COT v. COU and others and other appeals [2023] SGCA 31
Nature of Matter
Limits of curial intervention in setting aside applications premised on the absence of a concluded contract
Case Summary
The Claimant in an arbitration was a producer and supplier of a valuable advanced technology industrial product (“Modules”) worldwide.
At the time of the arbitration, the Respondents were members of the same multinational group of companies (“MNC<>Group”). Until 2016, the First Respondent (“Shareholding Company”) held 99.99% of the shares in the Second and Third Respondents. The Second Respondent was a special purpose vehicle incorporated for the sole reason of owing and operating an infrastructure project (“Project Company”). The Third Respondent was the engineering, procurement and construction contractor for infrastructure projects of both the MNC Group and for the infrastructure project in question (“EPC Company”).
The MNC Group had a procurement company responsible for the centralised sourcing for goods for MNC Group and supplying them to the members of the Group (“Procurement Company”). Such supplies made were at an intragroup markup. The procurement company was neither a party to the arbitration nor the subsequent court proceedings.
The Claimant supplied the Modules for the infrastructure project to the Project Company. This was through chain contracts made between the Procurement Company and the Claimant 2015 to 2016. Under these chain contracts, the Procurement Company sold the Modules to the EPC Company. The EPC Company on-sold the Modules to the Project Company.
As at March 2016, there were 3 overdue invoices owing from the Procurement Company to the Claimant. This led to the Claimant suspending further deliveries of the Modules on 13 March 2016.
The Claimant, with representatives from the MNC Group as well as the Procurement, Shareholder, Project and EPC Companies, held negotiations between 15 to 18 March 2016 to resolve the dispute. A “non-disposal undertaking” (“NDU”) was drafted as a result. The NDU provided for the Shareholder Company to undertake to the Claimant not to dispose of its shares in the Project Company until payment for the Modules was settled. There were 4 versions of the NDU. Each version of NDU-3 contained an arbitration clause. Only the third version of the NDU (“NDU-3”) was signed by the Shareholder Company.
On 18 March 2016, the Claimant released the remaining goods. Partial payments were made of the for the Modules to the Claimants in March 2016 by the Procurement Company. A balance of ₴7.35m remained unpaid. The Claimants started an arbitration claim against all three Respondents in 2017 to recover the unpaid balance.
The Arbitral Tribunal found the Respondents liable under a partly written, partly oral “Modules Delivery Agreement” (“MDA”). It found that NDU-3 formed part of the MDA and that the Respondents had agreed to pay the Claimant for all unpaid invoices raised in respect of the Modules, in consideration of which the Claimant release the remaining Modules to allow the project to be completed.
The Respondents applied to set aside the arbitral award, arguing that the Arbitral Tribunal lacked jurisdiction because there was no concluded contract and hence no binding arbitration agreement between them and the Claimant. The Respondents contended that a. There was no valid arbitration agreement between the Respondent and the Claimant; b. The Arbitral Tribunal exceeded the scope of its jurisdiction; and c. The Tribunal breached the rules of natural justice.
The High Court dismissed the Respondents’ setting aside applications. An appeal was made to the Court of Appeal from the High Court.
Ruling
The Court of Appeal dismissed the appeal by the Respondents to the arbitration, holding that:-
The seat court, in discharging its supervisory role, should strive to uphold arbitral awards. It should take a "generous approach" when reviewing arbitral awards and curial intervention should be minimal, to support and not displace the arbitral process. Two principal considerations undergirded the approach: a. The need to uphold finality of the arbitration process to encourage the use of arbitration. b. The choice of arbitration meant that parties must accept both the benefits and consequences of their exercise of party autonomy.
When a setting aside application is based on a jurisdictional challenge premised on the absence of a concluded contract, both the seat court and any appellate court above it, undertakes a de novo review. However, it need only concern itself with whether such a contract existed. In doing so, it would consider if the parties conducted themselves in a way which showed they considered themselves bound.
The seat court and the appeal court above it need not engage in a comprehensive interpretation exercise as to the terms of the contract and parties’ liability under those terms. Such questions belonged to the merits of the dispute and were to be decided by the Arbitral Tribunal.
The Court adopts an objective test to see if the conduct and words of the persons concerned could reasonably be construed to evince an intention to enter into a binding contract. It will consider the entire course of negotiations to determine if there was a single point in time where there was a meeting of minds.
On the facts, the Court of Appeal held that: a. The purpose of the negotiations in March 2016 which each of the Respondents had taken part in, was to reach an agreement to resolve the dispute. The resulting MDA was an agreement whereby the Claimant was persuaded to release the remaining Modules in exchange for its invoices being paid. NDU-3 was intended to be an appendage to the MDA to provide the Claimant with added assurance that the outstanding invoices would be paid. b. NDU-3 was worded such that the Project and EPC Companies, even though non-signatories to the NDU-3, could make payment for the unpaid Claimant invoices. Various rights and obligations pertaining to these two companies were also provided for in NDU-3. The arbitration clause in NDU-3 gave the right to the three Respondents to collectively appoint an arbitrator. Assessment of the conduct of all parties post-negotiations led to the same conclusion. c. Since the Respondents were the ones who wanted to enter into the MDA along with the NDU-3 as assurance, it would be disingenuous for them to disavow the existence of the MDA after causing the Claimant to release the Modules.
The Court of Appeal held that issues as to the authority to contract was distinct from that of the authority to enter into an arbitration agreement, with the former being for the Arbitral Tribunal to resolve. Hence, a general objection that a party’s representative has no authority to contract would not be entertained as part of a jurisdictional challenge.
The Court of Appeal rejected the Respondents’ argument that the Tribunal exceeded the scope of its jurisdiction by finding that the parties entered an MDA with NDU-3 appended though this contention was allegedly unpleaded. The Court rejected the argument, holding that the Claimant’s case in its arbitration notice, the terms of reference of the Tribunal (liberally interpreted) and the Statement of Claim were consistent with the point.
The Court of Appeal also rejected the Respondents’ argument that there was any breach of natural justice as that objection on the facts, flowed from the unsuccessful argument that the Tribunal exceeded its jurisdiction.
