By Christine Ong and Tan Yi Lei - Virtus Law LLP, with assistance from Michelle Lam

Nature of Matter

Review of Partial Award or in the alternative, setting aside of Partial Award

Case Summary

The defendants were the owners of a group of companies (‘Group’) of which the second plaintiff (‘BTO’), is the principal holding company. The first plaintiff (BTN), entered into a Share and Purchase Agreement (SPA) with the defendants whereby BTN would acquire 100% ownership and control of the Group. The SPA also stipulated that the defendants had to be employed by BTO and the employments of the defendants were governed by the respective Promoter Employment Agreements (‘PEAs’).

On 8 Jan 2014, BTO gave notice to the defendants, summarily dismissing them “pursuant to Clause 15.2.1 of the [PEA] and Clause 12.9.1 of the [SPA]” and cited four grounds of with-cause termination. In response, the defendants commenced proceedings under s 20 of the Industrial Relations Act 1967 (Act 177) (Malaysia) (the ‘IRA’) before the Malaysian Industrial Court (‘MIC’). MIC heard the defendants’ claims in the absence of BTO, noting that multiple notices were sent to BTO to respond and engage with the proceedings, and gave judgment (‘MIC Awards’) in the defendants’ favour on 6 April 2015 and 29 July 2015 respectively. The MIC found that BTO bore the burden of proving on a balance of probabilities ‘that the employee had committed the alleged misconduct for which he had been dismissed.’ Given that BTO had been absent from the start despite several notices having been served on them, the MIC was left with no alternative but to rely on the defendants’ testimony and accordingly found in favour of the defendant.

In July 2016, the defendants commenced arbitration proceedings under the SPA, claiming that they had been dismissed without cause and were therefore entitled to receive US$35m under Cl 12.9.2 of the SPA. The plaintiffs argued that the dismissals were with cause on the basis that the defendants had failed to cause the Group to achieve a positive EBITDA and behaved in ways that were materially detrimental to the interests of the Group. The defendants claimed that these issues were res judicata by virtue of the MIC Awards (‘res judicata issue’) and that as a matter of construction of the SPA and the PEAs, a determination under the PEAs that the dismissals were without cause was binding for the purposes of the SPA (‘construction issue’).

The Tribunal issued the partial arbitral award (‘Partial Award’) and found unanimously that the determinations by the MIC that the defendants were terminated without just cause or excuse was binding and conclusive for the purposes of termination “Without Cause” under the [SPA] and the [PEAs]; and the plaintiffs were issue estopped from arguing that the defendants were terminated “With Cause” under the [SPA] and [PEAs].

The plaintiffs applied to the Singapore High Court to review the Tribunal’s decision pursuant to s 10(3)(b) of the International Arbitration Act (‘IAA’) and, in the alternative, to set aside the Partial Award pursuant to s 24(b) of the IAA and Art. 34(2) of the Model Law.

Ruling

There were 3 main issues in the OS:

    1. whether the Partial Award was a jurisdictional decision, and if so, whether the Tribunal erred in its decisions on the construction issue and the res judicata issue (‘Issue 1’);
    2. whether the Partial Award should be set aside under Art 34(2) of the Model Law and s 24(b) of the IAA (‘Issue 2’); and
    3. whether the Partial Award should be set aside with respect to BTN, if it is not set aside for BTO (‘Issue 3’).

The Singapore High Court dismissed the application by the first and second plaintiffs

Issue 1: Review under s 10(3)(b) of the IAA

The plaintiffs argued that the Partial Award was in substance a negative jurisdiction ruling as the Tribunal abdicated the jurisdiction conferred on it by the parties to decide disputes under the SPA. The Tribunal did not enter into the merits of the question of whether the PEAs had been terminated without cause and instead considered itself bound by the MIC Awards.

The defendants’ position was that the Partial Award was not a ruling on jurisdiction. The Tribunal decided on both the res judicata issue and the construction issue which were both issues of law going to the substantive merits of the dispute. Alternatively, the defendants stated that the Tribunal did not err in its rulings on the res judicata issue and the construction issue.

The High Court found that the wording of s 10(3)(b) only applies if the Tribunal has ruled that it has no jurisdiction. The key issue was whether the Partial Award was a ruling on jurisdiction. The High Court found that the procedural order issued by the Tribunal clearly provided for the possibility for the Tribunal to decide that the MIC Awards were binding and no independent determination by the Tribunal was necessary, and that the idea of the Tribunal’s jurisdiction to rule on the dispute was never on the minds of the parties or the Tribunal. The High Court concluded that the Partial Award was not a ruling on jurisdiction because neither the construction issue nor the res judicata issue was a jurisdictional issue, and found that the jurisdictional challenged launched by the plaintiffs was nothing more than a clever argument to mask a challenge on the substantive decision by the Tribunal on questions submitted by parties for decision. As regards the construction issue, the High Court held that it was clear that the Tribunal decided on the substantive merits of the legal dispute between the parties, viz, ‘whether the decisions of the [MIC were] binding as a matter of contract on a proper interpretation of the SPA and PEAs’. As the construction of the parties’ contracts was clearly within the jurisdiction of the Tribunal, the Tribunal had exercised its jurisdiction in deciding the construction of the contracts and had not abdicated its jurisdiction. Furthermore, ‘any errors in contractual construction are errors of law and fact and such errors are not subject to review.’

As regards the res judicata issue, the High Court clarified that the concepts of jurisdiction of tribunal and admissibility of claim are distinct. Jurisdiction commonly refers to ‘the power of the tribunal to hear a case’, whereas admissibility refers to ‘whether it is appropriate for the tribunal to hear it’. The main distinguishing point is whether the objecting party takes aim at the tribunal or at the claim, with the former concerning the jurisdiction of the tribunal and the latter concerning the admissibility of the claim. For example, an objection based on time limitation goes to admissibility of claim rather than jurisdiction and it is for the tribunal to determine whether a claim is time-barred. In this regard, the doctrine of res judicata falls within the concept of admissibility of claim as it takes aim at the claim, and not at the defect of the improper forum – i.e. where the doctrine applies to preclude a party from arguing a certain issue or claim, it would mean that it is ‘inappropriate’ or ‘unsuitable’ for the tribunal to hear the substantive merits of the issue or claim, thus going to its admissibility.

The plaintiffs further argued that the concept of admissibility does not exist in international commercial arbitrations and that some investor-state arbitral awards have classified res judicata objections as going to the tribunal’s jurisdiction rather than to admissibility (referring to AMCO Asia Corp v Republic of Indonesia, ICSID Case No ARB/81/1, Decision on Jurisdiction (10 May 1998) (‘AMCO’)). First, the High Court found that the concept of admissibility is a useful foil to illustrate the ambit of the concept of jurisdiction and there was no reason why the concept of admissibility cannot be utilised as a tool to determine whether an objection lodged in a commercial arbitration is a jurisdictional objection. As for the AMCO decision, the High Court found that the issue of whether res judicata was a matter of admissibility or a matter of jurisdiction was never discussed in the decision – the tribunal had to only determine which parts of the dispute between the parties were res judicata and which were not, as a result of a partial annulment of a previous tribunal’s arbitral decision on the dispute.

Thus, the res judicata issue was not a jurisdictional one and the High Court could not review the correctness of the Tribunal’s decision.

For completeness, the defendants submitted that there was a requirement of an express ‘plea’ that an arbitral tribunal has no jurisdiction before the challenge amounts to a jurisdictional one and given that there was no such plea, the Tribunal’s decision in the Partial Award was not a decision on jurisdiction. The High Court clarified this and referred to the Court of Appeal decision of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd [2019] 2 SLR 131 where it was held that it was not necessary for a party to file a formal objection or plea in the legal sense of the term in order to engage Art 16(3) of the Model Law.

Issue 2: Application to set aside the Partial Award pursuant to s 24(b) of the IAA and Art 34(2) of the Model Law

In the alternative, the plaintiffs argued that the Partial Award should be set aside pursuant to Art 34(2) and/or s 24(b) on the basis that:

        1. the Tribunal made findings on disputed facts despite the parties’ agreement to reserve the resolution of disputed facts to subsequent hearings (the ‘reliance on disputed facts issue’);
        2. the Tribunal decided on an issue that was not pleaded or argued (the ‘decision on matter not pleaded or argued issue’);
        3. the Tribunal failed to consider an argument submitted by the plaintiffs against giving the MIC Awards res judicata effect under Singapore law (the ‘failure to consider issue’);
        4. the Tribunal failed to decide on the merits of the substantive dispute between the parties because it regarded itself bound by the MIC’s determinations (the ‘decision not to decide on the merits issue’); and/or
        5. the Partial Award was in conflict with the public policy of Singapore (the ‘public policy issue’).

The reliance on disputed facts issue

The plaintiffs submitted that the Tribunal relied on disputed factual matters in its decision when the parties and the Tribunal had intended for the resolution of any factual or evidentiary issues to be reserved (as recorded in a procedural order).

The High Court acknowledged that the parties and the Tribunal did intend to only resolve legal issues, but the parties at the same time had tasked the Tribunal to determine ‘all issues necessary to resolve whether the findings of the [MIC] are binding’. In this regard, there was neither a breach of natural justice, nor did the Tribunal breach the agreed arbitral procedure or exceed its jurisdiction.

The decision on matter not pleaded or argued issue

The plaintiffs argued that the Tribunal drew a distinction between ‘subject matter identity’ and ‘issue identity’ in its decision on issue estoppel and did not give a chance to the parties to address the difference between the two concepts.

The High Court stated that there was no breach of natural justice because to succeed in a claim based on breach of natural justice, a plaintiff has to show that ‘a reasonable litigant in his shoes would not have foreseen the possibility of reasoning of the type revealed in the award’ and further that ‘with adequate notice it might have been possible to persuade the arbitrator to a different result’. The High Court pointed to portions in the Partial Award where the parties’ respective positions were set out and found that the parties had had ample opportunity to present their positions.

The failure to consider issue

The plaintiffs submitted that the Tribunal failed to consider their argument that issue estoppel should not be granted where it would be unjust in the circumstances.

The High Court found that this argument was not pleaded by the plaintiffs in the arbitration. Further, the High Court found that that a tribunal is not obliged to deal with every argument; all that is required of the tribunal is to ensure that the essential issues are dealt with. Natural justice does not require the parties to be given responses on all submissions made. In any event, the Tribunal was keenly aware of the factual circumstances of the matter and the High Court was of the view that this allegation of breach of natural justice was merely a cover for what was essentially an attempt to review the merits of the Tribunal’s decision.

The decision not to decide on the merits issue

The plaintiffs submitted that the Tribunal failed to decide on matters submitted to it because it regarded itself bound by the determinations of the MIC. The plaintiffs relied on the case of CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (‘CRW’), where the Court of Appeal found that the arbitral tribunal failed to go into the substantive merits of the parties’ dispute even though the contract between the parties directed the tribunal to review the merits of the decision of the dispute adjudication board.

The High Court distinguished CRW because there was a clear and express agreement for the arbitral tribunal to review the merits of the decision of the dispute adjudication board in that case. In contrast, the Tribunal in the present case was only tasked with determining whether the findings of the MIC were contractually binding and had res judicata effect. The High Court found that the Tribunal had in fact decided on the very matters submitted to it, and stated that this was not a case of the Tribunal having failed to give effect to the parties’ agreement.

The public policy issue

The plaintiffs claimed that the Partial Award should be set aside because its effect was to shut them out of having the merits of their case on without-cause termination ventilated before any adjudicatory forum. The plaintiffs argued that this was exacerbated by the fact that the second plaintiff (BTO), through no fault of its own, was unaware of the MIC proceedings and was unable to defend the same, and the fact that the first plaintiff (BTN) was not even party to the MIC proceedings. Further, it was argued that the defendants were already in breach of the arbitration agreements in the PEAs in seeking recourse from the MIC and it was contrary to public policy to allow them to take advantage of their own wrong.

The High Court found that even taking the plaintiffs’ formulation of the public policy at its highest, the plaintiffs had not shown that they had in fact been prevented from having its case determined through the procedural mishaps. The failure of BTO to present its defence was, as the Tribunal found, the result of the failure of its own internal arrangements causing it to be absent before the MIC. The plaintiffs were given full opportunity to present their case on the legal issues and must have been aware of the possibility that the Tribunal might decide against them on those issues. This outcome having materialised, the plaintiffs could not now refuse to accept the determination of the Tribunal on those legal issues.

As regards the alleged wrongdoing of the defendants in commencing proceedings in the MIC, the Tribunal made a finding of interpretation of the jurisdiction and dispute resolution clauses in the PEAs which essentially meant that there was no wrongdoing on the defendants’ part. Such findings of fact and law by the Tribunal in a public policy challenge cannot be reviewed).

Issue 3: whether the Partial Award should be set aside with respect to BTN

The plaintiffs argued that the Partial Award should be set aside against BTN as it stood in an entirely different position to BTO. This was because BTN had never ventilated the substantive merits of its defence before any adjudicative forum, for it was not a party to the MIC proceedings and moreover, the Tribunal had refused to decide the merits of BTN’s defence.

The High Court rejected the argument given that the Tribunal was tasked to determine whether the MIC Awards bound both BTO and BTN, and it did so. The MIC’s findings were binding for the purposes of the SPA in respect to BTN and the Tribunal had decided that the preclusive effect extended to BTN by virtue of it being in privity with BTO.

Latest Events

No events

Events Calendar

March 2024
S M T W T F S
25 26 27 28 29 1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31 1 2 3 4 5 6

Site designed and maintained by Intellitrain Pte Ltd.  Copyright © Singapore Institute of Arbitrators.  All rights reserved.

Website Terms of Use     Privacy Policy

Go to top