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Nature of Matter

Arbitration – Award – Recourse against award – Setting aside

Case Summary

The parties' disputes arose from two sale and purchase agreements (the "SPAs") for the sale and purchase of various interests in companies which owned eight windfarm projects in Thailand. The SPAs each made provision for there to be ICC arbitration seated in Singapore in the event of any dispute between the parties.

Disputes arose between collectively the Sellers on one hand, and collectively the Buyers on the other, which led to 2 arbitrations in which the Sellers [Respondents] claimed various forms of relief against the Buyers [Appellants]. The arbitrations were heard by the same tribunal.

The appeal in question involved a setting aside application in respect of parts of the Phase II Partial Award dated 5 June 2019, and the whole of the final award on costs ("Costs Award").

The relevant parts of Phase II Partial Award in issue were that first, the Buyers pay the Sellers certain amounts ("Remaining Amounts"), and second, that interest should run on those amounts at the rate of 15% compounded annually from the date of the awards until payment.

The Remaining Amounts had originally been claimed in the arbitrations on the basis that their due dates had been accelerated by reason of the Buyers' defaults or conduct. However, the tribunal awarded the Remaining Amounts on the basis that the Buyers should make payment in accordance with Clause 3.1(ii) of the SPAs, which involved payments in respect of the incomplete windfarm projects in three tranches as set out in the SPAs, and said tranches of the Remaining Amounts had now become due, independently of any acceleration, due to the length of the arbitration.

Further, the tribunal had awarded compound interest under the terms of Clause 12.9 of the SPAs, even though the parties had in fact agreed that compounding was unlawful and unenforceable under Thai law, and had informed the Tribunal accordingly during the proceedings.

The applications to set aside the relevant parts of the Phase II Partial Award, and the Costs Award, were made on the grounds that the tribunal exceeded its jurisdiction and failed to afford the Buyers a reasonable opportunity to present their case; and/or contravened Singapore public policy. The setting aside of the costs award was sought on the basis that it cannot stand if the relevant parts of the Phase II Partial Award, on which it was predicated, are set aside in whole or part.

The High Court Judge dismissed the setting aside applications. The Buyers appealed against the dismissal of their applications.

The Court of Appeal allowed the Buyers' appeal and the Phase II Partial Awards insofar as they ordered payment of the Remaining Amounts, the Costs Award and the Tribunal’s order for compound interest.

The relevant parts of the Phase II Partial Award regarding the claim for the Remaining Amounts

The Court of Appeal found that the Tribunal had exceeded its jurisdiction in ordering payment of the Remaining Amounts:

1. The Buyers never accepted the claims for the Remaining Amounts as being or coming within the tribunal's jurisdiction;
2. The ALRO arbitration (as explained below) was consistent with the Buyers' position that the tribunal had no jurisdiction, in that the only issue in the present arbitration regarding the Remaining Amounts was whether they had been accelerated by conduct on the Sellers' part; and
3. The tribunal should have made a jurisdictional ruling in the face of the Buyer’s jurisdiction objection; having failed to do this, the Tribunal had no jurisdiction to decide on the claim for the Remaining Amounts premised on a basis other than by way of acceleration.

The Court further found that the making of the Partial Awards by the tribunal involved breaches of the rules of natural justice by which the Buyers' rights were prejudiced, within the meaning of section 24(b) of the International Arbitration Act.

1. The Buyers never accepted the claims for the Remaining Amounts as being or coming within the tribunal's jurisdiction

The Remaining Amounts had originally been claimed by the Sellers in the arbitrations on the basis that their due dates had been accelerated by reason of the Buyers' defaults or conduct.

As part of Phase II of the arbitration proceedings, parties exchanged further pleadings, only added a further ground for its claim of acceleration of the Remaining Amounts. Thereafter, in its Reply, the Sellers maintained their primary claim to acceleration, and only noted for the first time on "a very subsidiary basis" or as a "very subsidiary claim" that the Remaining Amount will be contractually due and payable by the expected time of the Final Award, and sought that the Buyers give a guarantee or undertaking to ensure timely payment of the Remaining Amounts.

The Buyers, in their Rejoinder and Reply, expressly took issue with any attempt to introduce new claims in respect of the Remaining Amounts not based on acceleration. This was also evident from the written Opening Statements exchanged, where the Sellers themselves did not identify a claim to the Remaining Amounts other than by way of acceleration.

It was therefore clear that the Buyers had never accepted the claims for the Remaining Amounts as being or coming within the tribunal's jurisdiction.

2. 2. The ALRO arbitration (as explained below) was consistent with the Buyers' case on jurisdiction, that the only issue in the present arbitration regarding the Remaining Amounts was whether they had been accelerated by conduct on the Sellers' part

The Buyers had raised an issue to the tribunal that the Thai Supreme Administrative Court held that the windfarm usage fell outside the relevant land's agricultural zoning. This affected when the Buyers could apply for new leases, which in turn would affect whether the Remaining Amounts were due or could be withheld. The Buyers therefore made it clear in opening by its counsel that a further arbitration may be brought in relation to the aforementioned issues, but "I don’t want it to be said that somehow we have waived our rights or treated this issue as settled in this arbitration. It is a live issue. It is not before the tribunal. It may well be the subject of a further arbitration our clients will bring against the [Sellers]." The Buyers indeed commenced said separate arbitration (the "ALRO arbitration") against the Sellers to determine, amongst others, whether, in light of the land lease problem, the Remaining amounts were due or could be withheld.

The Court found that the tribunal had fully understood the nature of the issues under the SPAs regarding the land leases which was being litigated in the ALRO arbitration, and found that the tribunal's views, as follows, were irreconcilable: (a) the terms of the Sellers' Reply meant that it was charged with a "very subsidiary" claim to the Remaining Amounts, independently of acceleration, it also took the view that (b) the land lease issue could and should be litigated before the ALRO tribunal.

By ordering payment of the Remaining Amounts, it enabled the Sellers to submit in the ARLO arbitration, as they did, that the present Phase II Partial Awards give rise to a res judicata binding on the ALRO tribunal.

3. The tribunal should have made a jurisdictional ruling if it considered the claim for the Remaining Amounts, other than by way of acceleration

In the arbitration agreement, it provided that the terms of reference shall not include a list of issues to be determined, and the tribunal had accordingly recorded that it had not deemed it appropriate to establish a list of issues to be decided, and that the issues to be determined will be those contained in the parties' pleadings, including submissions, and such other issues as may arise during the course of the arbitration, subject to Article 23(4) of the ICC Rules.

The then Article 23(4) of the ICC Rules provides that after the Terms of Reference have been signed or approved by the Court, no party shall make new claims which fall outside the limits of the Terms of Reference unless it has been authorised to do so by the arbitral tribunal, which shall consider the nature of such new claims, the stage of the arbitration and other relevant circumstances.

The Court therefore found that new claims not found in the Terms of Reference would require the tribunal's permission. If the Sellers sought to introduce any other claim, this would have been expected to be done in their initial claim submissions for Phase II of the arbitration and by way of express application to the tribunal. This was even clearer in the context of a claim for the Remaining Amounts independent of any acceleration, in that such a claim was not yet due, and might or would not become due until after the award was made. Whenever such a claim was sought to be introduced, it should, if its introduction was challenged (and which the Buyers did), have led to a clear jurisdictional ruling, but this was not the case. It was incumbent on the tribunal to rule on it by determining whether or not the Sellers were or should be permitted to pursue any claim to the Remaining Amount in the present arbitrations, other than on an accelerated basis.

While there was no requirement to show prejudice, the procedural prejudice inherent in the irreconcilable positions which the tribunal ended up taking is evident of prejudice.

Link to the ALRO arbitration

The Court of Appeal also noted that:

1. The tribunal's taking of jurisdiction, without any prior discussion or ruling, meant that neither party had an opportunity to address the tribunal's approach which would result in both it and the ALRO arbitration could consistently exercise their own separate jurisdiction over what was in essence the same subject matter;
2. The tribunal's order meant that there was on the face of it and at least very arguably, effectively nothing to leave to the tribunal in the ALRO arbitration to decide because of the doctrine of res judicata; and
3. The position might be different if the present tribunal ordered that the orders made for payment of the Remaining Amounts as conditional upon the tribunal in the ALRO arbitration determining and dismissing the Buyers' case on the Remaining Amounts on the merits and without regard to any argument based on res judicata.

The Compound Interest Order

The order on compound interest was also set aside by the Court of Appeal.

The Sellers had themselves applied to the tribunal to correct the Costs Award under Article 35(2) of the ICC Rules, which enables a tribunal to correct a "clerical, computational or typographical error or any error of similar natures in an award". The tribunal rejected the application on the basis that although due to a regrettable oversight, its decision did not involve an error of the nature covered under Article 35(2) of the ICC Rules.

The Court of Appeal found that the tribunal had mistakenly treated the question of compound interest as open to it to decide, when parties had already reached an agreed position on the point, that compound Interest in Clause 12.9 was, under Thai law, illegal and unenforceable.

There was no doubt that the tribunal's order went beyond the scope of the submissions to arbitration within the meaning of Article 34(2)(a)(iii) of the Model Law, and should therefore be set aside.

The Costs Award

The Court found that despite the Costs Award taking into account a range of considerations, including considerations relating to substantive aspects of the award not set aside, the conduct of the case and the overall costs, the award which is based in material part on illegitimate considerations is flawed and cannot in fairness stand.

The Court of Appeal noted that it would appear to be a matter of regret if, after the setting aside in whole or part of an award, accompanied consequentially by the setting aside of a costs order, it were not possible in one way or another to find a means, where appropriate, for a party to seek and for some tribunal (or even the court) to make a valid costs order, where appropriate according to the circumstances. The area is one which those having an oversight of arbitration law might wish to consider.

In this case, the Court of Appeal left it to the parties to agree or decide individually how to proceed. In other words, the parties would have to advise themselves and to agree or decide how to proceed. They might of course resolve the issue by agreeing that, whatever might otherwise be the position, the Tribunal which issued the Costs Award now set aside should sit to determine the question of costs by a fresh costs award, made in the light of the setting aside of parts of the Phase II Partial Awards and the Costs Award.