13 July, 2016
The Singapore High Court has recently dismissed a challenge to set aside an arbitration award in AYH v AYI and another [2015] SGHC 300, confirming that parties should make full use of any opportunities to submit upon any new issues of law and fact that arise during the course of an arbitration when they arise and not later, e.g. by way of a challenge to any award. If an issue arises in an arbitration and a party elects to “sit on its hands” rather than deal with the issue there and then, then the party may well lose the right to challenge that issue later.
Background
AYH (the Director) was a former director of AYI (the Company) and had been involved in the operations of an Indonesian mining company which the Company indirectly owned. Upon vacation of the Director’s posts in the Company and the Indonesian mining company, the Director and the Company entered into a settlement deed in which the Director had to make payments for previously impugned transactions on certain dates (the Deed).
The Director defaulted on the settlement payment dates and did not transfer any of the promised assets and cash.
The Company commenced arbitration in the Singapore International Arbitration Centre (SIAC), seeking specific performance. The tribunal issued an award on 29 December 2014 (the Award) which found in favour of the Company and ordered specific performance of an amended Deed.
The High Court Decision
The Director submitted an application to the Singapore courts to set aside the Award on the grounds that the dispute was beyond the scope of the arbitration and that there was a breach of natural justice, pursuant to Articles 34(2)(a)(iii) and 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (the Model Law).
In short, a key issue in the case was whether the Deed was capable of performance. The facts of the case were complicated, but can be broadly simplified as follows. The Director, the Company and the Company’s owners entered into the Deed to settle certain liabilities which (under the terms of the Deed) arose from the impugned transactions. The Director agreed to make payments and transfer assets to the owners, which would reduce the Director’s liability pro-rata. The Director, however, later claimed that the Deed was void for common mistake. The Director claimed that the liabilities covered by the Deed were, in fact, largely owed to a third party, an Indonesian mining company. The Director asserted that the Deed therefore did not settle all of the claims, because any payments the Director made under the Deed could not release his liability to the Indonesian mining company, as it was not bound by the Deed. In response, the Company and its owners entered into an additional agreement with the Indonesian mining company (the Agreement), which referred to the Deed and stated that any cash or assets received from the Director by the owners would be passed to the Indonesian mining company, in return for the mining company releasing its claims against the Director.
However, this Agreement was entered into less than a week before the arbitration hearing, and only after the Agreed List of Issues had already been settled and submitted to the tribunal. The Company produced and referred to the Agreement during the course of the hearing. The Director did not object to the production of the Agreement at the hearing, although he did not admit its validity or legal effect.
The Tribunal ultimately found against the Director, who then challenged the Award before Prakash J in the Singapore High Court. The Director argued that any dispute with respect to the Agreement was outside the proper scope of the arbitration because (1) the Agreement had not been included in the Agreed List of Issues, (2) in the Director’s view, the effect of the Agreement was never placed before the tribunal as an issue to be determined during the hearing, (3) the tribunal had erred in making a substantive finding regarding the Agreement, and (4) the tribunal’s findings caused the Director prejudice as he did not have the opportunity to make submissions on the validity and enforceability of the Agreement. The Director claimed that, in light of the above, the tribunal did not have jurisdiction to make findings with respect to the Agreement or make the award it did, and that in any event there had been a breach of natural justice.
The starting point for determining whether an arbitral award ought to be set aside under Art. 34(2)(a)(iii) of the Model Law is to undertake an enquiry to determine: (1) what matters are within the scope of the submission to the arbitral tribunal and (2) whether the Award involves matters that are outside this scope. While the parties’ pleaded cases and the issues of law and fact raised in the pleadings generally delineate the scope of the submission to the arbitral tribunal, it is not always the case that everything outside of these pleadings is therefore outside of the scope of the submission (PT Prima International Development v Kempinski Hotels SA and other appeals [2012] 4 SLR 98 (PT Prima)).
Prakash J found that the Agreement had been properly put forward before the tribunal even though it had not been included in the Agreed List of Issues or mentioned in the pleadings. Furthermore, the tribunal had not made a substantive finding regarding the Agreement. Instead, the Agreement was introduced as a “a piece of evidence which [the Company was] adducing in the Arbitration to support their contention that there was no impossibility of performance“. The tribunal was not determining an issue pertaining to the legal effect of the Agreement.
Accordingly, the tribunal’s decision did not involve matters that are outside the scope of the submission to the tribunal.
The fact that the Agreement was submitted when the arbitration was substantially underway did not preclude its
admission in the proceedings since the existence of the Agreement was made known to the Director as soon as it as concluded and the Director was made aware of the Company’s intention to rely upon it during the arbitration (PT Prima). Accordingly, Prakash J also found that the Director had not been prejudiced, nor had he been deprived of the opportunity to submit on the Agreement, noting that, “[w]here a party has failed to make full use of the opportunities afforded to him, he cannot complain later.”
Comments
This case shows that parties should deal with all issues as they arise. This will include pleaded issues, but may include issues which arise later and are not specifically pleaded. The Singapore courts will be slow to find that issues fall outside the scope of the submission to arbitration just because they have not been pleaded.
In the present case, the Court considered that the Director had ample opportunity to raise any arguments with respect of the Agreement, and that the Director should have done this at the time, rather than seek to challenge any Award subsequently. The message is clear: if parties elect not to deal with issues when they arise in an arbitration, they may well lose the opportunity to argue that issue before the Courts at a later date.
For further information, please contact:
Leng Sun Chan, Principal, Baker & McKenzie.Wong & Leow
LengSun.Chan@bakermckenzie.com
