THE PHENOMENON OF “DUE PROCESS PARANOIA” AND THE COURT’S INTERVENTION IN ARBITRATION (PART 1)

THE PHENOMENON OF “DUE PROCESS PARANOIA” AND THE COURT’S INTERVENTION IN ARBITRATION

Part 1: Perspective from the Decision of the Singapore Court - China Machine New Energy Corp v Jaguar Energy Guatemala LLC and anor [2020]

The Decision of China Machine New Energy Corp v Jaguar Energy Guatemala LLC and anor [2020]: LINK

1. The Phenomenon of “Due Process Paranoia” and the Interpretation of the Principle of “Due Process”

“Due Process Paranoia” is a term first introduced in the 2015 report by White & Case in collaboration with Queen Mary University of London. It refers to a phenomenon in international arbitration where arbitrators become overly cautious in handling certain cases for fear of the arbitral award might be annulled on the grounds that a party was not given a full opportunity to present its case.[1]

Participants in the report of White & Case and Queen Mary University of London described situations such as repeated extensions of deadlines, late admission of new evidence during the proceedings, or other disruptive behaviour by counsel being condoned, etc. that can all contribute to the arbitrators experiencing “Due Process Paranoia.”[2] The consequence of the “Due Process Paranoia” phenomenon is an increase in arbitration costs and a decrease in procedural efficiency.

Although “Due Process” plays a vital role in arbitration, a clear and accepted definition has yet to be established. The fundamental requirements of “Due Process” typically include:[3]

(i) Reasonable notice to the parties: The parties must be duly and timely informed of the procedural stages, the claims or allegations of the opposing party, as well as the time and place of hearings or arbitration meetings; and

(ii) Equal opportunity to present opinions: Each party has the right to present its case, including submitting evidence, protecting their interests, and responding to the opposing party’s claims. To ensure this, arbitrators must be qualified, independent, and impartial, guaranteeing that their decisions are not influenced by any external factors.

2. An Analysis of “Due Process” under the UNCITRAL Model Law

The principle of “Due Process” is provided in Article 18 of the UNCITRAL Model Law. Accordingly, the parties must be treated equally and given a full opportunity to present their case. Moreover, aspects relating to the principle of “Due Process” are expressly addressed in specific provisions, including Article 16.2, which requires parties to raise any objections to jurisdiction no later than the submission of the Statement of Defence; Article 23.2, which empowers the Arbitral Tribunal to reject requests for amendments to the statements of claim and defence; and Article 25.c, which authorizes the Arbitral Tribunal to render an award in Ex-Parte proceedings.

According to the UNCITRAL Working Group’s report, Article 18 of the UNCITRAL Model Law sets forth two fundamental requirements that the Arbitral Tribunal must comply with to ensure procedural justice: (i) equal treatment of the parties; and (ii) affording the parties a full opportunity to present their case. The principle of “Due Process” under Article 18 of the Model Law also applies to both evidence and arguments concerning factual and legal matters.[4]

For example, each party is afforded a reasonable opportunity to fully present its case; each party is given the opportunity to understand, examine, and rebut the opposing party’s case; if there are hearings, proper notice is provided, and the parties along with their counsel have the opportunity to participate throughout the hearings; and each party is granted a reasonable opportunity to present evidence and arguments in support of its own case.

It should be noted that Article 18 of UNCITRAL is intended to protect a party from improper and unreasonable conduct by the Arbitral Tribunal, rather than to shield a party from its own failures or strategic choices.[5] This means that if a party fails to notify or demonstrate that its rights have been violated, it will forfeit the right to invoke such violations later. To successfully argue that a party was deprived of the opportunity to present its case, it must be demonstrated that:

(a) a reasonable party participating in the proceedings as either claimant or respondent would not have foreseen a reasoning on the part of the Arbitral Tribunal of the type laid down in the award; and

(b) with adequate notice, it might have been possible to convince the Arbitral Tribunal to reach a different result.[6]

3. Perspective from the Decision of the Singapore Court - China Machine New Energy Corp v Jaguar Energy Guatemala LLC and anor [2020]

Singapore is a jurisdiction that follows the UNCITRAL Model Law. Accordingly, the provisions on “Due Process” in Singapore law bear similarities to those in the UNCITRAL Model Law.

The dispute related to the construction of a power plant in Guatemala (hereafter “Plant”) between China Machine New Energy Corp (hereafter “Contractor”) and Jaguar Energy Guatemala LLC (hereafter “Jaguar Energy”) & AEI Guatemala Jaguar Ltd (hereafter “AEI Ltd”) (collectively referred to as the “Plant Owners”). The dispute arose from two principal agreements: the EPC Contract and the Payment Guarantee Agreement. Due to the Contractor’s delay in the Plant’s schedule, Jaguar Energy issued a notice of termination of the EPC Contract. In January 2014, Jaguar Energy commenced arbitration proceedings against the Contractor under Article 20.2 of the EPC Contract: The arbitration was seated in Singapore and conducted under the ICC Rules 1998, pursuant to the expedited arbitration procedure.

Following the issuance of the Arbitral Award, the Contractor applied to set aside the Award on the basis that the Arbitral Tribunal failed to manage the proceedings effectively during the evidence-gathering stage. Specifically, these difficulties resulted in a critical expert rebuttal report prepared by the expert assessing the Contractor’s claimed entitlements being submitted late and, consequently, not properly considered by the Arbitral Tribunal. According to the Contractor, this constituted a violation of its right to be heard under Article 18 of the UNCITRAL Model Law, thereby rendering the Award set aside under Article 34(2)(a)(ii) of the Model Law and Article 24(b) of the IIA (Cap 143A, 2002 Rev Ed), on the grounds of breach of natural justice.

However, the High Court subsequently dismissed the Contractor’s application to set aside the Award. The judge rejected the Contractor’s argument that the Arbitral Tribunal’s handling of the document production process amounted to a breach of the Contractor’s right to be heard, and held that, in any event, the Contractor did not suffer sufficient prejudice to warrant setting aside the Award. The Court of Appeal likewise dismissed the Contractor’s appeal, affirming the same position.

In the case of China Machine New Energy Corp v Jaguar Energy Guatemala LLC and anor, at Paragraph 1 of the Decision of Refusing to set aside the Arbitral Award, Judge Sundaresh Menon CJ explained the principle of “Due Process”, specifically stating that[7]: “The concept of due process encompasses a basic guarantee of procedural fairness in legal proceedings. It requires that each party be given, amongst other things, appropriate notice of the proceedings and of the case it has to meet, as well as a fair opportunity to prepare and present its case before a neutral and unbiased decision-maker. These are basic procedural safeguards which are applied in order to ensure the fairness of the proceedings by which the parties’ substantive rights are disposed of. In short, due process is concerned with ensuring fair process, and this is a matter of critical importance because the fairness of the process is integral to its legitimacy in the eyes of the parties who submit themselves to it.”

A notable point of the Court of Appeal’s decision is Judge Sundaresh Menon CJ’s explanation of the concept of the “right to be heard”, along with a clear delineation of the scope and limits of this right. The “right to be heard”, as set out in Article 18 of the UNCITRAL Model Law, guarantees each party a “full opportunity” to present its case and to respond to the opposing party’s case. According to Judge Sundaresh Menon, a “full opportunity” does not equate to an unlimited right. The determination of what constitutes a “full opportunity” is a contextual question that must be assessed in light of the specific facts and circumstances of each case.

Judge Sundaresh Menon CJ clarified that the “right to present one’s case fully” does not mean allowing a party to disrupt the proceedings through tactics aimed at delay, such as submitting objections, amendments, or new evidence at the very last moment before the award is issued. The correct approach for the court is to ask whether the actions taken (or decisions not taken) by the Arbitral Tribunal fall within the range of what a reasonable and fair tribunal could have done in the circumstances.

4. “The Court must put itself in the shoes of the Tribunal”

(Paragraph 104, Decision of Refusing to set aside the Arbitral Award in the case of China Machine New Energy Corp v Jaguar Energy Guatemala LLC and anor [2020] SGCA 12)

In the case, when assessing whether there has been a breach of “Due Process”, the court must put itself in the position of the arbitral tribunal, which means that:

(i) The tribunal’s decisions can only be assessed by reference to what was known to the tribunal at the time; and

(ii) The court will accord a margin of deference to the tribunal in matters of procedure and will not intervene simply because it might have done things differently (Paragraph [104] of the Decision).[8]

Most complaints raised under the guise of procedural violations typically relate to the management of the specific arbitration proceedings, including issues such as extensions of time, the right to supplement evidence, or even the manner of presentation and disclosure of documents to the other parties. These types of matters are usually and almost always within the arbitral tribunal’s jurisdiction, which is principally responsible for ensuring the fair conduct of the proceedings.

According to Judge Sundaresh Menon’s opinion, when these decisions are subsequently reviewed by the court, the key is for the court to strike a balanced approach between two potentially conflicting interests:

First, the necessity of firmly safeguarding the parties’ rights within the procedural process;

Second, the importance of maintaining appropriate limits on the arbitral tribunal’s discretion in managing the procedural details of the case.