In a previous post, we commented on the ongoing dispute between Indian infrastructure giant GMR and the Maldivian Government over the Ibrahim Nasir International Airport in Male (the “Airport“). In particular, we noted at the time that the Singapore Court of Appeal had overruled the High Court’s order which prevented the Maldivian government from cancelling the concession agreement and repossessing management of the airport.

The full grounds of the decision of the Singapore Court of Appeal have just been released in Maldives Airports Co Ltd and Anor v GMR Male International Airport Pte Ltd, [2013] SGCA 16.

Our previous post (reproduced below for your convenience) sets out the background to the dispute (as we understand it) and GMR’s application for an injunction,

GMR and Malaysia Airport Holdings Bhd had formed a joint venture called GMR Male International Airport Pte Ltd (“GMIAL“). GMIAL had signed a 25 year concession agreement with the previous government of Mali to redevelop and manage the Airport. The financing of this US$400 million project was through a US$25 Airport Development Charge (“ADC“) to be levied on all outgoing passengers as well as an insurance surcharge of US$2 per passenger.

According to news reports, the current Maldivian administration, whilst in opposition, had successfully filed a suit to block the payment of the ADC on grounds that the ADC was a tax which had not been approved by parliament. In order to ensure that the project continued, the previous administration agreed to deduct the amount of the ADC from concession fees that GMIAL was supposed to pay the government resulting in a dramatic fall in revenue that Maldives was supposed to receive. In fact, at one point, there was a shortfall of US$1.5 million which GMIAL sought to claim from the state.

Once in power, the current government reversed course and refused to allow the deduction of the ADC from the concession fees due to the state. The Maldivian government also sought to recover the previously deducted ADC amounts from the concession fees due to the state. Despite conciliation overtures from GMIAL, which had offered to exempt all Maldivian citizens from the ADC, the dispute could not be resolved.

Finally, on 27 November 2012, the Maldivian government and the state owned enterprise which oversaw the Airport gave notice to GMIAL to vacate the Airport and hand over management. This was due to alleged irregularities in the bid process. The bid process had been advised and organised by the International Finance Corporation, a member of the World Bank, and supported by AusAid (Australia), the Ministry of Foreign Affairs of the Netherlands, and DevCo, a multi-donor programme.

Prior to this notice, in August 2012, GMIAL initiated arbitration proceedings in Singapore pursuant to the arbitration clause in the concession agreement. When the notice to vacate was issued, GMIAL successfully sought an injunction from the Singapore High Court on 30 November 2012. That injunction has since been reserved by the Singapore Court of Appeal. The Singapore courts are the supervisory courts of the arbitration which is seated in Singapore which gives them certain powers to provide for interim relief under the Singapore International Arbitration Act (Cap. 143A).

Further to the above, new facts have emerged from the Singapore Court of Appeal’s decision, namely that two arbitrations had in fact been commenced (see paragraph [6] and [7]). The first arbitration was initiated on 5 July 2012, in which GMIAL sought, inter alia, a declaration that it was entitled to adjust the concession fees payable to the Maldives Airports Company Limited (“MACL”). The second arbitration was initiated by MACL and the Republic of Maldives (the Appellants) on 29 November 2012, shortly after 7 days notice was given by the Appellants on 27 November 2012 for GMIAL to vacate the Airport. This notice was issued on the basis that the Concession Agreement was void ab initio or, alternatively, that it had been frustrated. The Appellants sought, inter alia, a declaration that the Concession Agreement was void and of no effect.

The other significant new fact that has emerged concerns the exact extent of the injunction sought by GMIAL. The injunction was worded very broadly and sought to “restrain the Appellants and their directors, officers, servants or agents from taking any step to:

(a) interfere either directly or indirectly with the performance by the Respondent of its obligations under the Concession Agreement; and

(b) take possession and/or control of the Airport or its facilities pending further order by the Singapore court or an arbitral tribunal constituted to resolve the dispute”.

(see paragraph [8])

Clause 21.4 of the Concession Agreement provided that the seat of the arbitration was Singapore and accordingly, the lex arbitri of both arbitrations is Singapore law (see paragraph [7]).

The main issue in the appeal was thus whether the Singapore courts should grant an interim injunction to restrain the Appellants from interfering with GMIAL’s operation of the Airport pursuant to the concession agreement (the “Concession Agreement“) until such time as the second arbitration was determined (see paragraph [11]). The two sub-issues in this respect were (see paragraph [12]):

1. whether a Singapore court has the power to grant the injunction, particularly against the government of a foreign sovereign State; and
2. if it had such a power, whether the injunction should be granted or upheld given the circumstances.

Jurisdictional issue(s)

Leave to appeal required? Nature of application for injunction.

GMIAL raised an interesting point on jurisdiction. It sought to argue that the Appellants required leave to appeal the decision of the High Court judge who had granted the injunction on the basis that “the Judge’s decision to grant the Injunction was a decision made on an interlocutory application and so, leave to appeal was required pursuant to s 34(2)(d) of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) (“the SCJA”). As the Appellants had not sought leave from the High Court, [counsel for GMIAL] argued, the Court of Appeal therefore had no jurisdiction to hear the appeal” (see paragraph [14]).

In this respect, GMIAL sought to rely on the case of PT Pukuafu Indah and others v Newmont Indonesia Ltd and another [2012] 4 SLR 1157, where the learned High Court judge had observed (PT Pukuafu at paragraph [20]) that a tribunal’s an interim order which sought to preserve the legal rights and obligations of the parties before the dispute was completely disposed of was an interlocutory order. The Honourable Justice Lee defined an interlocutory order as “an order that [did] not decide the substance of the dispute or an order under s 12 of the IAA during the pendency of arbitration proceedings”.

The Court of Appeal quickly dismissed the argument as “without merit” (see paragraph [15]). First the decision of the High Court below to grant the injunction could not be a decision made on an interlocutory order. The application was taken out pursuant to a standalone Originating Summons and once decided disposed of the entire subject matter of the application.

“15 The Respondent’s jurisdictional objection is without merit. First, it is incorrect to characterise the Judge’s decision as one made on an interlocutory application. The application for the Injunction was made by OS 1128; the sole purpose of OS 1128 was to seek the Injunction. It would be odd if OS 1128 were characterised as an interlocutory application when there was nothing further for the court to deal with once the Injunction had been either granted or refused. This was not a case where an interlocutory injunction was sought pending the resolution of a substantive dispute before the court. The sole and entire purpose of the originating process in this case was to obtain the Injunction. Once that application had been determined, the entire subject matter of that proceeding would have been spent”.

Second, PT Pukuafu could be distinguished. The Singapore Court of Appeal held (at paragraph [16]) that,

“Lee J was not addressing the issue of whether an interim order was a decision arising out of an interlocutory application. He was concerned, rather, with whether the court had the power to set aside interim orders made in an arbitration. In that respect, he held (at [19]) that an interim order was not an “award” as defined in s 2 of the IAA and therefore could not be set aside as an award under the IAA. This is plainly correct in that context, but it does not support the contention that all interim orders are or must be construed as decisions made upon interlocutory applications. Whether a particular decision is one that has been made upon an interlocutory application depends in the first place on the nature of the application which is the subject matter of the decision. Where, as in the present case, the nature of the application takes the form of an originating summons and the substantive merits are being determined in another forum, it would be wrong to characterise the application as interlocutory in nature: see further Wellmix Organics (International) Pte Ltd v Lau Yu Man [2006] 2 SLR(R) 525 at [16]”.

For more about PT Pukuafu, see our previous take on the case here.

Sovereign Immunity – State Immunity Act

The Appellants themselves raised two jurisdictional challenges (see paragraph [17], [19] and [23]).

First, the Appellants sought to argue state immunity pursuant to section 15(2) of the State Immunity Act (Cap 313, 1985 Rev Ed) read with the exception of consent in section 15(3). In a related vein, as the Concession Agreement was void ab initio, the consent of the Appellants to waive sovereign immunity in clause 23 of the Concession Agreement could not be relied upon to found jurisdiction.

Second, the Appellants sought to argue the Act of State Doctrine.

We have already written about state and sovereign immunity, including that of act of state doctrine and the entitlement of state owned enterprises to assert sovereign immunity on a number of separate occasions (see here, here, here and here).

The Singapore Court of Appeal dismissed the Appellants’ argument regarding state immunity on the basis that clause 23 of the Concession Agreement was sufficient to establish written consent pursuant to section 15(3) of the State Immunity Act (see paragraph [18]). Clause 23 provided that,

“To the extent that any of the Parties may in any jurisdiction claim for itself … immunity from service of process, suit, jurisdiction, arbitration … or other legal or judicial process or other remedy …, such Party hereby irrevocably and unconditionally agrees not to claim and hereby irrevocably and unconditionally waives any such immunity to the fullest extent permitted by the laws of such jurisdiction”.

In this respect, we would also note that section 11 of the State Immunity Act would also appear to provide grounds for dismissing the argument. Section 11 provides that,

“Arbitrations

11.—(1)  Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts in Singapore which relate to the arbitration.

(2)  This section has effect subject to any contrary provision in the arbitration agreement and does not apply to any arbitration agreement between States”.

The Singapore Court of Appeal also held as “misplaced“, the argument that insofar as the Concession was void ab initio, clause 23 could not be relied on to found the Appellant’s consent and submission to jurisdiction (see paragraph [19]). This was because such an argument,

“…require[d] the court to accept and proceed on the basis that the Concession Agreement [wa]s void ab initio, when this [wa]s the very issue which [wa]s being contested by the parties in the [second arbitration]. Additionally, it require[d] the court to conclude that cl[ause] 23 [wa]s not severable and would not survive the possible avoidance of the Concession Agreement in the same way that the arbitration agreement in cl 21.4 plainly would survive as a result of the operation of the established doctrine of separability”.

In this respect, the Singapore Court of Appeal held that the entire dispute resolution clause, which included clause 23, would apply if there were any dispute about the validity of the Concession Agreement, as was the case here (see paragraph [20] and [21]).

Sovereign Immunity – Act of State Doctrine

The Singapore Court of Appeal followed the English House of Lords decision of Nissan v Attorney-General [1970] AC 179 at 237 for the test as to when the courts should decline jurisdiction in proceedings involving an alleged act of State (see paragraph [27]).

“An act of state is something not cognisable by the court: if a claim is made in respect of it, the court will have to ascertain the facts but if it then appears that the act complained of was an act of state the court must refuse to adjudicate upon the claim. In such a case the court does not come to any decision as to the legality or illegality, or the rightness or wrongness, of the act complained of: the decision is that because it was an act of state the court has no jurisdiction to entertain a claim in respect of it. This is a very unusual situation and strong evidence is required to prove that it exists in a particular case”.

Hence, the “crucial question” for the Singapore Court of Appeal was: what amounts to an act of State? The answer depended on the nature of the act done (citing Nissan at 238). In particular, “a given act may amount to an act of State if it [were] done in the exercise of the State’s supreme sovereign power” (see paragraph [28] citing Salaman v Secretary of State in Council of India [1906] 1 KB 613).

However, this argument became untenable and “unarguable” once counsel for the Appellants confirmed that the Appellants accepted the jurisdiction of the tribunal in the second arbitration to resolve the dispute over the validity of the Concession Agreement. In fact, the Court of Appeal noted that “this was the only position which the Appellants could take, given that it was they who had commenced the [second arbitration] seeking a declaration that the Concession Agreement was void ab initio and/or had been frustrated” (see paragraph [29]).

The issue between the parties was a “private law dispute” involving “private law remedies” which necessarily meant that there was “no scope for the argument that the Restrained Acts [i.e. the Appellants and their employees were to be restrained from interfering with the performance of [GMIAL’s] obligations under the Concession Agreement] would have amounted to acts of State in which this court may not intervene” (see paragraph [30]). Furthermore, insofar as the Appellants were asserting frustration of the Concession Agreement or that it was void ab initio, these were matters of contract law, and there was no act of the Maldivian government pursuant to an exercise of its sovereign power which would be impugned by the injunction.

Interestingly though, the Singapore Court of Appeal left open the possibility of a wider concept of  the act of State doctrine i.e. “where a possible future act of State might be the subject of an injunction, the wider principle of judicial abstention or restraint should apply and the court should refrain from adjudicating on the matter (see Buttes Gas and Oil Co and Another v Hammer and Another [1982] AC 888 at 931)” (see paragraph [31]). The Court of Appeal declined to express a view as it was not argued before then but considered that “it would inevitably be a factor which a court will take into consideration when assessing whether an injunction should be granted in such circumstances“.

Whether the Singapore courts had the power to grant an injunction

The Singapore Court of Appeal noted that on the face of it, the powers of the Singapore courts to grant interim measures in aid of arbitration proceedings seem to be limited to such measures as are “necessary for the purposes of preserving evidence or assets“, see 12A(4) of the International Arbitration Act (Cap. 143A) read with sections 12A(2) and 12(1)(i) (see paragraph [33]).  The provisions read,

“12.—(1) Without prejudice to the powers set out in any other provision of this Act and in the Model Law [viz, the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985], an arbitral tribunal shall have powers to make orders or give directions to any party for —

…

(i) an interim injunction or any other interim measure.

…

12A.—(1) This section shall apply in relation to an arbitration —

(a) to which this Part applies; and

(b) irrespective of whether the place of arbitration is in the territory of Singapore.

(2) Subject to subsections (3) to (6), for the purpose of and in relation to an arbitration referred to in subsection (1), the High Court or a Judge thereof shall have the same power of making an order in respect of any of the matters set out in section 12(1)(c) to (i) as it has for the purpose of and in relation to an action or a matter in the court.

…

(4) If the case is one of urgency, the High Court or a Judge thereof may, on the application of a party or proposed party to the arbitral proceedings, make such orders under subsection (2) as the High Court or Judge thinks necessary for the purpose of preserving evidence or assets.

…”

The Singapore Court of Appeal agreed with GMIAL’s argument that the term “assets” should be construed broadly in light of the English Court of Appeal decision in Cetelem SA v Roust Holdings Ltd [2005] 1 WLR 3555; [2005] EWCA Civ 618 and Parliamentary intention in the introduction of section 12A of the International Arbitration Act (see paragraph [36] to [39]). However, it also held that “not all contractual rights may be the subject matter of a preservation order under s 12A(4) of the [International Arbitration Act]” (see paragraph [40]). Accordingly, the Singapore courts will protect those contractual rights “ which lend themselves to being preserved or, put another way, those which, if lost, would not adequately be remediable by an award of damages” (see paragraph [43]).

In particular, the Court of Appeal was concerned with the “perverse” situation of an overly broad approach to protecting all choses in action in which a party obtains greater rights from an interim injunction than he is entitled to at the final determination.

“40 … If an interim injunction should lie under s 12A(4) to preserve any contractual right from being eroded, it would ineluctably open the floodgates to applications for interim mandatory injunctions to compel parties to perform any and all types of contractual obligations pending the resolution of the dispute. A seller’s breach of an obligation to deliver ordinarily substitutable goods such as produce, for example, would, on such a hypothesis, trigger the court’s power to grant an interim mandatory injunction to preserve the right to receive those goods by compelling the seller to deliver the goods. This plainly cannot be the position because, as we have already noted, the recourse of the buyer in such circumstances would ordinarily be an order for damages…

41 An overly broad understanding of choses in action for the purposes of defining “assets” in s 12A(4) would lead to the perverse result that s 12A(4), in principle, contemplates and sanctions the protection of contractual rights by way of an interim injunction, even though a final finding of a breach of those same rights would, for all intents and purposes, only give rise to a secondary right to claim damages and not a right to specific performance. …”

Even if the contractual right in question could be protected by way of interim relief, the key qualifier was whether the interim measure was “necessary” to protect that right (see paragraph [44]). In other words, “without the order in question, the evidence or asset which is sought to be preserved would be lost. If there are other reasonably available alternatives for securing the evidence or asset, then it cannot be said that the order is necessary for the preservation of that evidence or asset“.

What contractual rights could/would be protected?

GMIAL sought the injunction in order to protect two contractual rights: (a) the right to be served the appropriate notice under the Concession Agreement before termination was effected and (b) the right to have any dispute over the entitlements of the parties under the Concession Agreement resolved by an arbitral tribunal before those entitlements were destroyed (see paragraph [35]).

The Court of Appeal considered that the injunction would not preserve the first right (see paragraph [45]). The Court of Appeal held that,

“We are unable to see how an injunction that restrains the Appellants from interfering with the Respondent’s performance of its obligations under the Concession Agreement can preserve the Respondent’s right to be served the appropriate notice under the Concession Agreement. If this was all that the Respondent wanted, it should have sought an interim mandatory injunction compelling the Appellants to serve the appropriate notice prior to effecting termination of the Concession Agreement”.

As for the second right, the Court of Appeal identified the “flaw in the argument” i.e. “that there was nothing to suggest that the Concession Agreement as a whole was one that was specifically enforceable, or that its breach (even a repudiatory one) could not be adequately remedied by an award of damages” (see paragraph [46]). In fact, the Court noted that GMIAL’s right to arbitration was in fact preserved by the very act of the Appellants in commencing the second arbitration (see paragraph [47]).

The Court of Appeal dismissed GMIAL’s reliance on clause 21.5 of the Concession Agreement which stated that “during the pendency of any Dispute and the resolution thereof, both Parties shall continue to perform all their respective obligations under this Agreement“. The Court of Appeal considered that provision to be irrelevant in this situation in which “a party’s action attack[ed] the very foundation and continuation of the contract“. The Court of Appeal also found support in the language of the Concession Agreement where clause 25.1 was excluded from an obligation which “constitutes the subject matter of [the dispute between the parties]” (see paragraph [48]).

In this respect, the Court of Appeal acknowledged the commercially unsatisfactory state of affairs which allowed clause 21.5 to be rendered ineffectual so long as a party alleged that the Concession Agreement was void ab initio or by some subsequent vitiating factor. Nevertheless, “it would require very clear language to sustain a construction that despite the existence of a dispute that goes to the very root and foundation of the contract and despite the exclusion of obligations constituting the ‘subject matter of [the dispute between the parties]’ the parties are nonetheless obliged to continue performing their respective obligations under the contract (including the disputed ones) until they are freed of this by an order of an arbitral tribunal” (see paragraph [48]).

Could an interest in the Airport site be protected?

During the course of oral arguments, counsel for GMIAL sought to protect a further asset (apart from the contractual rights) which GMIAL sought to protect through the injunction i.e. its interest in the Airport site (the “Site“). In particular, clause 2.3.1 of the Concession Agreement provided that MACL granted GMIAL a sub-lease with the “exclusive right to occupy, use and peacefully enjoy the Site” for a term of 25 years (see paragraph [50]).

The Court of Appeal held that GMIAL’s contractual interest in the Site was “precisely the sort of contractual right that is capable of coming within the meaning of “asset” for the purposes of s 12A(4)” and could be protected by the injunction (see paragraph [51] and [52]).

Injunction not to be granted on balance of convenience

However, the Court of Appeal eventually found that on a balance of convenience, the injunction would not be granted or upheld (see paragraph [54]). The balance of convenience portion of the American Cyanamid test for the grant of an injunction (see American Cyanamid Co Ltd v Ethicon Ltd [1975] AC 396) involves the court “tak[ing] whichever course appears to carry the lower risk of injustice if that course should ultimately turn out to have been the “wrong” course, in the sense of an injunction having been granted when it should have been refused or an injunction having been refused when it should have been granted:Regina v Secretary of State for Transport, Ex parte Factortame Ltd and Others (No 2) [1991] 1 AC 603 at 683” (see paragraph [53]).

Essentially, the Court of Appeal found that (a) damages were an adequate remedy for GMIAL in the event that the tribunal determined that the Concession Agreement was not void ab initio or otherwise frustrated and (b) the practical problems associated with the enforcement of the injunction.

(A) Damages were an adequate remedy

The Court of Appeal considered that damages were an adequate remedy for GMIAL in the event that it did not grant the injunction and was wrong in so doing.

1. Damages that GMIAL could claim if its position were right could in fact be quantified, despite its arguments to the contrary (see paragraph [56]). In this respect, there was no proof of any likely loss of goodwill or reputation on GMIAL’s part if the Concession Agreement were to be taken over summarily by the Appellants as GMIAL (see paragraph [57]).
2. In contrast, the damages that would accrue to the Appellants if the injunction were granted but where the grant was wrong, were “likely be of a different order of complexity” (see paragraph [68] to [71]).
3. The Concession Agreement contemplated termination in the face of political changes in Maldives and economic changes e.g. expropriation (see paragraph [58]). In those cases, the Concession Agreement also provided for calculating the compensation that would accrue to GMIAL (see paragraph [59] and [60]).
4. There was insufficient evidence to show that MACL or the Maldivian government would be unable to pay GMIAL damages for any losses that GMIAL might incur if the injunction were not granted and the second arbitration went in favour of GMIAL. Conversely, the Maldivian government had gone on affidavit to state that it would honour any valid and legitimate claim made against it and that the government had never defaulted on any of its payments (see paragraph [63]). Furthermore, there was “no evidence that whatever financial predicament that the Appellants faced had come about due to a change in the circumstances after the Concession Agreement was entered into“. In other words, if nothing had changed, then GMIAL must be taken to have accepted the credit risk of dealing with the Republic of Maldives (see paragraph [64]).

(B) Practical problem associated with the enforcement of the injunction

The Court of Appeal considered that practical problems in policing and ensuring compliance with the injunction were also grounds for not upholding the grant of the injunction.

1. The court “would not ordinarily grant an injunction requiring parties to a complex contract to continue working together once it was shown that there had been a serious breakdown of mutual trust and confidence such that there was no longer any willingness to cooperate” per the English Court of Appeal case of SSL International plc and another v TTK LIG Ltd and others [2012] 1 WLR 1842; [2011] EWCA Civ 1170.
2. The injunction was worded very broadly and would have inevitably resulted in repeated disputes and appearances before the Singapore courts as parties sought a determination of whether a particular act did or did not flout the injunction. The Court of Appeal held that “[a]n interim injunction must be certain and should not be granted in terms which leave it to be argued in contempt proceedings what it does and does not require of the party to whom it is directed: Electronic Applications (Commercial) Ltd v Toubkin and Another [1962] RPC 225 at 227” (see paragraph [68]).
3. The injunction would have affected third parties, which in this case included the “operations and duties of domestic regulators who regulatory functions encompass aspects related to the operation of the Airport” e.g. the Maldives Civil Aviation Authority and the Maldivian Department of Immigration and Emigration (see paragraph [69]). This was due to “the principle that third parties must not aid or abet a breach, or deliberately frustrate the purpose of an injunction“.
4. The nature and complexity of the operations at issue here (the operation of a national airport of a sovereign nation) meant that any injunction to preserve the right of GMIAL to continue operating the Airport “would spill over into and affect the operations of other governmental entities and agencies in the Maldives“. This was not something that was just the result of the broad wording of the injunction (see paragraph [70]).
5. The injunction would have entailed “an unacceptable degree of supervision in a foreign land” (see paragraph [71])

The failure of GMIAL to provide security for cross-undertaking in damages

This was the final factor that the Court of Appeal considered in allowing the appeal and not granting the injunction. In this respect, it noted that there was “no evidence to substantiate [GMIAL’s] claim that it would plainly be able to satisfy any adverse award of damages“. This was notwithstanding GMIAL’s assertion in refusing to provide security that it “would plainly be able to satisfy any award that may be made in [the Appellant’s] favour” (see paragraph [79]).

In this respect, the Court of Appeal did mention that GMIAL did not have any significant assets in or outside Maldives. Furthermore, while GMIAL might have a paid up capital of US$40.2 million, “a company’s paid-up capital is not proof of its creditworthiness” (see paragraph [80]).

Conclusions

Commercial cases involving state parties and state owned enterprises are generally rare but as we have stressed elsewhere, it is not uncommon for such parties (whether through SOEs or SWFs) to engage in commercial activities in this part of the world. Parties would be well advised to consider how jurisdictional issues of state/sovereign immunity affect not just the commencement of court proceedings, but also immunity to attachment of state property.

Pertinently, this case also very neatly encapsulates the types of public policy issues that domestic courts face when considering an injunction over the actions of a foreign sovereign. Notably, although the Singapore Court of Appeal ultimately did not uphold the granting of the injunction, it saw no jurisdictional bar on its part to issuing an injunction against the Appellants.

Critically though, the Singapore Court of Appeal declined to uphold the grant of the injunction because of the numerous practical difficulties and implications involved in enforcing and policing the terms of the injunction.