Data

Date:: 01-04-2014
Country:: Singapore
Number:: [2014] SGHC 220
Court:: High Court of Singapore
Parties:: Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd

Keywords

APPLICATION OF CISG AS PART OF SINGAPOREAN LAW (ART. 1(1)(B))

ARBITRAL TRIBUNAL DECISION NOT TO APPLY CISG - NOT INFRINGING PUBLIC POLICY

SELLER'S DUTY TO DELIVER CONFORMING GOODS (ART. 35 CISG)

Abstract

An Italian manufacturer and a company incorporated in Hong Kong concluded three contracts for the supply of washing machines. According to all contracts, any disputes between the parties had to be resolved by arbitration in Singapore. A dispute arose between the parties as the buyer found two of the delivered washing machines to be defective. As a result, the buyer cancelled all the contracts, and commenced arbitration before the ICC Court of Arbitration to have the price refunded and to be awarded damages.

By a final award rendered in August 2013, the sole arbitrator (hereinafter: the arbitral Tribunal) ruled in favor of the buyer. The seller then challenged the decision of the Arbitral tribunal before the High Court of Singapore, seeking the setting aside of the arbitral award on different grounds.

In order to have the final award set aside, the seller contented, inter alia, that the arbitral Tribunal's decision not to apply CISG as the governing law of the three contracts infringed against the public policy of Singapore. The High Court dismissed the claim.

In so doing, the Court first of all noted that, contrary to the seller's contention, the Arbitral Tribunal had indeed applied the CISG as part of Singaporean law, and namely its Art. 35, to solve the dispute.

Moreover, the Court observed that, even if the Arbitral Tribunal had not applied the Convention, this wouldn't rendered the setting aside of the arbitral award legitimate on the ground of public policy. To this effect, it was in fact necessary that the Tribunal’s failure to apply the CISG “would shock the conscience” or that it had “clearly injured the public good or was offensive to the ordinary reasonable and fully informed member of the public”; or that it violated Singapore’s “most basic notion of morality and justice.” Since this was not the case, the seller's claim had to be dismissed, all the more so because the arbitrators are empowered, absent a specific choice by the parties on the applicable law, to apply the rules the most appropriate in the case at hand, and the parties which consent to have their dispute solved by arbitration are not entitled to contest the determination of the Arbitral Tribunal about the governing law.

Fulltext

Introduction.

1. The plaintiff, Triulzi Cesare SRL (“Triulzi”), a company incorporated in Italy, is in the business of, inter alia, manufacturing and producing horizontal and vertical washing machines for glass sheets. The defendant, Xinyi Group (Glass) Company Limited (“Xinyi”), a company incorporated in Hong Kong, is in the business of manufacturing and selling, inter alia, float glass products, solar glass products, automobile glass products and other associated products in the People’s Republic of China.

2. Triulzi and Xinyi entered into three contracts on 17 November 2009 for Xinyi’s purchase of Triulzi’s washing machines. (…)

3. Disputes arose between the parties that led to Xinyi commencing an arbitration in the International Court of Arbitration of the International Chamber of Commerce (“ICC”) vide Case No. 18848/CYK) (“the Arbitration”). The sole arbitrator, Mr Woo Tchi Chu (“the Tribunal”), was appointed by the end of September 2012. The Arbitration was governed by the ICC Rules of Arbitration 2012 (“the ICC Rules 2012”).

4. On 12 August 2013, the Tribunal issued a final award dated 12 August 2013 (“the Award”) which was forwarded to the parties by the ICC Secretariat on 19 August 2013. The Tribunal allowed Xinyi’s claim and dismissed Triulzi’s counterclaim.

5. Triulzi filed Originating Summons No 1114 of 2013 (“OS 1114/2013”) on 18 November 2013 to set aside the Award under Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (“the Model Law”), as set out in the First Schedule to the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”), and s 24(b) of the IAA.

Gist of the underlying dispute in the Arbitration
Xinyi’s case

7. By cl 15 of each contract, upon the installation of each washing machine at Xinyi’s premises, an acceptance test would be conducted by both parties in accordance with the technical specifications. This involved an 8-hour uninterrupted test with different sizes of glass sheets. If the installed machine failed the acceptance test, Xinyi could then cancel the respective contract and Triulzi would have to refund Xinyi the purchase price. Triulzi was allowed to make modifications to the machine twice but the acceptance period must not extend beyond 70 days.

8. Xinyi’s case, as stated in the Award, was that sometime during July 2010, the first washing machine was delivered to and installed at Xinyi’s facility by Triulzi pursuant to the first contract. The machine was found to be faulty on several occasions and it underwent modifications. Despite all that, the machine still failed to meet the technical specifications stipulated in the first contract. Stains were found on the glass sheets after being washed in the machine. An acceptance test was carried out from 7 to 12 May 2011 and the machine failed the acceptance test. In or around May 2011, Xinyi cancelled the first contract by asking Triulzi to take back the machine.

9. On or around 15 February 2011, the second washing machine was delivered to and installed at Xinyi’s facility by Triulzi pursuant to the second contract. Xinyi informed Triulzi that the machine also failed to meet the technical specifications stipulated in the second contract. Xinyi cancelled the second contract on 8 June 2011.

10. On or around 5 March 2011, Xinyi paid 10% of the purchase price of the third washing machine pursuant to the third contract. In view of the defects found in the second machine, Triulzi was requested, on or around 25 April 2011, to conduct a detailed factory inspection of the third machine before delivering it to Xinyi’s facility. Triulzi did not respond to this request and did not deliver the third machine to Xinyi. Thereafter, Xinyi cancelled the third contract on or around 8 June 2011.

11. In the Arbitration, Xinyi claimed for a refund of the purchase price paid under all three contracts as well as damages.

Triulzi's Case

12. Triulzi’s Answer and Counterclaim in the Arbitration was that the first washing machine was fully operational by late December 2010 or early January 2011. Triulzi alleged that the first machine’s faulty performance was due to the dirty and dusty environment of Xinyi’s premises where it was installed and the lack of proper maintenance of the machine by Xinyi. Furthermore, the stains on the glass sheets were not caused by the first machine but from another machine which processed the glass sheets in the manufacturing process. According to Triulzi, all issues with the first machine were resolved by March 2011. Xinyi did not reject the first machine and did not ask Triulzi to take the machine back.

13. As regards the second washing machine, Triulzi’s position was that its technician could not properly install and test the second machine as Xinyi failed to provide the necessary facilities for proper testing. However, the second machine was thereafter found to be operational during the technician’s second visit. Despite the fact that the first and second washing machines were properly installed and functional, Xinyi failed to make full payment of the purchase price for both machines.

14 Triulzi also claimed that the third machine was never delivered because of Xinyi’s stated intention to reject the delivery of the machine in a letter dated 8 June 2011 to Triulzi.

15. Triulzi therefore counterclaimed for the balance of the purchase price owing under the first two contracts and specific performance of the third contract.

(…)

Issue 3: Breach of public policy
160 On Issue 3, Mr Tan submits that the Tribunal was obliged to apply as the governing law of the contracts the CISG which is an international treaty that Singapore has signed and ratified. He argues that the Award which failed to apply the CISG is in conflict with Singapore’s public policy. I proceed to deal with this final ground of setting aside raised by Triulzi.

161 During the CMC on 11 December 2012, a preliminary issue as to the applicable law to the three contracts was tabled for determination. According to the minutes of the CMC, the Tribunal heard oral submissions from both parties and decided that the governing law for all three contracts was to be Singapore law. Mr Tan argues that the Tribunal did not apply the CISG. He did not identify the relevant Articles in the CISG that ought to have been applied by the Tribunal. I do not follow Mr Tan’s point that the Tribunal did not apply CISG. First, as I understand it, there is domestic legislation in the form of the Sale of Goods (United Nations Convention) Act (Cap 283A, 2013 Rev Ed) (“International Sale of Goods Act”) giving effect to the CISG and when the Tribunal decided that the governing law was Singapore law, the Tribunal would be referring to the common law and statutes in force in Singapore, including the International Sale of Goods Act. Secondly, I observe from para [111] of the Award that the Tribunal had actually made reference to the CISG and, contrary to Mr Tan’s contention that the Tribunal did not apply the CISG, the Tribunal applied Art 35 of the CISG as to the requisite burden of proof. Even if there were other relevant Articles of the CISG that should have been applied, Mr Tan did not identify them. In any event, even if the Tribunal did not consider other Articles of the CISG when it ought to, it has simply made an error of law and an error of law does not engage the public policy ground in Art 34(2)(b)(ii) of the Model Law (see PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 (“PT Asuransi”) at [57]).

162. I move on to Triulzi’s other argument that the failure of the Tribunal to apply the CISG violates Singapore’s policy of upholding international obligations (since it has ratified the CISG) and should therefore be set aside pursuant to Art 34(2)(b)(ii) of the Model Law. Art 34(2)(b)(ii) allows the court to set aside the award if “the award is in conflict with the public policy” of Singapore. In PT Asuransi, the Court of Appeal explained the operation of this ground of setting aside at [59]:
Although the concept of public policy of the State is not defined in the Act or the Model Law, the general consensus of judicial and expert opinion is that public policy under the Act encompasses a narrow scope. In our view, it should only operate in instances where the upholding of an arbitral award would “shock the conscience” (see Downer Connect ([58] supra) at [136]), or is “clearly injurious to the public good or ... wholly offensive to the ordinary reasonable and fully informed member of the public” (see Deutsche Schachbau v Shell International Petroleum Co Ltd [1987] 2 Lloyds’ Rep 246 at 254, per Sir John Donaldson MR), or where it violates the forum's most basic notion of morality and justice: see Parsons & Whittemore Overseas Co Inc v Societe Generale de L’Industrie du Papier (RAKTA) 508 F 2d 969 (2nd Cir, 1974) at 974. This would be consistent with the concept of public policy that can be ascertained from the preparatory materials to the Model Law. As was highlighted in the Commission Report (A/40/17), at para 297 (referred to in A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentaryby Howard M Holtzmann and Joseph E Neuhaus (Kluwer, 1989) at p 914):
In discussing the term “public policy”, it was understood that it was not equivalent to the political stance or international policies of a State but comprised the fundamental notions and principles of justice ... It was understood that the term “public policy”, which was used in the 1958 New York Convention and many other treaties, covered fundamental principles of law and justice in substantive as well as procedural respects. Thus, instances such as corruption, bribery or fraud and similar serious cases would constitute a ground for setting aside. [emphasis added]
It cannot be said that the Tribunal’s failure to apply the CISG “would shock the conscience”. It is also neither “clearly injurious to the public good or ... wholly offensive to the ordinary reasonable and fully informed member of the public” nor does it violate Singapore’s “most basic notion of morality and justice.”

163. Furthermore, what Triulzi is essentially saying is that upholding the Award amounts to a breach of Singapore’s international obligations and this has to fall within the domain of Singapore’s public policy in the wide sense. But this is contrary to the view of the Court of Appeal in PT Asuransi that “public policy” in Art 34(2)(b)(ii) of the Model Law refers to Singapore’s public policy in the narrow sense. Singapore has honoured its obligations as a signatory to the CISG by passing domestic legislation giving legal effect to the CISG. It is not surprising that Mr Tan cannot point to any legal basis that engages Singapore’s international public policy to require this particular Tribunal or other arbitral tribunals, private institutions that are not bound by the CISG, to apply the CISG. Arbitral tribunals are first and foremost bound by the agreement of the parties which includes the agreed institutional rules. In this case, Art 21(1) of the ICC Rules 2012 provides that:
Article 21: Applicable Rules of Law
(1) The parties shall be free to agree upon the rules of law to be applied by the arbitral tribunal to the merits of the dispute. In the absence of any such agreement, the arbitral tribunal shall apply the rules of law which it determines to be appropriate. [emphasis added]

164. Given that there is no choice of law agreement in any of the three contracts, it is therefore clearly within the Tribunal’s powers, granted to it by mutual consent of the parties, to determine Singapore law to be the governing law of the contract. There is no strict obligation on the Tribunal to apply the CISG and it is entitled to prefer another rule of law which it “determines to be appropriate”. Triulzi, by agreeing to apply the ICC Rules, also agreed to have its dispute resolved in accordance with this rule of law determined by the Tribunal. It cannot complain about the rule of law chosen by the Tribunal even if it disagrees with the Tribunal’s choice since it has agreed to be bound by the Tribunal’s choice.

165 For these reasons, Triulzi’s application to set aside the award under Art 34(2)(b)(ii) also fails.}}

Source

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