12 October 2020
Arbitration analysis: The Singapore Court of Appeal (SGCA) dismissed appeals against a High Court decision declining to set aside an International Chamber of Commerce (ICC) award issued against the appellants on various grounds, including public policy. The judgment considers key questions, including: does an award of interest on damages fall afoul of an arbitration clause prohibiting ‘punitive, exemplary, multiple or consequential damages’? Can the courts of the seat of the arbitration review, de novo, whether a claim is time-barred or is that an issue for the tribunal? Does a tribunal's finding of joint and several liability in the absence of submissions thereon render the award susceptible to setting aside? Shaun Lee (Counsel) and Low Zhe Ning (Associate), in the dispute resolution group at Bird & Bird ATMD LLP explain the implications of the decision.
BBA v BAZ [2020] SGCA 53
What are the practical implications of this case?
Where arbitration proceedings have been commenced, the onus is on the party disputing the tribunal's jurisdiction to raise all relevant, specific arguments before the tribunal during the arbitration, and not rely on a general objection to the tribunal’s jurisdiction. Failure to do so will likely mean the challenging party is precluded from raising those specific arguments at the stage of resisting enforcement.
Similarly, if a party is of the view that the arbitral proceedings are procedurally defective, it has an obligation to bring the defect to the tribunal's attention during the course of the arbitration. Once again, a failure to do so will prevent such a party from relying on the procedural defect as a ground for challenge at the enforcement stage.
Parties should clearly state in the arbitration agreement and at the outset that limitation issues are beyond the tribunal's jurisdiction if they wish to carve such disputes out of the arbitration. The judgment provides useful clarification on the classification of time-bar issues, the proper choice of law to be applied to the classification of the same, as well as the Foreign Limitation Periods Act (Cap 111A, 2013 Rev Ed) (the Foreign Limitation Periods Act).
Finally, the SGCA reiterated that errors of law, even if egregious, were not justiciable in a setting aside application against an arbitral award. The learned judges stressed that ‘[b]road and general arguments based on unconscionability or potential repercussions of general fairness before a court will be given short shrift’.
What was the background?
BAZ (as Buyer) and BBA (including the other respondents in the arbitration qua Sellers) entered into a Sale and Purchase Agreement (SPA) for shares in a company, C. A dispute subsequently arose between the parties over an internal report which BAZ alleged BBA had concealed from it. BAZ commenced arbitration against BBA and the other Sellers of the shares for fraudulent misrepresentation.
The arbitration clause in the SPA provided for arbitration in Singapore and prohibited the tribunal from awarding ‘punitive, exemplary, multiple or consequential damages’ (the Express Prohibition). Another clause in the SPA stated that the award ‘shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal’.
BAZ obtained an arbitral award in its favour. The majority of the tribunal found that the Sellers were liable for fraudulently misrepresenting or concealing from BAZ the severity of C's regulatory problems. In so holding, the majority found (i) that the commencement of the arbitration was not time barred; and, (ii) that the Sellers were jointly and severally liable for damages, which included a pre-award interest. The award was partially upheld by the Singapore High Court ([2018] SGHC 275), save for the portion which concerned a certain group of Sellers who were minors. The unsuccessful Sellers appealed against the dismissal of their application to set aside the award (ie there was no appeal by BAZ against the portion of the award that was set aside). For coverage of that decision, see News Analysis here.
What did the Singapore Court of Appeal decide?
The SGCA affirmed the High Court's decision to uphold the award.
Majority's award of damages or pre-award interest did not exceed its jurisdiction
The SGCA held that the award of damages and/or pre-award interest did not fall afoul of the Express Prohibition and thus the tribunal did not exceed its jurisdiction.
First, the SGCA rejected the argument that the award of damages was compensation for loss of opportunity and hence consequential damages contrary to the Express Prohibition. In so holding, the SGCA observed as follows:
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that the appellant's arguments as to the correct approach that the tribunal should adopt in quantifying damages were substantive submissions as to the proper approach of quantification that should have been made to the tribunal, and not the court of the seat of the arbitration as that would interfere in the merits of the award
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the tribunal was cognizant of the Express Prohibition—while the award contained infelicities (for eg a reference to the damages award as loss of opportunity); the statements had to be read contextually and, in any event, were irrelevant to the merits of a jurisdictional challenge
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further, the methodology which was being challenged by the appellants before the Singapore courts was one that had been put forward by the appellants' expert himself in the arbitration as well as in closing submissions by the appellants' counsel
Second, pre-award interest did not amount to consequential damages. The tribunal's power to award interest was expressly contemplated in the SPA's dispute resolution clause itself. The SGCA also drew a distinction between interest on or upon damages, and interest as damages. While awarding interest as damages would presumably be ‘punitive, exemplary, multiple or consequential damages’ as it comprises the loss suffered by the plaintiff for the loss of the use of money, interest on damages did not fall within nor contravene the Express Prohibition. Further, a proper review of the award itself would show that the majority was not seeking to compensate the appellant for loss of opportunity and that the majority were themselves using figures which the disputants had provided to the tribunal.
Third, pre-award interest did not amount to double recovery so as to constitute punitive or multiple recovery. This was because once the damages had been quantified at a particular historical point of time, the majority would then be entitled to award interest on those damages so as to bring that sum forward to the present to reflect the proper loss to BAZ.
Statutory time bars go towards admissibility rather than jurisdiction, and thus cannot be reviewed de novo by the seat court under Singapore law
The issue as to whether the time-bar goes towards jurisdiction or admissibility is one of classification, which is governed by Singapore law as the lex arbitri as well as the law of the seat court.
In coming to its decision, the SGCA rejected the appellants' submission that the court of the seat ought, in answering the classification issue, to be guided by the governing law of the arbitration agreement and substantive agreement (ie Indian law) as it would be consistent with the parties' intentions as to the determination of their rights. In so holding, the court opined that the parties' intention was a neutral factor – notwithstanding all the connecting factors to India and Indian law, Singapore was specifically chosen as the seat, which meant a choice for the seat's laws to govern the classification issue independently of the choice of governing law.
The SGCA also clarified that Foreign Limitation Periods Act only deals with whether a foreign or Singapore's limitation statutes should apply to a claim. However, this does not affect which law governs the classification question or how the classification question should be answered.
Under Singapore law, since statutory time-bars go towards admissibility of the claim, and not jurisdiction, issues of limitation are to be decided by the tribunal and not the court of the seat. The courts will therefore not review the tribunal's determination de novo. In this regard, the SGCA classified the statutory time bar as an admissibility question since it amounted to an attack on the claim itself.
Further, limitation statutes do not generally affect arbitral jurisdiction by design—the tribunal retains jurisdiction to decide that the claim is ‘stale and therefore defective’ due to the time-bar. As such, absent an express contractual provision that the tribunal shall have no jurisdiction to hear claims that are time-barred under statute, a statutory time bar objection could not be recast as a jurisdiction argument ie that there was no parties' consent to arbitrating time-barred claims.
A party would be precluded from challenging an award at the seat court on the basis of an excess of jurisdiction or breach of natural justice if such points were not raised before the tribunal
Crucial to the court's refusal to undertake a de novo review of whether BAZ's fraud claim was time-barred, was its observation that the appellant had failed, when challenging the tribunal's jurisdiction in the arbitration, to raise the time bar objection (ie there was no consent to arbitrating time-barred claims) despite being aware of this possibility.
The appellant's contention that the tribunal's apportionment of joint and several liability was in breach of natural justice because it did not invite submissions thereon was similarly dismissed. To this end, the SGCA reiterated that a party which intends to contend that there was a fatal failure in the arbitral process must itself make a fair intimation of such intention to the tribunal and that the tribunal cannot be faulted for not foreseeing complications which may arise if nothing is put forward to suggest the issue would be anything but a straightforward one.
The SGCA also noted that certain of the Sellers had taken an all-or-nothing approach in the arbitration. Having argued in the arbitration that BAA had no authority at all to act for them, they had not put forward any alternative argument on what the position would be if BBA was found to have authority, for purposes of attributing liability amongst the individual Sellers.
Joint and several liability amongst shareholders to a company does not constitute a breach of Singapore's public policy
The SGCA rejected the appellants' argument that it would be a breach of public policy to find the Sellers jointly and severally liable to BAZ, as it ignores the fundamental principle that a shareholder’s rights and liabilities in a company are limited to the size of its shareholding.
The learned judges held and reasoned that the limited liability doctrine (ie a member cannot be asked to pay more than the amount (if any) unpaid on his shares when the company is wound up) does not limit shareholders’ liability in relation to torts committed by their agents in the sale of their shares.
Case details
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Court: Court of Appeal of The Republic of Singapore
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Judges: Sundaresh Menon CJ, Judith Prakash JA, and Quentin Loh J
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Date of judgment: 28 May 2020
This article was first published on LexisPSL linked here.
