Singapore High Court: A Constructive Remedy In The Award Does Not Curtail Award Debtor’s Passive Remedy To Challenge The Enforcement Of An Award

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Key Highlights

  • A constructive remedy in the award does not curtail award debtor’s passive remedy to challenge the enforcement of an award
  • Mere errors of law or even fact are not sufficient to warrant setting aside an arbitral award under Art 34(2)(a)(iii) of the Model Law. CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 at [33]
  • The scope of the Tribunal’s jurisdiction is governed by the precise wording of the arbitration agreement.
  • The court will interpret the word “dispute” broadly and will readily find that a dispute exists unless the defendant has unequivocally admitted that the claim is due [Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 (at [69(c)]).
  • The Tribunal’s factual findings, even if mistaken, are not to be revisited in setting aside/resisting of enforcement proceedings, for the court is not to intervene to set aside an award on the basis of mere errors of law or fact: BLC and others v BLB and another [2014] 4 SLR 79 at [53].
  • A court will not uphold a contract or transaction entered into for the object and purpose that would involve breaching the law in a foreign and friendly state [BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another [2016] 4 SLR 1 at [174]–[178].

In the case of Bloomberry Resorts And Hotels Inc. & Anor V Global Gaming Philippines Llc & Anor, [2020] SGHC 113, the Tribunal first granted a Partial Award in favour of the Claimant declaring that the Respondent had no grounds to challenge Claimant’s title to the Shares it had acquired in Respondent’s subsidiary and that the Claimant could exercise its rights to sell them. Later, in the Final Award, the Tribunal granted a bifurcated ‘Constructive Remedy’ to the Claimant as per which the Respondent was required to pay to the Claimant the full value of its Shares and in consequence of Respondent’s decision not to comply with the first part of the remedy, the Claimant was granted a liberty to sell its Shares in the market. This according to the Respondent has deprived the Respondent of its Passive Remedy to challenge enforcement of an award. Further, the Respondent was required to take all steps necessary to enable the Claimant to sell its Shares including directing Respondent’s agent, a third party, to cooperate. In this scenario, the question before the Court was whether the Award Debtor can resist the enforcement of such an award or successfully apply to set it aside inter alia on the ground that the Arbitral Tribunal has exceeded its scope of reference by providing a constructive remedy which binds a third party and curtailing its passive remedy to challenge the enforcement of the award. The Singapore High Court decided in negative.

Factual Matrix

The Tribunal first granted a Partial Award (‘Partial Award’) in favour of the Claimants in the Arbitration for wrongful termination of a Management Services Agreement (‘MSA’). While doing so, the Tribunal rejected Respondent’s claim that the Claimant should return to the Respondent, the shares that the Claimant had acquired in Respondent’s subsidiary (‘Shares’) and Claimant would be unjustly enriched if permitted to sell the Shares. Later, the Tribunal passed the Final Award on the basis that the Respondent had no grounds to challenge Claimant’s title to the Shares and that the Claimant could exercise its rights in relation to the Shares, including the right to sell them.

In final proceedings, Claimant argued that the Respondent blocked the sale of the Shares, while Respondent responded that it did so because the MSA had been validly terminated. Pertinently, in respect of sale of Shares, the domestic Court in Philippines granted a preliminary injunction order restraining the disposition of the Shares. This according to the Respondent remained in place and continued to restrain the disposal of the Shares. However, subsequently, the Tribunal had issued the Interim Measures Order (the “IM Order”) to supersede and vacate the domestic court’s preliminary injunction and attachment.

In the Final Award, the Tribunal ordered the Respondent to pay the damages to the Claimant and its subsidiary for lost management fees and for pre-termination fees and expenses in addition of costs and interest. Moreover, the Tribunal granted the Claimant’s further request for a “Constructive Remedy” in respect of Respondent’s continued interference with Claimant’s sale of the Shares. Pursuant to the Constructive Remedy, the Tribunal ordered the Respondent to buy the Shares based on their value as on the date of IM Order. As per the Final Award, the Respondent was required to take all steps necessary to enable the Claimant to sell the Shares such as directing Respondent’s agent and controlling shareholder Prime Metroline Holdings Inc (“PMHI”) to cooperate. As per Respondent, by granting the Constructive Remedy, the Tribunal has enforced its own IM Order and thereby deprived PMHI/Respondent of its Passive Remedy (‘Passive Remedy’) to challenge enforcement of an award.

Later, Respondent’s applications to set aside and resist enforcement of the Partial Award in Singapore were dismissed (“Partial Award Order”) in Bloomberry Resorts and Hotels Inc and another v Global Gaming Philippines LLC and another [2020] SGHC 1. However, the Respondent filed another application to set aside the Final Award and in the alternate, challenging it enforcement in Singapore in the present case.

Parties Contentions

The Respondent inter alia argued as under:-

  • That the “Constructive Remedy” relates to matters outside the scope of the parties’ submission to arbitration
  • That there was a breach of natural justice
  • That the grant of damages to Claimant’s subsidiary is contrary to the public policy of Singapore because it upholds tax evasion fraud in the Philippines.
  • That the Constructive Remedy, as a redress, bypasses the need to implement the IM Order as it is not self-executing thereby depriving Respondent of the right to be heard before the Domestic Court of Philippines as regards the sale of the Shares.

Per contra, the Claimant contended as under:-

  • That the “Constructive Remedy” is entirely within the scope of the parties’ submission to arbitration
  • That there was no breach of natural justice
  • That the grant of damages to Claimant’s subsidiary is not contrary to the public policy of Singapore
  • That the order of the Domestic Court automatically fell away upon the Tribunal’s issuance of the IM Order

Judgement

The Court held as under:-

  • Taking Respondent’s case at its highest (e. that the Constructive Remedy affects the rights of non-parties and is hence beyond the Tribunal’s remit), the reality is that its contention has to do with the erroneous exercise by the Tribunal of an available power (i.e. constituting a mere error of law or even fact) as opposed to the Tribunal’s exercise of a power that it did not possess. However, it is trite that mere errors of law or even fact are not sufficient to warrant setting aside an arbitral award under Art 34(2)(a)(iii) of the Model Law (CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 at [33]). In the circumstances, there is no excess of power to ground an application under Art 34(2)(a)(iii).
  • Contrary to the Respondent’s case, the Constructive Remedy does not bind or impose an obligation on a non-party (e. PMHI) to the Arbitration. Neither does it affect the rights or interests of PMHI. Rather, it awards the Claimant damages for which Respondent is liable. In addition, during the arbitration proceedings, Respondent had acknowledged PMHI as its agent and that PMHI had acted on it’s behalf.
  • The scope of the Tribunal’s jurisdiction is governed by the precise wording of the arbitration agreement. The claim for wrongful interference falls within the language of the arbitration agreement in cl 19.1 of the MSA, which states that “any dispute required to be settled in accordance with this Clause 19.2 shall be settled by arbitration in Singapore under [the UNCITRAL Rules]…”. The court will interpret the word “dispute” broadly and “will readily find that a dispute exists unless the defendant has unequivocally admitted that the claim is due” [Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 (at [69(c)]). Therefore, the dispute fell within the scope of the submission to arbitration.
  • The Tribunal’s order in respect of the Constructive Remedy is “bifurcated”. On the first part of the remedy, Respondent is required to “pay to Claimant the full value of the Shares”. The second part of the remedy arises in consequence of Respondent’s decision not to comply with the first part of the remedy.
  • The Constructive Remedy has not taken effect, and it remains open for Respondent to challenge the first part of the Constructive Remedy. As such, there has been no true denial of a passive remedy. The purpose of the Constructive Remedy has little to do with aiding the Tribunal to enforce its own orders. In addition, the IM Order made by the Tribunal in a Singapore-seated arbitration was self-executing in Singapore in the sense that it could not be challenged under Section 24 of the International Arbitration Act or Art 34 of Model Law as these provisions extend only to an “award” (PT Pukuafu Indah & Ors v Newmont Indonesia Ltd & Anor [2012] 4 SLR 1157 at [10]). The IM Order operated as an interim measure of protection and, if required, was capable of being enforced with leave of court as if it were an order of the court.
  • The Constructive Remedy was not “punitive” since Tribunal fashioned the Constructive Remedy to compensate Claimant’s losses. The Tribunal applied its mind to the evidence presented before it for the purpose of assessing damages. It is therefore clear the Respondent had the opportunity to be heard and there was no breach of natural justice.
  • The Tribunal’s factual findings, even if mistaken, are not to be revisited in setting aside/resisting of enforcement proceedings, for the court is not to intervene to set aside an award on the basis of mere errors of law or fact: BLC and others v BLB and another [2014] 4 SLR 79 at [53].
  • A court will not uphold a contract or transaction entered into for the object and purpose that would involve breaching the law in a foreign and friendly state [BCBC Singapore Pte Ltd and another v PT Bayan Resources TBK and another [2016] 4 SLR 1 at [174]–[178]. Thus, the Tribunal’s findings of fact that Claimant’s subsidiary is not a sham entity are binding on the Respondent and cannot be reopened in application to set aside/resist enforcement. Accordingly, Respondent’s claim that the grant of damages to Claimant’s subsidiary is contrary to public policy does not succeed.

In view thereof, the High Court set side the Respondent’s applications to set aside and resist enforcement of the Final Award.

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