Courts and Arbitration A Question of Balance?

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1 Courts and Arbitration A Question of Balance? Recent Developments in Singapore law Chong Yee Leong Partner, Rajah & Tann LLP 24 April Setting The Scene The current economic climate and arbitration Well-functioning dispute settlement systems imperative in today s economy NY Convention and the UNCITRAL Model Law Reasons for the rise of arbitration Free-standing substantive law of arbitration? 2 1

2 Setting The Scene But arbitration cannot exist in a vacuum divorced from the courts Balance Striking an appropriate balance between competing and complementary factors for and against judicial intervention 3 Setting The Scene The Goldilocks challenge Key values: Party Autonomy Certainty Expectation of the parties Fairness/Justice Finality and Enforceability How does Singapore balance these competing interests? Policy of minimal judicial interference 4 2

3 Setting The Scene 6 recent Singapore cases: Swift-Fortune: pre-award interim relief SBT: post-award challenge on Natural Justice PT Asuransi: post-award challenge on public policy VV: post-award challenge on Natural Justice and public policy NCC: pre-arbitration interlocutory injunction Ng Chin Siau : post-award challenge on leave to appeal to CA Applicant in all six cases failed 5 Swift-Fortune v Magnifica Marine Pre-award interim relief 3

4 Swift-Fortune v Magnifica Marine Swift-Fortune, a Liberian company, contracted to purchase a vessel from Magnifica Marine, a one-ship Panamanian company. Physical delivery was to be in China but with legal completion in Singapore. The contract was governed by English law and provided for arbitration in London. Delivery was delayed and Swift-Fortune claimed it incurred damages of up to US $ 2.5 million. It applied for a Mareva injunction. 7 Swift-Fortune v Magnifica Marine Issue: does a Singapore court have jurisdiction to grant interim relief in aid of international arbitration proceedings which are not conducted in Singapore? Two conflicting judgments High Court in Swift Fortune: no High Court in Front Carriers: yes, although CA reonciled the two by distinguishing Front Carriers on the basis that there was a justiciable cause of action in Singapore 8 4

5 Swift-Fortune v Magnifica Marine Court of Appeal declined jurisdiction Art 9 of the Model Law is not an empowering provision. Legislative intent behind IAA to promote arbitration in Singapore. Territorial limitation implied into powers to grant interim relief. Court must not cut across the grain of the chosen curial law and interfere with the powers of the foreign arbitral tribunal. 9 Swift-Fortune v Magnifica Marine The case in perspective Jurisdiction to grant interim relief not per se invasive of arbitration Especially in context of an order to aid enforcement which is key to arbitration Exercise not possession of power determines whether a court assists or interferes with arbitration What really is the policy of the IAA? Judicial nationalism? Does this really help promote Singapore as an arbitration friendly jurisdiction? Law Reform? 10 5

6 SohBengTee v Fairmount Devt Post-award challenges: Natural Justice SBT v Fairmount Devt Fairmount, a developer of condominium projects, engaged SBT to build and maintain apartment blocks, mock-up units and a substation. Construction was to be completed by 1 February SBT made several applications for time extensions, but was granted only 5 days. 12 6

7 SBT v Fairmount Devt SBT failed to make the deadline and the contract was repudiated. Fairmount sued for damages. SBT argued that the termination was unlawful and invoked its right to arbitration. Issues before the Arbitrator Whether Fairmount s termination was lawful i.e. whether SBT entitled to time extensions. 13 SBT v Fairmount Devt Arbitrator s findings Lack of evidence prevented assessment of entitlement to time extension But: some of Fairmount s acts hindered SBT s ability to perform the contract expeditiously Time for performance was at large, SBT entitled to reasonable time to complete contract 14 7

8 SBT v Fairmount Devt Did the arbitrator exceed his jurisdiction in deciding that time was at large? In any event, was there a breach of natural justice in denying parties the right to be heard (on the issue that time was at large)? High Court: no ultra vires, but breach of natural justice Court of Appeal: no breach of natural justice (no appeal on ultra vires issue) 15 SBT v Fairmount Devt High Court s reasoning: Arbitrator had to decide the basis on which SBT had to complete the works. This invariably included the issue whether time was at large therefore this issue was theoretically not outside the scope of arbitration. However, neither party proceeded on the basis that time was at large and so neither party argued this position. Fairmount was deprived of its right to be heard on this issue. 16 8

9 SBT v Fairmount Devt Court of Appeal findings on judicial oversight and the parties rights in relation to natural justice - Policy of minimal intervention (a) to recognise autonomy of arbitration by encouraging finality and (b) to uphold the choice of the chosen dispute resolution method. See [62] of the judgment 17 SBT v Fairmount Devt - Relevant considerations in deciding whether or not to intervene Support the effectiveness of arbitration and avoid myriad unmeritorious judicial challenges Respect the expertise of the appointed arbitrator - Key test : It must be shown that reasonable arbitrant could not have foreseen the possibility of reasoning of the type found in the award 18 9

10 SBT v Fairmount Devt - Court s function not to comb through the award in search of a fault. Awards should be read generously in order to ensure only meaningful breaches are remedied. - See [65] of the judgment : In short there must be a real basis for alleging that the arbitrator has conducted the arbitral process either irrationally or capriciously. 19 SBT v Fairmount Devt The case in perspective Clear articulation of judicial philosophy Largely in line with international norms Generally the arbitrator s word will be final Great reliance of party autonomy But irrational or capricious? 20 10

11 PT Asuransi v Dexia Bank Post-award challenges: Public policy PT Asuransi v Dexia Bank PT Asuransi was an Indonesian entity that guaranteed a series of notes. The guarantee allowed for a debt restructuring scheme. Dexia Bank was one of several holders of the notes. The notes matured in 1999 but remained unpaid. In 2000 PT Asuransi initiated a debt restructuring scheme. A Noteholders meeting in February 2000 purportedly approved that scheme

12 PT Asuransi v Dexia Bank Dexia Bank remained opposed and commenced arbitration in March The issuer and PT Asuransi did not appear in the arbitration. In June 2001, the resolutions of the Noteholders meeting were ratified but the Tribunal was not made aware of this till later. 23 PT Asuransi v Dexia Bank The arbitration commenced by Dexia Bank was completed in October The award held that PT Asuransi had failed to restructure its obligation and hence was still liable. [award 1] PT Asuransi then commenced arbitration in January 2002 seeking a declaration that the June 2001 meeting and scheme were valid and binding on the Noteholders. The second arbitral tribunal held that it had no jurisdiction as all the issues should have been brought up in the first arbitration. [award 2] 24 12

13 PT Asuransi v Dexia Bank Should the second award be set aside for breach of public policy, ie conflict with the first award? Court of Appeal on the ambit of public policy Errors of law or fact do not engage the public policy of Singapore per se cf. egregious error? No necessary correlation between questions of jurisdiction and public policy Public morality is the touchstone of public policy 25 PT Asuransi v Dexia Bank Finality of litigation is part and parcel of the public policy of Singapore Public policy is only relevant if upholding the award would shock the conscience of the public or violate the forum s most basic notions of morality and justice 26 13

14 PT Asuransi v Dexia Bank Furthermore, the second award was a nullity and therefore there was nothing in substance to set aside Court of Appeal on the definition of award A negative determination is a decision not to determine the substance of the dispute, and therefore cannot be an award for the purposes of the Model Law 27 VV v VW post award challenges : Public Policy Natural Justice 14

15 VV v VW VW, an Asian government, engaged VV, an Incorporated Joint Venture, to plan, design and provide work supervision services for an infrastructure project. A dispute arose over payment for a disruption charge and VV invoked its right to arbitration. VW raised 2 defences and 10 counterclaims. The Arbitrator decided in VW s favour with costs. 29 VV v VW Arbitrators finds on costs: VW was granted the costs of the arbitration, which included the costs of the counterclaim; VV was ordered to pay VW $2.8m in costs when its claim was only for $927,000. Did the arbitrator s award of $2.8m in costs breach the proportionality principle and was it against public policy? Was the award of $2.8m made in breach of natural justice as no evidence was given on international arbitration practice? 30 15

16 VV v VW High Court s findings on the ambit of public policy High Court reiterated the principles formulated by CA in Asuransi; No public interest involved in legal costs of parties to one-off and private litigation; Not part of public policy to ensure costs incurred by parties in arbitration be assessed on the basis of any principle; 31 VV v VW High Court s findings on a breach of natural justice High Court applied principle enunciated by CA in SBT : rules of natural justice cannot be applied mechanically; Arbitrator s views and experience on costs were before the parties and VV had every opportunity to address them

17 VV v VW The case in perspective Court applies principles laid down in earlier CA cases and opts for minimal judicial interference; Arbitration supposed to be cheaper than litigation but the costs awarded are way above costs in the High Court. Does this approach promote arbitration as more cost efficient when compared to litigation? 33 NCC International AB v Alliance Concrete Pre-Arbitration interlocutory injunction 17

18 NCC International AB v Alliance Concrete NCC had contracted to buy ready mixed concrete from AC Indonesia halted the sale of sand, essential to making ready mixed concrete, to Singapore. AC stopped supplying concrete to NCC pending renegotiation on the price of concrete. NCC, without having served a notice on AC to arbitrate, applied for an interlocutory injunction to compel AC to deliver concrete at the contract price 35 NCC International AB v Alliance Concrete Should the Court intervene in view of pending arbitration proceedings? Court of Appeal on lending its assistance to prospective or ongoing arbitration proceedings: Courts have supportive and limited supervisory function over arbitrations held in Singapore Courts will only intervene in limited circumstances where there are special circumstances justifying an application being made to court instead of a tribunal 36 18

19 NCC International AB v Alliance Concrete The case in perspective Lays down guidelines for provision of assistance by courts in pending or ongoing arbitrations Such assistance only given in special circumstances With little room for intervention, in practice, is the role of the court supervisory or merely supportive? 37 Ng Chin Siau and Others v How Kim Chuan Post award challenges: Leave to appeal to CA 19

20 Ng Chin Siau and Others v How Kim Chuan Applicant and respondents were partners in dental practice Disputes between them were referred to arbitration The respondents, dissatisfied with the arbitrators award, sought leave to appeal to the High Court 39 Ng Chin Siau and Others v How Kim Chuan Judge granted leave and allowed the appeal Applicants sought leave to appeal to CA against the Judge s decision Judge refused leave and applicant applied to CA for leave to appeal

21 Ng Chin Siau and Others v How Kim Chuan Can one go to the CA for leave to appeal against a High Court decision refusing leave to appeal to CA? CA findings: The Act s objective promotes desirability of finality and limited judicial intervention in arbitration proceedings The High Court s role was likened to an exclusive gate keeper for appeals against awards pursuant to the Arbitration Act No appeal to CA in arbitration cases if High Court refuses to grant leave to appeal to CA. 41 Evaluating Singapore s Judicial Philosophy Minimal judicial interference 21

22 Judicial Philosophy and Arbitration Minimal judicial interference Recognition of the need to protect core values of arbitration Certainty and finality due to party autonomy Special expertise of arbitrator Interest of winners as well as of losers Enforceability? While one can understand the restrained approach in the context of a post award, it is less understandable when viewed in the context of pre award interim relief. (see Swift-Fortune) 43 Judicial Philosophy and Arbitration Public policy not just egregious error but one which must shock the conscience of the public. Therefore rarely engaged. Natural Justice- invoked only when decisions are irrational or capricious? Procedural norms give way to all these factors Therefore, in context of not having a right of appeal this becomes a serious limitation of the parties rights 44 22

23 Conclusions Judicial attitude generally sustainable when measured against principle of minimal judicial interference and promotion of international arbitration in Singapore Less coherent when measured against value of enforceability Swift-Fortune Legal certainty supports minimal judicial interference But: pragmatic application necessary as the pendulum may have swung a little too far 45 Thank You! For more information, please contact: Mr Chong Yee Leong DID: Fax: yee.leong.chong@rajahtann.com Website: