Case Law Developments

By Justin Gan, Sarah Kuek and Tan Yi Lei – Stephenson Harwood (Singapore) Alliance

The last quarter has seen a number of arbitration decisions reported. We focus on 2 decisions in this edition of the newsletter

-   Hilton International Manage (Maldives) Pvt Ltd v Sun Travels & Tours Pvt Ltd [2018] SGHC 56

-  Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2018] SGHC 78

Hilton International Manage (Maldives) Pvt Ltd v Sun Travels & Tours Pvt Ltd [2018] SGHC 56

Hilton v Sun Travels clarifies the basis of the Court's power to grant permanent anti-suit injunctions in support of an arbitration agreement, and is an example of the Court exercising discretion to cure irregular service out of jurisdiction. It also emphasises the need for an otherwise meritorious applicant to seek relief expeditiously.

Background

Under a hotel management agreement, the Defendant (Sun Travels) agreed to let a hotel it owned in the Maldives be managed by Hilton under Hilton's brand for an initial period of 20 years. Sun Travels became dissatisfied with the hotel’s performance under Hilton's management. In April 2013, Hilton gave Sun Travels notice terminating the agreement with immediate effect. On 2 May 2013, Sun Travels accepted Hilton's termination as repudiation of the agreement.

ICC arbitration

Hilton commenced arbitration before the International Chamber of Commerce ("ICC") on 16 May 2013. The ICC Court of Arbitration fixed Singapore as the seat. Parties participated in the reference and following oral hearings in July 2014, Hilton obtained a Partial Award in its favour on 27 May 2015. Sun Travels ceased participating in the reference. On 17 August 2015, a Final Award was issued in Hilton's favour.

Maldivian proceedings

Hilton applied to the Maldivian Courts to enforce the Awards. Sun Travels resisted strenuously and succeeded on a jurisdictional point at first instance, before Hilton overturned the jurisdictional point on appeal. The enforcement question was remitted to the first instance Maldivian Court. In the meantime, Sun Travels commenced Maldivian proceedings against Hilton arising out of the same facts – and the Maldivian Courts found Hilton liable to Sun Travels (contrary to the Awards). Hilton appealed that decision (which appeal remained pending). Sun Travels then relied on that Maldivian decision to resist the Maldivian enforcement proceedings.

Singapore application

Hilton applied to the Singapore Courts for a permanent anti-suit injunction restraining Sun Travels from participating in the Maldivian proceedings, and for declaratory relief.

Judgment

Jurisdiction

An anti-suit injunction over a foreign defendant requires the Court to have in personam jurisdiction over that defendant i.e. if Sun Travels submitted to jurisdiction, or was served out of jurisdiction. For leave to serve out, Hilton needed to show its claim (i) was sufficiently meritorious, (ii) falls within ROC O11, and (iii) that Singapore is the most appropriate forum.

Sun Travels also alleged it had not been properly served in the Maldives, as Maldivian law requires service by a Court official, and ROC O11 r4(4) requires a local language (Dhivehi) translation to be served as well. Hilton had served the Singapore Court papers on Sun Travel by leaving them with Sun Travel's receptionist, and emailed them to Sun Travel's management. The Court held service on the receptionist was invalid but exercised its discretion to cure the irregularity – as Sun Travel was aware of the proceedings but had declined to accept service, and as the papers had been provided to Sun Travel's management in any event.

Power to grant a permanent anti-suit injunction

The Court held its power to grant a permanent anti-suit injunction arose from the Supreme Court of Judicature Act (Cap.322), s.18(2) read with First Schedule para.14. These provisions give the Court power to "grant all reliefs and remedies at law and in equity", including the equitable remedy of a permanent injunction.

Article 5 of the Model Law ("In matters governed by this Law, no court shall intervene except where so provided in this Law") was held to present no bar to the Court's power above. This is especially so if arbitration proceedings have concluded, as there is no concern over excessive judicial interference into ongoing arbitral proceedings.

For completeness, the Court found it had no such power under the (i) International Arbitration Act (Cap.143A), s.12A(2) read with s.12(1)(i), and (ii) Civil Law Act (Cap.43), s.4(10) – as both refer only to interim/interlocutory injunctions.

Exercise of discretion

While an anti-suit injunction is an equitable remedy, where the suit to be injuncted is in breach of a valid arbitration agreement, the Court will be ready to grant injunctive relief, unless good reason is shown. After all, the offending party had promised not to bring such a suit.

Sun Travels argued the anti-suit injunction sought was not in support of an ongoing arbitration, as the Final Award had been issued and the reference terminated. Sun Travels argued the Maldivian proceedings (that it had commenced on the merits) were simply the exercise of its right to resist enforcement, in the Maldives.

The Court rejected Sun Travels' arguments. An agreement to arbitrate contains at least 2 implied negative obligations: (i) not to commence Court proceedings to pursue claims which parties have agreed to refer to arbitration, and (ii) not to undermine the award apart from trying to set aside at the seat, or trying to resist enforcement. The distinction between trying to undermine the award and simply trying to resist enforcement lies in whether the foreign litigation seeks to re-open matters decided in arbitration. If so, it is a breach of (ii), impermissible, and may be considered vexatious and oppressive. That said, a Court will be sensitive to the risk of practically interfering with the processes of a foreign Court.

On the facts, Sun Travels' Maldivian proceedings breached negative obligation (ii). It re-litigated the same issues already determined in the Singapore arbitration. It was timed in the midst of Hilton's enforcement proceedings in the Maldives – and sought to re-visit the merits instead of being confined to the (usual) limited grounds for setting aside. It was vexatious and oppressive.

However, Hilton only applied for the permanent anti-suit injunction 9 months after commencement of Sun Travels' Maldivian proceedings. Only after Hilton's enforcement proceedings in Maldives failed, and while Hilton's appeal in Sun Travel's Maldivian proceedings was on foot, did Hilton pursue the permanent anti-suit injunction in Singapore. The Maldivian proceedings were too far progressed. As a result, Hilton was denied the permanent anti-suit injunction it sought.

Instead, the Court permanently restrained Sun Travels from taking any steps in reliance on the first instance decision in Sun Travel's Maldivian proceedings (or any decision upholding the first instance decision). The Court also declared the Awards final, valid, and binding – and declared Sun Travels' Maldivian proceedings to concern the same subject matter as the arbitration and so in breach of the arbitration agreement.

Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2018] SGHC 78

Rakna Arakshaka Lanka Ltd ("RALL") v Avant Garde Maritime Services ("AGMS") is a recent illustration of the Court's attitude towards unmeritorious allegations of (a) failures of natural justice in the arbitration process, and (b) illegality/public policy. The decision also supports the position that a party wishing to challenge a tribunal's preliminary ruling on jurisdiction can: (1) actively apply for Court determination at the seat within 30 days: Model Law Art.16(3), or (2) raise the issue when exercising its passive remedy of resisting enforcement proceedings. Failure to do (1) does not preclude (2). However, a party cannot allow the deadline for (1) to lapse and then later try to challenge jurisdiction in the Courts of the seat in setting-aside proceedings.

Background

RALL provided comprehensive security services and issued arms, ammunition and related manpower for those services. The Defendant (AGMS) provided maritime security services. RALL is Sri Lanka state linked.

Parties entered into 6 agreements for various projects, subsequently consolidated as annexes under an umbrella agreement. One project was for the establishment of a floating armoury on the "MAHANUWARA" (Vessel). The umbrella agreement required RALL to provide "utmost assistance" vis-a-vis obtaining authorisations and approvals.

In January 2015, there was a regime change in Sri Lanka. Allegations were made against the floating armoury project and the Vessel was detained by Sri Lankan police. AGMS demanded RALL procure a Letter of Clearance from the new regime, but RALL said it could not do so as its board of directors (old regime appointees) had resigned.

Arbitration

On 9 April 2015, AGMS commenced arbitration. RALL sought extensions of time but ultimately did not respond to the Notice of Arbitration, file pleadings, pay its share of SIAC's fees, or nominate its arbitrator. On 22 July 2015, in the absence of a response or nomination from RALL, the SIAC appointed an arbitrator for RALL. On 21 August 2015, the SIAC directed that the reference would proceed.

On 21 August 2015 RALL's counsel wrote to the SIAC alleging the disputes were beyond the scope of the arbitration agreement and the arbitration conflicted with Sri Lankan public policy. No reasons were given. The Tribunal unanimously considered that this letter did not constitute a proper objection to the Tribunal’s jurisdiction.

On 20 October 2015, parties entered into a Memorandum of Understanding (MOU). On 12 November 2015, RALL informed the SIAC that settlement had been achieved and said it no longer needed to proceed with the arbitration.

On 15 November 2015, AGMS wrote to the SIAC indicating there was no longer any settlement (as RALL failed to ensure the continuity of the umbrella agreement), and there was an imminent threat that RALL would terminate the umbrella agreement. AGMS sought a preliminary hearing. RALL chose not to participate. The Tribunal found RALL failed to ensure the continuity of the umbrella agreement, which went to the root of the MOU, and therefore the dispute was still alive.

The arbitration proceeded. RALL did not participate but wrote to the SIAC twice asking about the status of the arbitration. A Final Award was rendered in AGMS' favour.

RALL applied to set the Final Award aside, for 3 reasons:

Judgment

The application was dismissed.

Jurisdiction

The MOU did not terminate the reference to arbitration. First, the Tribunal found AGMS' agreement to withdraw was on the premise that RALL would ensure the continuity of the Master Agreement. That did not occur. Second, the MOU itself did not terminate the arbitration upon signing – instead AGMS had to take steps to withdraw.

The MOU did not withdraw parties' submission to arbitration or impact the Tribunal's jurisdiction. Clause 8 of the umbrella agreement contained an arbitration clause and applied the SIAC Rules, of which Rule 25.3 (2013) required objections to a Tribunal exceeding the scope of its jurisdiction to be raised promptly after the Tribunal indicated intent to decide on the matters said to be beyond its scope. After RALL told the SIAC the dispute was settled (12 November), AGMS disagreed and disputed that there was still any settlement (15 November). An interim hearing was held on the issue but RALL did not participate – and the Tribunal ruled it would continue with the arbitration.

Where a Tribunal rules on a plea that it has no jurisdiction, as a preliminary issue, that matter may be determined by the High Court if a party so applies within 30 days of the ruling: IAA s.10(3), Model Law Art.16(3). RALL's present application was out of time. RALL could not circumvent this deadline by attempting to set aside the Final Award at the seat on the basis of jurisdiction.

In reaching this conclusion, the Court:

- Declined to follow authority and commentary that where a party left the arbitral proceedings in protest, the 30-day deadline would not apply. In short, if a tribunal chooses to decide jurisdiction as a preliminary issue, a respondent cannot reserve its objections to the last minute (beyond the 30-day deadline) – for considerations of finality, certainty, practicality, cost, and preventing delay tactics.

- Highlighted the distinction between "active" (attacking the Award at its seat) and "passive" (resisting enforcement) remedies. The bar on circumventing the 30 day deadline applies only to jurisdiction challenges at the seat, where the applicant could have sought determination from the supervisory Court previously but opted not to do so.

Natural Justice

RALL's main complaint was that it did not get notes of evidence of the substantive hearing – and so was prevented from taking steps in the 5 months between the hearing and the Final Award. This was rejected. RALL chose not to participate in the arbitration. It was not prevented from doing so. In fact RALL only requested the notes of evidence some months after proceedings closed.

Public Policy

RALL alleged that RALL's and AGMS' former chairmen had procured the umbrella agreement by bribery and corruption. Trial on charges of corruption was pending in the Sri Lankan Courts. So, RALL said, the Final Award was tainted by fraud and corruption, and enforcement would be contrary to public policy.

This was rejected. The allegations of fraud and corruption did not touch on the Award, only the underlying umbrella agreement. Further, RALL's and AGMS' former chairmen were facing trial; they were not convicted at the time of hearing, and presumed innocent unless proven otherwise.

RALL also argued Clause 3.1 required RALL to perform an illegal act, namely to procure a Letter of Clearance, and so, RALL said, an award enforcing such performance was contrary to Singapore's public policy. The Tribunal had considered this and found no illegality – a finding of fact not open to question by the supervisory Court. Further, the umbrella agreement continues to operate and RALL/AGMS are still engaged in other joint ventures – which the Sri Lanka government would not allow to continue if the agreement was procured by bribery or tainted by illegality.

By Tham Wei Chern, Selvam LLC

CASE LAW DEVELOPMENTS

There are no reported Singapore cases on arbitration during the period between the December 2017 newsletter and the production of this update. We therefore turn our attention in this issue outside of Singapore, and review the recent decision in the English case of P v Q and others (No 2) [2017] 1 WLR 3823.

P v Q and others (No 2) [2017] 1 WLR 3823

This is a decision of the English High Court in relation to the use of tribunal secretaries.

The Claimant in this case made an application to the English High Court to remove two co-arbitrators (the “Respondents”) on an arbitral tribunal pursuant to section 24(I)(d)(i) of the English Arbitration Act 1996 for failing to properly conduct proceedings in relation to the use of a tribunal secretary (the “Secretary”) to analyse submissions and draft procedural orders.

The Court dismissed the application, and held that such use of a tribunal secretary was not an improper delegation of the tribunal’s decision making functions, and gave some guidance on the use of the tribunal secretaries.

Arbitrators in Singapore will find this case useful in providing guidance on the best practices on the use of tribunal secretaries.

Facts

The Claimant was the respondent in an arbitration governed by the London Court of International Arbitration Rules (the “LCIA Arbitration”), and the two Respondents were the party appointed arbitrators.  Together with the chairman of the tribunal, the two Respondents formed the tribunal for the LCIA Arbitration.

The chairman appointed the Secretary with the agreement of the parties to the LCIA Arbitration.

The Claimant was also engaged in another arbitration relating to the same rights that were in issue in the present one, but with another party.

In the LCIA Arbitration, the tribunal made three procedural directions, which were the subject of the Claimant’s application.  These were for: (a) sharing of documents between the two arbitrations; (b) refusing the claimant’s application to stay the present arbitration until after the other arbitration had been heard; and (c) production of documents (together, the “Decisions”).

A month after the Decisions were made, the chairman of the tribunal sent an email intended for the Secretary, but which was mistakenly sent to the Claimant’s lawyers, asking for the Secretary’s “reaction to this latest from the [Claimant]” (the “Misdirected Email”).  This was in relation to the Claimant’s request for an extension of time.

The Claimant filed a challenge with the LCIA Court to have all three members of the tribunal removed on the following grounds.  The LCIA Court revoked the appointment of the chairman (on different grounds), but not that of the Respondents.

The Claimant then filed the present application on the following grounds:

(a)        the Respondents had improperly delegated their role to the Secretary by systematically entrusting the Secretary with a number of tasks beyond what was permissible under the LCIA Rules and the LCIA policy on the use of arbitral secretaries;

(b)        the Respondents had breached their mandate as arbitrators and their duty not to delegate by not sufficiently participating in the arbitration proceedings and the decision-making process; and

(c)        the Respondents had negligently and/or innocently misrepresented to the Claimant the position as to the existence and/or nature and/or extent and/or effect of the delegation of their roles to the Secretary (this ground was not raised to the LCIA Court).

The Claimant’s complaint was largely based on the hours spent by the Secretary and the Respondents, and the Misdirected Email.

Judgment

Popplewell J, who heard the matter, found that the Respondents had not delegated their role to the Secretary.

In coming to his decision, Popplewell J reviewed the amount of time spent by each of the Respondents on the various directions, and found that, with the benefit of his own experience, that the time spent was appropriate and proportionate.  In this regard, the Respondents’ recorded time spent on each of the Decisions was significant and sufficient in the particular circumstances.

Further, Popplewell J held that, the court should be slow to differ from the conclusion of the LCIA Division, which made a similar finding.  In this regard, Popplewell J held that the LCIA Division was not only the parties’ chosen forum, but also had considerable experience and was well placed to judge how much time would be required for a co-arbitrator properly to consider interlocutory issues.

The Claimant had also argued that the Respondents had indirectly delegated their role to the Secretary because they had left the chairman to prepare the draft decisions, and the chairman had left that task to the Secretary.  In this regard, Popplewell J, found that the Claimant’s arguments were misconceived.  First, they were logically incoherent, as no part of the Respondents’ adjudicatory responsibility was delegated to the chairman.

Second, the reliance by the Respondents on the chairman to produce the first draft of interlocutory decisions for their review was entirely legitimate, and this did not become illegitimate simply because the chairman delegated such task to the Secretary irrespective of the Respondents’ knowledge.

Third, there was no basis for concluding that the chairman’s use of the Secretary in relation to the Decisions involved delegating to the Secretary any adjudicative functions or responsibilities, or was in any way inappropriate.  In this respect, the tribunal had explained the role of the Secretary as operating within the parameters circumscribed by the LCIA’s ‘notes for arbitrators’, the LCIA website’s ‘What is the LCIA’s position on the appointment of secretaries to tribunals?’ and the ‘Young ICCA guide on arbitral secretaries’.  In particular, the Secretary was engaged in “organising papers for the tribunal, highlighting relevant legal authorities, maintaining factual chronologies, preparing drafts of orders and correspondence for consideration by the tribunal, and sending correspondence on behalf of the tribunal.”

As for the Misdirected Email, the chairman had explained that he was simply requesting a response from the Secretary as to the status of outstanding issues relating to the tribunal’s first, second and third decisions on document production based on a letter sent by Claimant’s counsel on 22 March 2016.

In his decision, Popplewell J noted that there was nothing offensive per se to an adjudicator’s performance of his adjudicatory function in receiving the views of others, provided that the adjudicator makes his own mind up by the exercise of independent judgment. He also observed that there was considerable and understandable anxiety in the international arbitration community that the use of tribunal secretaries risked them becoming “fourth arbitrators”. 

Popplewell J therefore noted that best practice would be to avoid involving a tribunal secretary in anything which could be characterized as expressing a view on the substance of that which the tribunal was called upon to decide.  However, he also expressed the view that a failure to follow best practice was not synonymous with failing properly to conduct proceedings within the s 24(1)(d) of the Arbitration Act 1996, and soliciting or receiving any views of any kind from a tribunal secretary did not of itself demonstrate a failure to discharge the arbitrator’s personal duty to perform the decision-making function and responsibility himself.  This would especially be the case, such as in the present, where the arbitrator was an experienced judge who would be used to reaching independent decisions which were not inappropriately influenced by suggestions made by junior legal assistants.

In respect of the misrepresentation argument, Popplewell J rejected the Claimant’s arguments as these had not been previously raised to the LCIA Court.  Further, the Claimant’s allegation of what was represented was neither a realistic nor fair reading of the relevant passages of the letters sent by the tribunal.

Popplewell J also held that there was no substantial injustice, as it could not be seriously suggested that the Respondents had adopted a decision-making process that went beyond anything that could reasonably be defended.  Moreover the Claimant had not shown that the decisions might have been different had the Respondents taken a different approach to decision-making. 

The only specific injustice identified by the Claimant was that a finding of improper delegation would entail a wholesale breakdown of trust and confidence on the part of the Claimant in the Respondents as co-arbitrators.  However, Popplewell J held that loss of confidence was neither sufficient nor a necessary condition of substantial injustice.

Points to note

While this decision dealt with the situation under the English Arbitration Act 1996, it provides useful guidance to arbitrators practicing in Singapore on good practice in relation to the appropriate usage and of tribunal secretaries.

By Wynne Tay, MPillay

In this issue, we discuss the following three decisions:

1. BNX v BOE and another matter [2017] SGHC 289;
2. BNP and another v BNR [2017] SGHC 269; and
3. Prometheus Marine v Pte Ltd v King, Ann Rita and another appeal [2017] SGCA 61.

BNX v BOE and another matter [2017] SGHC 289

This High Court decision concerns an application by the plaintiff under s 48 of the Arbitration Act (Cap 10, 2002 Rev Ed) (the "AA") to set aside an arbitral award and an application by the defendant to strike out the plaintiff's separate action in the High Court under O 18 r 19 of the Rules of Court. The Court dismissed the plaintiff's setting-aside application and allowed the defendant's striking-out application. An appeal by the plaintiff against the High Court's decision on both applications is currently outstanding.

While the judgment applied and reaffirmed many well-settled principles on the setting-aside of arbitral awards, it also made several interesting observations which are worth noting. This case further involved the interesting situation where the plaintiff brought a separate action which the defendant sought to strike out.

Background facts

The plaintiff acquired a business from the defendant in Singapore pursuant to a sale and purchase agreement (the "SPA") which was expressly governed by Singapore law and contained an arbitration agreement.

The terms of the SPA also provided for the plaintiff's acquisition of a leasehold interest in the premises from which the business was operated. Therefore, pursuant to the SPA, the parties entered into a lease for the premises which was comprised in a separate document.

After completion under the SPA, the plaintiff for the first time became aware that the Urban Redevelopment Authority (the "URA") had restricted the use of the facilities on the premises to customers and staff of the business.

The plaintiff brought a claim in arbitration against the defendant for wrongfully failing to disclose the restriction of use during the negotiations for the SPA. More specifically, the plaintiff alleged that the defendant had fraudulently misrepresented that members of the public were permitted to patronize the facilities and that the facilities could therefore generate an independent revenue stream for the business. In the alternative, the plaintiff argued that the defendant was in breach of warranty under the SPA because members of the public were not permitted to use the facilities.

The tribunal dismissed the plaintiff's claim in its entirety.

The court proceedings

Dissatisfied with the tribunal's decision, the plaintiff sought to set aside the award under s 48 of the AA on the following grounds:

1. That the tribunal exceeded its jurisdiction by deciding issues that the parties did not submit to it for decision: discussed at [50] to [72] of the judgment.
2. That the tribunal breached the rules of natural justice: discussed at [73] to [92] of the judgment.
3. That the award is contrary to public policy: discussed at [93] to [110] of the judgment.

Only the second and third grounds will be discussed in this commentary

Breach of rules of natural justice

One of the reasons put forth by the plaintiff in alleging that the tribunal breached the rules of natural justice was that the tribunal erred in admitting and giving weight to hearsay evidence: see [75(b)].

The Court readily dismissed the plaintiff's contention and held that the hearsay rule does not apply in arbitration. Even if the rule did apply, the impugned evidence was found not to be hearsay as it went towards the finding of the defendant's state of mind: see [79].

In coming to its conclusion that the hearsay rule is inapplicable to arbitration, the Court observed that the hearsay rule is enshrined in s 62 of the Evidence Act which is found in Part II of the Act. Under s 2(1) of the Evidence Act, it is provided that Part II of the Act shall not apply to proceedings before an arbitrator. Therefore, if there is a hearsay rule in Singapore arbitration, it must be found outside of the Evidence Act: see [81].

The Court was reluctantly prepared to assume in favour of the plaintiff, without deciding, that the rule against hearsay is part of the common law of evidence in Singapore and that it applies to arbitration. Indeed, the Court noted that there was an "almost insurmountable argument" to be made that in arbitrations conducted in Singapore as the seat, the tribunal is empowered to receive all relevant evidence, with the concerns which underlie the exclusionary rules at common law going only to weight and not to admissibility: see [83].

Contrary to public policy

The Court noted at the outset that the cases on Art 34(2)(b)(ii) of the Model Law are of persuasive value in considering the scope of s 48(1)(b)(ii) of the AA although the provisions are not identical: see [93].

The Court then went on to reiterate and reaffirm the principles propounded in past cases in relation to the setting-aside of arbitral awards for being contrary to public policy: see [94] to [96].

Interestingly, the plaintiff made the argument that "public policy" in s 48(1)(b)(ii) of the AA sets a lower threshold for setting-aside in a domestic arbitration than that set by Art 34(2)(b)(ii) of the Model Law. This is because, the plaintiff argued, the AA enables the court to set aside a domestic arbitration award on the domestic standard of public policy which is wider than the narrow international standard of public policy which the Model Law applies to an international arbitration: see [97]

Regrettably, the Court held that it was not necessary for it to determine this issue as it found that the plaintiff's submission that the award contravenes public policy was "thoroughly misconceived, whatever the applicable threshold": see [97].

Defendant's striking out application

The plaintiff, while the setting-aside application was pending, brought an action in the High Court against the defendant focusing on the lease for the business which the defendant had granted to the plaintiff pursuant to the SPA.

The plaintiff argued that the lease and the SPA were distinct agreements. The arbitration and the award were concerned only with the parties' rights under the SPA so it submitted that nothing that occurred in the arbitration barred it from pursuing an action against the defendant for breach of the lease: see [144].

The defendant contended that this action was nothing but an impermissible collateral attack on the award. The action should therefore be struck out on the basis of res judicata: see [122].

In this regard, the Court elucidated the principles relevant to the doctrine of res judicata: see [123] to [129].

On the facts, the Court found that the lease arose directly from the express terms of the SPA. The lease was simply the mechanism under the SPA by which the defendant transferred to the plaintiff an interest in the property from which the business was operated. Accordingly, the SPA and lease were not independent agreements: [132]

Seeing that the two were not independent agreements, the Court held that the plaintiff's action was a collateral attack on the award or an abuse of process, and should accordingly be struck out. In any event, its claims were also unsustainable: see [137].

BNP and another v BNR [2017] SGHC 269

The High Court in this case was concerned with an application under s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the "IAA") by the plaintiffs to determine whether the tribunal in the arbitration lacked jurisdiction as it was not properly composed. More specifically, the plaintiffs contended that the third member of the tribunal was appointed as the president of the tribunal and not an umpire, which was contrary to the arbitration agreement. The Court dismissed the application.

In this determination, the Court had to consider seemingly-contradictory provisions on the appointment of arbitrators under the Rules of Arbitration of the International Chamber of Commerce (the "ICC Rules") which were expressly incorporated into the arbitration clause on the one hand, and the express terms of the arbitration clause on the other.

Background facts

The relevant arbitration clause was provided in the shareholders' agreement between the plaintiffs and the defendant under Clause 24 which read as follows:

24.2 Such Dispute shall be referred to and finally resolved by arbitration under the [ICC Rules] which Rules are deemed to be incorporated by reference into this Clause 24. …

24.3 The number of arbitrators shall be one (1) provided that, if the parties to the dispute are not able to agree upon the sole arbitrator within 30 (Thirty) days of the date on which a Party initiates arbitration proceedings, the number of arbitrators shall be 3 (Three). In such event, one arbitrator shall be nominated by [the defendant] on the one hand and one arbitrator, by [the plaintiff] on the other hand as the case may be. The third arbitrator, who shall act as an umpire, shall be nominated by the 2 (two) arbitrators appointed (‘Umpire’), provided that if these two arbitrators are unable to agree on the nomination of the Umpire within 20 (Twenty) days of their appointment, the Umpire shall be appointed in accordance with the Rules.

Article 12(5) of the ICC Rules states that where the parties agree that there are to be three arbitrators, the third arbitrator shall be appointed by the court and "will act as president of the arbitral tribunal".

The tribunal was constituted by the 2 party-appointed arbitrators jointly nominating the third member of the panel to act as the third arbitrator and president of the tribunal, which was subsequently confirmed by the ICC Court.

The judgment

The Court at [4] set out some general principles relevant to the application:

1. The principle of party autonomy enables the parties to decide on how the arbitral tribunal is to be constituted and how the arbitration is tobe conducted.
2. Where clauses are incorporated by reference into a written agreement, and the incorporated clauses conflict with terms in the written agreement, the latter will ordinarily prevail. However, the court will endeavour to construe the sub-clauses harmoniously to give effect to the whole of cl 24
3. The indisputable fact is that the parties have agreed to incorporate the ICC Rules into their arbitration agreement and effect should be given to the ICC Rules in a manner that is consistent with the incorporation. If necessary, where there is express incorporation of the ICC Rules into cl 24, case law allows for some degree of verbal modification or adjustment to fit the incorporated ICC Rules into the wording of cl 24.3.
4. A clause that is completely inconsistent with the parties’ objectively-ascertained intention will not be enforced.

On this basis, the Court went on to consider the parties' arguments.

The plaintiffs argued that Article 12(5) of the ICC Rules was not applicable as the parties had provided under cl 24.3 of the shareholders’ agreement for the third arbitrator to act as an umpire, as opposed to the president of the tribunal: see [7].

The plaintiffs took the position that the word "umpire" is a settled and well-defined term. An umpire will decide the arbitration where the two party-appointed arbitrators disagree on a joint award: see [9].

In this regard, the Court noted that "umpire" was not defined in the shareholders’ agreement. The Court also noted that the description adopted by the plaintiffs was based on the English Arbitration Act 1996 which was not applicable in the present case. The IAA, although applicable, has no provision covering the role and function of an umpire: see [10].

The Court found that cl 24.3 as objectively ascertained, was intended to provide for a three-member arbitral tribunal which was to be constituted in accordance with Articles 12 and 13 of the ICC Rules: see [12].

There remained the issue of an inconsistency where cl 24.3 provided for the third arbitrator to "act as an umpire" whereas under Art 12(5) of the ICC Rules, the third arbitrator will act as president of the tribunal: see [13].

The Court found favour in the defendant's argument that the plaintiffs' position necessarily advocated for a two-member arbitral tribunal which was inconsistent with the ICC Rules because the umpire steps in only in the event of a deadlock.

The following reasons were given by the Court (at [15] to [17]):

1. The ICC Rules do not support a two-tier decision-making process;
2. The ICC Rules, IAA and the UNCITRAL Model on International Commercial Arbitration (the "Model Law") envisage decision-making by majority which implies that all three arbitrators participate in the decision-making process in a three-member panel;
3. Article 31 of the Model Law requires that an arbitral award be signed by all members of the arbitral tribunal or a majority of all members provided that the reason for any omitted signature is stated, which is inconsistent with a two-member arbitral panel rendering an award.

Interestingly, the Court went on to observe in obiter that it would have been permitted in the present case to go further to engage in some degree of verbal modification or adjustment where the ICC Rules were expressly incorporated so as to resolve the gap in the agreement. This was because the court will give effect to the meaning of the parties' agreement reasonably discerned from the written agreement itself and the background even though it involves departing from or qualifying particular words used, especially if the words in the written agreement would lead to inconsistency with the rest of the instrument: see [19].

Prometheus Marine v Pte Ltd v King, Ann Rita and another appeal [2017] SGCA 61

The Singapore Court of Appeal in this case agreed with the High Court's decision and dismissed 2 appeals brought in relation to an application to set aside an award (the "Award") issued in an arbitration administered by the Singapore International Arbitration Centre ("SIAC"). The High Court decision was discussed in our March newsletter.

While the Court considered many issues in its judgment, the following raised interesting observations from the Court of Appeal:

1. the alleged failure to determine the lex arbitri; and
2. the allegation of excess of jurisdiction and beach of natural justice.

These issues will be discussed in more detail below.

Background facts

The appellant was a company incorporated in Singapore which sold a yacht (the "Yacht") to the respondent who was a British national under a purchase agreement (the "Contract"). The Contract was governed by Singapore law and contained a dispute resolution clause referring disputes to arbitration at the SIAC in accordance with its Domestic Arbitration Rules.

When the Yacht was due to be delivered, it was dropped while being loaded onto a barge at the shipyard for shipment to Singapore. Extensive damage to the Yacht was caused. The appellant agreed to have the Yacht repaired but the respondent was dissatisfied with the repairs done by the appellant. She had the Yacht further inspected and repaired at her own cost.

The respondent then commenced proceedings against the appellant seeking a full refund of the purchase price of the Yacht as well as damages and/or the cost of repairs. The sole arbitrator appointed by consent (the "Arbitrator") issued an award in the respondent's favour (the "Award").

The court proceedings

The appellant sought to set aside the Award by filing 2 originating summonses in the High Court, one under s 48(1) of the Arbitration Act (the "AA") and the other under s 24 of the International Arbitration Act (the "IAA"). The appellant made the two applications because it took the position that the Arbitrator had failed to determine the applicable statute. The High Court dismissed the appellant's applications.

The High Court decision has been discussed in our March newsletter so this commentary will focus on the arguments brought on appeal. On appeal to the Court of Appeal, the appellant raised the following arguments:

(a) The High Court judge (the "Judge") was apparently biased against the appellant;

(b) The Judge erred in finding that the Arbitrator’s failure to determine the lex arbitri was not contrary to public policy;

(c) The Judge erred in finding that there was no evidence that the making of the Award was induced by fraud on the Respondent’s part or non-pecuniary corruption on the Arbitrator’s part;

(d) The Judge erred in finding that the Arbitrator had neither acted in excess of jurisdiction nor in breach of natural justice when he held that the Appellant was liable for breaches of the Contract; and

(e) The Judge erred in finding that the Appellant was the seller under the Contract (and was hence a party to the arbitration agreement contained there), instead of Clipper (the manufacturer of the Yacht), and therefore also erred in finding that the Arbitrator had the requisite jurisdiction to hear the dispute.

As foreshadowed in the introduction to this case, this commentary will focus on the Court of Appeal's discussion in relation to grounds (b) and (d) above.

The CA Summonses

As a side note, in addition to the 2 appeals brought against the Judge's decision, the appellant also brought 2 Court of Appeal summonses to set aside the Judge's decision on the ground of apparent bias against the Appellant (the "CA Summonses").

The CA Summonses were easily dismissed as an abuse of process as the appellant's counsel was in essence asking the Court of Appeal to reverse the Judge's decision without going through the appellate process. Indeed, the Court of Appeal is not conferred any original jurisdiction under the Supreme Court of Judicature Act to hear the matter: see [35].

Lex arbitri and public policy

The appellant contended that because the Arbitrator did not determine which of the IAA or the AA governed the arbitration, he had "delocalised" the Arbitration and so an award rendered pursuant to a delocalised arbitration should not be enforced in Singapore for being contrary to public policy: see [44].

This paved the way for the Court to consider the notion of delocalised arbitration and what it meant in Singapore's context. The Court took the opportunity to clarify that Singapore law "does not support the notion that arbitral proceedings or arbitral awards can stand free from control of the national legal system of the seat of the arbitration". Consequently, an award that has been set aside at the seat of arbitration would generally lead to the conclusion that there is no award to enforce anywhere else: see [46].

That being the case, the Court found that the issue in the present case did not concern whether the Arbitration was delocalised because the appellant accepted that the Arbitration was seated in Singapore. The issue only related to whether the AA or the IAA governed the Arbitration, which the Court determined to be the IAA: see [47] to [48].

The Court eventually concluded that in any case, the failure to determine the lex arbitri was not a valid ground for setting aside an award under the IAA or the AA: see [49].

Excess of jurisdiction and breach of natural justice

The appellant also sought to argue that the Arbitrator:

1. acted in excess of jurisdiction in reformulating the respondent's case and finding the appellant was in breach of terms which were not specifically pleaded in the respondent's statement of claim in the arbitration proceedings; and
2. breached the rules of natural justice for failing to give parties the opportunity to make submissions on the discount made to the damages payable by the appellant as repair costs on the basis that this represented ordinary maintenance costs.

In this regard, the Court noted that the jurisdiction of arbitral tribunals is not limited by pleadings because a practical view has to be taken regarding the substance of the dispute being referred to arbitration: see [58].

On the facts, the Court found that the substance of the breach was the same regardless of how the terms were labelled. Further, the respondent had pleaded the necessary facts to sustain the Arbitrator's finding regarding the breach so the appellant had not been taken by surprise by the respondent's failure to plead the term breached: see [60] to [61].

On the argument that there had been a breach of the rules of natural justice, the Court found that the appellant had indeed submitted on the issue of damages and that maintenance costs ought to be excluded. Further, its evidence in the form of its expert's testimony and reports had also addressed the damages payable for repair costs, which the Arbitrator took into consideration: see [65].

By Debbie Lee and Sharon Wong Qiao Ling - ECYT Law LLC

Introduction 

This case involves the Court setting aside an arbitral award on various grounds:

1. Tribunal exceeding its jurisdiction;
2. Breach of agreed procedure;
3. Breach of natural justice.

The Court affirmed the following principles in the following cases: 

1. Setting aside an arbitral award due to the tribunal exceeding its jurisdiction under Article 34(2)(a)(iii) of the UNCITRAL Model Law (the “Model Law”), CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 and PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597;
2. Setting aside an arbitral award due to a breach of agreed procedure under Article 34(2)(a)(iv) of the Model Law and AMZ v AXX [2016] 1 SLR 549; and
3. Setting aside an arbitral award due to a breach of natural justice under Article 34(2)(a)(ii) of the Model Law or Section 24(b) of the International Arbitration Act (Cap. 143A) (the “IAA”) and Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86.  

Brief Background

The Plaintiff is GD Midea Air Conditioning Equipment Co Ltd (the “Plaintiff”), a company that manufactures air conditioners and other electrical products. The Defendant is Tornado Consumer Goods Ltd (“Defendant”), a company that sells air conditioners in Israel.

The Plaintiff and Defendant (the “Parties”) entered into an exclusive agreement, which governed the supply of Midea-branded air conditioners and other electrical products to the Defendant (the “MBA”).  

The MBA was valid from 1 January 2012 to 31 December 2014, pursuant to which:

1. The Defendant was required to purchase from the Plaintiff electrical products and achieve preset annual sales targets;
2. The Defendant was required to make payment in accordance with the payment terms set out in purchase orders sent by the Plaintiff, by telegraphic transfer (“TT”) or letter of credit (“LC”);
3. The Defendant was required to make payments in full within 90 days of the marine bill of lading date (“Clause 4.2 of the MBA”);
4. The Plaintiff was required to terminate the MBA by giving 60 days’ prior written notice “at its own discretion and option” if: 
   1. The Defendant failed to achieve the annual sales target in any year; 
   2. The Defendant failed to achieve half the annual sales target by 30 June in any year; or
   3. It seemed obviously impossible for the Defendant to meet the annual sales target before the end of the year.

At the start of the Parties’ relationship, the payment terms required the Defendant to make payment in full by LC within 90 days of the bill of lading. However, this was changed by the Plaintiff in August 2013 through an invoice that indicated “30% TT + 70% LC at sight” (“PI-1325”).

Disputes between the Parties

Disputes arose between the Parties when:

1. The Defendant fell short of the sales targets in 2012 and 2013;  
2. Between 26 and 28 November 2012, annotations were made to lower annual sales targets and postpone the commencement of the reduced sales targets from 2012 to 2013;
3. Payment terms were varied over the course of the Parties’ relationship. Due to the said variations, the Parties were not always in agreement on the prices of the electrical products. Hence, on 14 January 2014, when the Defendant requested for products to be sent to them, the Plaintiff declined to do so; and
4. The Defendant continued to submit orders and the Plaintiff rejected the same.

 In January 2014, the Plaintiff gave the Defendant 60 days’ written notice in accordance with the MBA, claiming that the Defendant failed to achieve its annual sales target for 2013 and refused to do so (the “Termination Notice”).

Arbitration

The Defendant commenced arbitration against the Plaintiff in SIAC Arbitration No. 65 of 2014 (the “Arbitration”), claiming that the Termination Notice was invalid because:

1. The Plaintiff had breached the agreed payment terms as a result of the issuance of PI-1325, the subject of which was disputed by the Parties;
2. No good faith discussions were made by the Plaintiff prior to issuing the Termination Notice;
3. The Plaintiff failed to provide 60 days’ notice to remedy the alleged breach of terms by the Defendant.

In its defence, the Plaintiff alleged and counter-claimed for breach of contract, as the Defendant had failed to meet its sales targets, which also made it impossible to realise the aim of the MBA thereby entitling the Plaintiff to dissolve the contract.

The tribunal found that the Plaintiff breached Clause 4.2 of the MBA by the payment terms in PI-1325. The tribunal thus concluded that due to the Plaintiff’s breach, the Defendant would not need to meet the annual sales targets and the MBA was terminated wrongfully. The tribunal therefore made the award in favor of the Defendant (the “Award”) and dismissed the Plaintiff’s counterclaim. The Defendant then obtained an order to enforce the Award.

The Setting Aside Application

The Plaintiff challenged the tribunal’s finding – that the Plaintiff had breached Clause 4.2 of the MBA by imposing payment terms – on the following bases:

1. The tribunal dealt with matters beyond the scope of the issues submitted for arbitration by the Parties; 
2. The agreed procedure was breached by the tribunal; and
3. The Plaintiff’s right to present its case was breached and/or the rules of natural justice was breached.

The Plaintiff also applied for the enforcement order to be set aside, following the setting aside of the Award.

Decision

Exceeding Jurisdiction – Article 34(2)(a)(iii) of Model Law

The Court decided that the Award arising from the tribunal's finding the Plaintiff had breached Clause 4.2 of the MBA, should be set aside, as the tribunal exceeded its jurisdiction through its finding that the Plaintiff breached Clause 4.2 of the MBA. The Parties had defined the scope of the arbitration and Clause 4.2 of the MBA was not part of the scope.

The Notice of Arbitration, pleadings, submissions, and the agreed list of issues (the “ALOI”) in the Arbitration did not allege breach of Clause 4.2 of the MBA. In fact, the Parties were in agreement that the effect of Clause 4.2 of the MBA was to require the Defendant to “make full payment within 90 days of the date of the bill of lading in any event”.

It was also pointed out by the Court that the Defendant had not agreed with the varied payment terms in PI-1325 and another variation stated in another invoice, but throughout the course of disagreement the Defendant never claimed that Clause 4.2 of the MBA applied as the default payment term.

The Court also decided that once it has been determined that the tribunal exceeded its jurisdiction, there was no further requirement for the Plaintiff to show that it had suffered real or actual prejudice, but in any case, the Court was of the view that there was real prejudice suffered by the Plaintiff.

Breach of Agreed Procedure – Article 34(2)(a)(iv) of Model Law

To set aside the Award under Article 34(2)(a)(iv) of the Model Law, it must be shown that:

1. There was an agreement between the Parties on a particular arbitral procedure;
2. The tribunal failed to adhere to the agreed procedure;
3. The failure to do so has a causal relation to the tribunal’s decision, because if the tribunal had adhered to procedure, the tribunal’s decision would have been different; and
4. The Party mounting the challenge is not barred from relying on this ground due to its failure to raise an objection during the proceedings before the tribunal.

The Court reaffirmed the general principle that no party shall be permitted to advance any new factual allegations or any new legal arguments at the oral hearing, unless expressly permitted by the tribunal.

The Court agreed with the Plaintiff’s position that the tribunal breached the agreed procedure when departing from the ALOI submitted by the Parties by making its finding on Clause 4.2, as Clause 4.2 was not part of the ALOI. The ALOI was considered part of the Parties’ agreed arbitral procedure.

Also, the Court held that the Plaintiff had no opportunity to object to this departure from the agreed procedure as this did not arise at all during the arbitral proceedings.

Breach of the rules of natural justice

To set aside the Award for breach of natural justice, it must be shown:

1. Which rule of natural justice was breached;
2. How that rule was breached;
3. In what way the breach was connected to the making of the award; and
4. How the breach prejudiced the party’s rights - the test is whether the arbitral tribunal could reasonably have arrived at a different result if not for the tribunal’s breach.

The Court found that the Plaintiff was denied a full opportunity to present its case. The issue of the breach of Clause 4.2 of the MBA did not arise in the arbitration and the tribunal made its finding on Clause 4.2 of the MBA without giving notice to the Parties. The fair hearing rule was thus breached.

Conclusion

The Court set aside parts of the Award arising from the tribunal's funding that the Plaintiff had breached Clause 4.2 of the MBA, which included the initial award of US$9 million in favour of the Defendant.

As a general principle, there is minimal curial intervention when it comes to such applications. However, this has to be balanced against the Parties’ right to define the jurisdiction of an arbitral tribunal.

In this case, it is shown that through the process of defining the jurisdiction of the arbitral tribunal and the arbitration process, the Court would intervene where the Parties’ rights had been violated.