Case Summaries

CKG v CKF (Case Summary)

18 June 2021

Case Summary

SIC/OS 3/2021

CKG v CKH [2021] SGHC(I) 5


Decision of the Singapore International Commercial Court (delivered by Jeremy Lionel Cooke IJ):

Outcome: SICC allowed the application to partially set aside an SIAC arbitral award, but suspended the setting aside for a period of time to be determined by the court, and the award is to be remitted to the original tribunal to eliminate the grounds for setting aside.


1. The plaintiff CKG is the Respondent in the underlying arbitration (“the Arbitration”), and sought to set aside paragraphs 491–492, and 519–524, together with the dispositive section (“the Dispositive Section”) of an arbitral award dated 21 August 2020 (“the Award”). The defendant CKH is the Claimant in the Arbitration. In the Award, the arbitral tribunal (“the Tribunal”) found the plaintiff liable to the defendant for damages amounting to US$8,512,789.88 and IDR15,126,969,785, while the defendant was found liable in damages to the plaintiff for a lesser sum of IDR29,918,809,545.86.

2. The plaintiff made the setting-aside application (“the Application”) on the basis that the Tribunal failed to consider two issues: the Principal Debt Issue, and the Freight Interest Issue. The Application proceeded on two grounds:

The material facts

a) The Tribunal failed to consider issues submitted to it for determination infra petita, under Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Arbitration (“the Model Law”), and/or went against the agreed positions of the parties; and

b) Further or alternatively, the Tribunal’s failure to consider these issues submitted to it constituted a breach of natural justice in connection with making the Award, as per s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”).

3. The Arbitration concerned an agreement for the defendant to sell its timber concession interests in Indonesia to the plaintiff, in exchange for US$8m and a three-year supply of round logs for the defendant’s use. The parties concluded a Master Agreement on 18 September 2009, which includes, inter alia, the Round Logs Supply Memorandum of Agreement (“the MOA”) and a Reconciliation and Settlement Deed on 18 December 2009 (“the Reconciliation Deed”). The MOA provided that the plaintiff would supply round logs to the defendant on a Free-on-Board basis, while the defendant undertook to bear all the local, national or other taxes, including the Provisi Sumber Daya Hutan (“PSDH”) and Dana Reboisasai (“DR”). The Reconciliation Deed compromises various sums owed by parties to each other in relation to the Barter Trade Logs and Infrastructure Logs, which are distinct from the round logs under the MOA.

4. The centerpiece of the dispute concerns one signed and agreed Meeting Minutes of 8 April 2011 (“the 8 April Meeting Minutes”) entered into subsequent to the MOA. The 8 April Meeting Minutes is accepted by parties as an enforceable agreement. It sets out the defendant’s obligation to pay a sum of IDR75bn in five instalments for its outstanding debt in relation to PSDH/DR and freight, future shipment’s PSDH/DR and freight and other outstanding debt; failing which, the 2% net interest rate applies. The plaintiff’s case in the Arbitration was that it could exercise a contractual set-off mechanism in Clause 4 of the 8 April Meeting Minutes to reduce its round log volume obligations owed to the defendant under the MOA, based on the amount of outstanding debt owed by the defendant. This was referred to as the “Debt-to-Log Conversion”.

5. The Tribunal found that there were breaches on both sides. There was a shortfall in the supply of logs by the plaintiff, and a failure on the part of the defendant to make the agreed payments. However, the plaintiff was not entitled to rely on the Debt-to-Log Conversion in the 8 April Meeting Minutes to reduce its log volume commitments, as it had not attempted to settle the dispute amicably as per Clause 4. The outstanding debt is the debt owed by the defendant to the plaintiff in relation to freight and taxes for logs already supplied (“the Principal Debt”), amounting to approximately IDR50bn; that the Principal Debt was owed to the plaintiff was never disputed by the defendant. The Tribunal did not refer to the Principal Debt again.

6. Another issue in the present Application concerns the Freight Interest Issue. This is in relation to the plaintiff’s successful counterclaims for the freight charges incurred after 2011 for the delivery of logs, and a netting-off balance under the Reconciliation Deed. The plaintiff claimed for a compound interest of 2% per month under Clause 3 of the 8 April Meeting Minutes, and a simple interest of 5.33% per annum in the alternative. The Tribunal stated at paragraph 511 that it did not find it appropriate to apply the Clause 3 rate for the other two successful counterclaims, and instead applied the same rate as used for the defendant’s claims. The same rate was applied for the plaintiff’s counterclaim on the freight charges, but no reasoning was given.

7. The plaintiff applied for an additional award pursuant to Rule 29.3 of the SIAC Rules 2013 (“the Rules”) to address the Principal Debt Issue and the Freight Interest Issue. Thereafter, the Tribunal issued its Decision on the Additional Award Application, denying the request. The Tribunal found that it had no jurisdiction to address the Principal Debt issue, as the plaintiff made no “claim” for it in the Arbitration. But even if the plaintiff did, there was no sufficient evidence that the plaintiff made these payments. In relation to the Freight Interest Issue, the Tribunal found that this issue had been dealt with in paragraph 512 of the Award, and thus the plaintiff failed to justify any additional award of interest.

The Court’s grounds of decision

Setting Aside

8. The Tribunal failed to deal with the Principal Debt Issue, despite that this was a live issue between parties which could either affect the plaintiff’s liability or the quantum of damages. Whether the Principal Debt Issue was pleaded is not conclusive when looking at the Arbitration as a whole (at [38]–[45]). It is clear and undisputed that the Principal Debt was owed by the defendant; both parties’ experts acknowledged that at least US$4.2m should be taken into account as the outstanding debt owed by the defendant.

9. While the Tribunal found that the plaintiff was not entitled to exercise the Debt-to-Log Conversion to set off its obligation to supply logs, it was clear that the Principal Debt remained due and owing to the plaintiff. It is self-evident that if the accrued debts could not be used as a set off against the plaintiff’s contractual obligations to deliver logs, they are still owing, with interest running and are still to be taken into account in awarding damages (at [52], [55]). The Tribunal’s failure to take this issue into account caused substantial prejudice to the plaintiff as the Award failed to deal with a significant issue which could affect the sums owing between the parties, and the costs of the Arbitration (at [59]–[60]). The Tribunal’s failure to deal with the Principal Debt Issue also amounted to a breach of natural justice. Hence, setting aside under both Article 34(2)(a)(iii) of the Model Law read with s 24(b) of the IAA was the prima facie remedy (at [61]). Hence, relevant paragraphs of the Award and the Dispositive Section are set aside (at [76])

10. In relation to the Freight Interest Issue, the Tribunal has dealt with the issue in paragraphs 512–512 of the Award, regardless of whether it was wrong and even if no reason was given. The plaintiff’s Application to set aside the part of the Award dealing with the Freight Interest Issue was denied (at [63]–[64]).]

Suspension of setting aside proceedings

11. As per Article 34(4) of the Model Law, the court exercises the discretion to suspend the setting aside proceedings for a period of time to be determined by the court, so as to allow the Tribunal sufficient time needed to determine the Principal Debt Issue (at [71], [77]).

12. The Award is to be remitted to the original Tribunal, which should be given the opportunity to put right the breach of natural justice, and decide the matter it had previously overlooked in an open-minded manner (at [68]–[69]). Setting aside parts of the Award and having it determined by a new tribunal would create difficulties, as the newly constituted tribunal would not only need to decide the Principal Debt Issue, but also the issue of costs which involve the consideration of the entire Arbitration. This would not be wise unless the existing Tribunal cannot do justice between the parties, but the original Tribunal is able to and should be allowed to determine the Principal Debt Issue and the consequent effect on the Award as a whole (at [70]).

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in  square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.