‘Creative’ attempts to challenge an award given short shrift – BTN v BTP [2019] SGHC 212

Introduction

We consider why a recent decision of the Singapore High Court – BTN and another v BTP and another [2019] SGHC 212 – should be seen as further proof of Singapore’s commitment to respecting the binding nature of international arbitral awards.

What are the practical implications for international arbitration practitioners?

This case is a cautionary tale against parties disguising a challenge on the substantive merits of an award behind arguments alleging breach of natural justice or a jurisdictional challenge. The Singapore courts are particularly robust about respecting the limited grounds for judicial review and/or setting aside an award under the International Arbitration Act (“IAA“) and the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (“Model Law“) and disapprove of such ‘creative’ attempts to seek a de novo review.

The court’s reluctance to intervene in the tribunal’s substantive findings demonstrates the judiciary’s intent to respect party autonomy and the final and binding nature of arbitral awards. This can only further enhance Singapore’s reputation as a key international arbitration hub both in the region and globally.

What was the background?

The parties and their agreements

The defendants were the owners of a group of companies (“the group“) which entered into a share and purchase agreement (“SPA“) with the first plaintiff, BTN, a publicly listed company incorporated in Mauritius. Pursuant to the SPA, BTN acquired 100% ownership and control of the group. The second plaintiff, BTO, was the principal holding company of the group (BTO and BTN hereinafter referred to as “the companies“).

The SPA provided that the first defendant, BTP, and the second defendant, BTQ, were to be employed as the chief executive officer and chief technical officer of BTO, respectively. The employment of the defendants (hereinafter “the employees“) was governed by promotor employment agreements (“PEAs“). The SPA and PEAs contained materially identical provisions relating to the employees’ ‘with cause’ and ‘without cause’ termination.

If the employees were dismissed without cause, they would be entitled to an earn out consideration (“EOC“) of US$35m, subject to the financial performance of the group in 2013–15. If their dismissals were with cause, they would not be entitled to any EOC.

The employees’ dismissals

On 8 January 2014, BTO gave notices summarily dismissing the employees, citing various grounds of with-cause termination, namely the employees’ failure to achieve positive earnings before interest, taxes, depreciation, and amortization for 2013 and their alleged detrimental behaviour to the group.

The Malaysian Industrial Court (MIC) proceedings

In response, the employees commenced proceedings under section 20 of the Malaysian Industrial Relations Act 1967. The employees and BTO attended a mandatory conciliation meeting but could not reach settlement.

The cases were referred to the MIC which adjourned the hearings multiple times because of BTO’s failure to attend. Due to BTO’s absence, the MIC proceeded to hear the employees’ claims. The MIC found that the employees were dismissed without just cause as BTO had failed to prove that the employees committed the alleged wrongs justifying
their dismissals (“the MIC awards“).

BTO did not deny that MIC’s notices were properly served but claimed that the notices were concealed by an employee. BTO only resurfaced when the employees commenced non-compliance proceedings, seven months after the MIC awards were issued and after the expiry of the three-month period for judicial review. Initially wanting to challenge the MIC awards, BTO eventually decided to make full compensation.

The arbitration

In July 2016, the employees commenced arbitration under the SPA (pursuant to the Arbitration Rules of the Singapore International Arbitration Centre), claiming their entitlement to US$35m. The companies countered that the dismissals were with cause.

The employees claimed that the issues regarding their dismissals were res judicata by virtue of the MIC awards (“the res judicata issue“) and that as a matter of construction of the SPA and PEAs, a determination that the dismissals were without just cause under the PEAs was binding on the SPA (“the construction issue“).

The partial award

The arbitral tribunal unanimously held in a partial award dated 30 April 2018 (“partial award“) addressing a list of agreed legal issues that:

  • the determinations by the MIC that the employees were terminated without just cause or excuse is binding and conclusive under the SPA and PEAs;
  • the companies are prevented from arguing that the employees were terminated ‘with cause’ under the SPAs and PEAs by virtue of issue estoppel under Singapore law;
  • a valid termination under the SPA requires the existence of audited accounts at the time of termination, which accounts must comply strictly with the SPA definition (“the audited accounts issue“).

What did the court decide?

Originating Summons No 683/2019 (OS 683)

In OS 683, the companies sought a judicial review by the Singapore High Court of the partial award as a negative jurisdictional decision pursuant to IAA, s 10(3).

Alternatively, the companies applied to set aside the partial award pursuant to IAA, s 24(b) and Article 34(2) of the Model Law. The companies cited various grounds such as:

  • the tribunal made findings on disputed facts despite the parties’ agreement to reserve such issues to subsequent hearings;
  • the tribunal decided on an issue that was not pleaded or argued;
  • the tribunal failed to consider the companies’ argument against giving the MIC awards res judicata effect;
  • the tribunal failed to decide on the substantive merits of the dispute by regarding itself bound by the MIC awards; and
  • the partial award was in conflict with Singapore’s public policy.

Review under IAA, s 10(3)

The court declined to review the partial award pursuant to IAA, s 10(3).

The court held that the partial award was not a ruling on jurisdiction, because neither the construction issue nor the res judicata issue were jurisdictional issues. The court found that res judicata was a doctrine that goes to the issue of the admissibility of a claim, and not the jurisdiction of a tribunal. In any event, the partial award ruled on the audited accounts issue, which was a decision on the substantive merits of the case.

The court had strong words on the companies’ jurisdictional challenge, describing it as a ‘clever argument to mask a challenge on the substantive decision by the tribunal’. The court cited the warning by the Court of Appeal in AKN v ALC [2015] 3 SLR 488 that:

‘The courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration.’

Application to set aside under IAA, s 24(b) and Article 34(2) of the Model Law

The court declined to set aside the partial award as there was no breach of natural justice.

Dismissing the multiple grounds raised by the companies, the court found that:

  • a tribunal was not obliged to deal with every argument;
  • natural justice does not require that the parties be given responses on all submissions made; and
  • the tribunal was keenly aware that BTO was absent from the MIC proceedings, albeit as a result of the companies’ own internal failings.

The court found no reason to set aside the partial award since the tribunal was tasked precisely with determining whether the MIC findings were contractually binding and had res judicata effect.

The court also found that the partial award did not offend Singapore’s public policy as the companies were given full opportunity to present their case on the legal issues before the tribunal and cannot now complain against the outcome.

Whether the partial award should be set aside as against BTN

Finally, the court declined to set aside the partial award as against BTN. The tribunal clearly determined that the MIC awards were binding on both BTO and BTN based on its construction of the SPA and PEAs. Since the MIC proceedings applied to BTN by way of issue estoppel, this is neither a shock to the public conscience nor wholly offensive to a reasonable and informed member of the public.

* Originally published by LexisNexis; with thanks to Jenny Rayner.

This article may be cited as Wei Ming Tan, ‘Singapore — ‘creative’ attempts to challenge an award given short shrift’ (BTN v BTP)‘ (15 October 2019).

About Wei Ming Tan

International Disputes Lawyer
This entry was posted in Arbitration. Bookmark the permalink.

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