Singapore Court of Appeal: “Awarding Interest On Or Upon Damages” vs “Interest As Damages” and Whether Time Barred Claim is a jurisdictional or admissibility Issue?

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An arbitral tribunal exceeds its jurisdiction if it decides on issues that are beyond the scope of the arbitration clause, upon a proper construction of the clause.[1]  The question then arises as to whether an award in which the tribunal has awarded damages and/or pre-award interest even though there was an express prohibition on “punitive, exemplary, multiple or consequential damages” in the arbitration clause (‘Express Prohibition’) will tantamount to exceeding the scope of jurisdiction by the arbitral tribunal? In BBA v BAZ[2], this question fell for consideration before the Singapore Court of Appeal which decided this issue in negative on the specific findings of the Tribunal in the Award.

This case was an appeal against the High Court ruling in BAZ v BBA and others[3], wherein the High Court dismissed the application for setting aside of the award of some of the Award Debtors’ s while allowing setting aside application of Award Debtors who were Minors. Only the Award Debtors other than the minors appealed against the decision of the High Court in these proceedings before the Court of Appeal. It is pertinent to mention that the governing law of underlying contract between the disputing parties was the Indian law and the seat of arbitration was in Singapore.

Against the decision of the High Court, the Award Debtor argued that damages awarded were compensation for loss of opportunity hence consequential damages and thus fall foul of the Express Prohibition. While deciding this issue against the Award Debtor, the Court of Appeal observed that the Award Debtor should have urged this question before the tribunal rather than the seat court, because it went towards the substantive merits of which approach to quantification the tribunal should adopt and also the courts do not and must not interfere in the merits of an arbitral award.[4] Further, even if the Tribunal erred in their understanding or application of the relevant legal principles, it is trite that errors of law or fact, even if serious, go to the merits of the award and are outside the remit of seat court.[5]

In respect of loss of opportunity argument raised , the Court responded that the court should not nitpick at the award and infelicities are to be expected and are generally irrelevant to the merits of any challenge.[6] After reading the Award as a whole, the Court concluded that there was no subjective intention of the Tribunal to award damages for loss of opportunity rather the damages awarded were usual compensatory in nature. The Award debtor has also questioned the methodology adopted by the Tribunal in quantifying the damages. To this the Court of Appeal observed that even if the Tribunal erred in adopting the appropriate methodology in this regard, that is an error that goes towards the merits which the seat court cannot review.

On pre-award interest, the Court of appeal carved out a very interesting distinction between awarding interest on or upon damages, and interest as damages. While the latter being a form of damages could presumably be subject to the Express Prohibition, the former is not. Relying on [T]he Oriental Insurance Co Ltd v Reliance National Asia Re Pte Ltd[7], the Court of Appeal observed that an award of interest as damages comprise[s] the loss to the plaintiff assessed with reference for instance to the compound interest that the money could possibly earn through investment in safe instruments or which could have been used to reduce the debts of the plaintiff and defray the compound interest that he has to pay for those debts. If the loss or damage suffered by the plaintiff can be accurately computed using compound interest, then the plaintiff should be entitled to claim the compound interest as his loss or damage. This is a separate head of claim or damage which is represented by the compound interest. Thus, the Court of Appeal concluded that the Express Prohibition would not apply to the pre-award interest component of the award.

The second issue before the Court of Appeal was whether the seat court is entitled to undertake a de novo review of whether the Award Holder’s fraud claim was time barred (“the Time Bar Issue”) and if so whether it would be seen from the standpoint of the governing law of the underlying contract i.e. Indian Law or the law of the seat i.e. the Singapore law in the instant case. This issue was further sub-divided as to whether limitation should be classified as going towards jurisdiction or admissibility (“classification question”) and which law governs the classification question. In this regard, Court relied on BNA v BNB and another[8] to hold that where the parties had not chosen the lex arbitri, it did not follow that the governing law of the agreement should also be taken as the express governing law of the arbitration agreement. It was but a starting point that could be displaced if the law of the seat materially differed from that starting point. That meant and included the choice of the seat’s laws to govern the classification question independently of their choice of governing law. Thus, applying the seat law i.e. the law of Singapore in the instant case, the Court of Appeal found the answer to classification question is that that issues of time bar which arise from the expiry of statutory limitation periods go towards admissibility, not jurisdiction; they are matters for the tribunal and not the court to decide.

Consequently, such issues cannot be reviewed de novo by the seat court in setting aside applications.[9] In reaching out to this conclusion that Court of Appeal also highlighted the distinction between jurisdiction and admissibility. Jurisdiction is commonly defined to refer to “the power of the tribunal to hear a case”, whereas admissibility refers to “whether it is appropriate for the tribunal to hear it.[10]

Based on commentaries from Jan Paulsson[11], the Court formulated “tribunal versus claim” test for purposes of distinguishing whether an issue goes towards jurisdiction or admissibility. The “tribunal versus claim” test asks whether the objection is targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration), or at the claim (in that the claim itself is defective and should not be raised at all).

Applying the “tribunal versus claim” test, the Court of Appeal concluded that a plea of statutory time bar goes towards admissibility as it attacks the claim. It makes no difference whether the applicable statute of limitations is classified as substantive (extinguishing the claim) or procedural (barring the remedy) in the private international law. Express provision by the parties is necessary given that statutes of limitation do not generally target or affect arbitral jurisdiction by design. In the instant case, this consent was absent and therefore, the Court of appeal ruled that this lack of express provision means that Award Debtors’ attempt to recast the statutory time bar objection as a jurisdictional one by asserting that there was no consent to arbitrating time-barred claims cannot be accepted. However, the Court of Appeal specifically noted that the governing law of the underlying contract i.e. the Indian law takes a contrary view but given the Court’s finding that Singapore law as the lex arbitri it will apply to Time Bar issue. Accordingly, the Court of Appeal declined Award Debtor’s invitation to undertake a de novo review of whether Award Holder’s fraud claim is time-barred.

In the award, the Tribunal further held that the liability for damages of all Award Debtors was joint and several. This according to the Award Debtor was a breach of natural justice. This was so because according to Award Debtor the Tribunal reached this conclusion without hearing submissions on this point, even though this was not a matter submitted for determination to the tribunal and the Tribunal ignore[d] the fundamental principle that a shareholder’s rights and liabilities in a company is limited to the size of its shareholding. Dealing first with the point that the tribunal did not invite submissions on joint and several liability, the Court of Appeal found that the Award Debtors did not take the point before the tribunal at all. Thus, the Tribunal cannot be faulted for not foreseeing any complications and not dealing with this issue in depth in the Award, when nothing was put forward to suggest that this was going to be anything other than a straightforward issue.[12]

An arbitrator is not under any general obligation to disclose what he is minded to decide just so the parties may have a further opportunity of criticising his mental processes before he finally commits himself.[13] It was clear to the Court from pleadings that Award was seeking relief against all the Award Debtors without differentiation and thus, if the some of the Award Debtors failed to make the point on joint and several liability before the tribunal, it is far too late now to bring this complaint before the seat court in setting aside proceedings. As regards, the third point of contention that shareholder’s rights and liabilities in a company is limited to the size of its shareholding the Court observed that principle of limited liability is irrelevant here as it was concerned with recovery of company debts in the insolvency context. Accordingly, the Court of Appeal rejected all grounds of appeal and upheld the decision of the High Court.

Disclaimer: The views expressed in this post are mine and do not reflect the views of the organisation(s) I am engaged with

[1] Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 at [11]

[2] [2020] SGCA 53

[3] [2018] SGHC 275

[4] AKN and another v ALC and others and other appeals [2015] 3 SLR 488 at [37]

[5] BLC and others v BLB and another [2014] 4 SLR 79 at [53] and [102]

[6] TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 at [45]

[7] [2009] 2 SLR(R) 385 at [129]

[8] [2020] 1 SLR 456 at [56] and [59]–[63]

[9] AKN v ALC at [112]; PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372 at [163]

[10] Swissbourgh Diamond Mines (Pty) Ltd and others v Kingdom of Lesotho [2019] 1 SLR 263

[11] Jan Paulsson, “Jurisdiction and Admissibility” (2005) in Global Reflections on International Law, Commerce and Dispute Resolution, Liber Amicorum in honour of Robert Briner (Gerald Aksen et al, eds) (ICC Publishing, 2005) at pp 616 and 617

[12] Relied on China Machine New Energy Corporation v Jaguar Energy Guatemala LLC and another [2020] 1 SLR 695 (at [168] and [170])

[13] Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 at [55(h)]–[55(i)]

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