Vietnam Oil and Gas Group v Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) and another matter [2024] SGHC 244

Sushant Shukla

Case Details

Citation: [2024] SGHC 244
Court: General Division of the High Court of the Republic of Singapore
Decision Date: 24 September 2024
Coram: Chua Lee Ming J
Case Number: Originating Application No 346 of 2024; Originating Application No 141 of 2024; Summons No 988 of 2024
Hearing Date(s): 19, 23 and 31 July 2024
Claimants / Plaintiffs: Vietnam Oil and Gas Group (PVN)
Respondent / Defendant: Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) (PM)
Counsel for Claimants: Dr Colin Ong KC (Eldan Law LLP) (instructed); Thio Shen Yi SC and Kevin Elbert (TSMP Law Corporation)
Counsel for Respondent: Kronenburg Edmund Jerome, Sim Wei Min Stephanie and Glenn Ang (Braddell Brothers LLP)
Practice Areas: International arbitration; Setting aside of arbitral awards; Remission; Natural justice

The decision in Vietnam Oil and Gas Group v Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) [2024] SGHC 244 serves as a critical reminder of the boundaries governing an arbitral tribunal’s power to develop its own legal theories. The dispute arose from the termination of an Engineering, Procurement, and Construction (EPC) contract following the imposition of United States sanctions on the contractor. While the arbitral tribunal (the "Tribunal") initially found in favor of the contractor, the High Court of Singapore intervened, finding a clear breach of the rules of natural justice under s 24(b) of the International Arbitration Act 1994 (IAA) and Art 34(2)(a)(ii) of the Model Law.

The core of the controversy lay in the Tribunal’s "chain of reasoning" regarding the interplay between two successive termination notices. The Tribunal had concluded that a valid second notice of termination "overrides and supersedes" an earlier ineffective notice, a theory that the High Court determined was never advanced by either party nor put to them for submissions. This "one shot" theory, as the Tribunal described it, was found to be a departure from the pleaded cases of both the Vietnam Oil and Gas Group ("PVN") and Joint Stock Company Power Machines ("PM").

The High Court’s judgment is particularly significant for its application of the "fair hearing rule." It reinforces the principle that while tribunals are not strictly bound by the parties' precise formulations, they cannot adopt a reasoning that lacks a sufficient nexus to the arguments presented. The court emphasized that a tribunal must provide parties with a reasonable opportunity to be heard on any novel approach that departs significantly from the established battle lines of the arbitration.

Ultimately, rather than setting aside the entire award, the court exercised its discretion to remit the specific issue of liability back to the Tribunal. This procedural choice highlights the Singapore court's pro-arbitration stance, seeking to cure defects in the arbitral process where possible rather than annihilating the entire proceedings. The court also stayed the enforcement of the Final Award pending the outcome of the remission, balancing the interests of finality with the requirements of procedural fairness.

Timeline of Events

January 2015: The Project, involving the construction of a thermal power plant in Vietnam, commences under the EPC Contract between PVN and the Consortium led by PM.
26 January 2018: The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) places PM on the United States Sanctions list, complicating project performance and subcontracting.
5 February 2018: PM notifies PVN that the OFAC sanctions constitute a force majeure event under the EPC Contract.
28 November 2018: PM issues a notice to PVN expressing its intention to terminate the EPC Contract on the grounds of force majeure.
10 January 2019: PM demands payment for Outstanding Payment Applications, warning of termination for non-payment if the demand is not met.
28 January 2019: PM issues the "First Notice of Termination" based on force majeure under Clause 19.6 of the Conditions.
8 February 2019: PM issues the "Second Notice of Termination" based on PVN’s alleged default in payment under Clause 16.2(b) of the Conditions.
18 February 2019: The date the First Notice of Termination was intended to take effect, according to its terms.
23 August 2019: PM commences arbitration against PVN under the SIAC Rules (6th Edition, 1 August 2016).
26 July 2021: The Tribunal issues a Partial Award on Jurisdiction and Liability.
22 November 2022: The Tribunal issues the Final Award, awarding PM substantial sums including USD 91,890,047.34 for outstanding payments.
14 August 2024: PVN files Originating Application No 346 of 2024 to set aside parts of the Final Award.
24 September 2024: The High Court delivers its judgment, ordering remission of the liability finding and staying enforcement.

What Were the Facts of This Case?

The dispute centered on a large-scale infrastructure project: a thermal power plant located in Vietnam. The owner of the project was the Vietnam Oil and Gas Group ("PVN"), a state-owned entity. The construction was undertaken by a consortium led by Joint Stock Company (Power Machines – ZTL, LMZ, Electrosila Energomachexport) ("PM"). The parties' relationship was governed by an Engineering, Procurement, and Construction contract (the "EPC Contract"), which incorporated various contractual documents, including the "Conditions of Contract" (the "Conditions"). Crucially, Clause 1.4 of the Conditions stipulated that the EPC Contract was governed by the law of the Socialist Republic of Vietnam.

The project proceeded until early 2018, when external geopolitical factors intervened. On 26 January 2018, the United States Department of the Treasury’s Office of Foreign Assets Control ("OFAC") placed PM on its sanctions list. This designation had immediate and severe practical consequences: PM’s subcontractors suspended their obligations, and PM faced significant hurdles in receiving payments and procuring necessary materials. PM contended that these sanctions constituted a "Force Majeure" event under Clause 19 of the Conditions, which defined Force Majeure as an exceptional event beyond a party's control that could not have been reasonably provided against.

In the months following the sanctions, PM and PVN engaged in a series of communications regarding the viability of the project. PM eventually moved toward termination. On 28 January 2019, PM issued the "First Notice of Termination," asserting a right to terminate under Clause 19.6 of the Conditions due to the prolonged Force Majeure event. This notice specified an effective termination date of 18 February 2019. However, shortly thereafter, on 8 February 2019, PM issued a "Second Notice of Termination." This second notice was based on a different contractual ground: PVN’s alleged failure to pay amounts due under "Outstanding Payment Applications" pursuant to Clause 16.2(b) of the Conditions.

The arbitration that followed was complex. PM sought declarations that the contract had been validly terminated and claimed damages exceeding USD 300 million. PVN counterclaimed, arguing that PM’s termination was wrongful and that PM was in breach of its obligations. A key factual and legal battleground was the status of the two termination notices. PM argued in the arbitration that the First Notice was valid, but if it were not, the Second Notice was a valid alternative. PVN argued that neither notice was effective: the First Notice failed because the sanctions did not meet the contractual definition of Force Majeure, and the Second Notice failed because PVN was not in default of its payment obligations.

The Tribunal, comprising Mr. Ilya Nikiforov, Mr. David Bateson, and Professor Douglas Jones AO, faced the task of reconciling these notices under Vietnamese law. In its Final Award, the Tribunal reached a surprising conclusion. It found that the First Notice of Termination was ineffective under Clause 19.6 because the sanctions did not constitute Force Majeure. However, it then held that under Vietnamese law, even an ineffective notice could terminate a contract, albeit wrongfully. More controversially, the Tribunal determined that because the Second Notice was issued before the First Notice took effect on 18 February 2019, the Second Notice "overrode and superseded" the First Notice. This finding allowed the Tribunal to treat the termination as being based on the Second Notice (non-payment) rather than the First Notice (Force Majeure), which had significant implications for the calculation of damages and the parties' respective liabilities.

What Were the Key Legal Issues?

The primary legal issues before the High Court involved the standards for setting aside an arbitral award based on procedural unfairness. The court had to determine:

Breach of Natural Justice (Liability): Whether the Tribunal breached the fair hearing rule by adopting the "overriding" theory in paragraph 548 of the Final Award without giving the parties an opportunity to address it. This involved analyzing whether the reasoning was part of the "chain of reasoning" the parties could have anticipated.
Nexus to Arguments: Whether the Tribunal’s finding that the Second Notice superseded the First Notice had a sufficient nexus to the parties’ pleaded cases or whether it was a "frolic of its own."
Breach of Natural Justice (Quantum): Whether the Tribunal’s determination of the outstanding payment amount (USD 91,890,047.34) constituted a breach of natural justice, specifically whether the Tribunal failed to consider PVN’s evidence or arguments regarding the calculation of these sums.
Remedy (Setting Aside vs. Remission): If a breach of natural justice was established, whether the appropriate course of action was to set aside the relevant portions of the award or to remit the matter to the Tribunal for reconsideration under s 31(4) of the International Arbitration Act 1994.

How Did the Court Analyse the Issues?

The court’s analysis began with the established principles of natural justice in Singapore arbitration law, primarily relying on Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 and BZW another v BZV [2022] 1 SLR 1080. Justice Chua Lee Ming reiterated that the "twin pillars" of natural justice are the rule against bias and the fair hearing rule. To establish a breach of the fair hearing rule, a party must show that the tribunal’s chain of reasoning was one which the parties had no reasonable notice of and which lacked a sufficient nexus to the parties’ arguments.

The Liability Finding and the "Overriding" Theory

The court focused intensely on paragraph 548 of the Final Award, where the Tribunal stated:

"In the Tribunal’s opinion, a valid Second Notice of Termination issued while the contract remains on foot overrides and supersedes the ineffective First Notice of Termination. By issuing a Second Notice of Termination prior to the First Notice taking effect, [PM] must be taken to have intended the Second Notice to replace or, at the very least, supplement the First Notice." (at [30])

The court examined the parties' actual cases. PM’s case was that the First Notice was valid, and the Second Notice was an alternative ground for termination. PVN’s case was that both notices were invalid. Neither party had argued that the Second Notice "overrode" or "superseded" the First. The court noted that the Tribunal’s theory was not just a variation of the parties' arguments but a fundamental departure. The Tribunal had essentially created a rule of law—the "one shot" theory—suggesting that a party could withdraw or amend a termination attempt by issuing a subsequent notice before the first became effective.

Justice Chua Lee Ming found that the Tribunal had failed to give the parties an opportunity to be heard on this specific approach. He observed that while a tribunal is not required to mirror the parties' submissions, it cannot adopt a reasoning that is "out of left field." The court held:

"Whilst it was open to the Tribunal to depart from both PM’s and PVN’s cases, the Tribunal had to give the parties the opportunity to be heard on the approach that it was considering. The Tribunal did not do so and thus breached s 24(b) IAA and Art 34(2)(a)(ii) of the Model Law." (at [44])

The Quantum Finding

In contrast, the court rejected PVN’s challenge to the Tribunal’s findings on the outstanding payment amounts. PVN argued that the Tribunal had ignored its evidence and failed to explain why it preferred PM’s figures (adjusted to USD 91,890,047.34) over PVN’s calculations. The court found that the Tribunal had indeed considered the evidence, including the testimony of various witnesses and the "Outstanding Payment Applications." The fact that the Tribunal did not adopt PVN’s specific methodology did not constitute a breach of natural justice. The court emphasized that a tribunal is not required to address every single point raised by a party, provided the essential issues are dealt with. The Tribunal’s preference for one set of evidence over another is a matter of fact-finding, which is generally immune from judicial review in the context of setting aside applications.

The Decision to Remit

Having found a breach of natural justice regarding the liability finding, the court turned to the remedy. Under s 31(4) of the IAA, the court has the power to remit an award to the tribunal to give the tribunal an opportunity to resume the arbitral proceedings or take such other action as will eliminate the grounds for setting aside. The court determined that remission was the appropriate course here because the breach related to a specific, identifiable error in the reasoning process that the Tribunal could potentially cure by hearing further submissions from the parties.

What Was the Outcome?

The High Court ordered the following:

The finding in the Final Award that the Second Notice of Termination "overrode and superseded" the First Notice of Termination was found to be in breach of natural justice.
The issue of the effect of the Second Notice of Termination, and the consequences thereof, was remitted to the Tribunal for reconsideration.
The court stayed the enforcement of the Final Award in the meantime.
PVN's application to set aside the Tribunal's findings on the quantum of outstanding payments (the USD 91,890,047.34 award) was dismissed.

The operative direction of the court was as follows:

"I therefore set aside the Tribunal’s finding in para 548 of the Final Award and remit the matter to the Tribunal to (a) give the parties the opportunity to be heard on the 'overriding' or 'superseding' effect of the Second Notice of Termination, and (b) thereafter, to make its finding on the effect of the Second Notice of Termination and the consequences (if any) on the other findings in the Final Award." (at [49])

The court also noted that PM had already obtained leave to enforce the Final Award in HC/ORC 4879/2025, but this enforcement was now stayed pending the Tribunal's further decision on the remitted issues. Costs were not definitively settled in the extracted judgment text but the primary direction was the remission of the liability issue.

Why Does This Case Matter?

This case is a landmark for practitioners navigating the "chain of reasoning" test in Singapore. It clarifies that the "nexus" required between a tribunal's decision and the parties' arguments is not a loose or superficial one. If a tribunal intends to resolve a dispute based on a legal mechanism or a conceptual framework (like the "one shot" theory of termination) that was not part of the adversarial exchange, it must pause and invite submissions. This protects the parties from "trial by ambush" by the tribunal itself.

Furthermore, the case illustrates the practical application of Vietnamese law in a Singapore-seated arbitration. It shows that even when foreign law governs the substance of the dispute, the procedural standards of the seat (Singapore) will be vigorously enforced to ensure natural justice. The Tribunal's attempt to interpret Vietnamese law on termination led it into a procedural trap because it failed to anchor its interpretation in the specific arguments presented by the legal experts or the counsel.

The decision also reinforces the utility of the remission power. Setting aside an award is often a "nuclear option" that can waste years of arbitral effort. By remitting the matter, the High Court preserved the parts of the award that were not tainted by procedural unfairness (such as the quantum findings) while ensuring that the core liability issue is decided through a fair process. This demonstrates the sophistication of the Singapore judiciary in handling international commercial disputes, providing a remedy that is proportionate to the procedural defect found.

Finally, for the construction and energy sectors, the case highlights the risks associated with multiple termination notices. Parties often issue successive notices to "cover their bases," but this case shows that the legal interaction between such notices can be unpredictable. Practitioners must be prepared to argue not only the validity of each notice in isolation but also how they interact chronologically and legally under the governing law.

Practice Pointers

Anticipate Tribunal Theories: During the hearing, pay close attention to questions from the tribunal that suggest a line of reasoning not found in the pleadings. If the tribunal seems to be developing its own "middle path" or a novel legal theory, proactively ask for the opportunity to provide supplemental submissions.
Plead Alternative Cases Clearly: When dealing with multiple termination notices, explicitly plead how they are intended to interact (e.g., "the Second Notice is without prejudice to the First Notice" or "the Second Notice is an alternative ground"). This limits the tribunal's room to invent its own "superseding" theory.
Focus on the "Chain of Reasoning": When challenging an award, do not merely argue that the tribunal was "wrong" on the law. Focus on the procedural gap: show that the specific logic used by the tribunal was never "on the table" during the arbitration.
Remission as a Strategic Goal: In setting aside applications, consider whether remission is a more viable or desirable outcome than total setting aside. Remission can be a faster route to a corrected, enforceable award.
Sanctions and Force Majeure: This case confirms that the impact of international sanctions on contract performance is a high-stakes issue. Ensure that Force Majeure clauses are drafted with enough specificity to cover (or exclude) regulatory and geopolitical changes like OFAC designations.
Expert Evidence on Foreign Law: When the governing law is not the law of the seat, ensure that expert reports cover the "what if" scenarios of procedural interactions (like successive notices) to prevent the tribunal from making unsupported assumptions about foreign legal principles.

Subsequent Treatment

This case reaffirms the strict standards for the "fair hearing rule" established in BZW another v BZV [2022] 1 SLR 1080. It has been cited as a primary example of where a tribunal’s reasoning, while perhaps intended to be a logical resolution of conflicting notices, crossed the line into a breach of natural justice because it lacked a sufficient nexus to the parties' pleaded cases. The ratio emphasizes that the "chain of reasoning" must be one that the parties had reasonable notice the tribunal could adopt.