Case Summaries

CBX and another v CBZ and others (Media Summary)

16 July 2020

Case summary

Singapore International Commercial Court Originating Summons No 1 of 2020

CBX and another v CBZ and others [2020] SGHC(I) 17

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Decision of Anselmo Reyes IJ:

Outcome: SICC dismisses the plaintiffs’ application to set aside parts of two arbitral awards, finding that the arbitral tribunal’s decision did not involve an excess of jurisdiction, a failure to afford the plaintiffs a reasonable opportunity to present their case, or a contravention of Singapore public policy.

Background

1  Under a sale and purchase agreement (“CBX SPA”), the 1st Defendant (“CBZ”) agreed to sell, and the 1st Plaintiff (“CBX”) agreed to buy, 49% of the share capital of a company. Under another sale and purchase agreement (“CBY SPA”), the 2nd and 3rd Defendants (respectively, “CCA” and “CCB”) agreed to sell, and the 2nd Plaintiff (“CBY”) agreed to buy, 48.94% of the share capital of the same company. An individual, “CC”, controlled the Plaintiffs, and another individual, “DD”, controlled the Defendants.

2  CBX was to pay a first instalment to CBZ by 23 October 2015 under the CBX SPA. CBY was to pay a first instalment to CCA and CCB by 25 September 2014 under the CBY SPA. Under the SPAs, subject to a certain proviso, the balance of the consideration under the SPAs (the “Remaining Amounts”) was to be paid in tranches within 45 business days of each of the milestone dates identified in Schedule 5 (“Schedule 5”) of the SPAs.

3   The parties discussed the postponement of the original deadlines for the first instalments. However, CBX did not pay the first instalment under the CBX SPA. CBY paid the first instalment under the CBY SPA, partly on 30 November 2015 and partly on 29 December 2015. It did not pay interest for late payment. The Defendants contended that the Plaintiffs were in default due to non-payment or late payment. The Defendants maintained that, in consequence, they could treat the CBX SPA as rescinded. The Defendants further alleged that, not only were the outstanding principal and interest of the first instalments due, but the Remaining Amounts had additionally become accelerated and so immediately payable in full. The Plaintiffs denied that the Defendants were entitled to treat the CBX SPA as rescinded.They argued that the payment dates for the first instalments had been postponed and that the Remaining Amounts had not been accelerated. The Plaintiffs also raised set-offs and counterclaims which it submitted had the effect of reducing or extinguishing any amounts (including the Remaining Amounts) payable to the Defendants.

4   CBZ commenced arbitration (the “CBX arbitration”) against CBX on 26 January 2016, while CCA and CCB instituted proceedings (the “CBY arbitration”) against CBY on 25 March 2016. The Tribunal heard the references together, and divided the procedural timetable into a “Phase I” on liability and a “Phase II” on damages.

5   On 22 September 2017, the Tribunal issued its “Phase I Partial Awards” in the two arbitrations. On 5 June 2019, the Tribunal issued its “Phase II Partial Awards”, ordering, inter alia, that the Plaintiffs pay (a) the Remaining Amounts to the Defendants in accordance with Schedule 5 (“Remaining Amounts Orders”); and (b) 15% interest compounded annually from the date of the Phase II Partial Awards (“Compound Interest Orders”). On 9 August 2019, the Tribunal issued its “Costs Award” covering the costs of Phases I and II of both arbitrations. The Tribunal ordered the Plaintiffs to pay 66% of the Defendants’ costs of the two arbitrations, together with simple interest of 7.5% per annum from the date of the Costs Award.

6   In this originating summons, the Plaintiffs applied to set aside the Remaining Amounts Orders and Compound Interest Orders on the ground that in coming to its decisions, the Tribunal exceeded its jurisdiction, failed to afford the Plaintiffs a reasonable opportunity to present their case, and contravened Singapore public policy. The Plaintiffs also argued that the Costs Award was consequent upon the Remaining Amounts and the Compound Interest Orders, and should thus be set aside if the said Orders are set aside. The Plaintiffs additionally submitted that, in substitution for the Costs Award, the court should order that the Defendants pay 100% of the Plaintiffs’ costs of the entire arbitration proceedings.

The Court’s decision

7   The Plaintiffs’ challenge to the Remaining Amounts Orders failed (at [39]).

8   The payment of the Remaining Amounts pursuant to Schedule 5 was squarely in issue in Phases I and II of the arbitrations. The Defendants’ reply submissions in Phase II made it plain that the Defendants were seeking payment of the Remaining Amounts pursuant to Schedule 5, albeit as a “very subsidiary claim”. Based on the Plaintiffs’ conduct during the CBX and CBY arbitrations, the Tribunal would reasonably have understood from counsel’s remarks that, subject only to their case on set-offs and counterclaims in Phase II, the Plaintiffs intended to comply with their obligations under the SPAs and to pay the Remaining Amounts within 45 business days of the Schedule 5 milestones (at [19]-[22]). There was nothing to suggest to the Tribunal that, despite CC’s re-examination evidence, by the time of the closing exchange on the last day of the Phase II hearing and the post-hearing briefs, the Plaintiffs actually had no intention of paying the Remaining Amounts in any circumstance. By the Remaining Amounts Orders, the Tribunal was merely acting on its understanding of CC’s re-examination evidence during the closing exchange. The Plaintiffs had ample opportunity before then to disabuse the Tribunal of this understanding, but did not do so (at [35]). The court was therefore not persuaded that the Plaintiffs suffered unfair prejudice by the Remaining Amounts Orders (at [23]). Further, the Tribunal afforded the Plaintiffs with numerous opportunities to state the true nature of their case on the payment of the Remaining Amounts, but the Plaintiffs did not do so. The court therefore disagreed that there had been a denial of natural justice (at [38]).

9   The Plaintiffs’ challenge to the Compound Interest Orders also failed (at [69]).

10  The court did not agree that the Tribunal lacked power to award compound interest or exceeded its jurisdiction in so doing. The Tribunal had the power to award compound interest under section 12 of the International Arbitration Act. The situation here was one where, due to its mistake as to the parties’ positions and the thrust of the Thai law evidence, the Tribunal wrongly exercised its undoubted power to award compound interest. The risk that a tribunal makes an error of that sort was a routine hazard of arbitration. Parties to an arbitration nonetheless agreed to be bound by a tribunal’s decision, whether right or wrong. The Tribunal’s error on Thai law was thus not of itself a ground for setting aside the Compound Interest Orders (at [49]).

11  Further, the court did not accept that the Plaintiffs were denied a reasonable opportunity to present their case on compound interest under Thai law. The problem was not so much a lack of due process, as of the Tribunal misapprehending the parties’ stances and the thrust of Thai law evidence presented to it (at [50]).

12  The court also disagreed that allowing the Compound Interest Orders to stand would be repugnant to Singapore public policy. The Plaintiffs had submitted that it would be contrary to Singapore public policy to allow the Compound Interest Orders to stand because they constituted “palpable and indisputable illegality” under Thai law (at [51]-[52]). However, the “illegality” arising out of the Compound Interest Orders was not the type of “palpable and indisputable illegality” to which the case authorities referred (at [57]).

13  The present case could conceivably be classified as either an error of fact or error of law in the arbitral award. Assuming in the Plaintiffs’ favour that the error was of the latter sort, it was a situation where the governing law of the contract is foreign law and the tribunal wrongly concluded that the contract was not illegal under that law. If, on the face of the award, obvious criminality was not involved, it should not normally be warranted for a supervisory court to consider evidence or submissions on the question of illegality under foreign law with a view to possibly intervening. That would be tantamount to re-opening and re-hearing the merits of an arbitration. Since the present situation was not one of “palpable and indisputable illegality”, even on the assumption that the Tribunal erred as a matter of law, the court should not re-visit the legality of the Compound Interest Orders and set them aside as contrary to Singapore public policy (at [66]-[68]).

14  The Plaintiffs’ challenges to the Remaining Amounts and Compound Interest Orders having failed, there was no basis for a consequential order setting aside the Costs Award. The challenge to the Costs Award and the Plaintiffs’ claim for 100% of the costs of Phases I and II of the CBX and CBY arbitrations therefore also failed (at [70]).

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. 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 grounds of decision.