In a recent judgment from the Singapore International Commercial Court (“SICC”),[1] the International Judge refused an application to set aside several arbitral awards issued in Singapore, despite accepting the applicants’ arguments that the tribunal had made errors of law and one of the awards contravened Thai mandatory law.
Background
The underlying dispute concerned the sale of shares in a company involved in the development of wind farms located in Thailand. Under the relevant SPAs, which were governed by Thai law, the two purchasers were required to pay the purchase price in instalments linked to the achievement of various project-related milestones. One of the purchasers failed to pay its first instalment, while the other purchaser paid part of its first instalment late. The sellers alleged that these defaults entitled them to accelerate payment of the remaining amounts due under the SPAs and to demand compounded late payment interest pursuant to Article 12.9 of the SPAs. The purchasers alleged that the parties had agreed to defer payments.
Two separate arbitrations were brought by the sellers, one under each of the SPAs, but they were heard together by the same tribunal. The proceedings were bifurcated and the tribunal issued separate awards on liability, quantum and costs. The tribunal ultimately found in favour of the sellers and ordered the purchasers to pay the full purchase prices plus compound interest. The purchasers sought to set aside each of the awards, on the basis that the tribunal exceeded its jurisdiction, failed to afford the purchasers a reasonable opportunity to present their case and contravened Singapore public policy.
The SICC Case
The International Judge rejected all of the grounds pleaded by the purchasers, but his analysis on the issue of compound interest is particularly instructive because it touches on broader issues of jurisdiction, public policy and illegality.
On jurisdiction, despite the parties having initially adduced conflicting expert evidence in the arbitration proceedings on whether compound interest was permissible under Thai law, the experts eventually came to a consensus that Thai law did not allow interest payable under contracts such as SPAs to be compounded at all. Unfortunately, the tribunal appears to have misunderstood the degree to which this was agreed by the experts and decided to award compound interest on an annual basis. The purchasers argued that the consensus between the experts effectively meant the parties had “agreed” this issue and so it was no longer an issue before the tribunal. Hence, the tribunal’s decision to award such interest was an excess of jurisdiction.
First, the International Judge held that the tribunal did have the power to award compound interest, pursuant to section 12 of the Singapore International Arbitration Act (“IAA”), but he also acknowledged that this was subject to Article 28(1) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), which is incorporated into Singapore law under the IAA. Article 28(1) provides that a tribunal “shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute”. Accordingly, the tribunal’s task was to determine the effect of Thai law on Article 12.9 of the SPAs and then to consider whether and how to exercise its power under the IAA in line with such determination.
The International Judge held that the tribunal had come to the wrong conclusion on whether Thai law permitted the compounding of interest, but he did not agree that such an error could be characterised as acting beyond the tribunal’s jurisdiction. In this respect, the International Judge drew upon the dictum of Lord Steyn in Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221 and decided that the present case was an example of an erroneous exercise of a power vesting in the tribunal rather than the exercise of a power that the tribunal did not have. In the International Judge’s view, the risk that a tribunal makes an error of this sort is was a “routine hazard” of arbitration and did not provide a ground to set aside an award.
Second, the International Judge held that there was no denial of justice, because the parties were given ample opportunity to present their respective cases on compound interest under Thai law. The tribunal clearly had considered the material before it on Thai law and had come to a conclusion on the issue, albeit one that was incorrect. The mere fact that the tribunal had misapprehended the parties’ stances and the thrust of the Thai law evidence presented to it did not amount to a lack of due process.
Third, the International Judge held that the awarding of compound interest was not a contravention of Singapore public policy. The purchasers had argued that the Court was required to set aside the awards, in the interests of international comity, since the awarding of compound interest would constitute “palpable and indisputable illegality” under Thai law and Thailand is a state with which Singapore maintains friendly relations. In support of this proposition, the purchasers cited the English case of Soleimany v Soleimany [1999] QB 785 and the Singapore case of AJU v AJT [2011] 4 SLR 739.
The International Judge rejected the purchasers’ arguments, holding that the concept of “palpable and indisputable illegality” only applied to contracts involving conduct of an obviously criminal nature, in line with the English case of Omnium de Traitement et de Valorisation SA v Hilmarton Ltd [1999] 2 Lloyd’s Rep 222. Furthermore, the International Judge drew a distinction between the legal tests for setting aside an award and refusing enforcement of an award, respectively. In relation to the former, the Model Law permits the supervising court to set aside an award if it contravenes the public policy of the arbitral seat. In contrast, under Article V of the New York Convention, a court may refuse enforcement of an award which contravenes the public policy of the enforcing state. The International Judge held that, save in cases of obvious criminal conduct (as in the case of Soleimany, which involved smuggling), the Singapore court should not have to undertake the exercise of first discerning how a Thai court would determine the issue and then reasoning backwards that, because the Thai court is likely to refuse enforcement, the Singapore court should set aside the award, in the interests of international comity.
Key Takeaways
Given that Singapore is a notoriously arbitration-friendly jurisdiction, it will always be challenging to persuade a Singapore court to set aside an arbitral award. However, this case provides some helpful guidance on the parameters of the supervising court’s powers to set aside awards on the basis of illegality. In particular, the International Judge set out four examples of cases involving illegality and analysed the supervising court’s power in each scenario:
a. Where a contract is governed by Singapore law and a Singapore seated tribunal wrongly holds that the relevant agreement is not illegal, the Singapore court should intervene because the supervisory court “cannot abrogate its judicial power to the Tribunal to decide what the public policy of Singapore is” (AJU v AJT, at [62]);
b. Where a contract is governed by Singapore law and a Singapore seated tribunal wrongly holds that the relevant contract is illegal and so unenforceable, it would not normally be appropriate for the Singapore court to intervene, because the parties should be held to their agreement to abide by the tribunal’s award, even if that award is wrong as a matter of law (AJU v AJT, at [66]);
c. Where a contract is governed by a foreign law and a Singapore seated tribunal wrongly holds that the contract is illegal under that law and so unenforceable, it would not normally be appropriate for the Singapore court to intervene, for the same reason as (b) above (AJU v AJT, at [69]);
d. Where a contract is governed by a foreign law and a Singapore seated tribunal wrongly holds that the contract is not illegal under that law, the Singapore court should only intervene in cases of “palpable and indisputable illegality”, because to do otherwise would be to ignore or condone obvious criminality (AJU v AJT, at [67]).
[1] CBX and another v CBZ and others [2020] SGHC(I) 17.
