Singapore—Challenges to ICC awards dismissed

The judgment considered: the effect of a party's failure to raise and make clear its position on a question that fell squarely within the scope of the arbitration; whether the seat court can set aside an award where a tribunal exercised its statutory discretion wrongly; when illegality under the foreign law of the underlying agreement is repugnant to Singapore's public policy; and, whether the seat court has power to award costs of an arbitration where the award has been set aside.

CBX and another v CBZ and others [2020] SGHC(I) 17

What are the practical implications of this case?

Where a party is afforded multiple opportunities by a tribunal to state its case and/or position on a matter which is squarely in issue in an arbitration, it must do so and cannot ‘keep arguments up its sleeve for use in other proceedings’. A failure to do so precludes that party from seeking to set aside the award on the basis that it suffered unfair prejudice and/or that there has been a denial of natural justice.

Further, where a Singapore-seated tribunal is empowered by the Singapore International Arbitration Act (Cap 143A) (the IAA) to grant certain relief/remedies (for eg compound interest), the fact that the tribunal exercised its discretion wrongly is not a ground for setting aside the award.

Finally, ‘public order and good morals’ under the governing law of the arbitration agreement (in this case, Thai law) is distinct from the public policy of the seat of arbitration—the fact that an award violates the public order of the governing law's jurisdiction does not, ipso facto, mean it is contrary to the seat's (ie Singapore's) public policy for purposes of setting aside the award. Further, even if the Singapore court acting as curial court with regard to the arbitration is of the view that the tribunal erred in law, howsoever egregiously, this would not be in itself a ground for setting aside an arbitral award. Where issues of public policy and illegality arise, the Singapore courts will only intervene where the underlying contract is governed by Singapore law and the tribunal has erred by finding that the contract is not illegal under the law of Singapore. The courts may also intervene where there is ‘palpable and indisputable illegality’ on the face of the award.

Lastly, this case is also interesting in that it raises questions as to the supervisory court's power to vary a tribunal's allocation of the costs of arbitration where its award is successfully set aside. Given the earlier Singapore Court of Appeal decision in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33 (not reported by LexisNexis® UK), this issue remains to be re-examined and decided by the Singapore Court of Appeal.

What was the background? 

The plaintiffs in the court proceedings (who were the respondents in the arbitration) sought to set aside parts of two arbitral awards on the grounds that:

• the tribunal exceeded its jurisdiction
  
  
• there was a breach of natural justice, and/or
  
  
• they contravened Singapore public policy

The plaintiffs also sought to set aside a costs award made in favour of the defendants (who were the claimants in the arbitration) consequential to setting aside the other arbitral awards.

The plaintiffs (‘PF1’ and ‘PF2&3’) were each party to a sale and purchase agreement (the SPAs) for the purchase of shares held by the defendants in the target company. The SPAs were governed by Thai law. The SPAs provided for ICC arbitration seated in Singapore. Under the SPAs, payment of a first instalment was to be made by a certain date, with the balance of the consideration (the ‘remaining amounts’) to be paid in tranches within 45 business days of each of the milestone dates identified in Schedule 5 of the SPAs.

PF1 failed to pay the first instalment, whereas PF2&3's payment of the first instalment only occurred after the stipulated date and they did not pay interest on the late payment. The defendants thus argued that the plaintiffs were in default due to non-payment or late payment and that, in consequence, they could treat the relevant SPA as rescinded. The defendants further argued that the remaining amounts had become immediately payable in full. On the other hand, the plaintiffs denied that the defendants were entitled to treat the relevant SPA as rescinded and argued that the payment dates for the first instalments had been postponed and that the remaining amounts had not been accelerated.

The first defendant commenced arbitration against PF1, while PF2&3 commenced arbitration against the second defendant. The references were heard together, and the tribunal divided the procedural timetable into two phases—Phase 1 on liability and Phase 2 on damages.

Under the Phase 2 awards, the plaintiffs were ordered to pay (a) the remaining amounts to the defendants pursuant to Schedule 5 of the SPAs (the ‘remaining amounts orders’); (b) 15% interest compounded annually from the date of the Phase 2 awards (the ‘compound interest orders’). Interestingly, after the tribunal had issued the compound interest orders, both the plaintiffs' and the defendants' Thai law experts came to the unanimous view that Thai law did not permit interest payable under the SPA to be compounded, despite a contractual provision in the SPAs to the contrary. However, even though the defendants themselves requested the tribunal to correct the compound interest orders, the tribunal declined to do so.

Subsequently, a costs award was issued and the plaintiffs were ordered to pay 66% of the defendants' costs of the two arbitrations, plus simple interest of 7.5% per annum from the date of the costs award.

What did court decide?

The SICC dismissed the plaintiffs' application to set aside the remaining amounts orders and compound interest orders in the awards on the ground that the tribunal exceeded its jurisdiction, acted in breach of natural justice and contravened Singapore public policy. Consequentially, the challenge to the costs award also failed. 

The tribunal did not exceed its jurisdiction in making the remaining amounts order

The SICC held, contrary to the plaintiffs' submission, that payment of the remaining amounts in accordance with Schedule 5 was squarely in issue before the tribunal in both phases of the arbitration, as evinced in the defendants' Phase 2 reply where it pleaded and made clear that it was seeking payment of the remaining amounts pursuant to Schedule 5, albeit as a ‘very subsidiary claim’.

Further, the judge also took that view that, even though the plaintiffs submitted that the remaining amounts order took them by surprise, their conduct in the arbitrations would have conveyed a different impression to the tribunal. In particular, the SICC noted that the plaintiffs' position in the arbitration was that the plaintiffs intended to comply with their obligations under the SPAs and to pay the remaining amounts within 45 business days of the Schedule 5 milestones, subject only to their case on set-offs and counterclaims in Phase 2. There was also nothing to indicate to the tribunal subsequently that the plaintiffs actually had no intention of paying the remaining amounts in any circumstance. In this respect, the tribunal was merely acting on its understanding of the plaintiffs' own evidence in re-examination, the closing exchange on the last day of the Phase 2 hearing as well as in the post-hearing briefs. The plaintiffs had ample opportunity to disabuse the tribunal of such an understanding, but did not do so.

The remaining amounts order did not unfairly prejudice the plaintiffs

The plaintiffs argued that the remaining amounts order caused unfair prejudice to its position in other proceedings against the defendant. The SICC dismissed this argument on the basis that it was incumbent on the plaintiffs to have clarified their position in the related proceedings to the present tribunal.

Where a question is squarely in issue in the arbitration, in the absence of special circumstances, a party must raise all its arguments in connection with that question in the arbitration. On the facts, since the remaining amounts were squarely in issue, the plaintiffs' failure to inform the tribunal of their actual case in the related proceedings meant that any prejudice arising from an estoppel against them could not be attributed to the tribunal. Instead, any prejudice suffered in the related proceedings would have been a result of the plaintiffs' omission to spell out their case on the remaining amounts to the tribunal.

There was no denial of natural justice

The numerous opportunities afforded to the plaintiffs to state the true nature of their case on payment of the remaining amounts meant they were not denied natural justice.

The compound interest order was not made in excess of jurisdiction

The SICC held the tribunal had the power to award compound interest and thus did not exceed its jurisdiction in so doing.

In this regard, the court noted that the extent of a tribunal's powers is to be determined according to the lex arbitri (in this case, Singapore law). Here, section 12 of the IAA expressly conferred on the tribunal the power to award compound interest. The court further noted that since Thai law governed the relevant SPAs, the tribunal's task was to determine the effect of Thai law on a contractual clause providing for compounded interest for late payment and to consider whether and how to exercise its statutory powers in line with such determination.

While the court opined that the tribunal had erred in its conclusion on Thai law, Reyes IJ nonetheless reiterated that such an error could not be characterised as an excess of jurisdiction. In so holding, the court noted the distinction between a situation where a tribunal exercises power it does not have as opposed to a situation where it erroneously exercises a power that it does have.

On the facts, the tribunal mistook the parties' position and the thrust of the evidence on Thai law and wrongly exercised its undoubted power to award compound interest under the IAA. However, the SICC considered that this was a routine hazard of arbitration and parties had agreed to be bound by a tribunal's decision, whether right or wrong, even egregiously wrong, in fact or law. As such, the tribunal's error on Thai law was not in itself a ground to set aside the compound interest orders.

The compound interest orders were not made in breach of natural justice

The issue was not so much a lack of due process; rather, the problem was one where the tribunal had misapprehended the parties' stances and the thrust of Thai law evidence presented to it. The judge remarked that to the contrary, the plaintiffs' expert's submissions were sufficiently substantial so as to persuade the defendants' expert as to the correctness of their view on this issue.

Upholding the compound interest orders did not contravene Singapore public policy

The fact that enforcement of the compound interest orders would be against public order and good morals under the governing law of the arbitration agreement did not necessarily mean it would be repugnant to Singapore's public policy.

The court accepted that ‘palpable and indisputable illegality’ on the face of an award would be a basis for refusing enforcement of an award, or would justify a seat court's intervention as a matter of public policy, but noted that the phrase referred to contracts involving conduct of an obvious criminal nature, ie where the contract required parties to contravene the criminal law of some country, or is intended to be performed in a manner that violates such laws.

Further, save where criminality is obvious on the face of an award, a supervisory court should not normally consider evidence or submissions on the question of illegality under foreign law, since it would amount to re-opening and re-hearing the merits of an arbitration.

The SPAs in question did not involve ‘palpable and indisputable illegality’ since there nothing to suggest the agreement on compound interest gave rise to criminal liability or constituted an illicit enterprise. Even if the tribunal had erred in its view—that exceptionally Thai law allowed annualised (as opposed to monthly) compound interest on monies due under the SPAs—the situation still did not constitute one of ‘palpable and indisputable illegality’ and thus there was no reason for the Singapore court to set the order aside as contrary to Singapore's public policy.

There was no basis to challenge the costs award

The court's dismissal of the plaintiffs' challenge to the remaining amounts and compound interest orders removed the basis for a consequential order setting aside the costs award.

However, Reyes IJ observed that even if he had upheld the challenges against the remaining amounts and compound interest orders, he doubted that the court had the power to award the costs of the two arbitrations to the plaintiffs since there did not appear to be a statutory provision conferring such a power on the court in such a situation. This was notwithstanding the earlier decision in CRW Joint Operation, in which the successful claimant in the arbitration had been ordered to bear all costs and disbursements incurred in the arbitration after the respondent had succeeded in setting aside the arbitral award.

Case details

• Court: Singapore International Commercial Court
• Judge: Anselmo Reyes IJ
• Date of judgment: 16 July 2020

This article was first published on LexisPSL linked here.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.