Case Summaries

CBX and another v CBZ and others (Case Summary)

21 June 2021

Case Summary

CBX and anor v CBZ and ors [2021] SGCA(I) 3
Civil Appeal No 136 of 2020

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Decision of the Court of Appeal (delivered by Jonathan Mance IJ):

Outcome: Court of Appeal allows the appeal against the decision by the International Judge (the “Judge”) below and sets aside parts of various arbitral awards which are found to have been made in excess of the jurisdiction of the instant arbitral tribunal (the “Tribunal”) and/or in breach of the rules of natural justice.

Pertinent and significant points of the judgment

  • There was an unresolved jurisdictional issue as to whether the Respondents should be permitted to advance any claim to certain moneys (the “Remaining Amounts”) other than by way of accelerated payments. That issue was inevitably linked with consideration of (a) the relationship between the Tribunal’s jurisdiction and that of a separate arbitral tribunal in separate arbitral proceedings, the ALRO tribunal, as well as (b) the issues which were before, or ought properly to be decided by, each arbitral tribunal. These points were not at any stage directly or satisfactorily addressed: at [35].
  • The Tribunal based its conclusion that it had jurisdiction to order payment of the Remaining Amounts, irrespective of any acceleration, upon the terms of the Sellers’ Reply. However, the Buyers never accepted the claims for the Remaining Amounts as being or coming within the Tribunal’s jurisdiction. On the contrary, the Buyers had made repeated objection to those claims being considered by the Tribunal: at [40]–[42].
  • The Tribunal’s reasoning in relation to what matters had been submitted to its jurisdiction, and what matters were to be left to a different tribunal was inconsistent with its own stated intentions. The Tribunal’s expressed intention was to leave unto the ALRO tribunal the matters raised before it. But, by ordering payment of the Remaining Amounts, it enabled the Respondents to submit in the ALRO arbitration that the present Phase II Partial Awards gave rise to a res judicata binding on the ALRO tribunal. That is the opposite of what the present Tribunal appears to have contemplated, but would be on its face correct, if the present Partial Awards were to stand in this respect: at [43] and [44].
  • The Phase II Partial Awards ought to be set aside as having been made in excess of jurisdiction in so far as they order payment of the Remaining Amounts. There was no basis for any other order. Whether the Remaining Amounts became due and/or remain unpaid under the SPAs would, if in dispute, have to be resolved outside the scope of the present arbitration: at [64].
  • There was no doubt that the Tribunal’s order concerning compound interest went beyond the scope of the parties’ submission to arbitration, in that it went (inadvertently) outside the scope of what both parties had agreed that the Tribunal could, under the relevant governing law, or should, afford by way of relief. The awards of compound interest would have had to be set aside in any event on that ground. Further and separately, the Court would, independently of the issue of jurisdiction, also regard the making of orders contrary to the parties’ agreed position, without first giving the parties warning and an opportunity to make further submissions, as involving an inadvertent breach of natural justice: at [95].

Background to the appeal

1. The parties’ disputes arose from two sale and purchase agreements ( “SPA I” and “SPA II”) dated 19 June 2015 and governed by Thai law. The SPAs were for the sale and purchase of, respectively, 49% and 48.94% interests in company AAA, which in turn owned 59.46% of company BBB, which through various “project companies” owned eight windfarm projects in Thailand. SPA I was between CBZ as seller and CBX as buyer. SPA II was between CCA and CCB as sellers, and CBY as buyer. For ease of reference, the sellers were referred to collectively as the “Sellers”, and the buyers collectively as the “Buyers”.

2. 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 which gave rise in June 2016 to two arbitrations (the “arbitrations”), heard together by the Tribunal, in which the Sellers under the two SPAs (respondents before the Judge and on the present appeals) claimed various forms of relief against the Buyers (applicants below and appellants on appeal. The arbitrations led to among other awards, two Phase II Partial Awards dated 5 June 2019, and a Final Award (Costs) (the “Costs Award”) dated 9 August 2019.

3. The Buyers’ applications to the Judge were to set aside parts of the Phase II Partial Awards and, consequentially,the whole of the Final Award (Costs). The relevant parts of the Phase II Partial Awards consisted of the Tribunal’s decisions, first, that the Buyers pay the Sellers certain amounts described as the “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.

4. 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. What the Tribunal actually ordered was that the Buyers make payment in accordance with Clause 3.1(ii) of the SPAs. That involved payments in three tranches at payment dates as set out in Schedule 5 to the SPAs, viz on the Completion of Development (“COD”), one year after COD and two years after COD. None of such payment dates had passed before the parties concluded their submissions before the Tribunal, and only the first COD date had passed by the time of issue of the Partial Awards.

5. In addition to the orders for payment of part of the Remaining Amounts, the Tribunal also awarded Compound Interest on those amounts. The awards of Compound Interest were made under the terms of the SPAs. They were made following what the Tribunal later described as a “regrettable oversight” on its part, since the parties had in fact agreed that compounding was unlawful and unenforceable under Thai law, and had informed the Tribunal accordingly during the proceedings leading up to the issue of the Phase II Partial Awards.

6. The applications to set aside were made on the grounds that, as regards the relevant parts of the Phase II Partial Awards, the Tribunal (a) exceeded its jurisdiction; (b) failed to afford the Buyers a reasonable opportunity to present their case; and/or (c) contravened Singapore public policy. As regards the Costs Award, its setting aside was sought on the basis that it could not stand if the relevant parts of the Phase II Partial Awards, on which it was predicated, are set aside in whole or part.

7. The Judge dismissed the applications. He held that the Tribunal had jurisdiction over claims to the Remaining Amounts existing independently of any claims for accelerated payment of the sums due. He held that, although the Buyers had in fact commenced another ICC arbitration (“the ALRO arbitration”) to establish that the Remaining Amounts could not and would not fall due on what would otherwise be their relevant payment dates, they had neglected to make clear to the present Tribunal the nature and grounds of such relief, and had therefore not suffered any undue prejudice or failure of natural justice. As for compound interest, he held that (a) the Tribunal had the (procedural) power to award compound interest under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”); (b) the Buyers had had a reasonable opportunity to present their case; and (c) what had happened was a wrong exercise of an undoubted power, the risk of an error of this sort being “a routine hazard of arbitration”.

8. The Buyers appealed the Judge’s conclusions, as well as the Judge’s orders as to costs. The appeal against the Judge’s orders as to costs is the subject of a separate judgment, in CA/CA 197/2020.

The Court of Appeal’s decision

9. The Court of Appeal allowed CA 136 and set aside (a) the Phase II Partial Awards insofar as they ordered payment of the Remaining Amounts, (b) the Costs Award, and (c) the Tribunal’s order for compound interest: at [64], [85], and [95].

10. The Tribunal had based its conclusion that it had jurisdiction to order payment of the Remaining Amounts, irrespective of any acceleration, upon the terms of the Sellers’ Reply. However, the Buyers never accepted the claims for the Remaining Amounts as being or coming within the Tribunal’s jurisdiction. On the contrary, the Buyers had made repeated objection to those claims being considered by the Tribunal. However, the Judge did not refer to the concluding summaries and footnotes in either of the Buyers’ post-hearing briefs, and discounted the clear references to the ALRO arbitration in the Buyers’ second post-hearing brief dated 5 November 2018: at [40]–[42].

11. The present situation arose from the absence of any clear identification of or ruling on the issue or exercise of the Tribunal’s jurisdiction over any claims to the Remaining Amounts, other than on an accelerated basis. The Terms of Reference (“ToRs”) dated 11 August 2016 and 8 September 2016 in the two arbitrations arising from the SPAs recorded claims by the Sellers, but did not include any claims to the Remaining Amounts save, in the case of SPA II and later in the case of both SPAs, by way of acceleration. While the arbitration clauses provided that “[t]he [ToRs] shall not include a list of issues to be determined”, the TORs themselves indicated that they were subject to Article 23(4) of the ICC Rules. What Article 23(4) clearly contemplated in the event of a party wishing to make a new claim was express consideration and determination by the arbitral tribunal of the question of whether this should be permitted having regard to its nature, the stage of the arbitration, and all other relevant circumstances. The provision in the ToRs foregoing any list of issues thus needed to be read in the context of the claims identified in the ToRs. The Tribunal and parties could not, especially in the light of their express reservation as to the application of Article 23(4), have meant that any party could raise any new claim or issue whatsoever at any time without any arbitral input or control: at [45] and [46].

12. At the close of Phase I, the only issues of liability stood over by the tribunal to Phase II, apart from questions of damages, were those relating to acceleration of the Remaining Amounts and any other claims or counterclaims already raised in Phase I. If the Sellers were to seek to introduce any other claim, this would have been expected to be done in their initial claim submissions for Phase II and by way of express application to the Tribunal. This is 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 - a matter which the Tribunal was aware was before the ALRO Tribunal whose jurisdiction theTribunal did not question. Either way, whenever such a claim was sought to be introduced, it should, if its introduction was challenged, have led to a clear jurisdictional ruling: at [47].

13. The Sellers’ reliance on PT Prima International Development v Kempinski Hotels SA and other appeals [2012] 4 SLR 98 (“PT Prima”) for the proposition that the Sellers had the right at any time to introduce any new matter, including any claims that might have arisen or might accrue prospectively by the time of any final award was unmeritorious. That was not a correct analysis of the case. The observations in PT Prima did not give an unrestrained licence to introduce new claims: at [48]–[52].

14. Bearing in mind that the issue of jurisdiction had been squarely raised before it, 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 Amounts in the present arbitrations, other than on an accelerated basis. Had the Tribunal identified this issue as requiring determination, the Buyers’ case that the tribunal in the ALRO arbitration was seized of the issue of whether the Remaining Amounts would become payable would inevitably have called for and received attention. Once it is recognised that the Buyers did signal their true position on the Remaining Amounts, it is clear that the jurisdictional issue was not resolved in a manner which ever brought the claims to the Remaining Amounts (which were in any event still largely prospective at the time when the parties were addressing Phase II) properly within the Tribunal’s jurisdiction: at [55] and [56].

15. The jurisdictional issue raised by the Buyers should have been, but never was, resolved by a ruling determining whether or not any claim should be permitted to the Remaining Amounts other than by way of acceleration. The Tribunal did not make any ruling admitting such claims, and so the Tribunal had no jurisdiction to rule on them in its Phase II Partial Awards. It followed that the Phase II Partial Awards should be set aside as having been made in excess of jurisdiction in so far as they ordered payment of the Remaining Amounts. There was no basis for any other order: at [57] and [64].

16. Turning next to the Costs Award, an award which is based in material part on illegitimate considerations was described by the Court of Appeal as being flawed and one which cannot in fairness stand. In terms of the IAA and UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), this conclusion followed from first principles. The fruit falls with the tree. Where a later order is ancillary to and depends upon the validity and premises of a prior order, the legislature cannot have intended that the later order should survive the setting aside of the former. Whether the two orders were physically combined in one award or were made in separate awards, the latter is integral to the former. Any other conclusion would have the potential for extraordinary anomalies and serious injustice. Ultimately, the test for whether a costs order can survive must be one of materiality and judgment: at [72]–[74].

17. In this jurisdiction, there is under the IAA and Model Law no equivalent power to remit to the same tribunal after setting aside. The only power of remission contained in Article 34(4) of the Model Law operates as an alternative to, and is designed to avoid, any setting aside. However, it would 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: at [78] and [85].

18. Given that the orders made for payment of the Remaining Amounts were set aside, the orders for compound interest on those amounts also fell to be set aside. In any event, the Tribunal’s order for compound interest went beyond the scope of the submission to arbitration within the meaning of Article 34(2)(a)(iii) of the Model Law, in that it went (inadvertently) outside the scope of what both parties had agreed that the Tribunal could, under the relevant governing law, or should, afford by way of relief. The award of compound interest would have had to be set aside on that ground: at [86] and [95].

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s judgment.