Pre-award arbitrability: the seat, the governing law and the composite approach

Posted on May 25, 2023 by Os Agarwal

In the event a party challenges arbitrability of a dispute, a threshold question arises: should the issue of arbitrability be considered under the law governing the arbitration agreement or the law of the seat of the arbitration? This issue was most recently considered by the Singapore Court of Appeal in the case of Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 (“Mittal”).

(1) The Singapore Position

(A) Brief Facts of Mittal

The Appellant was one of the founder-shareholders of a company incorporated in India that owns and operates a well-known matrimonial service (the “Company”). The Respondent was a Mauritian private equity fund which invested in the Company as a shareholder in 2006. The Shareholders’ Agreement (“SHA”) between parties contained an arbitration agreement at clause 20 (“Arbitration Agreement”) providing that any dispute relating to the management of the Company or relating to any of the matters set out in the SHA shall be referred to arbitration seated in Singapore under the rules of the International Chamber of Commerce. The governing law of the SHA was specified to be the Indian law and there was no separate choice of law specified for the Arbitration Agreement.

In 2017, the Respondent expressed a desire to exit the Company and parties’ relationship started to sour. In 2021, the Appellant filed a petition in the National Company Law Tribunal in Mumbai against the Respondent seeking remedies for corporate oppression (the “NCLT Proceedings”). Relying on the Arbitration Agreement in the SHA, the Respondent applied to the Singapore High Court for a permanent anti-suit injunction. The Singapore High Court found that the law of the seat applies to the question of arbitrability at the pre-award stage. Given that under Singapore law, shareholder disputes and minority oppression claims are arbitrable, the Singapore High Court accordingly concluded that the commencement of the NCLT Proceedings was in breach of the Arbitration Agreement and granted the Respondent’s application for an anti-suit injunction.

(B) Holding of the Singapore Court of Appeal in Mittal

On appeal, while the Singapore Court of Appeal dismissed the Appellant’s appeal, it adopted a different approach from the High Court, establishing a 2-tiered composite approach to determine arbitrability at the pre-award stage and providing guidance on determining the law governing the Arbitration Agreement.

(C) The Holding of the Singapore Court of Appeal in Mittal

Arbitrability – The Two-Tiered Composite Approach

Stage 1: The arbitrability of a dispute is determined with reference to the law of the arbitration agreement. If that law is a foreign governing law which finds that dispute non-arbitrable, the Singapore court will not allow the dispute to proceed to arbitration because it will be contrary to foreign public policy.

Stage 2: Even if the dispute is arbitrable under the law of the arbitration agreement, if Singapore law, as the law of the seat, finds the dispute non-arbitrable, the arbitration would not be able to proceed because it is contrary to Singapore public policy.

In formulating the composite approach, the Court reasoned that:

  1. An arbitration agreement derives its authority from the consensus of the parties, and therefore the arbitration agreement together with the law that governs it must determine exactly what the parties have agreed to arbitrate. The law of the seat deals with matters of procedure but the law of the arbitration agreement deals with matters of the validity of the agreement and is, in that sense, anterior to the actual conduct of the arbitration.
  2. Section 11 of the Singapore International Arbitration Act 1994 (“IAA”) provides that a dispute is not arbitrable if it is contrary to public policy. It was obviously within the drafters’ contemplation that arbitrations may be seated in Singapore with no other connection to Singapore and in such a situation, the public policy of a foreign jurisdiction could impact the parties or the arbitration (in addition to that of Singapore).
  3. Additionally, if the arbitration concerns an issue that happens to be non-arbitrable by the law of the seat, that would be another obstacle by reason of Art 34(2)(b)(i) of the Model Law, which authorises the seat court to set aside an award in such circumstances.

Proper Law of the Arbitration Agreement

The Singapore Court of Appeal then went on to determine the proper law of the arbitration agreement based on the three-stage test laid down in BCY v BCZ [2017] 3 SLR 357. The Court found that Singapore law was the law of the arbitration agreement.

  1. There was no express choice of any law in the arbitration agreement. The reference to Indian law being “in all respects” the governing law of “[the SHA] and its performance” is not to be construed as expressly choosing the law to govern the arbitration agreement. An express choice of law for an arbitration agreement would only be found where there is explicit language stating so in no uncertain terms.
  2. While the choice of law for the main contract will generally lead a court to hold that the same law also applies to the arbitration agreement, there were sufficient indications in this case to negate the implication that Indian law was intended to govern the arbitration agreement in the SHA as that implication would mean frustrating the parties’ intention to arbitrate all their disputes (given oppression claims are not arbitrable in India).
  3. Singapore law had the most real and substantial connection with the arbitration agreement in the SHA as the arbitration was to take place in Singapore and as the law of the seat of the arbitration, Singapore law would govern the procedure of the arbitration. 

Conclusion on Singapore Position

As the dispute was arbitrable under Singapore law (which was both the seat and the law of the arbitration agreement), the Court concluded that the NCLT proceedings were brought in breach of the Arbitration Agreement and dismissed the appeal.

(2) The Position in England

Arbitrability

In Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company) [2020] EWHC 2483 (Comm) (“Riverrock”) (our full analysis available here), the English High Court considered the issue of arbitrability in the context of an interim anti-suit injunction in respect of certain bankruptcy proceedings. The English Court considered that whether the claims were capable of being submitted to arbitration should be determined in accordance with English law, which in this case was both the law of the arbitration and the seat. There was no sufficient countervailing public policy arising from the fact that the claims were avoidance claims in a foreign bankruptcy to override the clear English law policy of upholding arbitration agreements. In circumstances where the arbitral tribunal was able to grant the relief sought, those claims were arbitrable.

Referencing the Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, the English Court noted, in the specific narrow context of insolvency, that a claim may be non-arbitrable not only because the claimant seeks an order that “only a court can make”, or that it affects the interests of third parties such as shareholders not party to the arbitration agreement, but because it “represent[s] an attempt to delegate to the arbitrators what is a matter of public interest which cannot be determined within the limitations of a private contractual process”.

Proper Law of the Arbitration Agreement

In Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 (“Enka”) (our full analysis available here) the UK Supreme Court considered the issue of which system of law governs the validity and scope of the arbitration agreement when the law applicable to the contract containing it differs from the law of the seat of the arbitration. The 3:2 majority cited the Singapore decision of BCY v BCZ [2017] 3 SLR 357 with approval and held that:

  1. The starting point is the English common law rules for resolving conflicts of laws rather than the provisions of the Rome I Regulation because article 1(2)(e) of Rome I excludes from its scope “arbitration agreements and agreements on the choice of court”.
  2. In order to determine whether the parties have made a choice, the arbitration agreement and the contract containing it are to be construed, as a whole, applying the rules of contractual interpretation of English law (being the forum of the dispute).
  3. If there is no separate choice of law for the arbitration agreement, but there is a choice of governing law for the main contract, the main contract governing law will generally apply to the arbitration agreement.
    1. The fact that the seat of the arbitration is different from the choice of governing law of the main contract is not on its own enough to negate an inference that the governing law of the main contract applies to the arbitration agreement as well.
    2. Factors that can indicate a different governing law for the arbitration agreement are, for example, the existence of a serious risk that, if governed by the same law as the main contact, the arbitration agreement would be ineffective
  4. In the absence of such a choice, the governing law will be law with which the arbitration agreement is most closely connected.
    1. The majority held that despite the reasonable assumption that the parties have intended for all terms of their contract to be governed by the same system of law, there is authority for a “general rule” that the arbitration agreement is most closely connected with the law of the seat of the arbitration, even if that law differs from the law applicable to the parties’ substantive obligations
    2. In his dissenting judgment, Lord Burrows was of the view that “absent an express choice of law in the arbitration agreement, there is a presumption (or general rule) that the proper law of the main contract is also the proper law of the arbitration agreement; and there is no such presumption (or general rule) that the law of the seat is the proper law of the arbitration agreement”.

Notably, Mittal (CA) also cites Enka as authority for the principle that there should be harmony on the applicable law for determining arbitrability of the dispute between the pre- and post-award stages. In Enka, the UK Supreme Court emphasised that it would be illogical if the law governing the validity of the arbitration were to differ depending on whether the question of validity is raised before or after an award has been made.

(3) Key Takeaways

As a matter of economic practicality and commercial certainty, the landmark decisions of the apex courts of Singapore and the England are generous reminders that the key features of an agreement should be spelt out in clear, express terms, including the governing law of the main contract and the arbitration agreement respectively, as well as choosing the seat of the arbitration. Parties should ideally choose the law of a pro-arbitration jurisdiction to govern their arbitration agreement and specify the governing law in the clause/agreement itself. Parties should also consider if the subject matter or nature of the dispute would be arbitrable under the law of the arbitration agreement and the law of the seat.

Parties should also consider raising issues of arbitrability at the pre-award stage. Failure to do so could be interpreted as an unconditional waiver of the right to object, precluding parties from raising objections based on arbitrability at the post-award stage.

Article co-authored by Nikki Ang, Intern at CMS Holborn Asia

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Singapore Court of Appeal affirms strict adherence to defined scope of remission of arbitral awards in cases where set aside applications have been suspended (CKH v CKG [2022] SGCA(I) 6)

Posted on September 8, 2022 by Wei Ming Tan

This article was first published on Lexis®PSL on 8 September 2022.

Arbitration Analysis: This case addresses the issue of the scope of a tribunal’s powers to consider matters falling outside the scope of an order for limited remission made under Article 34(4) of the Model Law. Art 34(4) empowers a court hearing a setting aside application to suspend the proceedings to give the ‘arbitral tribunal an opportunity to resume the arbitral proceedings or take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside‘. The Court of Appeal held that the scope of remission is specifically defined by the terms of the court order ordering remission. Accordingly, there was no basis for a party or the tribunal to seek to re-open or expand the subject matter of the award or arbitration beyond the scope of remission. The tribunal’s original award renders it functus officio save to the extent of the order for remission gives it revived power.

 What are the practical implications of this case?

This case addresses the issue of whether and how far a party may, on a remission under Article 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law‘) (scheduled to Singapore’s International Arbitration Act 1994) go outside the scope of the order for remission. The Court of Appeal affirmed the decision of the judge hearing the application below that an arbitral tribunal’s role should be strictly limited to the order for remission, and any further points which a party claimed to raise were not open to the tribunal on such remission. In particular, the parameters of the remission were not open to being revisited by the tribunal. The order of remission cannot be misused to bring into the arena before the tribunal matters that clearly fall outside the scope of the limited remission.

What was the background?

This case arose from a strongly contested arbitration where the tribunal issued a final award with two memoranda of corrections sometime between August to November 2020. In earlier proceedings to set aside the award, the Court of Appeal upheld the decision of the judge that the award failed to take into account the existence and quantum of a debt and interest owing by the appellant to the respondent.

The judge exercised the court’s power under Art 34(4) to suspend the set aside application to give the “arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside”. The judge issued an order of court on the remitted matters with a set terms of reference.

When the matter was returned to the tribunal, the appellant claimed to raise a number of points relating to the debt (and interest) which the respondent contended fell outside the scope of the remission ordered. The tribunal indicated that it was necessary for the parties to revert to the judge for a decision. The judge confirmed that the tribunal’s role was strictly limited to the exercise defined in the order, and that the further points raised by the appellant were not open to be before the Tribunal.

The appellant appealed against the Judge’s decision under Order 21 rule 20 of the Singapore International Commercial Court Rules 2021.

What did the court decide?

The court dismissed the appeal, stating that while the power conferred upon the court under Art 34(4) is relatively broad, the scope of remission is necessarily defined by the terms of the order ordering the remission. A carefully defined order specifies precisely what the tribunal can and should do. Apart from the remission ordered, there is no basis on which a party or the tribunal can seek to re-open or expand the subject matter of the award or arbitration. The tribunal’s original award renders it functus officio, save to the extent the remission order gives it revived power. The Tribunal’s jurisdiction is only revived to the extent of the remission ordered.

In particular, the court dismissed the appellant’s challenge to the recitals of the order, which were integral aspects of the remission ordered and were res judicata. All that was open before the court were issues pertaining to the interpretation of the meaning and the scope of the remission which was ordered.

This article may be cited as Wei Ming Tan, “Singapore Court of Appeal affirms strict adherence to defined scope of remission of arbitral awards in cases where set aside applications have been suspended” (https://singaporeinternationalarbitration.com/2022/09/08/singapore-court-of-appeal-affirms-strict-adherence-to-defined-scope-of-remission-of-arbitral-awards-in-cases-where-set-aside-applications-have-been-suspended-ckh-v-ckg-2022-sgcai-6)

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Singapore Court of Appeal clarifies grounds for setting aside arbitral awards and applicability of ‘no evidence rule’ in Singapore (CEF and CEG v CEH)

Posted on July 29, 2022 by Wei Ming Tan

*This analysis was first published on LexisNexis on 29 July 2022.

Arbitration Analysis: In CEF and CEG v. CEH [2022] SGCA 54, the Singapore Court of Appeal dealt with a variety of orders in an arbitral award to determine whether they should be set aside. The appeal raised a number of novel points, with the appellants alleging that the orders were, inter alia, ‘uncertain, ambiguous, impossible and/or unenforceable’, in breach of the ‘no evidence rule’ applied to findings of fact made without evidential basis, and in breach of the fair hearing rule. The court found that ambiguity in or unenforceability of an award were not proper grounds for setting it aside, and that the ‘no evidence rule’ is not appropriate under Singapore law as it contravenes the principle of minimal curial intervention. The court also expounded on how an arbitral tribunal’s chain of reasoning can result in a breach of the fair hearing rule. 

What are the practical implications of this case?

This landmark Singapore Court of Appeal decision addresses several issues of interest on the setting aside of arbitral awards. This includes (a) whether an award should be set aside on the basis of it being ‘uncertain, ambiguous, impossible and/or unenforceable’; (b) the applicability of the ‘no evidence rule’ to set aside awards for containing findings of fact with no evidential basis; and (c) how a breach of the fair hearing rule could arise from a tribunal’s chain of reasoning.

What was the background?

The first appellant is a multinational company which designs, builds and sells plants for the iron and steel industry. It is the parent of the second appellant. The respondent manufactures hot-rolled steelcoils and carries on business on the premises of its parent, a major steelmaker (“Parent”). In 2011, the appellants were contracted to design and build a steel-making plant (“Plant”) for the respondent (“Contract”).

In 2016, the parties’ relationship broke down after delays in the construction of the Plant and the failure of the Plant to achieve its production target. The parties each initiated action against the other. This led to a consolidated arbitration in October 2016 (“Arbitration”). An award was issued in 2019 with various orders in favour of the respondent (“Award”).

The three-member tribunal (“Tribunal”) found that the respondent had been induced to enter into the Contract by the appellants’ misrepresentations, and that the respondent was entitled to rescission:-

  • the appellants were to pay the respondent the contract price, less two loans extended to the respondent and after taking into account the respondent’s use of and the diminution in value of the Plant (“Repayment Order”).
  • the respondent was to transfer title to the Plant to the appellants in return for payment under the Repayment Order (“Transfer Order”).
  • the appellants were to pay the respondent sums denominated in an unknown currency totalling R$176,245,250 (“Damages Order”).

The appellants applied to the Singapore High Court to set aside the Award on the basis of breach of natural justice under section 24(b) of the International Arbitration Act (“IAA”) and other grounds under Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). The High Court judge (“Judge”) dismissed the appellants’ application.

The appellants appealed the Judge’s decision to the Court of Appeal (“Court”).

What did the court decide?

Transfer Order – Uncertain, Ambiguous, Impossible, Unenforceable

The Court declined to set aside the Transfer Order on the allegation that it was “uncertain, ambiguous, impossible and/or unenforceable”.

As a starting point, the Transfer Order would not be set aside because it was allegedly unenforceable. Rather, an award becomes unenforceable because it has been set aside.

The appellants’ reliance on article 41 of the ICC Arbitration Rules (“Art 41”) was misplaced. Art 41 seeks to ensure that the procedural requirements of enforcement are satisfied, but a tribunal does not have the duty to accurately predict or guarantee whether a judicial authority will subsequently enforce an award.

The Transfer Order was also not uncertain or ambiguous. In any case, uncertainty or ambiguity is not a basis to set aside an award under Art 34(2)(a)(ii) to (iv) of the Model Law. The Transfer Order was also not impossible or unworkable; neither did the appellants provide authority to justify setting aside an award for impossibility or unworkability.

The Transfer Order did not contain decisions on matters beyond the scope of submission to the Arbitration. An issue which surfaces in the course of arbitration and which is known to all the parties is within the scope of submission to arbitration even if it is not part of any memorandum of issues or pleading: TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at para [52] (“TMM Division”). The counter-restitution of the Plant in specie was a natural consequence of the respondent’s counterclaim for rescission. The appellants were not denied a reasonable opportunity to submit on the issue of the transfer, and how such transfer would be effected.

Repayment Order – No Evidence Rule

The Court declined to set aside the Repayment Order on the basis that it was issued in breach of the ‘no evidence’ rule or the fair hearing rule.

The ‘no evidence rule’ is a rule sometimes applied in Australia and New Zealand to set aside an award containing findings of fact with no evidential basis at all for breach of natural justice.

The Court held that the ‘no evidence rule’ should not be adopted as part of Singapore law as doing so would be contrary to the policy of minimal curial intervention in arbitral proceedings: AKN and Anor v ALC and Ors [2015] 3 SLR 488 at paras [37]-[38]. Further, it would not add anything to the existing grounds for setting aside but would be “an impermissible invitation to the courts to reconsider the merits [of] a tribunal’s findings of fact as though a setting-aside application were an appeal”.

In any event, the ‘no evidence rule’ was inapplicable as appellants bore the burden of proof to adduce evidence on proving the diminution in value of the Plant.

Damages Order – Fair Hearing Rule

The Court set aside the Damages Order on the basis of a breach of the fair hearing rule.

The Tribunal had ordered a 25% recovery of the damages the respondent sought even though it had found the respondent’s evidence to support its reliance loss to be deficient. The Tribunal decided to adopt a ‘flexible approach’ in awarding damages without first informing the parties or giving them the opportunity to address the Tribunal. The Court found that the Tribunal’s chain of reasoning was not (i) one which the parties had reasonable notice it would adopt; nor did it (ii) have sufficient nexus to the parties’ arguments, giving rise to a breach of the fair hearing rule: BZW and Anor v BZV [2022] SGCA 1 at para [60(b)].

Award was sufficiently reasoned

Finally, the Court declined to set aside the Award on the allegation that it did not contain sufficient reasons for the Tribunal’s decision. The Court found that, on the whole, the Award did provide sufficient reasons to inform the bases on which the Tribunal reached its decision on the essential issues. Whether a given decision is sufficiently reasoned is a matter of degree and must be considered in the circumstances of each case – even if no reasons were given in an award, this would not invariably cause the award to be set aside for breach of natural justice: AUF v AUG [2016] 1 SLR 859 at paras [77]-[79]. An allegation of inadequate reasons and explanations is generally not capable of sustaining a challenge against an award: TMM Division at para [98].

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SGCA exercises inherent power to set aside judgment enforcing arbitral award and order return of sums paid out

Posted on June 15, 2022 by Os Agarwal

Does the court have inherent powers to set aside an earlier judgment enforcing an erroneous arbitral award? What about consequential orders flowing from such a judgment? The Singapore Court of Appeal had occasion to decide this in ST Group Co Ltd and others v Sanum Investments Limited [2022] SGCA 2. We review the case and summarise its key takeaways.

Background

Sanum Investments Limited (“Sanum”) is a company incorporated in Macau, and was the claimant in arbitration proceedings brought under the rules of the Singapore International Arbitration Centre (“SIAC”). The respondents to the SIAC Arbitration were ST Group Co Ltd, Mr Sithat Xaysoulivong and ST Vegas Co Ltd (collectively, the “Applicants”) and ST Vegas Enterprise Ltd. The substantive dispute between the parties concerns arrangements relating to a slot machine club in Laos. In a bid to obtain relief against the Applicants for what it claimed were breaches of contract, Sanum commenced the SIAC Arbitration and obtained the SIAC Award against the respondents.

Sanum subsequently obtained leave from the Singapore courts to enforce an arbitral award in the same manner as a judgment of the High Court. Leave was granted and Sanum subsequently obtained judgment for the relief provided in the arbitral award. Based on the judgment, Sanum then obtained three final garnishee orders and garnished certain sums against the Applicants.

The Applicants appealed against the leave granted to Sanum to enforce the arbitral award and were successful in setting aside the leave order on the basis that the wrong seat had been chosen in the arbitration (the arbitration was seated in Singapore instead of Macau), even though the Applicants had not shown prejudice arising from these procedural irregularities. The Court was of the view that the wrong choice of seat was a sufficient basis on which to set aside the enforcement order without there being need for proof of prejudice.

Issue

The issue before the Court of Appeal (where the Applicants sought consequential orders) was whether to set aside the judgment and the garnishee orders, and whether the Court had the power to and should order the return of the garnished sums to the Applicants.

Conclusion

The Court of Appeal held that it should exercise its powers to set aside the judgment and the garnishee orders as there was a clear need in the interests of justice to do so as the entire substratum of the judgment and garnishee orders had ceased to exist. Not setting aside these orders would lead to injustice in that entirely invalid court orders would remain formally operative. This would be unjust and would bring the legal system into disrepute.

The Court of Appeal also held that an appellate court has the inherent power to order a return of sums paid under a judgment or order that has been reversed on appeal. Accordingly, the Court of Appeal ordered that the garnished sums should be returned as a matter of justice. This was the starting point in such a situation and Sanum had not shown that this should be departed from.

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Conditional Fee Agreements Regime in Singapore – Liberalisation of Singapore’s Legal Landscape and Lessons Learned from Other Jurisdictions

Posted on December 21, 2021 by Wei Ming Tan

In a recent development, Singapore’s Ministry of Law proposed a framework for conditional fee agreements (“CFAs”) that may be entered into between lawyers and their clients in prescribed proceedings. This liberalisation of the legal landscape in Singapore promises to strengthen Singapore’s position as an international dispute resolution hub. It also levels the playing field for lawyers practising in Singapore in areas such as international arbitration or the Singapore International Commercial Court (“SICC”) vis-à-vis their counterparts in foreign jurisdictions who are already able to offer such arrangements.

Conditional Fee Arrangements in Singapore

On 1 November 2021, Singapore’s Ministry of Law tabled for First Reading in Parliament the Legal Profession (Amendment) Bill(the “Bill”) which sought to create a statutory exemption for CFAs in Singapore. CFAs are arrangements whereby the whole or a part of a lawyer’s fees only become payable in specified circumstances (for e.g. where the claim is successful). Such arrangements were hitherto prohibited in Singapore due to its laws against champerty and maintenance.[1] When champerty and maintenance were abolished as torts in 2017,[2] contracts that were affected by champerty and maintenance were still considered illegal and contrary to public policy except for permitted categories.

In addition to creating a statutory exemption for CFAs in relation to fees or costs for prescribed proceedings that comply with specified requirements, the Bill also sets out an overarching framework for CFAs that will apply to Singapore law practices and certain registered foreign lawyers and foreign law practices to which the Legal Profession Act applies.

The Bill defines a CFA as “an agreement relating to the whole or any part of the remuneration and costs in respect of contentious proceedings (whether relating to proceedings in Singapore or any state or territory outside Singapore) conducted by a solicitor, a foreign lawyer or a law practice entity, which provides for the remuneration and costs or any part of them to be payable only in specified circumstances, and may provide for an uplift fee.” CFAs are to be distinguished from contingency fee arrangements. In a contingency fee arrangement, a lawyer will ordinarily receive an agreed percentage of the sum recovered by the client, with no direct correlation to the work done. Contingency fee arrangements will continue to be prohibited under the Bill.

Contentious proceedings relate to proceedings before a court or an arbitrator or any other dispute resolution proceedings, and they could be proceedings occurring in Singapore or elsewhere. In its press release on 1 November 2021, the Ministry of Law clarified that as a start, these proceedings include international and domestic arbitration proceedings, certain proceedings in the SICC, and related court and mediation proceedings.

To come within the purview of the Bill, the CFA must: (i) be in writing and signed by the client; (ii) not provide for the remuneration or costs to be payable as a percentage or proportion of the amount of damages or other amounts awarded to or recovered by the client in any contentious proceedings (i.e. not a contingency fee arrangement); and (iii) comply with the regulations made by the Minister of Law to carry out or give effect to the Bill. The proposed framework also provides for a mandatory cooling-off period of five (5) days upon entry into a CFA and three (3) days in respect of a variation to a CFA. This mandatory cooling-off period has been instituted in Australia, but not in the equivalent English legislation regulating CFAs.

An “uplift fee” would be the remuneration or costs which are payable in specified circumstances, which are higher than the remuneration or costs that would otherwise be payable without a CFA. The proposed draft section 115C(2) of the Bill provides that uplift fees cannot be recovered as party-and-party costs by a client who had entered into a CFA. The current arbitration regime in Singapore gives the arbitral tribunal a broad discretion to award party-and-party costs, but the Bill appears to prohibit an arbitral tribunal from exercising such discretion in relation to uplift fees in CFAs. The ability to recover uplift fees from counterparties continues to be a hotly debated topic among legal practitioners since its non-recoverability has apparently contributed to an increase in solicitor-client disputes in certain jurisdictions like the UK. It remains to be seen whether the eventual legislation passed by Parliament would continue to adopt an absolute prohibition against such recovery, or take on a more nuanced, qualified position. 

Feedback from the legal profession and other respondents to a public consultation exercise conducted by the Ministry of Law in 2019 was generally positive and supportive. The feedback recognised that CFAs stood to improve access to justice by providing litigants with additional funding options to pursue meritorious claims, which they may otherwise not pursue. Furthermore, considering that fees under a CFA are contingent on the outcome, CFAs may also help to discourage lawyers from pursuing weak cases and frivolous claims. Any concerns about intermeddling in or profiting from litigation (the main objections to maintenance and champerty) are addressed by the regulations and safeguards provided in the Bill that CFAs will be subject to. Fees charged under a CFA will also continue to be subject to professional conduct rules against overcharging.

Ultimately, the ability to provide additional funding options to litigants would strengthen Singapore’s position as an international dispute resolution hub. This builds on the third-party funding framework, which was introduced for international arbitrations in 2017 and extended to domestic arbitrations, certain proceedings in the SICC, and related court and mediation proceedings in June 2021.

The ability to provide CFAs places Singapore lawyers in a better competitive position with lawyers in other jurisdictions who were already able to offer such arrangements. For example, although the prohibition against maintenance and champerty stemmed from the English common law, this prohibition was removed in England by the Courts and Legal Services Act 1990, and since 1998, conditional fees were made available in all civil litigation proceedings, save for certain family law matters, and in arbitration proceedings.

It will be interesting to see how the CFA regime will develop in Singapore. As mentioned, the Ministry of Law will continue to provide safeguards for the implementation of CFAs. Nonetheless, the experience of other jurisdictions would be useful in identifying issues, which would require diligent scrutiny. For example, issues such as the recoverability of CFA success fees and the interpretation of the statutory requirements for CFAs appear to have contributed to a rise in solicitor-client disputes in the UK and Australia. Such issues should be given particular attention as it would be an ironic albeit unintentional consequence if the proposed framework –introduced to provide greater access to justice to parties with meritorious claims but who may be facing cashflow issues – were to result in more solicitor-client disputes.

Conclusion

In areas such as international arbitration, lawyers and legal practices practising in Singapore have been handicapped or placed at a relative disadvantage when compared to their counterparts in other jurisdictions that allow CFAs. Parties involved in international arbitrations are likely to be more commercially sophisticated, and would welcome the opportunity to be able to enter into arrangements with their lawyers on their fees.

To the extent that entering into a CFA is an important consideration in a party’s choice of legal representation in international arbitration proceedings, this further liberalisation of the legal landscape in Singapore will provide increased opportunities for lawyers and legal practices practising in Singapore. The amendment may in future be extended to domestic litigation proceedings since the Ministry of Law continues to monitor the litigation funding landscape to assess whether CFAs can promote greater access to justice in other categories of proceedings.

[1] Maintenance is the provision of financial assistance to a party by a person who has no interest in the proceedings. Champerty is the maintenance of an action in return for a share in the proceeds of the action. As such, champerty is a sub-set of maintenance. Under contract law, agreements affected by maintenance or champerty are void as being contrary to public policy.

[2] Section 5A, Civil Law Act (Cap 43)

This article may be cited as Wei Ming Tan and Asya Jamaludin, “Conditional Fee Agreements Regime in Singapore – Liberalisation of Singapore’s Legal Landscape and Lessons Learned from Other Jurisdictions” *

*First published in CMS International Disputes Digest, December 2021, Winter Edition

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Singapore High Court rejects creative arguments to seek de novo appeal on merits of arbitral award via setting aside applications (BTN v BTP)

Posted on December 20, 2021 by Wei Ming Tan

This article was first published by Lexis®PSL on 20 December 2021.

Arbitration Analysis: A recent decision of the Singapore High Court, BTN v BTP [2021] SGHC 271, reinforced the principle that it is only in exceptional circumstances that parties to an arbitration can successfully seek recourse through curial intervention. In dismissing the plaintiffs’ applications to set aside various arbitral awards, the court emphasised that parties are not entitled to seek a right of appeal against a tribunal’s decision on the merits by applying to the courts to set aside an award. The courts are particularly wary and critical of creative arguments being deployed by an aggrieved party or their counsel to disguise what is in effect no more than a de novo appeal on the merits of a dispute.

What are the practical implications of this case?

This case reinforces the principle in setting aside applications that it is only in exceptional circumstances that parties to an arbitration can successfully seek recourse through curial intervention. There is no right of appeal to the courts against decisions of an arbitral tribunal on the merits. The courts should be wary of creative arguments being deployed by an aggrieved party or their counsel which, in substance, amount to a de novo appeal on the merits of the dispute.

What was the background?

The background of the dispute had been summarised in an earlier case analysis: Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy ground for setting aside awards: BTN v BTP [2020] SGCA 105.

The plaintiffs had unsuccessfully applied to set aside the First Partial Award at both the Singapore High Court and Court of Appeal. Subsequently, the tribunal released a Second Partial Award, a Final Award and an Additional Award (collectively, ‘the Awards’) in favour of the defendants.

Case HC/OS 1401/2019 (‘OS 1401’) was the plaintiffs’ application to set aside the Second Partial Award while Case HC/OS 874/2020 (‘OS 874’) was their application to set aside the Final Award and the Additional Award. The outcome of OS 874 was parasitic to that of OS 1401.

The plaintiffs contended that the tribunal had rendered the Second Partial Award: (a) infra petita (i.e. failing to decide a material issue that was within the scope of submission of an arbitration); (b) in breach of natural justice; and/or (c) contrary to public policy.

The plaintiffs alleged that the tribunal did not allow them to plead a defence that the defendants had breached their confidentiality obligations under the Sale and Purchase Agreement (‘SPA’) and therefore did not satisfy certain conditions precedent set out within the SPA for the defendants to be entitled to the Earn Out Consideration (‘Earn Outs’). This was the Confidentiality Pleading Issue.

The plaintiffs also alleged that the tribunal had wrongly decided that, by reason of issue estoppel, the plaintiffs were precluded from raising as part of their counterclaim various factual allegations accusing the defendants of misconduct in various respects. This was the Counterclaim Preclusion Issue.

What did the court decide?

Decision

The court dismissed OS 1401 and OS 874 entirely, holding that none of the grounds raised by the plaintiffs to set aside the Awards succeeded.

The leave granted by the court for the defendants to enforce the Awards (‘Leave Orders’) were upheld and the plaintiffs’ applications to set aside the Leave Orders also failed.

Issue one: The Confidentiality Pleading Issue

Whether the plaintiffs were precluded from raising the Confidentiality Pleading Issue

The court found that the Confidentiality Pleading Issue was not a new issue raised by the plaintiffs. In his first affidavit, Mr K had repeatedly raised the contention that the plaintiffs’ main defence was not considered by the tribunal. The main defence was that the defendants were not entitled to the Earn Outs because they were terminated With Cause or did not comply with the conditions precedent necessary to be entitled to the Earn Outs.

Mr K’s averments in his first affidavit were, in substance, the same as the Confidentiality Pleading Issue. It is therefore not a new ground raised belatedly, even though Mr K’s first affidavit was found to be ‘sorely lacking in detail’.

No prejudice was occasioned as the defendants were able to respond, by way of reply affidavits, to the Confidentiality Pleading Issue raised in Mr K’s second affidavit. The issue was fully dealt with in evidence and the parties’ written and oral submissions.

However, the court cautioned that in future cases, the plaintiff should fully traverse all the facts, circumstances and grounds relied upon for its setting aside application in its primary supporting affidavit(s) so that the defendant knows the exact case it has to meet.

Whether the dismissal of the Confidentiality Pleading Issue was infra petita

The court found that the tribunal’s decision not to hear the Confidentiality Pleading Issue on the basis that it was a new issue that was ‘pleaded belatedly’ without adequate justification was a decision on the tribunal’s jurisdiction. The court can undertake a de novo review in cases where it is confronted with arguments relating to the tribunal’s jurisdiction.

As the Confidentiality Pleading Issue was pleaded and put in issue before the tribunal based on a holistic reading of the pleadings and the issues framed, it was brought to the defendants’ notice and in play in the arbitration. By not allowing it to be heard, the tribunal fell foul of the infra petita rule, i.e. the tribunal failed to consider a material issue within its scope of submission.

Whether the dismissal of the Confidentiality Pleading Issue resulted in any actual or real prejudice

The dismissal of the Confidentiality Pleading Issue did not result in any actual or real prejudice to the plaintiff. Not every failure to deal with every issue referred to a tribunal affords grounds for setting aside. The critical inquiry is whether there has been actual or real prejudice to either (or both) parties and this must be conducted by considering the award as a whole: CRW Joint Operation v PT Perushaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (at paras [31]–[32]).

Even if the tribunal had allowed the Confidentiality Pleading Issue and considered it on the merits, it would not have altered the balance of the award. The tribunal’s findings in relation to issue estoppel on the Counterclaim Preclusion Issue would, logically, also apply to bar the plaintiffs’ defence based on the allegations of breach of confidentiality. As the Confidentiality Pleading Issue had already been considered and determined by the Malaysian Industrial Court (‘MIC’), it was precluded by issue estoppel.

Whether the dismissal of the Confidentiality Pleading Issue resulted in a breach of natural justice

It was not strictly necessary for the court to address the plaintiffs’ arguments on breach of natural justice in detail as they were, first, closely intertwined with their infra petita arguments, and second, the lack of actual or real prejudice caused to the plaintiffs would be equally fatal to the plaintiffs’ success on this ground.

Accordingly, even if it was assumed that there was a breach of natural justice in relation to the fair hearing rule by the tribunal’s failure to decide the Confidentiality Pleading Issue, the lack of any actual or real prejudice caused by such assumed breach would mean the plaintiffs must fail on this ground.

Issue two: The Counterclaim Preclusion Issue

Whether the tribunal’s decision on the Counterclaim Preclusion Issue was infra petita

The court rejected the plaintiffs’ argument that the tribunal’s decision on the Counterclaim Preclusion Issue was a ‘negative jurisdictional ruling’. The tribunal was fully aware that it had jurisdiction to determine the counterclaim on the merits, and had decided that the factual allegations in support of it were precluded by issue estoppel. The plaintiffs were presumed to be aware of the MIC proceedings via valid service on BTO of the notices and letters from the MIC and BTO’s attendance at the conciliation meeting. Hence, no special circumstances existed that warranted disapplying the doctrine of issue estoppel in this case.

The court found the plaintiffs’ arguments to be a creative but nonetheless disguised attempt to persuade the court to revisit the tribunal’s decision on the Counterclaim Preclusion Issue. As the tribunal’s decision on issue estoppel touched only on the question of admissibility, not jurisdiction, and was purely a substantive issue, there was no justification whatsoever for curial intervention.

The court was critical of the plaintiffs’ ‘misconceived’ attempt at re-characterising this issue as a jurisdictional question. The court also criticised the plaintiffs for ‘recirculating a number of the arguments they raised in their attempts to set aside the First Partial Award… which have been roundly rejected by the High Court and Court of Appeal’.

While the court was sympathetic to the plaintiffs’ argument that they have not had the opportunity to ventilate the counterclaim allegations either before the MIC or the tribunal, this was ultimately due to the plaintiffs’ own internal management failures. The outcome, while perhaps ‘harsh’ on the plaintiffs, was correct as the court must not interfere in the merits of an arbitral award.

Whether the tribunal’s decision on the Counterclaim Preclusion Issue breached natural justice or is contrary to public policy

The tribunal’s decision on the Counterclaim Preclusion Issue did not breach the rules of natural justice as the plaintiffs were given a reasonable opportunity to be heard and to present their case.

Having applied the doctrine of issue estoppel to the plaintiffs’ counterclaim, the tribunal was correct in not having gone on to consider the merits of the counterclaim.

The plaintiffs’ public policy objection was without merit. For the plaintiffs to succeed, the court must be satisfied that upholding the Awards would shock the conscience, be clearly injurious to the public good or violate the forum’s most basic notions of morality and justice: PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 (at para [59]). For the same reasons the plaintiffs’ infra petita arguments failed, the plaintiffs’ submissions here were also rejected.

This article may be cited as Wei Ming Tan, “Singapore High Court rejects creative arguments to seek de novo appeal of arbitral award via setting aside applications (BTN v BTP)” (20 December 2021) Singapore High Court rejects creative arguments to seek de novo appeal on merits of arbitral award via setting aside applications (BTN v BTP) | Singapore International Arbitration Blog

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Singapore Court of Appeal affirms tribunal power to decide appropriate relief by refusing to set aside remedies award (Bloomberry Resorts and Hotels Inc v Global Gaming Philippines LLC)

Posted on October 19, 2021 by Wei Ming Tan

This article was first published by Lexis®PSL on 19 October 2021.

Arbitration Analysis: In refusing to set aside a remedies award issued in a Singapore-seated ad hoc arbitration pursuant to the UNCITRAL Arbitration Rules, the Singapore Court of Appeal affirmed the arbitral tribunal’s powers to decide the appropriate relief as a pragmatic solution to the realities of a case in Bloomberry Resorts and Hotels Inc and anor v Global Gaming Philippines LLC and anor [2021] SGCA 94. This confirmed the tribunal’s broad remedial powers, which are akin to a court’s powers to grant all reliefs and remedies at law and in equity.

What are the practical implications of this case?

This case demonstrates that an arbitral tribunal has the power to fashion its own remedial relief in accordance with the appropriate circumstances of a case. For instance, a tribunal has the power to order a party to take steps vis-à-vis third parties to accomplish justice. This includes making an order for a corporate entity to direct a related party (such as an agent or subsidiary) to take specified actions to facilitate relief.

A tribunal’s remedial powers are broad and it may grant all reliefs and remedies at law and in equity, as akin to a court (Art 28, UNCITRAL Model Law on Commercial Arbitration (“Model Law”)). However, the tribunal cannot enforce its own arbitral awards, orders and directions, which are strictly within the courts’ domain (ss 12(6) and 19, International Arbitration Act (Cap. 143A) (“IAA”)).

What was the background?

Background

The appellants, Bloomberry Resorts and Hotel Inc (“Bloomberry”) and Sureste Properties, Inc (“Sureste”) (collectively, the “appellants”) were the owners of the Solaire Resort & Casino. Sureste is wholly owned by the Bloomberry Resorts Corporation (“BRC”), of which Prime Metroline Holdings Inc (“PMHI”) is the majority shareholder.

The first respondent was Global Gaming Philippines LLC (“GGAM”), sole owner of the second respondent, GGAM Netherlands B.V. (“GGAM NL”) (collectively, the “respondents”). The parties entered into a Management Services Agreement (“MSA”) relating to the development and operation of the Solaire Casino.

The termination of the MSA led to the commencement of arbitration, pursuant to the UNCITRAL Arbitration Rules and seated in Singapore, by the respondents against the appellants. Pursuant to a Liability Award, the tribunal found that the appellants wrongfully terminated the MSA. The MSA granted GGAM the option to purchase up to 10% of BRC’s shares (the “Shares”), which GGAM exercised by signing an Equity Option Agreement (“EOA”). GGAM’s subsequent attempts to sell the Shares after the termination of the MSA were repeatedly thwarted by Bloomberry. The sale of the Shares became a material issue of the arbitration.

The Remedies Award

In issuing the Remedies Award, the tribunal ordered the appellants to pay the respondents:

(a) US$ 85.2m as damages for lost management fees;

(b) US$ 391,224 as damages for pre-termination fees and expenses; and

(c) costs of US$ 14.9m plus interest.

The tribunal also ordered the appellants to pay the full value of the Shares as of 9 December 2014 in exchange for GGAM’s transfer of the Shares to the appellants (the “Constructive Remedy”).

The Constructive Remedy has two distinct components. In the event the appellants fail to pay PHP 10bn to the respondents in exchange for the Shares (“Payment Component”), GGAM is entitled to sell the Shares on the market, and the appellants are to direct PMHI to facilitate the Share sale (“Direction Component”).

Issues

Failing to set aside the Liability Award, the appellants challenged the Remedies Award before the Singapore court. The issues before the Court of Appeal (“Court”) were as follows:

1. whether the Constructive Remedy should be set aside under Art 34(2)(a)(iii) of the Model Law or refused enforcement under Art 36(1)(a)(iii) on the basis that it concerns a matter falling beyond the scope of submission to the arbitration.

2. whether the Remedies Award should be set aside on the basis that there was a breach of natural justice under s 24(b) of the IAA or because the tribunal denied the appellants an opportunity to present their case under Art 34(2)(a)(ii) of the Model Law.

3. whether the portion of the Remedies Award awarding the respondents US$ 85.2m in damages for lost management fees should be set aside under Art 34(2)(b)(ii) and/or refused enforcement under Art 36(1)(b)(ii) of the Model Law on the basis that its enforcement is contrary to Singapore’s public policy.

What did the Court decide?

The Court dismissed the appellants’ appeal.

The Shares issue was not beyond the scope of submission to the arbitration

The Court held that the Shares issue was not beyond the scope of submission to the arbitration:

  • The Shares issue fell within the ambit of the MSA’s arbitration clause, which covers any dispute that “arises out of or is related to” the MSA.
  • The Shares issue was a point put before the tribunal from the beginning of the arbitration. The parties made arguments on the Shares issue and the tribunal came to a considered decision on the same. The appellants submitted to the tribunal’s jurisdiction to hear the Shares issue until after the issuance of the Liability Award against the appellants.
  • The tribunal fashioned the Constructive Remedy as a compensatory remedy to the respondents for the loss occasioned by the appellants’ interference with the Share sale. The tribunal was not seeking to enforce its prior orders by doing so.
  • The tribunal did not make any orders that purport to bind PMHI. The Direction Component is directed at the appellants to take various steps to facilitate the Shares sale (including by procuring PMHI’s cooperation). The tribunal’s orders did not affect PMHI’s rights to commence arbitral proceedings under the EOA, if PMHI so wished.

No breach of natural justice as the tribunal did not refuse to consider the appellants’ evidence

The Court held that there was no breach of natural justice vis-à-vis the Remedies Award:

  • The appellants had adequate opportunity to present their case.
  • The tribunal did consider the appellants’ evidence relating to alleged fraudulent transactions at Las Vegas Sands and the Solaire Casino. However, the tribunal was correct to consider the evidence only insofar as they related to the issue of remedies, and not liability, for which the tribunal was functus officio.
  • There was a paucity of evidence to suggest any concealment of documents by the respondents and/or their counsel to deceive the tribunal.

The Remedies Award was not contrary to Singapore’s public policy

The Court rejected the appellants’ contention that the Remedies Award was contrary to public policy:

  • The appellants contended that the grant of US$ 85.2m in damages to the respondents for lost management fees ought to be set aside/refused enforcement as compliance with the Award “would require Bloomberry to violate Philippine tax laws”.
  • The Court held that nothing in the Remedies Award prevented the appellants from performing their alleged duties as withholding agents and paying taxes due on the award sums under Philippine tax law. The appellants were also not responsible for any tax gross up and have no obligation to indemnify the respondents for any taxes due on their fees or damages awarded by the tribunal. A public policy objection must involve either exceptional circumstances which would justify the court in refusing to enforce the award, or be a violation of the most basic notions of morality and justice (per AJU v AJT [2011] 4 SLR 739 at [38]).

This article may be cited as Wei Ming Tan, “Singapore Court of Appeal affirms tribunal power to decide appropriate relief by refusing to set aside remedies award (Bloomberry Resorts and Hotels v Global Gaming Philippines)” (19 October 2021) https://singaporeinternationalarbitration.com/2021/10/19/singapore-court-of-appeal-affirms-tribunal-power-to-decide-appropriate-relief-by-refusing-to-set-aside-remedies-award-bloomberry-resorts-and-hotels-inc-v-global-gaming-philippines-llc/

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SGHC sets aside arbitral award for breach of fair hearing rule and natural justice

Posted on July 8, 2021 by Os Agarwal

In BZV v BZW and another [2021] SGHC 60, the Singapore High Court (the “Court”) allowed a party’s application to set aside an arbitral award on the basis that the tribunal had failed entirely to appreciate the correct questions it had to pose to itself, let alone apply its mind to determining those questions. The Court concluded that the high bar required to establish a breach of the fair hearing rule and natural justice have been met. We review the Court’s decision and provide our takeaways.

Background facts

The plaintiff (the claimant in the arbitration) and the defendants (the respondents in the arbitration) entered into a shipbuilding contract (“Contract”) where the plaintiff was the vessel buyer and the defendants the vessel builder. At the arbitration, the plaintiff made two claims against the defendants, namely:

  1. that the defendants had delayed in delivering the vessel (the “Delay claim”); and
  2. that the defendants breached the contract by delivering a vessel which had generators of a lower ingress protection rating (IP23) than that specified in the Contract (IP44) (the “IP44 claim”).

At the conclusion of the arbitration, the tribunal dismissed both the plaintiff’s claims as well as the counterclaim filed by the defendants. The plaintiff applied to the High Court to set aside the award, save for the part dismissing the defendants’ counterclaim on the basis that:

  1. the tribunal breached the rules of natural justice i.e. the rules of procedural fairness (section 24(b) of the International Arbitration Act (the “Act”)) and
  2. the tribunal dealt with matters beyond the scope of the parties’ submission (Article 34(2)(a)(iii) of the Model Law on International Commercial Arbitration (“Model Law”)).

The High Court’s decision

The Court allowed the plaintiff’s application on the basis that the tribunal breached the rules of natural justice, specifically the fair hearing rule (section 24 of the Act). The Court found that there was no discernible link between the arguments presented by the parties and the reasoning adopted by the tribunal, and that certain critical elements arising from the parties’ arguments had not been considered. Nevertheless, the Court also found that despite the deficiencies in the award, the tribunal had not dealt with matters beyond the scope of the parties’ submission (Art 34 of the Model Law).

In reaching its conclusion, the Court addressed the issue of whether the requisite elements to set aside an award under section 24(b) of the Act have been met, specifically:-

  1. Whether and which rule of natural justice was breached;
  2. The manner in which the rule of natural justice had been breached;
  3. Whether there was a connection between the breach and the making of the award; and
  4. Whether prejudice was caused to the plaintiff’s rights by the breach.

1. Whether and which rule of natural justice was breached

The plaintiff submitted that the tribunal breached the fair hearing rule, which requires each party to be given adequate notice of the case it must meet in the arbitration and a fair opportunity to be heard on that case.

2. The manner in which the rule of natural justice had been breached

The Court accepted and analysed two of the six grounds advanced by the plaintiff as to how the tribunal breached the fair hearing rule, namely that:–

  1. the tribunal adopted a chain of reasoning which had no nexus to the parties’ cases (in respect of the Delay claim and the IP44 claim); and
  2. the tribunal failed to apply its mind to an essential issue arising from the parties’ arguments (in respect of the Delay claim).

Notably, the Court declined to address grounds raised by the plaintiff that attempted to seek a review of the award on the merits.

In relation to the Delay claim, the Plaintiff’s case was that none of the four findings of fact that the tribunal had relied on to dismiss the Delay claim had any nexus to the cases which the parties had advanced in the arbitration. Notably, this was uncontested even by the defendants in relation to three of the four findings – the terms of the award contained no indication that the tribunal adopted as part of its chain of reasoning on the Delay claim any aspect of six of the seven defences raised by the defendants, understandably constraining the defendants in the arguments they could make.

As a result, the Court concluded that the chain of reasoning by which the tribunal arrived at its decision to dismiss the Delay claim had no nexus to any of the defendant’s defences. While the tribunal’s fourth finding (that the plaintiff had wrongfully prevented the defendants from obtaining a class certificate for the vessel) could arguably have had a nexus to one of the defences submitted by the defendants (that this resulted in the time for the defendants to deliver the vessel being set at large), the Court found that the tribunal failed completely to identify and apply its mind to the essential issue of causation that arose from the parties’ arguments, i.e. whether the plaintiff’s acts of prevention caused the defendants’ failure to deliver the vessel on time.

In relation to the IP44 claim, the Court analysed the three defences raised by the defendants in response to the plaintiff’s IP44 claim, and concluded that the tribunal’s chain of reasoning in dismissing the claim had no nexus to the defendant’s defences.

One of the defences raised by the defendants was that they were not in breach of the Contract by delivering IP23 rated generators. The Court found that the tribunal had made findings of fact that the defendants understood that they were under an obligation to upgrade the generators from IP23 to IP44, and this could only mean that the tribunal had rejected the defendants’ first defence. However, the tribunal also used the phrase “no breach by [the defendants] in supplying generators rated IP23”. The Court rationalised this by holding that for the award to be coherent and consistent, the phrase “no breach” had to be interpreted to mean “no liability to the plaintiff” instead. The phrase could not be interpreted literally as that would render the award internally inconsistent and incoherent in view of its finding of fact.

The defendants’ second defence was that the plaintiff was precluded by estoppel from insisting that the defendants deliver the vessel with generators rated IP44 instead of IP23. The tribunal relied on an email asserting that the IP23 generators were fit for purpose to conclude that the plaintiff had led the defendants to believe that the generators rated IP23 were adequate. However, the majority erroneously identified the email as being sent by the plaintiff’s representative, when in fact it had been sent by the defendants’ representative. The plaintiff sought a correction to the award, which the tribunal allowed. It amended the award by identifying the email as originating from the defendants, and also deleting sentences that established that the tribunal was relying on said email as a clear admission by the plaintiff that the generators rated IP23 were fit for purpose. The Court found that as a result of these deletions, the award had no nexus to the defendants’ estoppel defence – there was no finding, even on a generous reading, that the Plaintiff represented to the Defendants that generators rated IP23 were fit for any purpose.

Interestingly, the Court noted that had the tribunal declined to amend the award, as egregious an error of fact that would have left, the plaintiff’s setting aside application would have failed. The Court would have to give a generous reading to the award and accept that the plaintiff had indeed made a representation to the defendants. A tribunal’s error, no matter how fundamental, egregious or patent, and whether of fact or law – is no basis on which to set aside an award.

3. Whether there was a connection between the breach and the making of the award

On the third element, the Court concluded that it is plainly evident that the tribunal’s breach of natural justice on each claim was causally connected to the making of the award.

4. Whether prejudice was caused to the plaintiff’s rights by the breach

On the fourth element, the Court found that it was easily established that the breach was prejudicial to the Plaintiff’s rights. Had the tribunal applied its mind to the parties’ cases and the essential issues arising from the parties’ arguments on those cases, the tribunal would have found in favour of the plaintiff on both the Delay and IP44 claim. As a result, the tribunal’s breach of natural justice caused real prejudice to the plaintiff.

Takeaways

The Court’s approach illustrates the balance sought to be struck between giving effect to the finality of arbitral awards and providing a recourse to parties who may have received a fundamentally flawed award.

The Singapore courts’ non-interventionist approach towards maintaining the sanctity of arbitral awards is best exemplified by the Court’s readiness to allow even “fundamental, egregious or patent” errors of the tribunal to remain untouched, as errors of law or fact do not form a proper basis for the setting aside of awards.

The grounds to set aside an arbitral award are limited, and require a high threshold to be met. An award cannot be challenged on the merits, and the Court usually gives a generous reading to the award – with benefit of doubt afforded to the tribunal having conduct of the matter. Nevertheless, if the tribunal is found to have breached the rules of natural justice, i.e. for failing to accord fundamental procedural fairness to the parties, then the award is susceptible to being set aside.

* This article may be cited as Os Agarwal and Wei Ming Tan, “SGHC sets aside arbitral award for breach of fair hearing rule and natural justice” (8 July 2021) (SGHC sets aside arbitral award for breach of fair hearing rule and natural justice | Singapore International Arbitration Blog)

+Also published on CMS Law-Now.

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The SIAC Annual Report 2020: Highlights and Takeaways

Posted on April 21, 2021 by Os Agarwal

The Singapore International Arbitration Centre (“SIAC”) published its Annual Report 2020 recently, reporting another year of record growth in case load and expansion of its offices beyond Asia. In this article, we summarise some of the Report’s key highlights and takeaways.

Record increase in case load

SIAC reported 1,080 new cases filed in 2020 – more than double the previous year with 94% (1018 cases) international in nature and 6% (62) domestic. This was the first time that SIAC’s caseload crossed the 1000-case threshold and in the context of the last decade, it represents a more than five-fold increase over 10 years. Parties from 60 jurisdictions arbitrated USD 8.49bn in disputes, representing a 4.9% increase from the previous year. The average value for new case filings was USD 19.26 million and the highest sum in dispute for a single administered case just shy of USD 1bn.

Expansion beyond Asia

In 2020 SIAC launched a representative office in New York, its fifth office overseas and first outside of Asia. This appears to be a timely move as 2020 saw the biggest leap in foreign users coming from US parties, with 545 parties from the US – a 738 per cent increase from 65 in 2019. The US is now the second highest foreign user of the SIAC after long time top user, India (690) and before third-ranked foreign user, China (165).

Besides the US, there was also a significant increase in the number of parties from Switzerland, Vietnam and the Cayman Islands compared to 2019.

Sectors

The claims filed with SIAC spanned a broad range of sectors, with trade (64% of the overall cases), commercial, corporate and maritime/shipping leading the way. The rest of the claims came from a variety of other sectors, including construction/engineering, agriculture, arts/entertainment, aviation, banking/financial services, commodities, education, employment, energy, healthcare/ pharmaceuticals, hospitality/travel, insurance/reinsurance, IP/IT, media/broadcasting, mining, real estate, regulatory, sports, technology/science, telecommunications and treaty interpretation/rights.

Governing Laws

The governing laws for new cases referred to SIAC in 2020 remained extremely diverse, with laws of 20 different jurisdictions, including civil and mixed law jurisdictions, being applied. The laws of Singapore (76%), the United Kingdom (9%) and India (2%) continue to be the most applied.

Arbitrator Appointments

Of the 143 arbitrator appointments in 2020, 126 of these were sole arbitrators and 17 were appointed to three-member tribunals. 127 of the appointments were made under the SIAC Rules, 15 in ad hoc arbitrations, and 1 under other arbitral rules. Of the 143 SIAC appointed arbitrators, 46 (or 32.2%) were female. This appears to be a decrease from the prior year where 36.5% of the SIAC-appointed arbitrators were female. Gender diversity on the SIAC’s Court of Arbitration remains the same as the previous year, in terms of numbers, with 10 female members.

In terms of geographical diversity, of the 288 appointments, 35% and 27% were non-Singaporean arbitrators appointed by SIAC and by the parties respectively. 6% were non-Singapore arbitrators nominated by co-arbitrators.

Usage of Procedural Rules

  1. Challenges to arbitrators: A total of 4 challenges to arbitrators were decided by the SIAC Court of Arbitration in 2020, 3 of which were rejected and 1 upheld.
  2. Emergency Arbitrators: SIAC accepted all 20 applications received to appoint an Emergency Arbitrator in 2020, bringing the total number of applications accepted since the introduction of Emergency Arbitrator provisions in 2010 to 114.
  3. Expedited Procedure: Out of 88 requests for Expedited Procedure, 37 were accepted.
  4. Early Dismissal: Out of the 5 applications for the Early Dismissal of claims and defences received in 2020,2 were allowed to proceed (and both subsequently rejected), 1 was not allowed to proceed, and 2 are pending. The notably low rate of success in Early Dismissal applications appears to reflect the high legal threshold required for such applications to be allowed.
  5. Consolidation and Joinder: SIAC received 69 applications for consolidation and 6 applications for joinder, of which 36 and 2 respectively were granted as of 31 December 2020.

Other takeaways

In the midst of a pandemic, parties are increasingly activating dispute resolution options available to them and SIAC is well-positioned in a city state long seen as an arbitration-friendly centre for regional and global businesses looking for confidentiality, neutrality and the cross-border enforceability of awards. With years of consistent focus on growing its dispute resolution institutions and introducing legislation to facilitate such growth, Singapore has achieved status as a favoured dispute resolution ‘hub’, with SIAC being arguably one of its biggest success stories.

* This article may be cited as Os Agarwal, Wei Ming Tan, and Lakshanthi Fernando, “The SIAC Annual Report 2020: Highlights and Takeaways” (21 April 2021) (The SIAC Annual Report 2020: Highlights and Takeaways | Singapore International Arbitration Blog)

+Also published on CMS Law-Now.

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Singapore – standard costs to be awarded by default for failed award set-aside applications (BTN v BTP)

Posted on March 1, 2021 by Wei Ming Tan

Arbitration analysis: A recent Singapore High Court case (BTN and Anor v BTP and Anor [2021] SGHC 38) confirmed the default position under Singapore law that unsuccessful applications to set aside an arbitral award will be awarded costs on a standard basis rather than on an indemnity basis. Costs on an indemnity basis will only be awarded in exceptional circumstances. An application for the court to fix the quantum of costs is not an opportunity for a party to request the court to switch the basis of the costs order from a standard to an indemnity basis.

What are the practical implications of this case?

This decision reaffirms the Singapore position that court applications that fail to set aside an arbitral award will be awarded costs on a standard basis by default. Costs on an indemnity basis will only be awarded in exceptional circumstances that warrant a departure from the usual course of awarding standard costs, such as when a party exhibits conduct outside of the norm, had acted in bad faith or abused the court’s process.

What was the background?

The plaintiffs’ application in HC/OS 683/2018 (“OS 683”) to set aside a partial arbitral award was dismissed with costs by the High Court. The plaintiffs’ appeal to the Court of Appeal was also dismissed. The Court of Appeal awarded the defendants fixed costs for the appeal – see New Analysis: Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy groun for setting aside awards (BTN v BTP).

The parties were unable to reach an agreement on the quantum of costs of OS 683. The defendants tried to persuade the Court of Appeal to order costs on an indemnity basis for OS 683, but the Court of Appeal declined to disturb the High Court’s costs order, which was on a standard basis.

The defendants argued for indemnity costs as they had to fend off unmeritorious proceedings in OS 683 that ought not to have been brought in the first place, bearing in mind that the parties had agreed to resolve their disputes in arbitration and to honour any award made in the arbitration.

The defendants asked the court not to apply the costs guidelines contained in Appendix G of the Supreme Court Practice Directions (“the Costs Guidelines”). The Costs Guidelines are derived from party and party costs on a standard basis. The defendants urged the court to adopt the Hong Kong approach in assessing the quantum of costs on an indemnity basis. The Hong Kong approach adopts a default rule that indemnity costs will be granted when an arbitral award is unsuccessfully challenged in court proceedings unless special circumstances can be shown.

The plaintiffs argue that there is no basis whatsoever to depart from an award of costs on a standard basis and the Costs Guidelines should apply. The Hong Kong approach is diametrically opposed to the Singapore approach, which places the burden of proof for proving exceptional circumstances on the party seeking indemnity costs, not the other way around.

What did the court decide?

The court dismissed the defendants’ application for indemnity costs in OS 683.

First, it was impermissible for the defendants to try to re-argue the basis of the High Court’s costs order in OS 683 in order to try to obtain a higher quantum of costs.  All the defendants were permitted to do was to persuade the court not to follow the range of costs in the Cost Guidelines.

Second, the court held that the defendants failed to show exceptional circumstances that warrant an order for indemnity costs. A critical requirement for indemnity costs is the existence of some conduct that takes the case out of the norm. An application that turns out to be unmeritorious is not necessarily an unarguable case that hints of bad faith or reflects no more than an attempt to delay or impede payment.

The court found that the plaintiffs had conducted their case in an economical way without undue prolongation of hearings or submissions.

The defendants, on the other hand, instructed senior counsel at the last minute to defend the defendants in the second hearing. This speaks of the following: (1) the defendants thought that the plaintiffs’ jurisdictional challenge was arguable in the defendants’ opinion; and (2) a freshly appointed senior counsel would invariably go over the arguments covered by the defendants’ original counsel in the first hearing. The last-minute involvement of the senior counsel was likely to have extended the second hearing somewhat.

Accordingly, the court held that the plaintiffs are to pay the defendants’ costs of and in relation to OS 683 on a standard basis.

*This article may be cited as Wei Ming Tan, “Singapore – standard costs to be awarded by default for failed award set-aside applications (BTN v BTP)” (24 February 2021) (Singapore—standard costs to be awarded by default for failed award set-aside applications (BTN v BTP) | News | LexisNexis)

+First published by LexisPSL.

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