or make submissions as to why it should be given little weight may achieve the same outcome and involve considerably lower risk to the sanctity of your final award.
Lessons for arbitrators
The Court of Appeal did not shy away from identifying the arbitrator’s mistakes and what he should have done differently. The Court made clear that the arbitrator’s initial mistake was when he conditioned his decision on whether to hold an oral hearing on the receipt of witness statements. He simply did not have the power to do that under the SCMA Rules.17
By giving the Buyer this ‘Hobson’s choice’ (as the Court of Appeal called it),18 the arbitrator made it very difficult for himself to back away, having all but committed to excluding the witnesses at the hearing if the Buyer did not put on the requested witness statements. He did follow through and that was when the breach of natural justice occurred.
A better course, according to the Court, would have been to fix a hearing for the presentation of the Buyer’s witness evidence and at the same time ask for the witness statements from the Buyer.19 If the Buyer refused to provide those witness statements, the arbitrator might have been on surer ground in limiting or at least discounting the value of any witness evidence at the hearing. While the Court noted it would generally accord a ‘margin of deference to the tribunal’s decisions, especially on procedural matters,’ it went on to state:20
... this is a clear case of a serious breach of the rules of natural justice and to decide otherwise would be to reduce the content of those rules to a vanishing point.
1. This article is adapted from a presentation given by the authors at AMTAC’s 2021 Australian Arbitration Week event, ‘Avoiding obstacles along the pathway to enforcement’, 19 October 2021.
2. CBS v CBP [2021] SGCA 4 (‘CBS v CBP’) at [78].
3. Ibid [19].
4. Ibid [20] – [21] (emphasis added).
5. Ibid [78].
6. Ibid [52]-[79].
7. Ibid [55]-[56].
8. Ibid [57], [69], and [71].
9. International Arbitration Act (Singapore, cap 143A, 2002 rev ed).
10. CBS v CBP (n2) [61]-[62].
11. Ibid [68].
12. Ibid [71]-[74].
13. Ibid [75]-[77].
14. Ibid [78] and [79]. In subsequent paragraphs, the Court went on to deal with the further questions of whether the breach affected the Final Award and whether that breach prejudiced the Buyer’s rights in that the material which it did not get to present could reasonably have made a difference to the arbitrator. The Court answered both of these questions in the affirmative and set aside the award in full.
15. Rule 35.4 of the ACICA Rules.
16. The 2022 SCMA Rules were released on 1 December 2021 and will enter into force on 1 January 2022. New Rule 25.1 provides that “[t]he Tribunal shall decide if a hearing should be held or if the matter is to proceed on documents only, save that there shall in any event be a hearing so long as any party requests one.” The SCMA did not include express witness-gating powers as are present in some other rules (see, e.g., Rule 25.2 of the SIAC Rules (2016)).
17. CBS v CBP (n2) [78].
18. Ibid [74].
19. Ibid [78].
20. Ibid [78].
