Singapore International Commercial Court: Disclosure of Fee Arrangement and Awarding of Costs in Arbitration

Singapore International Commercial Court: Disclosure of Fee Arrangement and Awarding of Costs in Arbitration

FACTUAL MATRIX

In the facts of Government of the Lao People’s Democratic Republic v Lao Holdings NV [2024] SGHC(D) 9, certain disputes arose between Lao Holding NV (‘LMNV’) and Government of the Lao People’s Democratic Republic (‘GOL’) which was decided to be resolved by way of an ICSID arbitration. The Tribunal rejected LMNV’s claims and awarded legal as well as arbitration costs to GOL. Consequently, LMNV unsuccessfully applied for setting aside of the award in Singapore and thereafter, lost in appeal as well. Winning in all three forums, GOL sought to enforce the award against LMNV in Singapore which was granted by the Court. The present case culminates out of the proceedings filed by LMNV against the order granting enforcement of award inter alia on the ground that GOL has intentionally withheld disclosure of a fee cap agreement between itself and its solicitors. LMNV’s objections were premised on certain facts published in a report (‘Report’) in respect of fee arrangement between GOL and its attorneys which according to LMNV could not have been filed with its application seeking setting aside of the award.

PARTIES CONTENTIONS

GOL contended that LHNV is precluded from raising this objection because LHNV was aware of the facts relied on during its setting aside application and should have raised this ground in those proceedings. Per contra, LHNV contends that the enforcement order should be set aside and enforcement should be refused, on the basis that such cost award are contrary to public policy of Singapore, the cost decision are beyond the scope of submission to arbitration and cost decision was not in accordance with the agreed arbitral procedure.

LHNV contended that in the Report, GOL admitted that it has claimed and the Tribunal has awarded more money than what has been actually paid by GOL to its attorneys. As per the said Report, this was done to recover additional expenses which were over and above the agreed fee cap which were the responsibility of the attorneys handling the case of GOL.

GOL’s stand on this issue was that the fee arrangement had two components i.e., a cap of UD 1.5 Mn and a conditional element which is any additional amount awarded by the Tribunal over and above USD 1.5 Mn as costs and expenses. On report, GOL contended that the conditional element is the responsibility of the attorneys which in turn means that the attorneys were responsible for those expenses which is the position if they are not awarded and recovered from LHNV.

To this LHNV argued that even if there were two components of fee as contended by GOL, the same was not disclosed before the Tribunal and hence an adverse inference is to be drawn against GOL. It was also contended by LHNV that even if there was a conditional element in the fee agreement between GOL and its attorneys, the terms of such agreements should have been disclosed by GOL to the Tribunal for the Tribunal to decide the reasonableness of costs to be awarded. If the agreement would have been disclosed to the Tribunal, as per LHNV, then it would have likely reduced the quantum of costs awarded to GOL for the fact that GOL potentially did not in fact incur the full extent of the costs claimed in the arbitration.

GOL’s stand on this issue was simple i.e., that they are not under any obligation to disclose fee agreement to the Tribunal and in any event it would have made no difference to the outcome of the costs award. This is so, GOL submitted, because the existence of a contingency or conditional fee agreement does not affect the way in which the costs are assessed by the arbitral tribunal.

POSITION OF LAW

As per The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd (nTan Corporate Advisory Pte Ltd and others, other parties) and another appeal [2015] 5 SLR 1104, in litigation, barring exceptional circumstances, parties are required to bring forward their whole case. The Court will not permit the same parties to open the same subject of litigation in respect of a mater which might have been brought forward as part of subject in contest but which was not brought forward only because they have from negligence, inadvertence, or even by accident, omitted part of their case.

This in a way also means that the plea of res judicata applies to every point which properly belonged to the subject of litigation, and which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.

However in Beyonics Asia Pacific Ltd and others v Goh Chan Peng and another [2022] 1 SLR 1 (“Beyonics”) a somewhat balancing approach was advocated to be taken. It was inter alia held that its not always the case that because a matter could have been raised in earlier proceedings, it should have, so as to render the raising of it in later proceedings necessarily abusive. According to Beyonics, the crucial question is whether, in all circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.

In respect of the non-disclosure of the fee arrangement, it was held in Mohamed Amin bin Mohamed Taib and others v Lim Choon Thye and others [2011] 2 SLR 343 (“Mohamed Amin”) that the court should draw an adverse inference in the absence of the fee agreement being disclosed.

CONCLUSION

Applying the above position of law on the facts the present case, the Singapore High Court held as under:-

• Grounds raised by LHNV on GOL’s fee agreement could and should have been brought in its application seeking setting aside of the award and to raise them now would be to misuse or abuse the process of the court. Therefore, LHNV is precluded from raising such objections in the present proceedings.
• The existence of a fee agreement which contained a fee cap is undisputed which is substantiated from the affidavit evidence of GOL’s attorneys. He says that the fee agreement had a fee cap “but also a conditional element for GOL to pay its counsel any amount above the fee cap which was awarded as costs and expenses by the Tribunals and recovered.” According to Court, there was no reason to consider that this statement, which is given under oath, is anything but the truth.
• Further, the Report and the statement of GOL’ attorneys both refer to a fee cap. Thus, when read in its entirety, the Report is consistent with there being the conditional element. It is not acceptable that the reference to the increased expenses being “responsible by the attorneys”, a phrase which can be construed to mean that the increased expenses are to be borne by the attorneys and are never recoverable by the attorneys.
• At most that phrase indicates, consistent with the conditional element, that the expenses are the responsibility of the attorneys because they incurred them and had to bear them initially. It does not lead to a conclusion that there was no conditional element. This is particularly so when the Report refers to the excess over the fee cap as “attorney fees”, which is consistent with GOL’s evidence.
• GOL was under no obligation to disclose the fee agreement in the ICSID arbitration as it could not have been material to the award of costs made by the arbitral tribunal. A party does not have to disclose the fee agreement with its lawyers if it is claiming an amount that is equal to or lower than the amount payable by the client. It follows that where costs between a party and its lawyers are agreed to be on a time basis or where there is a cap but a conditional additional amount on a time basis, there is no obligation on a party to disclose the terms of the fee agreement.
• The Court observed that the underlying indemnity principle is that the costs award being sought should not be more than the liability of the client to pay costs to its lawyers.
• Separately, in a contingency fee agreement, the practice is to assess a party’s costs by reference to reasonable time costs but limit the recovery to the sum payable under the contingency arrangement. In such a case, it would be necessary for the contingency fee agreement to be disclosed so that the costs would not exceed the amount payable under the contingency fee agreement.

In view thereof the Court held that there was no improper or fraudulent conduct, in GOL not disclosing the fee agreement in the arbitration and no ground could possibly lease to the refusal to enforce the ICSID award.

The Court further held that even if it would have come to a different conclusion and had found that the fee agreement should have been disclosed, the non-disclosure could not possibly have reached the high threshold required for a finding that enforcement of the ICSID Award would be contrary to public policy in Singapore because:-

• Firstly, LHNV has not established any evidence that the conduct was fraudulent.
• Secondly, to show that enforcement of the award was contrary to public policy would have required LHNV to establish that the upholding of the award would “shock the conscience” or be “clearly injurious to the public good or … wholly offensive to the ordinary reasonable and fully informed member of the public”; or violate “the forum’s most basic notion of morality and justice”  

Accordingly, the grounds under Article 36(1)(b)(ii) of the Model Law have not and would not have been made out. The Court further held that nor in those circumstances the award made by the Tribunal contained a decision on matters beyond the scope of submission to arbitration and so was susceptible to challenge on enforcement under Article 36(1)(a)(iii) of the Model Law nor under Article 36(1)(a)(iv) of the Model Law on the basis that the arbitral procedure was not in accordance with the agreement of the parties.