Singapore High Court refuses to set aside arbitral awards despite Tribunal error and potential illegality - Arbitration & Dispute Resolution

In CBX & Anor v CBZ and Anors [2020] SGHC(1) 17, Justice Reyes dismissed an application to set aside an arbitral award because the Tribunal erred in applying the relevant substantive law, and because the effect of enforcing the award would be unlawful in the place of the substantive law.

Background

On 19 June 2015, the Plaintiffs and Defendants entered into two Sale and Purchase Agreements (SPAs) for the sale of shares of a company. The SPAs were governed by Thai Law and provided for ICC arbitration seated in Singapore.

On 26 January 2016, the Plaintiffs commenced arbitration proceedings against the Defendants. The Defendants' counterclaimed that the Plaintiffs had failed to pay an instalment in accordance with Schedule 5 of the SPAs (Remaining Amounts). The Tribunal heard the arbitration in two phases, Phase I on liability and Phase II on damages, and issued a partial awards for each phase.

Relevantly in Phase II, one of the issues between the parties was whether a clause providing for the payment of compound interest was void because it contravened Thai law. In Phase I, the Defendant's Thai law expert had thought it was permissible under Thai law to award 15% annualised compound interest on monies due under loan agreements, including SPAs.

However, during Phase II, the Defendant's Thai law expert changed their position, so that the experts in Phase II agreed that compound interest could not be charged under Thai law and that only simple interest could be awarded. Despite this change, the Tribunal ordered the Plaintiffs to pay the Remaining Amounts (Remaining Amounts Orders) and 15% interest compounded annually (Compound Interest Orders).

On 28 June 2019, the Defendants applied to the Tribunal for a correction of the Compound Interest Orders on the basis of the agreed Thai law experts' evidence. The Tribunal declined to correct the decision. On 9 August 2019, the Tribunal issued a Costs Award covering both phases of the arbitration (Costs Orders) with simple interest of 7.5% pa from the date of the Costs Orders.

The plaintiffs applied to the Singapore High Court (as the seat Court) for orders setting aside the Remaining Amounts Orders and the Compound Interest Orders.

Remaining Amounts Orders

The Plaintiffs said the Remaining Amounts Orders should be set aside because:

the Tribunal exceeded its jurisdiction, because the payment of the Remaining Amounts was not in issue before the Tribunal, and because the Remaining Amounts were not due for payment before the end of the arbitration. The plaintiff's suggested they were taken "wholly by surprise" by the Tribunal's Remaining Amounts Orders;
the Tribunal's orders unfairly prejudice the Plaintiffs, because the orders unfairly prejudiced their position in another arbitration; and
the Tribunal denied the Plaintiffs natural justice, because they were not given the opportunity to raise substantive and jurisdictional defences.

Justice Reyes found against the Plaintiff's on all grounds.

On jurisdiction and natural justice, His Honour found that payment of the Remaining Amounts was squarely put in the Defendants' Reply served in the arbitration (albeit as a "very subsidiary claim"), and that the Plaintiffs' counsel had addressed the issues in the oral hearing. As such, the Plaintiffs' failure to present their case on the issues "was their own" so the Tribunal did not deny them natural justice.

Justice Reyes also dismissed the second ground of appeal (prejudice in another arbitration), noting the Plaintiff's failure to make its position clear to the Tribunal on liability for the Remaining Amounts despite having ample opportunity to do so, and that "[a] party cannot keep arguments up its sleeve for use in other proceedings depending on the outcome of the instant arbitration". Having dismissed this ground of appeal for this reason, His Honour found it unnecessary to consider the Defendant's further submission that the Plaintiff's silence amounted to a waiver of any right to set aside the Remaining Amounts Orders.

Compound Interest Orders

The Plaintiffs said the Compound Interest Orders should be set aside because:

the Tribunal exceeded its jurisdiction because Thai law did not permit the compounding of interest provided for in the SPAs, and that the only issue before the Tribunal was whether Thai law vitiated the clause of the SPAs requiring that payment;
the Tribunal denied the Plaintiffs natural justice, because the parties' experts had agreed that Thai law did not permit the compounding of interest, so the Plaintiffs focussed their submissions in the arbitration on the effect of Thai law on the interest rate, rather than compounding. The Plaintiffs said they were deprived the opportunity to put their case on compounding because they did not realise it was still in issue for the Tribunal; and
the Compound Interest Orders are contrary to Singapore public policy, because they contravened Thai law relating to public order and good morals, which meant that the case involved palpable and indisputable illegality and so it would be against Singapore public policy to allow them to stand.

No excess of jurisdiction

Justice Reyes found that the Tribunal did not exceed its jurisdiction.

To come to that decision, His Honour started with the proposition that because Singapore was the seat of the arbitration, the International Arbitration Act (Cap 143A, 2002 Rev Ed) gave the Tribunal the power to award compound interest.

His Honour went on to say that in the arbitration, the Tribunal was to decide disputes according to the laws chosen by the parties applicable to the substance of the dispute so it had to:

determine the effect of Thai law on the SPA interest clause; and
consider whether and how to exercise its power under the Singapore IAA in line with such determination.

His Honour then found that the Tribunal appeared to have not appreciated that the Defendants' expert changed its position between Phase I and Phase II of the arbitration (to accept that provisions for the payment of compound interest are void under Thai law), and adopted a conclusion which was wrong on Thai law. However, His Honour held that this error could not be characterised as the Tribunal acting beyond its jurisdiction, because:

"The risk that a tribunal makes an error of this sort is a routine hazard of arbitration. Parties to an arbitration have nonetheless agreed to be bound by a tribunal's decision, whether right or wrong, even egregiously wrong, in fact or law."

Put another way, the Tribunal here wrongly exercised a power that it did have, rather than exercising a power it did not have, i.e. it acted within its jurisdiction.

Plaintiffs afforded natural justice

Justice Reyes held that the Plaintiff was not denied a reasonable opportunity to present its case. The Plaintiffs in fact submitted substantial expert evidence of the issue of compound interest which persuaded the Defendants' expert, if not the Tribunal. Justice Reyes found that "[t]he problem was not so much a lack of due process, as of the Tribunal misapprehending the parties' stances and the thrust of Thai law evidence presented to it."

Compound Interest Orders not contrary to Singapore public policy

The Plaintiffs argued that the Compound Interest Orders contravene Thai law relating to public order and good morals, and performance of the orders would be illegal in the place in which they are to be performed. For that reason, the Plaintiffs argued that it would contrary to Singapore public policy to allow the orders to stand.

Justice Reyes held that the Compound Interests Orders were not contrary to Singapore public policy, finding that:

awarding compound interest could not by itself be against Singapore's public policy because the IAA permits a tribunal to award compound interest;
the case law used the term 'palpable and indisputable illegality' in cases involving contracts with conduct of an obvious criminal nature and there was no suggestion that the SPAs gave rise to criminal liability or constituted an illegal enterprise;
it does not follow that "because an award violates the 'public order' of a jurisdiction, the award must automatically be contrary to that jurisdiction's 'public policy' in the sense that the expression 'public policy' is used in the New York Convention or the Model Law" and 'public order' under Thai law may be wider in scope than the traditionally narrow 'public policy' ground under the New York Convention;
the place of performance is not necessarily place of enforcement, and that the awards in this case may be enforced in places other than Thailand;
the countervailing principle of finality meant that parties are held to a tribunal's decision even when it has made an error of law;
an enforcing court (as distinct from the seat Court considering a set aside application) would need to engage in a balancing act between the demands of 'public order and good morals' and the principle of finality; and
it was not appropriate for a Court of the seat to discern what a Thai court would do on an enforcement action and then 'reason backwards' that because the Thai court is likely to refuse enforcement that the Singapore Court should set aside the award.

Other orders

The Plaintiffs also argued that if the Court set aside the Compound Interest Orders, they were not severable from the Tribunal's general award of 15% interest and therefore the Court must set aside the entire award of interest.

Justice Reyes disagreed. He found that even if he had agreed with the Plaintiffs he would have merely set aside the part of the award relating to compound interest on the Remaining Amounts, because it was severable from the Tribunal's award of 15% interest.

Key takeaways

This case illustrates three important issues for parties considering arbitration as a dispute resolution mechanism.

First, it shows the importance of parties not being too 'coy' with issues in dispute. The decision reflects an increasing trend that courts and tribunals are losing patience with parties trying to keep claims 'up their sleeve', which makes appeals against awards on the basis of their (real or perceived) impact on other proceedings more difficult.

Second, while arbitration has a number of benefits, which are widely acknowledged, this case illustrates one of its significant risks. By submitting disputes to arbitration, the parties generally surrender appeal rights (or at least severely curtail them). If the Tribunal makes an error, this decision shows how hard it is to persuade seat courts to try to and rectify the error.

Third, this matter is an example of where provision in arbitration legislation for appeals on points of law could have been relied upon to correct the Tribunal's error. An example of that legislation is the 'opt in' provision in s 34A(1) of the Commercial Arbitration Act 2012 (WA). The inclusion of a similar provision into Singapore's arbitration legislation was discussed last year, but no amendment has been made.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.