June 29 2004
Disputes between a contractor, United Engineers (Singapore) Pte Ltd, and United's subcontractor, Northern Elevator Manufacturing Sdn Bhd, were referred to arbitration in September 1998. United succeeded and was awarded "costs of rectification". Damages were assessed at a subsequent hearing and an award was made of the costs of rectification at over S$320,000.
The arbitration proceedings were governed by the old Arbitration Act (Cap 10, 1985 Rev Ed). United filed a motion seeking leave under Section 28(1) of the act to appeal against the damages award on the basis that the arbitrator had erred in law by failing to consider the compensatory principle in the assessment of damages. At first instance, United was granted leave to appeal.
On appeal, the Court of Appeal elaborated on the distinction between a question of law and a mere error of law:
"A 'question of law' must necessarily be a finding of law which the parties dispute, that requires the guidance of the court to resolve. When an arbitrator does not apply a principle of law correctly, that failure is a mere 'error of law' (but more explicitly, an erroneous application of law) which does not entitle an aggrieved party to appeal."
Since the award showed that the arbitrator did not dispute or ignore the applicability of the compensatory principle in formulating the award, but had in fact based his assessment of damages on that principle, the Court of Appeal held that no question of law was raised. United was effectively asking the court to review the validity of the factors that the arbitrator had taken into account when assessing the quantum of damages, an issue relating to the application of law rather than the question of law.
The court further held, in passing, that the question involved a one-off point which had no interest beyond that of the parties themselves. Under such circumstances, the court could not review the award unless the arbitrator was "obviously wrong" and this was not shown. The arbitrator had considered the arguments on both sides and reviewed the quotations tendered by both parties in coming to his conclusions. Therefore, the court had no jurisdiction to review the award. Leave to appeal was not granted.
The court, in distinguishing between a question of law and an erroneous application of law, and requiring the question of law to be of some public importance or alternatively manifestly wrong, has reinforced the principle of finality of arbitration and the overriding policy of minimal court intervention in arbitration. Section 28 was repealed and re-enacted in 1980 to limit the right of appeal to the High Court on points of law in order to ensure finality of the award, and that successful parties could reap the benefits of the award with minimal delay. The previous procedure could be manipulated by undeserving parties in order to delay meeting their liabilities.
Recourse to appeal against an arbitration award is now governed by Section 49 of the new Arbitration Act 2001 (Chapter 10). The old act still applies to arbitrations commenced by a notice of arbitration given before March 1 2002, and the approach taken by the Court of Appeal in Northern Elevator gives clear-cut guidance in deciding whether leave should be granted to appeal against an arbitration award. Since Section 49 of the new Arbitration Act incorporates some of the concepts applied under the old Section 28, such as 'question of law', 'public importance', 'obviously wrong' and substantiality, cases decided under Section 28 may still be of useful guidance.
For further information on this topic please contact Sophia Leong Khum Way at WongPartnership by telephone (+65 6416 8000) or by fax (+65 6532 5722) or by email (firstname.lastname@example.org).
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