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Nature of Matter    

Setting aside of Arbitral Award

Case Summary

1.  This Appeal arose from the sale and purchase of a controlling 64% stake of the shares (“the Shares”) in a company (“C”).
2. C was India’s largest manufacturer of generic pharmaceutical products. The buyer was BAZ, a Japanese corporation. The sellers comprised the family members of C’s founder and several companies controlled by them (“the Sellers”). The Sellers were led by BBA, a grandson of C’s founder. Five of the Sellers were minors (“the Minors”).
3. The sale and purchase agreement (“SPA”) contained an arbitration clause providing for arbitration in Singapore. Clause 13.14.1 of the SPA prohibited the arbitrators from awarding “punitive, exemplary, multiple or consequential damages”.
4. Clause 13.14.4 provided that the award “shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal”.
5. Disputes arose regarding the circumstances under which the SPA was concluded. BAZ alleged that the Sellers had concealed from it the existence of an internal report detailing how C engaged in data falsification to expedite the obtaining of regulatory approval for numerous drug products around the world (“the Report”). Following a 2005 disclosure of the Report by a whistleblower to the authorities, the United States Department of Justice (“DOJ”) and Food and Drug Administration (“FDA”) began investigations in early 2006. Negotiations with the DOJ and FDA led to a settlement or consent decree in December 2011, and C made provision for paying an anticipated settlement sum of US$500 million.
6. In November 2012, BAZ commenced arbitration in Singapore against the Sellers, twenty of whom were eventually named as respondents in the arbitration. BAZ alleged misrepresentation and concealment of facts regarding the extent of the investigations by the DOJ and FDA
7. In April 2014, BAZ (who was by then a controlling shareholder of C) announced the merger of C with another company (“Y Co”) 
8. Substantive hearings for the arbitration occurred from September to October 2014. In March 2015, the Merger was completed, and in April 2015, BAZ sold all its shares in Y Co in the open market.
9. In an award dated 29 April 2016 (“the Award”), the majority of the tribunal (“the Majority”) held in favour of BAZ.
10. BAZ applied in Originating Summons for leave to enforce the Award, and obtained an ex parte order for enforcement on 18 May 2016. This was opposed by the Sellers, who split themselves into two groups: (a) the Minors and (b) the remaining defendants (“the OS 784 Sellers”).
11. In BAZ v BBA and others [2018] SGHC 275, the High Court judge dismissed the OS 784 Sellers’ setting aside application and their application to set aside the ex parte enforcement order, but allowed the Minors’ setting aside application and their application to set aside the ex parte enforcement order.
12. On appeal to the SGCA, three of the OS 784 Sellers sought separate representation to bring Civil Appeal No 10 of 2019 (“CA 10”), while the remaining OS 784 Sellers brought Civil Appeal 9 of 2019 (“CA 9”).
13. The appellants in CA 9 (“the CA 9 Appellants”) repeated their submissions below that the awards of damages as well as pre-award interest were beyond the parties’ scope of submission to the arbitration, because this was compensation for loss of opportunity that amounted to consequential damages. When taken together with the damages award, the pre-award interest also constituted punitive or multiple damages in the form of double recovery. The CA 9 Appellants further submitted that the seat court was entitled to undertake a de novo review of whether BAZ’s fraud claim was time-barred, since time-barred claims fall entirely outside the scope of the parties’ submission to arbitration.

14. The appellants in CA 10 (“the CA 10 Appellants”) aligned themselves with the CA 9 Appellants on the excess of jurisdiction regarding the award of damages and pre-award interest. Additionally, they argued that the finding of joint and several liability gave rise to three grounds of challenge: (a) a breach of natural justice, because the Majority found the Sellers jointly and severally liable to BAZ without hearing submissions on this point; (b) an excess of jurisdiction, because the Majority found the Sellers jointly and severally liable even though this was not a matter submitted for determination to the tribunal; and (c) a breach of public policy, because this ignored the principle of shareholders’ limited liability and was also an egregious error of law in the making of an award.

15. BAZ disagreed that any of the above grounds for setting aside were made out by the CA 9 Appellants or the CA 10 Appellants.

16. There were thus three issues which arose for the SGCA’s determination on appeal:

    • Did the Majority, in awarding damages and/or pre-award interest, fall afoul of the prohibition against “punitive, exemplary, multiple or consequential damages” (“the Express Prohibition”) in the arbitration clause and thereby exceed its jurisdiction? (“the Damages and Interest Issue”)
    • Is the seat court entitled to undertake a de novo review of whether BAZ’s fraud claim is time-barred under the Indian Limitation Act, and if so, would that claim be time-barred? (“the Time Bar Issue”)
    • Does the Majority’s finding of joint and several liability give rise to a challenge on the grounds of breach of natural justice, excess of jurisdiction, or public policy? (“the Joint and Several Liability Issue”)

The Court of Appeal dismissed the appeals brought by the respondents in the arbitration and declined to set aside the award.

The Damages and Interest Issue

The SGCA found that the Majority did not breach the Express Prohibition by awarding damages or pre-award interest as it did: at [39].

First, the SGCA rejected the CA 9 Appellants’ submissions in relation to the Damages Issue (a) that the Merger (being a subsequent event) should not be considered at all and (b) regarding the Majority’s misplaced reliance on certain legal authorities, on the basis that these went to he merits of the award and were outside the remit of the court: at [40] to [43].

Second, the SGCA rejected the CA 9 Appellants’ reliance on various portions of the Award that allegedly indicated the Majority’s subjective intention to compensate for loss of opportunity via their damages award (“the Impugned Statements”). Rather, the SGCA held that the Impugned Statements had to be read in context and assessed in substance rather than form, an inquiry which showed no such subjective intention as alleged by the CA 9 Appellants: [44] to [49] and [51]. Additionally, even if the Majority erred in using the WACC as the appropriate discount rate, that was an error going towards the merits which the seat court is not allowed to review: at [50].

Third, the SGCA rejected the Appellants’ contentions regarding the characterisation of pre-award interest as consequential damages, as the Express Prohibition does not even apply to awards of interest: at [52] to [58].

Fourth, the SGCA rejected the Appellants’ argument that when taken together with the damages award, the pre-award interest amounts to double recovery and therefore also constitute punitive or multiple damages. The SGCA instead found that the Majority had quantified damages by calculating BAZ’s loss in 2008 by reference to the Merger, discounted backwards to 2008; once they had obtained this initial quantum, they were entitled to award interest on the damages to bring that sum forward in time with no issues of double recovery: at [60] to [61].

The Time Bar Issue

The SGCA held that (a) it was Singapore law, as the lex arbitri as well as the law of the seat court, that governed the question of whether limitation should be classified as going towards jurisdiction or admissibility (“the classification question”); and (b) under Singapore law, issues of time bar arising from statutory limitation periods went towards admissibility. For this reason, a de novo review of whether BAZ’s fraud claim was time-barred could not be undertaken: at [64] and [84].

Regarding (a), the SGCA rejected the CA 9 Appellants’ argument that the seat court in answering the characterisation question should have regard to the position taken under the governing law of the arbitration agreement and substantive agreement because that was consistent with the parties’ intentions. The parties’ intention was a neutral factor. It could equally be said that parties, despite all the connecting facts to India and Indian law, specifically chose Singapore as the seat. That meant and included the choice of the seat’s laws to govern the classification question independently of their choice of governing law: at [66].

Regarding (b), the SGCA held that the “tribunal versus claim” test underpinned by a consent-based analysis should apply for purposes of distinguishing whether an issue went towards jurisdiction or admissibility. The “tribunal versus claim” test asked whether the objection was targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration), or at the claim (in that the claim itself was defective and should not be raised at all). In the former case the objection would go towards jurisdiction, and in the latter case, towards admissibility. Consent served as the touchstone for whether an objection was jurisdictional because arbitration was a consensual dispute resolution process: at [76], [77] and [78].

The Joint and Several Liability Issue

The SGCA rejected the CA 10 Appellants’ arguments, in relation to breach of natural justice, excess of jurisdiction, and breach of public policy, which were premised on the Majority’s finding that the CA 10 Appellants were found jointly and severally liable for damages: at [85].

The SGCA also held there was no breach of the fair hearing rule. Although the tribunal did not invite submissions on joint and several liability, the short answer was the Sellers did not take the point before the tribunal at all, such that the tribunal could not be faulted for not foreseeing any complications and not dealing with this issue in depth in the Award. The onus was on the Sellers to highlight the issue of joint and several liability to the tribunal, in light of the state of the terms of reference and the pleadings. Having failed to make the point on joint and several liability before the tribunal, it was too late to bring this complaint before the seat court in setting aside proceedings: at [90], [91] and [94].

The court also held that it would not be a breach of public policy to find the Sellers jointly and severally liable to BAZ. The doctrine of shareholders’ limited liability did not limit shareholders’ liability in relation to torts committed by their agents in the sale of their shares. Moreover, mere errors of law would not cross the threshold of making out a breach of Singapore’s public policy: at [100] and [102].