SIArb Newsletters

Nature of Matter

Arbitration – Award – Recourse against award – Setting aside   

The plaintiff entered into a Consultancy Agreement dated 7 September 2012 (the "Agreement") with Z Co. Under the Agreement, Z Co was to provide the plaintiff with information and consultation/advisory services relating to opportunities for the plaintiff to “acquire an interest in producing oil and gas fields around the world”. In return, the plaintiff agreed to pay Z Co a fee (“Success Fee”) subject to certain conditions in the Agreement. Z Co thereafter assigned and novated the Agreement to its sister company, the defendant, pursuant to a Deed of Novation. Further, the plaintiff and defendant entered into the Amended and Restated Consultancy Agreement ("Amended Agreement"), and the expiry date under the Amended Agreement was 31 December 2013. The Agreement, Amended Agreement and Deed of Novation contained similar provisions that provided for disputes to be finally resolved by arbitration before the SIAC in accordance with the Rules of Arbitration of the International Chamber of Commerce then in effect.

In 2012, Z Co presented the X Opportunity (i.e. an opportunity for the plaintiff to acquire various interests in major oil fields in a country in Africa). While steps were taken for the plaintiff to take up X Opportunity, no sale and purchase agreement relating to X Opportunity was eventually entered into by the plaintiff due to, amongst others, tax issues. In early 2014 (after the expiry of the Amended Agreement), the plaintiff decided not to proceed with the proposed investment in X Opportunity.

Thereafter in December 2015, the plaintiff decided, as part of its expansion plans, to reconsider the investments relating to the X Opportunity, without the assistance of the defendant. The parties, without the defendant's involvement, were able to resolve the tax issues this time, and the investment was completed. In this regard, the defendant sought to claim the Success Fee from the plaintiff, who denied that the defendant was entitled to the Success Fee.

The defendant commenced arbitration proceedings against the plaintiff, on the following grounds that:

1. There was an oral agreement between the plaintiff and the defendant to extend the Agreement for a further period during which the defendant would continue to provide the services under the Agreement, and this would be reflected in a written contract to be executed in due course;
2. Alternatively, there was an implied contract between the defendant and the plaintiff on the same terms as the Agreement governing the interim period between the expiry of the Deed of Novation and the execution of a new contract; and
3. The plaintiff was estopped from denying that the Agreement was no longer valid.

The plaintiff contended, amongst others, that:

1. There was no agreement for the renewal or extension of the Amended Agreement or a fresh agreement;
2. Under Article 3.2 of the Amended Agreement, upon expiration of the Amended Agreement, the defendant and the plaintiff had no further obligation to each other unless a sale and purchase agreement for an investment ("SPA") had been executed but not completed at the time the Amended Agreement expired.
3. Under Article 12 of the Amended Agreement, no action or proceeding arising out of the Amended Agreement could be brought more than three months after the expiry of the Amended Agreement. The notice of arbitration was filed on 17 April 2018, more than 4 years out of time.

The Tribunal found that there was no express contract in existence between the parties after the expiry of the Amended Agreement, there was no extension by mutual agreement after 31 December 2013, and that the plaintiff was not estopped from denying that the Agreement was no longer valid. However, despite having rejected the defendant's pleaded case, the Tribunal found that the plaintiff was liable to pay the defendant the Success Fee for the X Opportunity on the basis that, amongst others:

1. The requirements for a Success Fee to be paid out under the Amended Agreement were satisfied;
2. While article 3.2 referred to an SPA that was executed, this also extended to an SPA that was being negotiated or in relation to an opportunity that would bear fruit subsequently;
3. The clauses relating to the requirements for a Success Fee payment did not require an executed SPA before the Agreement expired;
4. Since there was no requirement that an SPA be entered into before the Amended Agreement expired, Article 12 did not bar the defendant from claiming its Success Fee; and
5. The acquisition of shares in the December 2015 deal was the same transaction as the X Opportunity.

The Tribunal therefore awarded the defendant the sum of US$5,066,106.86 with interest and costs.

The Court set aside the Award relating to X Opportunity.

The plaintiff's case was that the Tribunal's findings breached s. 24(b) of the International Arbitration Act and Article 34(2)(a)(iii) of the Model Law, on the ground that the Tribunal had exceeded its jurisdiction.

Article 34(2)(a)(iii) of the Model Law could apply where the arbitral tribunal improperly decides matters that had not been submitted to it or failed to decide matters that had been submitted to it. In determining the matters that were submitted to the tribunal, the Court, citing the Court of Appeal case in PT Prima International Development Kempinski Hotels SA and other appeals [2021] 4 SLR 98, found that pleadings played an important role, and the Court should not construe pleadings narrowly. A practical view would have to be taken regarding the substance of the dispute referred to arbitration. Accordingly, the Court held that an arbitral tribunal was not entitled to depart from the pleadings to the extent of making its decision based on a ground that had not been pleaded at all and which could not be said to be ancillary to what had been pleaded. The Court further cited GD Midea Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd and another matter [2018] 4 SLR 271 stating that where a Tribunal has exceeded its jurisdiction by addressing matters beyond the scope of the submission to arbitration, there is no further requirement to show that the applicant had suffered “real or actual prejudice”.

The Court held that if the Tribunal found that there was no subsisting agreement after the Amended Agreement expired, that should have pointed the end of the defendant's claim, since the very premise of the defendant's claim would have been rejected. Instead, the Tribunal went on and awarded the Success Fee to the defendant on the basis of matters that were inconsistent with the defendant's own case.

In this regard, it was never the defendant's case in the arbitration proceedings that it had a valid claim if there was no subsisting agreement after the Amended Agreement expired. With respect to Article 3.2, the defendant had submitted that upon the expiration of the Amended Agreement, the plaintiff had an obligation under Article 3.2 to pay the Success Fee if an SPA has been executed before the Amended Agreement expired. As for Article 12, the defendant's case was that it had not come into effect given that the implied contract continued to subsist between the plaintiff and the defendant.

It was therefore clear that the Tribunal’s finding that the defendant was entitled to payment of the Success Fee was based on grounds that were entirely different from the defendant’s case in the arbitration proceedings. It was not possible to describe the Tribunal’s findings as being ancillary to the matter submitted to arbitration. The Court therefore held that the Tribunal had exceeded its jurisdiction in this case, which was sufficient for the setting aside of the Award relating to the X Opportunity.