Singapore High Court: Whether or not to adjourn enforcement proceedings of a foreign award in Singapore pending the determination of an application filed in foreign Court to set aside the Award

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In Man Diesel & Turbo SE v I.M. Skaugen Marine Services Pte Ltd [2018] SGHC 132, the I.M. Skaugen Marine Services Pte Ltd (defendant) challenged the enforcement of an award passed by Danish Institute of Arbitration (DIA) seated in Denmark under Section 31(2)(c) and s 31(4)(b) of the International Arbitration Act of Singapore (the IAA) arguing that the defendant had been unable to properly present its case in the DIA and that the enforcement of the DIA Final Award would be contrary to public policy on the basis of allegations of fraud committed by Man Diesel & Turbo SE (Plaintiff) on the Tribunal in procuring the DIA Final Award. The defendant alternatively prayed that if the court decides that the grounds to refuse enforcement are not made out, then the Court may pass an ex parte Leave Order to “stay and/or adjourn” the enforcement of the DIA Final Award pending the determination of the defendant’s application filed in the Danish Court to set aside the DIA Final Award. The Court refused to grant adjournment of the enforcement proceedings and affirmed ex parte Leave Order. Further the Court held that their no breach of public policy on the given facts of the case.

Factual Matrix

Dispute arose amongst the parties and the arbitration was commenced by the plaintiff to compel the defendant to fulfill outstanding contractual obligations under the sale and purchase agreements. There were two sets of contracts- first to build four 2-stroke engines (the Engine Contract) and second to build four Propellers (the Propellers Contract). The former can be sub contracted to South Korean licensee (STX Engine) whereas latter was non delegable and has to be delivered by the Plaintiff.  The delivery of both types was to be given in two tranches. At the time of delivery there were some technical problems which resulted in breakdown of relationships between the parties. The plaintiff commenced the DIA Arbitration to compel the defendant to perform the Contracts. After a lot of complex proceedings DIA passed the final award. The majority determined that the Engines Contract had been terminated by the plaintiff on the account of the defendant’s refusal to take delivery of engines and to pay the outstanding price. It also determined that the Propellers Contract remained valid and binding.

A dispute arose between the parties after the DIA Final Award was issued. The dispute was over the performance of the DIA Final Award in relation to the delivery of Propellers and the defendant’s payment obligations under the DIA Final Award. This led to the defendant commencing a new of arbitration against the plaintiff in the DIA. Thereafter, the defendant filed an application to set aside in part the DIA Final Award in the Danish Court that was decided in the plaintiff’s favour. Both the arbitration and the setting aside proceedings in the Danish Court were ongoing. Here, it would be best to discuss the enforcement mechanism of foreign awards under the Singaporean legal regime

Issue

Whether or not to adjourn enforcement proceedings of a foreign award in Singapore pending the determination of an application filed in foreign Court to set aside the Award; If so, whether or not to order to give security, and how much.

Enforcement of Foreign Awards in Singapore under IAA

The relevant section in this regard is Section 29 and Section 31(5) which is reproduced below:

Recognition and enforcement of foreign awards

29.—(1)  Subject to this Part, a foreign award may be enforced in a court either by action or in the same manner as an award of an arbitrator made in Singapore is enforceable under section 19.

(2)  Any foreign award which is enforceable under subsection (1) shall be recognised as binding for all purposes upon the persons between whom it was made and may accordingly be relied upon by any of those parties by way of defence, set-off or otherwise in any legal proceedings in Singapore.

At the first stage of enforcement, a party seeking to enforce a foreign award obtains a leave order, ex parte, pursuant to Section 29 read with Section 19 of the IAA and O 69A r 6 of the Rules of Court. Once leave to enforce a foreign award is granted, the ex parte order has to be served on the award debtor according to the relevant timelines set out in O 69A r 6(4). Notably, the ex parte Leave Order is not immediately enforceable; the foreign award cannot be enforced until the applicable period of time has expired. If the award debtor does not contest the matter, the ex parte Leave Order takes effect after expiry of the applicable time limit. However, if the award debtor applies to set aside the ex parte Leave Order within the time stipulated in the order (or extended timeline, if any), the foreign award may not be enforced until such application is finally resolved.

Section 29(1) of the IAA sets out the regime on the recognition and enforcement of a foreign award in two ways: the award creditor may at his option by an action or by application for leave enforce the foreign award in the same manner as a judgment of the High Court. At the first stage of enforcement, a party seeking to enforce a foreign award obtains a leave order, ex parte, pursuant to Section 29 read with Section 19 of the IAA and O 69A r 6 of the Rules of Court. Once leave to enforce a foreign award is granted, the ex parte order has to be served on the award debtor according to the relevant timelines set out in O 69A r 6(4). Notably, the ex parte Leave Order is not immediately enforceable; the foreign award cannot be enforced until the applicable period of time has expired. If the award debtor does not contest the matter, the ex parte Leave Order takes effect after expiry of the applicable time limit. However, if the award debtor applies to set aside the ex parte Leave Order within the time stipulated in the order (or extended timeline, if any), the foreign award may not be enforced until such application is finally resolved.

The second stage of the enforcement is played out until the application resisting enforcement is finally resolved. If the court rejects the challenge against the award, judgment on the foreign award would be entered. The stage at which judgment is entered in terms of the foreign award is at the conclusion of the second stage. Notably, there is a distinction between the powers of the court before allowing judgment to be entered on the foreign award (ie, second stage of the enforcement) on the one hand, and the powers of the court after entry of judgment and an application to stay an execution order on the other hand.

Another relevant section in this regard is 31(5) of IAA which is reproduced below:

 35 The second stage of the enforcement is played out until the application resisting enforcement is finally resolved. If the court rejects the challenge against the award, judgment on the foreign award would be entered. The stage at which judgment is entered in terms of the foreign award is at the conclusion of the second stage. Notably, there is a distinction between the powers of the court before allowing judgment to be entered on the foreign award (ie, second stage of the enforcement) on the one hand, and the powers of the court after entry of judgment and an application to stay an execution order on the other hand.

(a) if the court considers it proper to do so, adjourn the proceedings or, as the case may be, so much of the proceedings as relates to the award; and

(b) on application of the party seeking to enforce the award, order the other party to give suitable security.

The language in Section 31(5) makes clear that an adjournment pursuant to this provision can only be made at the second stage of enforcement. The adjournment application is likely to be heard at the same time as the application to challenge the ex parte Leave Order (ie, where a court is asked to refuse enforcement of a foreign award under Section 31 of the IAA). Significantly, after a judgment on the foreign award is affirmed, the enforcing court has no power to adjourn under s 31(5)(a). After entry of judgment, the judgment is much like any other judgment rendered by the court and the plaintiff would seek an execution order. The other party seeking a stay of the execution order would have to turn to the procedural principles of stay of execution of a civil judgment.

Analysis

The Court opined that the alternative prayer, as framed, seeks a “stay and/or adjournment” if the court decides that the grounds to refuse enforcement are not made out. Such an approach effectively ignores the language of s 31(5) of the IAA and gives no regard to the two-stage regime in the enforcement of a foreign award within the meaning of Section 27 of the IAA. Each stage of the regime bears on the court’s power to make certain orders under Order 69A of the Rules of Court and the IAA. The Court also stated that there is a distinction between the powers of a court at the enforcement stage and after entry of judgment.

The Court cited the Article VI of the New York Convention 1958 which is given statutory effect by Section 31(5) of the IAA and commented that that the powers of the court to adjourn the enforcement proceedings and to order security on an application of the award creditor reside in Section 31(5)(a) and (b), respectively. Furthermore, the use of the word “may” in the context of s 31(5)(a) and (b) of the IAA is permissive – the court may adjourn an application to refuse the enforcement proceedings with or without ordering security to be furnished. The court takes a multi-factorial approach to the exercise of its discretion and it is not possible to comprehensively list all the factors to be considered.

Another factor or circumstance the enforcing court is concerned with is the likely consequences of an adjournment, in particular its likely length of delay. This factor will dovetail with a s 31(5)(b) application.

On the defendant’s public policy argument, the Court stated that on a challenge under Section 31(4)(b) of the IAA, the court has to consider the public policy of Singapore. The evidential threshold for establishing fraud is a high one (see Prometheus Marine Pte Ltd v Ann Rita King [2018] 1 SLR 1 at [55]

Conclusions

The Court held as under:

  • That it is not correct to frame the application for an adjournment in the manner worded by the defendant.
  • That a decision for or against the grant of an adjournment of the enforcement proceedings is a matter of discretion for the enforcing court.
  • To justify his application for adjournment, the applicant must at least show that he is demonstrably pursuing a meritorious application in the seat-court.
  • That the evaluation of the strength of the argument that the foreign award is valid or invalid is “perceived on a brief consideration by the enforcing court” while there is no expressed requirement for a party to adduce expert opinion on foreign law in a Section 31(5)(a) application where foreign law is involved it is preferable to adduce expert evidence since the court needs sufficient information on the foreign law in question to be in a position to assess the strength or otherwise of the arguments of the challenge before the seat-court.
  • That due deference (by dissenting members of tribunal) must be given to a tribunal’s decision on the merits of a case. Mere errors of fact or law do not itself justify the court’s intervention.
  • Section 31(5)(a) applies to the setting aside proceedings in the seat-court and would not engage the new arbitration.
  • The defendant has not demonstrated that the public policy of Singapore is engaged.
  • Adjournment refused on the basis of above analysis and ex parte Leave Order is affirmed.
  • The tribunal found that the buyer had been in breach of the sale contract which caused the loss and that the loss occurred before the seller’s forgery. In the circumstances, no public policy was engaged to refuse enforcement the award.

Comparison with English Law

The English High Court decision of H & C S Holdings Pte Limited v RBRG Trading (UK) Limited [2015] EWHC 1665 (“H & C S Holdings”) is helpful. The court there was faced with an application to stay execution of a judgment enforcing an award pending determination of a new arbitration claim. The court observed that there is a distinction drawn between the powers of a court at the enforcement stage and after entry of judgment.

In arriving at this conclusion, the court accepted Potter J’s reasoning in Far Eastern Shipping Company v Sovcomflot [1995] 1 Lloyd’s Rep 520 at 524 that upon converting an award into a judgment, procedural rules appertaining to the enforcement of judgments ought to apply. It was clear to Potter J that the statutory provision on adjournment in the Arbitration Act 1975 (equivalent to section 31(5)(a) of the IAA) was not intended to deal with matters post-entry of judgment.

Section 31(5) of IAA is similar to Section 103(5) of the English Arbitration Act 1996. In the case of Soleh Boneh International Ltd and anor v Government of the Republic of Uganda and National Housing Corporation [1993] 2 Lloyd’s Rep 208, while addressing the issue of adjournment and the provision of security together considered two factors to be important and he rightly cautioned that there may be others. The first factor is the strength of the argument that the award is invalid, as perceived on a brief consideration by the enforcing court. The second factor is the ease or difficulty of enforcement of the award.

 

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