By Chou Sean Yu/Chua Sui Tong

Court of Appeal: Narrow Scope of Public Policy Ground for Challenging Arbitral Awards Reaffirmed

In a significant decision, the Singapore Court of Appeal in AJU v AJT [2011] SGCA 41 overturned the High Court's decision to set aside an arbitral award on the basis that it enforced an illegal agreement and was therefore in conflict with the public policy of Singapore. The Court of Appeal held that the High Court erred in reopening the arbitral tribunal's finding of fact that the agreement in issue was not illegal. This decision is to be welcomed as it reaffirms the narrow scope of the public policy ground for challenging arbitral awards under Article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration ("Model Law') set out in the First Schedule to the International Arbitration Act ("IAA"). WongPartnership LLP acted for the successful Appellant. This Update takes a closer look at the case.

Facts
Complaint of fraud to Thai Police after commencement of arbitration

The Respondent was a company incorporated under the laws of the British Virgin Islands and the Appellant was a public company incorporated under the laws of Thailand. Consequent to disputes arising pursuant to an agreement for the staging of a tennis tournament in Thailand, the Respondent initiated arbitration proceedings in Singapore against the Appellant for inter alia alleged wrongful termination of the agreement. Approximately three months after the initiation of arbitration, the Appellant made a complaint to the Thai Police of fraud against the Respondent's sole director and shareholder ("O") and two of its subsidiary companies ("P and Q") on the basis of an alleged forged document faxed from O to the Appellant. Pursuant to the complaint, the Thai police brought charges against 0, P and Q for joint fraud and against 0 for forgery and use of a forged document.
Agreements to compromise non- compoundable offences unenforceable Under Thai law. fraud is a compoundable offence and an agreement to compromise a compoundable offence is valid and enforceable. However, forgery and the use of a forged document are both non-compoundable offences and agreements to compromise such offences are against Thai public policy and will not be enforced by the Thai courts.
Parties reach agreement to settle dispute Whilst the police investigations were continuing, the parties negotiated a settlement of their disputes and entered into a concluding agreement ("Concluding Agreement") that provided, amongst other things, that each party should, at the closing date, "take all such steps as are necessary...to terminate, withdraw and discontinue all actions, claims and counterclaims...as well as vacate any judgments, awards, or enforcement that may have been issued or are subsequently issued."
Complaint to police withdrawn After the Concluding Agreement was signed, the Appellant withdrew its complaint to the police stating that the parties had reached agreement. A cessation order was issued in respect of the fraud charge and a non- prosecution order was issued in relation to the forgery charges on the basis that there was not enough evidence to prosecute. However, the Respondent refused to terminate the arbitration proceedings, contending that the non-prosecution order meant that the charges could still be reactivated by new or additional information.
Contention that agreement is illegal The Appellant then formally applied to the arbitral tribunal ("the Tribunal") to terminate the arbitration on the grounds that the parties had reached full and final settlement of their claims by way of the Concluding Agreement. The Respondent responded by challenging the validity of the Concluding Agreement on the grounds of duress, undue influence and illegality. In respect of illegality, the Respondent's contention was that the Concluding Agreement amounted to an illegal agreement to stifle the prosecution of a non- compoundable offence in Thailand.
The Arbitral Award
Arbitral Tribunal finds no illegality The Tribunal was asked to decide whether the Concluding Agreement was valid or whether it should be set aside or declared void on the grounds of duress, undue influence or illegality. By its award, the Tribunal found that the Concluding Agreement was not illegal, and also rejected the Respondent's allegations of duress and undue influence.
Application to set aside award The Respondent then applied to the High Court for the award to be set aside on (inter alia) the basis that it was contrary to the public policy of Singapore because it enforced an agreement that was illegal and unenforceable in Thailand. No new evidence was adduced by the Respondent before the High Court.
The High Court's decision at first instance
Can reopen findings of tribunal in "appropriate case" The critical issue before the High Court was whether the court could, in exercising its supervisory jurisdiction, reopen the Tribunal's findings of fact and/or law and decide for itself whether the Concluding Agreement was illegal. After examining a number of English, Australian and Singapore authorities, the court held that it could do so in "an appropriate case" (but without explaining what would qualify as an "appropriate case").
Award set aside The court then proceeded to evaluate the evidence pertaining to the issue of illegality. The court considered that the Tribunal's decision that the Concluding Agreement was not illegal was based on the literal terms of the agreement and the Tribunal erroneously failed to concern itself with the relevant surrounding circumstances to ascertain the true object, purpose and intentions of the parties. The court concluded that the Concluding Agreement was in fact an agreement entered into by the parties with the intention and purpose of doing an act which undermined the administration of justice in Thailand. An award which upheld such an agreement was thereby in conflict with the public policy of Singapore, and the court accordingly set aside the award pursuant to Article 34(2)(b)(ii) of the Model Law.
Reversal of the High Court's decision by the Court of Appeal
Court of Appeal reverses decision On appeal, the Court of Appeal overturned the High Court's decision. The Court of Appeal rejected the Respondent's contention that, when the court is considering whether to set aside an arbitral award on public policy grounds, it should always embark on a detailed analysis of the evidence and the only precondition to be met is that the objection raised must prima facie be a legitimate public policy ground for setting aside an arbitral award. The Court of Appeal instead robustly affirmed the prevailing judicial and legislative policy of giving primacy to the autonomy of arbitral proceedings and upholding the finality of arbitral awards.
Judicial policy of upholding finality of arbitral awards affirmed A few aspects of the Court of Appeal's decision are worth noting:
  • The Court of Appeal expressly declined to follow the approach taken by the English Court of Appeal in Soleimany v Soleimany [1999] QB 875 ("Soleimany"). In Soleimany, the English Court of Appeal held that where enforcement of an arbitral award was resisted on the ground of illegality in the underlying contract, the court could, in an appropriate case, reopen the tribunal's finding that there was no such illegality.
  • Instead, the Court of Appeal preferred the approach taken by the majority of the English Court of Appeal in Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd and Others [2000] 1 QB 288. In that case, it was held that where an arbitral award was challenged on the basis of illegality in the underlying contract despite the arbitral tribunal having found that the contract was legal, it was only in cases where the challenge was based on facts not placed before the arbitral tribunal that the court would intervene and reopen the arbitral tribunal's finding.
  • The Court of Appeal reaffirmed the principle that even if an arbitral tribunal's findings of law and/or fact are wrong, such errors would not per se engage the public policy of Singapore.
  • The Court did however clarify that an erroneous finding of law by an arbitral tribunal as to the public policy of Singapore would be grounds for setting aside the award. Using the present case as an example, if the Concluding Agreement had been governed by Thai law instead of Singapore law, and if the Tribunal had held that the agreement was illegal under Thai law but could be enforced in Singapore because it was not contrary to Singapore's public policy, this finding would be a finding of law which,—if erroneous, could be set aside as being in conflict with the public policy of Singapore.
Comment
Narrow construction of public policy ground The traditional understanding of the public policy ground under the Model Law for setting aside arbitral awards is that it is to be construed narrowly. It is reserved for exceptional cases, to ensure that arbitral awards which "shock the conscience" or "violate the forum's most basic notions of morality" (per the Singapore Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597) are set aside and/or not enforced. It should not be used as a basis to revisit and second guess findings of fact made by an arbitral tribunal, as this would undermine the legislative objective of the IAA that, as far as possible, the international arbitration regime should exist as an autonomous system of private dispute resolution to meet the needs of the international business community. In this regard, the Court of Appeal's decision is to be welcomed as a timely judicial reaffirmation of the established principles.

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