Paragraphs 35 to 39 are denied as the 'Make-Whole Amount' is not payable if termination is contemplated pursuant to Clause 16.3, specifically due to Clause 16.3.1 nor any interest thereof as the Services Agreement has been validly terminated. The 1st Respondent [ie, the first appellant] asserts that the payment of USD2 million for the services rendered by the Claimant is manifestly excessive and does not commensurate with the services provided, if any, by the Claimant. Further or in the alternative the 'Make-Whole Amount' is a 'penalty clause' and is unenforceable. The claim for interest under the Late Payment of Commercial Debts (Interest) Act 1998 is not applicable in law or is a 'penalty clause', thus unenforceable and they both are not genuine pre-estimates of the damages or loss.
2. [first appellant's] APPLICATION TO AMEND THE [D&CC] The Tribunal has received the two written submissions on this Application made by each of the [respondent] and [first appellant] last week, and is further considering these submissions at this time. In the meantime, separate and apart from the specific question of amendment of the language of the pleadings, I remind the Parties of the Tribunal's prior ruling, issued orally at the 13 May 2020 telephonic session, which (i) denied the [first appellant's] application to submit evidence on English law by way of an expert report from Dr. David McIlroy, but permitted such English law evidence to be presented by way of counsel or co-counsel submissions; and (ii) granted the [first appellant's] application for leave to call Mr. Oliver Spence as an expert witness.
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… As I said the other day, I see this as an issue of a formal request to amend the pleadings that came very late. I heard you, Mr Chia, on the prejudice caused by a request to amend the pleadings at such a late date. I think those are valid concerns that you raised with respect to many of the issues.
At the same time, as I mentioned the other day, I have ruled that certain documents, that a certain expert report, can be submitted and that you are able, for [the respondent], to object to that evidence. I also already ruled that what was proposed for the English law expert report could be addressed by way of counsel submissions.
Now, there is a certain balancing that needs to go on here because I am not granting the [first appellant] the ability to raise entirely new defences and their claims at this late stage in the arbitration. On the other hand, I am not applying the very technical pleading standard that one would apply in a court. So what I have asked the [respondent] to do in my guidance that I provided on the first day of the evidentiary hearing is to respond to those issues that when reviewing the defence and counterclaim and the submissions that followed it, one needs a reasonable notice for issues that are going to be presented by the [first appellant] and I will give you an example of that.
There is a request to amend the pleadings to allow for a claim of duress. While there is no formal claim of duress put in the pleadings, I do think there are some allegations in the defence and counterclaim that suggests that kind of argument. So that's an example of where I would expect the claimant to address those kinds of allegations.
Similarly, you mentioned, Mr Chia, that there are issues of industry standards that have been presented and a claim that those industry standards have been breached. That's something that I don't see in the defence or the counterclaim and on that issue, there is no reasonable notice for you and no reasonable amount of time for you to bring in your own expert. However, you do have clients who have expertise in this area and can speak to these issues to some extent.
You also can address the claims of breach of contract and to the extent they relate to industry standards, we heard a bit of testimony yesterday as to customs from Mr Viktor.
I see there are some mixed issues here and I think that a standard of reasonableness that's appropriate for arbitration has to be applied, but I'm not going to allow an amendment for entirely new claims that are found nowhere in the defence and nowhere in the counterclaim at this late stage.
It is difficult to draw a very clear line on all of these issues. That is why I am offering you both guidance and asking you to apply a standard of review of the pleadings and the rulings that followed, and where there is reasonable notice of an argument or an allegation, I would expect the [respondent] to address it. But, Mr Sathinathan, I am not granting the application to formally amend the defence and counterclaim.
Tribunal: When we received the expert application from the [first appellant], that was in early May; May 6 I believe. And in that application the issue of penalties is raised as an issue for Dr David to address. And at that time I agreed with you that it would be better to have his submissions made through counsel rather than as expert, and we agreed that the issues, as they were presented, could be submitted that way.
Now, for him to do that as counsel, the way that the schedule was agreed to by both parties, was that you would make your fulsome legal submissions after the evidentiary hearing. This was something that both parties proposed to me and I accepted it.
So as of that time, the issue of penalty was on the table, it was in play. And I would expect that, as I said during the evidentiary hearing, things that you could reasonably anticipate from not only the pleadings but from my rulings, which I made very clear stand, notwithstanding the issue of the pleadings; this is an arbitration, an arbitration is not as formal in terms of pleadings as court proceedings are. And so I said remember that the issues I've already ruled on come in irrespective of the pleadings, and this was an issue of the English law that we agreed on during the 13 May.
So as of that time, the [respondent] was aware that this was an argument to be made and I would expect that it would be addressed and a reasonable showing would be made. As I said, your witnesses, your fact witnesses were there and could offer whatever their own testimony was on this issue.
So as I said, it's a balancing. Maybe there's some degree of evidence that there was not time to introduce and you could make a persuasive argument to me about that. But there are also some things in the record, legal arguments and some testimony, that could be introduced. And I would expect, as I said during the hearing, that that would be done.
That's why I emphasised at the end of the hearing I really want the English law issues to be addressed in the closing submission. That's why I'm continuing to ask questions about them now because these are issues that are in this case and that I need to hear both parties on.
Tribunal: So is it [respondent's] position then that in the time from May 6 until the hearing, which started on 27 May, it was not sufficient time to introduce any even testimony on these issues of penalty, including the interest issue? Is that your position?
Mr Chia: Mdm Arbitrator, the [respondent's] position is that as of 6 May, we did not know what you were going to rule in respect of the application.
Tribunal: You don't know what I was going to rule but you knew it was an issue being introduced by the [first appellant].
Mr Chia: Which you subsequently disallowed on pleading.
Tribunal No, I disallowed it on expert submission, I permitted it on counsel's submission and I ruled that I was not going to take a very strict construction of pleadings because this is an arbitration, and I said that my ruling on the formal amendment of the pleadings was subject to my former rulings on what comes in remaining in place, meaning the rulings on the English law issues, the rulings on the documents and the ruling on the (loss of audio).
… the Court of Appeal was not, at  of [Kempinski], giving an unrestrained licence to introduce new claims. It was addressing new and unpleaded facts or changes of an 'ancillary' nature (in that case, new facts or changes potentially affecting an existing claim), which were furthermore 'known to all the parties' in that case (being facts or changes which were in fact addressed expressly and without any jurisdictional objection by both parties with the tribunal). Pleadings generally serve the valuable function of defining the parameters of the issues which the parties have to address and, in so doing, precluding unexpected surprises which a party does not have a fair opportunity to address. The challenge to the award in [Kempinski] was not based on any complaint of that nature. It was, in contrast and as will appear, of the most formal and unmeritorious nature. The conduct of parties to litigation before an arbitrator or judge may and does on occasion widen the scope of the issues falling for determination in a way which deprives a pleading objection of any force. [Kempinski] was such a case, the present is not.
In respect of the interest amounts, Mdm Arbitrator, we will also argue it is not a penalty. I can't show you because we don't have the opportunity to show, to gather all of the information to show you what both industry standards are, what the legitimate interest that we have to protect is in respect of our relationship with security consultants, but the fact is it is there. It has been there from the first draft. It wasn't something that was snuck in. It was there and reviewed by the [first appellant] who had their own in-house legal counsel, and are not unsophisticated[d], and they accepted this as a legitimate risk allocation.
Mr Chia: … So that's the law on penalties post Cavendish. What I wanted you, Mdm Arbitrator, to take away from that is that in addition to the very simplistic formulation of whether it is a genuine pre-estimate of loss and it's so out of proportion, one also has to understand factual context about why the clause was implemented, whether there are commercial interests that need to be protected on the part of the party relying on that particular clause, and in a lot of instances there is also a looking at the finances of that particular party.
How is that applicable to our situation, Mdm Arbitrator? You know that the penalty issue was not pleaded, and from that you have also heard our complaints that we didn't address any of these issues in the witness statements about what is the commercial justification et cetera. In fact, I flagged it out on the first day of the hearing, to say that if you allow this to happen, in a way there will be some prejudice to us because we couldn't explain this, we didn't show what the subcontractor's rates are et cetera.
Notwithstanding I said all of these things, it is important then to see what happens at the evidentiary hearing, which is that counsel for the [first appellant] did not cross-examine or put the case to the [respondent's] representatives that the clause is a penalty. And given that it is the burden of, number one, the [first appellant] to plead a penalty to put it into issue, and number two, for the [first appellant] to show that it's a penalty, whether expressly or implicitly, that omission is important.
And that omission is why, Mdm Arbitrator, there is no evidence right now before you of what is the commercial back-end relationship that Convexity has with its subcontractors, what are the payment terms with those subcontractors, whether there are certain interest rates for late payment with those subcontractors which are governed by different laws, not necessarily English law, and therefore may have varied interest rates. That is all not before you. It was not put in issue at pleading, it was not tested during the evidentiary hearing. That, therefore, comes to my submission on this point.
You can see that I think it is undisputed; for a ruling on penalty one must look also at the factual circumstances of the case. The burden of pleading and putting those in issue, as we have shown you in our submissions, are under Singapore law which is the lex [s]itus, is on the [first appellant] alleging penalty. In fact, I also understand it's under English law. The reason is because you must give notice of it.
When the [first appellant] does not raise the penalty point, does not cross-examine the [respondent's] witnesses on the penalty point, even though I had expressly said it in the first day of the hearing what it should be asked in a way. It is not right, nor fair, to allow the [first appellant] then to allege that there is no proof and no evidence led at all about any of the circumstances and the commercial circumstances to justify the imposition of either the make-whole amount or the interest when it comes to late payment.
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