Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy ground for setting aside awards (BTN v BTP)

Arbitration Analysis: This decision clarifies the scope of the public policy ground for setting aside of arbitral awards. In dismissing the appellants’ application to set aside a partial award, the court makes it clear that arbitral decisions invoking the doctrine of res judicata remain final and binding on parties, notwithstanding arguments to the effect that a party is deprived of its right to a hearing as a result.

BTN and another v BTP and another [2020] SGCA 105

What are the practical implications of this case?

This decision clarifies the scope of the “public policy” ground for the setting aside of arbitral awards. The appellants contend that they were deprived from litigating on a vital component of their defence in an arbitration because the arbitral tribunal had determined that the matter before it was res judicata.

Whilst recognising that litigants adversely affected by the res judicata doctrine would often consider themselves to have been “unfairly deprived of their right to a hearing”, the court ultimately found that the doctrine of res judicata has long been part of the law of Singapore and its invocation is neither unusual nor should ever be described as “shocking the conscience or wholly offensive to informed members of the public”. 

The decision also clarifies the applicability of the res judicata doctrine in arbitral decisions – whether it goes toward a tribunal’s jurisdiction or the admissibility of a claim.

The court found that, even if an arbitral tribunal were to erroneously apply the res judicata doctrine in its award, this would not be a basis for setting aside the award. Errors of law or fact made in an arbitral decision are final and binding on parties and may not be appealed against or set aside on public policy grounds.

Only a decision on a tribunal’s jurisdiction is subject to a de novo independent review by the courts. Since an arbitral decision made on the basis of res judicata is a decision on admissibility, not jurisdiction, it is not subject to review.

What was the background?

The respondents, BTP and BTQ, are individuals. The first appellant, BTN, is a Mauritian company and the owner of the second appellant, BTO, a Malaysian company. The respondents were substantial shareholders in BTO and another holding company (“the Group”).

Pursuant to a Share Purchase Agreement (“SPA”) with BTN, the respondents sold their shares of the company and BTN assumed 100% control of the Group. Employed under certain Promoter Employment Agreements (“PEAs”), the respondents stood to gain an Earn Out Consideration of US$35m if they were dismissed without cause.

BTO purported to dismiss the respondents “With Cause”. Dissatisfied, the respondents went to the Malaysian industrial Court (“MIC”) and obtained MIC Awards which found that they had been dismissed without cause. Due to the appellants’ own internal reasons, they did not participate in the MIC proceedings.

The respondents commenced arbitration against both BTO and BTN for the Earn Out Consideration. In its partial award (“Partial Award”), the tribunal found in the respondents’ favour and held that the appellants were precluded by the MIC Awards from arguing that the respondents were terminated with cause (“Res Judicata Issue”).

The appellants applied to the High Court to set aside the Partial Award but failed. This was their appeal to the Court of Appeal against the High Court’s decision.

What did the court decide?

The appellants contended that:

(i) the tribunal committed a breach of natural justice in making the Partial Award;

(ii) the Partial Award is contrary to the public policy of Singapore; and

(iii) the tribunal’s decision on the Res Judicata Issue meant that it had failed to decide matters contemplated by and/or falling within the submission to arbitration.

No breach of natural justice in making Partial Award

The court held that the tribunal did not commit any breach of natural justice in making the Partial Award because it was not based on any facts in dispute. The Partial Award was clearly within the scope of the parties’ agreement for the tribunal to determine “all issues necessary to resolve whether the findings of the MIC are binding on both appellants”.

There was no breach of natural justice in the arbitral proceedings as the parties had submitted both the Construction and Res Judicata Issues to the tribunal for determination. Both appellants were given the opportunity to make submissions and did avail themselves of that opportunity through appointed counsel.

Partial Award was not contrary to Singapore’s public policy

The court held that the Partial Award did not contravene public policy since the doctrine of res judicata has long been a part of Singapore law and its invocation in the Singapore courts is not unusual.

The tribunal had decided the Res Judicata Issue in favour of the respondents, holding that the MIC Awards precluded the appellants from reopening arguments as to whether the respondents’ termination was “With Cause” under the SPA.

Even if the tribunal’s decision on the Partial Award was erroneous (which was not the case here), this would not have been a ground to set aside the Partial Award. As such, Singapore’s public policy would not have been engaged. 

The appellants’ contention that the respondents had breached the arbitration agreements in the PEAs by seeking recourse in the MIC proceedings was dismissed. The appellants failed to invoke the arbitration process during the MIC proceedings or to seek to restrain the further conduct of the MIC proceedings. Since the arbitration clauses were not invoked by either appellant, the respondents’ actions in bringing the MIC proceedings could not be impugned.

Error of law preventing tribunal from exercising its mandate

The appellants advanced a relatively novel argument that, if an award rests on an error of law by reason of which the tribunal was unable to exercise its mandate and determine the merits of the parties’ positions, such an award would be contrary to Singapore’s public policy.

The appellants argued that the tribunal’s decision on the Res Judicata Issue was such an error of law. The tribunal should not delegate or reserve matters submitted to it to another to decide.

The court disagreed, and held that determinations of res judicata issues go toward the admissibility of a claim, not a tribunal’s jurisdiction to hear a case. There was no good reason why erroneous decisions on res judicata should be treated any differently from other errors of law. Contrary to the appellants’ contention, the court found that the Res Judicata Issue was an issue that the tribunal had been specifically tasked to adjudicate on.

Tribunal’s decision on Res Judicata Issue not a failure to decide matters

The appellants argued that in holding that the MIC Awards precluded them from raising the issue of With Cause termination in the arbitration, the tribunal had abdicated its duty to decide that issue.

The court rejected this outright, and reiterated that the tribunal was specifically tasked to decide on the Res Judicata Issue, i.e. whether the MIC’s findings were contractually binding and had res judicata effect. The tribunal determined these issues in accordance to the parties’ agreement.

+First published on LexisPSL on 4 November 2020.

*This article may be cited as Wei Ming Tan, “Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy ground for setting aside awards” (4 November 2020) (Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy ground for setting aside awards (BTN v BTP) | Singapore International Arbitration Blog)

About Wei Ming Tan

International Disputes Lawyer
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