enforcement of the Award in Singapore; and on different arguments for enforcement in Singapore.

Transcription

1 Author: Devathas Satianathan I. EXECUTIVE SUMMARY 1. The brief conclusions are as follows: a. That the Award had been set aside in Ruritania is a significant impediment to enforcement in Singapore, although there is nevertheless an arguable case in favour of enforcement; b. The Cambodian High Court decision is unlikely to pose any further obstacle to enforcement of the Award in Singapore; and c. If the Ruritanian Court had set aside the Award on the basis the composition of the tribunal was contrary to Ruritanian law, this would necessitate focusing on different arguments for enforcement in Singapore. II. INTRODUCTION 2. The subject of this advice is whether an award ( the Award ) obtained by Singapore Oil ( SO ) may be enforced in Singapore. Two issues arise: first, whether the Award may be enforced in Singapore, and second, whether there would be any difference if the Ruritanian court had annulled the decision on the basis that the composition of the arbitral tribunal ( the Tribunal ) was contrary to Ruritanian law. 3. Before turning to the issues, I set out the relevant background and assumptions (the latter in footnotes): a. SO is incorporated in Singapore. b. Cambodia Energy ( CE ) is incorporated in Cambodia. c. In December 2013, SO and CE entered into a 3-year contract; SO was to supply consignments of oil at a fixed price to CE ( the Contract ). d. The dispute resolution clause in the Contract read as follows:

2 Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the law of Ruritania. The seat of arbitration shall be Ruritania City. The governing law of the contract shall be the substantive law of Cambodia. [emphasis added] e. CE refused to pay on invoices to SO from December f. In January 2015, SO terminated the Contract and served a notice of arbitration claiming payment of sums due. g. In November 2015, the Award was issued. It stated the Contract had been lawfully terminated, that SO had made no misrepresentation, and that SO was entitled to US$50m in damages. h. In December 2015, CE challenged the Award in the High Court of Ruritania. 1 The court gave judgment annulling 2 the Award on the basis the Award was contrary to Ruritanian public policy of encouraging the complete divestment of fossil fuels. i. In March 2016, SO sought to enforce the Award in the Cambodian High Court. CE challenged enforcement. j. In April 2016, the Cambodian High Court held the Award was invalid as it was contrary to Cambodian law. The court also held that the decision of the High Court of Ruritania meant that the Award had ceased to exist. 1 I assume that this is the relevant court to proceed to for setting aside awards from arbitrations seated in Ruritania City. 2 I assume the concept of annulment in Ruritania is similar to setting aside in Singapore; annulment is typically synonymous with setting aside: Albert Jan van den Berg, Should the Setting Aside of the Arbitral Award be Abolished? (2014) ICSID Review pp 1-26 ( Albert ) at p 3.

3 4. SO has since discovered that CE owns shares worth US$70m in Dude Food, a company incorporated in Singapore. This leads to Issue 1. III. ISSUE 1: WHETHER AWARD MAY BE ENFORCED IN SINGAPORE 5. There are broadly two main stages to enforcing an award in Singapore. 6. First, leave must be sought from the High Court to enforce the award as if it were a High Court judgment. This is typically in an ex parte hearing, although the applicant will bear the duty to make full and frank disclosure (which, in this case, includes disclosure of the proceedings in Ruritania and Cambodia). 3 This process is a mechanistic one This first stage is unlikely to attract any controversy primarily because Ruritania and Singapore are both signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 ( NY Convention ). 5 3 See AUF v AUG [2016] 1 SLR 859 at [160]-[163] for the procedure and the duty to make full and frank disclosure. 4 See Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd [2006] 3 SLR(R) 174 at [39]-[46]; the process is by way of Originating Summons (see Order 69A rules 3(d) and (e) of the Rules of Court (Cap 322, R 5) ( ROC )). 5 The NY Convention entered into force in Singapore on 19 November 1986; See also International Arbitration Act (Cap 143A) ( IAA ) s 29 read with s 19; Part III of the IAA applies in this case because the Award is a foreign award, ie, an arbitral award made in pursuance of an arbitration agreement in the territory of a Convention country other than Singapore (IAA s 27).

4 8. It is the second stage that may be problematic. Here, the opposing party may apply to resist enforcement. The grounds for resisting enforcement are set out at section 31 of the IAA. The grounds relevant to Issue 1 are: a. Section 31(2)(f): the award has not yet become binding on the parties to the arbitral award or has been set aside or suspended by a competent authority of the country in which, or under the law of which, the award was made [emphasis added]. b. Section 31(4): the court may refuse to enforce the award if it finds that (a) the subject-matter of the difference between the parties to the award is not capable of settlement by arbitration under the law of Singapore ; or (b) enforcement of the award would be contrary to the public policy of Singapore. 9. CE may attempt to rely on the grounds cited to resist SO s enforcement of the Award. In this regard, I consider following questions: a. First, what is the impact of the annulment of the Award in Ruritania on enforcement in Singapore? b. Second, what is the relevance of the Cambodian High Court decision that the Award was invalid? A. Relevance of annulment of the Award in Ruritania 10. The Award had been set aside in Ruritania on the basis the Award was contrary to Ruritanian public policy. This is relevant to the second stage of enforcement as CE may attempt to rely on section 31(2)(f) of the IAA to resist enforcement. To do so, CE will have to show:

5 a. the Award has been set aside; and b. the setting aside was by a competent authority of the country in which the Award was made. When both requirements are met, the High Court may refuse enforcement [emphasis added] (pursuant to section 31(2)). 11. It will be difficult to contend that either of the two requirements had not been met, short of proving that the Ruritanian court does not constitute a competent authority. Barring any evidence of this, the likeliest ground of contest will be dealing with the High Court s discretion to refuse enforcement (focusing on the word may in section 31(2)) on the basis the Award has been set aside (at the seat). 12. There are broadly three approaches dealing with this precise point: a. The first is the Territorial Approach. 6 It stipulates that setting aside of an award at the seat renders the award non-existent. 7 By the doctrine ex nihilio nil fit, there is simply no award for the foreign court to even consider (let alone enforce). 8 On this basis, the presence of the word may in section 31(2) cannot possibly confer the Singapore High Court with discretion to enforce the (non-existent) award. This much was pointed out, albeit in obiter dicta, by the Court of Appeal in PT First Media TBK (formerly known as PT Broadband 6 Also referred to as the monolocal theory : Matthey Barry, The Role of the Seat in International Arbitration Journal of International Arbitration (Kluwer Law International 2015, vol 32 issue 3) pp ( Barry ) at p Chief Justice Sundaresh Menon, Standards in need of bearers: Encouraging reform from within (3 September 2015, Speech at the Chartered Institute of Arbitrators: Singapore Centenary Conference) < Encouraging-Reform-from-.pdf> (accessed 5 July 2016) ( Standards Speech ) at para See Yukos Capital Sarl v OJSC Oil Company Rosneft [2014] EWHC 2188 (Comm) ( Yukos ) at [19], citing Professor Van den Berg. This approach is supported by courts in the United States (see Baker Marine (Nigeria) Ltd v Chevron (Nigeria) Ltd (1999) 191 F 3d 194 and TermoRio SA ESP v Electranta SP (2007) 487 F 3d 928).

6 Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372 ( Astro ) at [77] as follows: While the wording of Art V(1)(e) of the New York Convention and Art 36(1)(a)(v) of the Model Law [both of which are identical in wording to section 31(2) of the IAA] arguably contemplates the possibility that an award which has been set aside may still be enforced, in the sense that the refusal to enforce remains subject to the discretion of the enforcing court, the contemplated erga omnes effect of a successful application to set aside an award would generally lead to the conclusion that there is simply no award to enforce [emphasis added]. b. The second is the Transnational Approach. 9 It proceeds on the basis that arbitral awards do not derive their validity and legitimacy from any particular local system of law. Therefore, even if an award had been set aside at the seat, foreign courts may choose to enforce the award without regard to the foreign judgment setting aside the award. 10 This approach has been adopted by the French courts. 11 c. The third is a middle ground. It proceeds on the basis that section 31(2) of the IAA (and, more broadly, Art V(1)(e) of the NY Convention) grants the enforcement court the discretion to enforce an award which has been set aside at the seat. 12 This brings the word may in section 31(2) squarely into focus. 9 Barry at p Standards Speech at para 30; Chief Justice Sundaresh Menon, Patron s Address (2 July 2015, Speech at the Chartered Institute of Arbitrators London Centenary Conference) < (accessed 5 July 2016) ( Patron s Address ) at para First in Pabalk Ticaret Sirketi v Norsolor [1985] Rev Arb 431 (Cour de cassation, 9 October 1984), then in Société Hilmarton Ltd v Société Omnium de traitement et de valorisation (1995) XX Yearbook Comm Arb 663, later in Chromalloy Aeroservices v Arab Republic of Egypt (1997) XXII Yearbook Comm Arb 691 and more recently in PT Putrabali Adyamulia v Societe Rena Holding (2007) 32 YB Comm Arb 299 (Cour de cassation, 29 June 2007). 12 Standards Speech at para 32.

7 The question, then, is on what basis or principles the discretion is to be exercised. The following have been proffered as possible answers: i. First, the award should only be enforced when the traditional conflict of laws grounds for refusing to recognise a foreign judgment are made out ( Conflicts Approach ). 13 ii. Second, the enforcement court can have regard to the grounds on which the award had been set aside at the seat court, and where those grounds outrage its sense of justice or decency, the enforcement court may nevertheless decide to enforce the award (notwithstanding the decision by the seat court to set it aside) ( Outrage Approach ). 14 iii. Third, the enforcement court should exercise its discretion to enforce the award so long as it has been set aside on some ground which does not fall within the scope of the first four paragraphs of Art V(1) of the New York Convention (on the basis that the first four paragraphs deal with issues that transcend domestic matters, whereas Art V(2) deals with domestic matters) ( International Standard Annulment Approach ) Although there is no authoritative ruling on this point, the likeliest approach that the Singapore courts will adopt is the Territorial Approach, albeit with a caveat. This is because not only has the Court of Appeal expressed certain observations in favour of 13 See Dicey, Morris and Collins on the Conflict of Laws (Lord Collins of Mapesbury gen ed) (Sweet & Maxwell, 15th Ed, 2012) and Yukos at [12] (both cited in the Standards Speech at para 32). 14 See Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2011] 1 AC 763 at [128] and Dowans Holding SA and another v Tanzania Electric Supply Co Ltd [2012] 1 All ER (Comm) 820 at [41]. 15 See Jan Paulsson, Enforcing Arbitral Awards Notwithstanding Local Standard Annulments (1998) 6(2) Asia Pacific Law Review 1. Similar views are echoed by Gary Born in International Commercial Arbitration (Kluwer Law International, 2nd ed, 2014) ( Born ) at pp

8 the Territorial Approach (in Astro as cited above at paragraph 12.a, which observations are likely to be highly persuasive to the High court), the Chief Justice has also expressed (albeit extra-judicially), an inclination toward the Territorial Approach. 16 The Chief Justice went on to acknowledge and herein lies the caveat that [i]t is open to the enforcement court to refuse to recognise the foreign judgment on traditional principles of comity. 14. On the basis of the Territorial Approach, the chances of enforcing the Award in Singapore are slim. Unless SO avails to the caveat (by showing that the decision of the Ruritanian court was tainted by fraud or corruption), the Singapore court is likely to recognise the setting aside decision and thereby refuse enforcement SO s best chance to enforce the Award in Singapore is therefore to argue that one of the other approaches (ie, other than the Territorial Approach) should apply. To argue that the Transnational Approach should apply would be to take on an inordinate burden it seems only to have attracted favour by the French courts and also triggers all the concerns that seem to have motivated the Chief Justice toward the Territorial Approach (eg, derogating from the international character of arbitration (by allowing normative values of the enforcement court to enter the fray), compromising party choice (in particular, of the seat: on the Transnational Approach, the impact of setting aside at the seat would be significantly eroded), and encouraging forum shopping) Standards Speech at para 33. See Patron s Address at paras These concerns had been articulated in the Standards Speech at para 33.

9 16. A more reasonable approach is to argue that the middle ground on the basis of the International Standard Annulment Approach (as described in para 12.c.iii) should apply. The following arguments may be raised in support: a. First, this approach ties in with the clear (permissive, but not mandatory) language and regime of the NY Convention (as locally received by, for present purposes, section 31(2) of the IAA). In particular, the NY Convention does not prevent contracting states from recognising foreign awards, including awards set aside at the seat. 19 b. Second, this approach better protects the international character of arbitration by preventing national courts from unilaterally scuppering an extensive arbitration process by setting aside a procedurally-proper award (in particular where the national court relies on (domestic) public policy to set aside the award). 20 c. Third, the International Standard Annulment Approach strikes a coherent balance between preventing forum shopping and promoting harmony and relative consistency internationally. d. Fourth, the premise of the Territorial Approach (that the seat of the arbitration somehow establishes a territorial link between the arbitration and the seat country) may be criticised as being outmoded and largely a legal fiction. 21 This especially when arbitration proceedings do not even take place in the seat country. e. Fifth, the exceptional facts of the present case in particular the tenuous basis on which the Award was annulled (elaborated on in the following paragraph) See Born at p Born at pp ; Barry at p 299. See Barry at p 296.

10 call for an approach that affords more flexibility to the (Singapore) courts that the Territorial Approach would. 17. On this approach, given that the Ruritanian High Court had set aside the Award on public policy (which falls under Art V(2)), the Singapore High Court will be entitled to exercise its discretion to nevertheless enforce the Award. 18. Forceful arguments may be made in favour of enforcement: a. First, the enforcement of the award in Ruritania should not have triggered public policy considerations relating to the trade in fossil fuels themselves as it was simply a matter of payment of a judgment debt. 22 b. Second, public policy for annulling international arbitration awards refers to a narrow category of non-waivable rules of mandatory law that are fundamental to the legal order of a jurisdiction. 23 This requires a very high threshold and should only be invoked where the parties actions shock[ed] the conscience and was clearly injurious to the public good. 24 It is strongly arguable that this high threshold was not met particularly given that the sale was as between foreign (ie, not Ruritanian) entities. B. Relevance of the Cambodian High Court decision 19. On the basis the Singapore court does not consider the setting aside a serious impediment to enforcing the Award, there is still the matter of the Cambodian High Court decision. The Cambodian court refused to enforce the award on the basis it was 22 See Liao Eng Kiat v Burswood Nominees Ltd [2004] 4 SLR(R) 690 at [44]-[46], cf Poh Soon Kiat v Desert Palace Inc (trading as Caesars Palace) [2010] 1 SLR 1129 at [121]. 23 Born at p See PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 at [59].

11 contrary to Cambodian law. It also held that the decision of the High Court of Ruritania meant that the Award ceased to exist. 20. The starting point is that the refusal of enforcement in another (non-seat) country should have no effect on the effort to enforce the award in Singapore. 25 However, CE may rely on the Cambodian decision to raise an issue estoppel by arguing as follows: a. first, the Award should not be enforced as the arbitration agreement was invalid under the law to which the parties have subjected it (based on section 31(2)(b) of the IAA); b. second, the Cambodian decision has conclusively determined the issue in favour of CE; and c. third, the Singapore court should determine the issue in a similar manner. 21. Such reliance is unfounded primarily because step (b) is flawed. Section 31(2)(b) of the IAA corresponds to the latter half of Article V(1)(a) of the NY Convention. It is clear that the invalidity (in both section 31(2)(b) and Article V(1)(a)) must pertain to the arbitration agreement; not the underlying contract. 26 The applicable law to determine such invalidity is the law governing the arbitration agreement (not the underlying contract), as chosen by parties. 27 In this case, the law chosen by parties to govern the arbitration agreement was the law of Ruritania. The decision by the Cambodian court that the award was contrary to Cambodian law was therefore irrelevant. As there is no identity of subject matter in the two proceedings, 28 no issue estoppel can arise See Albert at pp 7-8. Born at p Born at pp See Goh Nellie v Goh Lian Teck and others [2007] 1 SLR(R) 453 at [26].

12 22. Likewise, no issue estoppel can arise in respect of the Cambodian court s finding (although this was likely an observation) on the legal effect of the decision of the High Court of Ruritania. As discussed above, this is a matter for the Singapore court to determine on the basis of Singapore (not Cambodian) law. 23. On the basis enforcement is successful and CE refuses to comply, SO may apply to court to compel the seizure and sale of the appropriate portion of the US$70m shares. 29 IV. ISSUE 2: WHETHER ANSWER DIFFERENT IF AWARD ANNULLED BECAUSE COMPOSITION OF TRIBUNAL CONTRARY TO RURITANIAN LAW 24. Article V(1)(d) of the NY Convention states that recognition and enforcement may be refused on the basis that [t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place. If the Ruritanian court had relied on this to set aside the award, the analysis for Issue 1 will be affected as the basis for setting aside would now fall under the first four limbs of Article V(1) and therefore preclude the Singapore court from exercising its discretion to nevertheless enforce the Award. 25. However, it may be argued that the Ruritanian court misapplied Article V(1)(d). This is on the basis that there had been some agreement between the parties as to how the tribunal was to be convened, in which case the law of the country Ruritanian law is irrelevant. 30 In any case, if indeed the Award had been set aside on this basis, it is preferable for SO to argue that the Outrage Approach should apply instead (which Order 47 rule 6 ROC. See Gary Born at p 3561.

13 would entitle the court to scrutinise the reasoning in the judgment of the Ruritanian court more so than the International Standard Annulment Approach).