CZO v CZP

Facts

CZP develops table-top digital devices used in restaurants for ordering, payment and games. Under a Master Supply Agreement made in October 2015 and governed by California law, CZO designed and manufactured the devices for it. The agreed ingress specification read "IP X2 rating" followed by a bracketed phrase requiring the device to allow liquid to enter and leave without causing a functional defect. An IP X2 rating covers only vertically falling drops of water. CZO delivered over 180,000 devices. From 2020 many devices failed, and CZP said liquid ingress was the cause; CZO said the cause was customers spraying cleaning fluid on the devices against its recommended wiping method.

In a Singapore International Arbitration Centre arbitration, the sole arbitrator construed the specification as requiring the devices to cope with liquids of a kind and quantity reasonably expected in a restaurant, found CZO in breach, and on 28 June 2022 awarded CZP US$10.68m in damages for loss up to March 2022, plus costs, while rejecting its claim for future loss. CZO applied in Originating Application No 754 of 2022 to set aside or remit the award for breach of natural justice under s 24(b) of the International Arbitration Act 1994 and Art 34(2)(a)(ii) of the Model Law.

Issues

1. Whether the tribunal failed to apply its mind to CZO's argument that the specification covered only ingress by vertically falling drops.
2. Whether the tribunal failed to consider CZO's evidence of the negotiations and of the devices passing IP X2 tests.
3. Whether the tribunal failed to consider CZO's evidence and submissions on the three heads of damages.
4. Whether the award should be remitted to the tribunal under Art 34(4) of the Model Law.

Holding

The High Court dismissed CZO's application to set aside or remit the award, and fixed costs payable to CZP at $20,000 excluding reasonable disbursements. CZO has appealed.

Reasoning

The court stressed that parties have no right to a correct award, only a fair process, and that an inference that a tribunal failed to consider an issue must be clear and virtually inescapable, citing AKN v ALC [2015] 3 SLR 488 and Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86.

Although the award made no express finding on the manner of ingress, the court held by elimination that the tribunal had impliedly applied its reasonableness test to it. The tribunal had used a concentrated high-pressure spray as an example of a commercially absurd reading, contrasting it with ordinary cleaning sprays, and had rejected the IP X2 words as the constraint. The court also noted that on the evidence only the kind and quantity of liquid caused the failures.

The negotiation and test evidence went to subjective intention, which the tribunal had held irrelevant under California law, so its silence on that evidence was unsurprising.

On damages, CZO had called no expert of its own. The tribunal questioned CZP's expert closely, rejected his evidence on future loss, cut the gaming revenue claim to US$155,648.87, and dealt with shipping costs through its finding of an Epidemic Condition. CZO's remaining complaints were at most errors of fact, which are not breaches of natural justice. With no ground for setting aside established, the costs award stood and the power to remit did not arise.

From the judgment