15 June 2021
CJM v CJT  SGHC(I) 4 Originating Summons No 5 of 2021
Decision of the Singapore International Commercial Court (delivered by Anselmo Reyes IJ):
Outcome: SICC disallowed application to partially set aside SIAC arbitral award.
1. In 2017, the plaintiffs commenced an arbitration at the Singapore International Arbitration Centre (“SIAC”). The Tribunal dismissed the plaintiffs’ claim. In their application before this Court, the plaintiffs sought to set aside four paragraphs of the Tribunal’s award (the “Award”), which allegedly consisted of findings which were made in excess of the parties’ submission to arbitration, in breach of the rules of natural justice and contrary to the public policy of Singapore.
The material facts
2. By way of a Share Purchase and Shareholders’ Agreement, the defendant sought to increase its shareholding in a company (the “Company”) by purchasing the plaintiffs’ shares. Shares were purchased in different parcels. The consideration for the final parcel included a component known as the “Earn-Out Payment”, which was dependent on the Company’s EBITDA for the financial year (“FY”) 2021. The higher the Company’s EBITDA for FY 2021, the higher the Earn-Out Payment. Conversely, if the Company had a negative EBITDA in FY 2021, there would be no Earn-Out Payment.
3. The plaintiffs commenced an SIAC arbitration claiming damages for loss of the Earn-Out Payment, on the ground that the defendant had breached its good faith obligation by running down the Company, thereby destroying the Company’s EBITDA for FY 2021 and the prospects of an Earn-Out Payment.
4. The Tribunal dismissed the plaintiffs’ claim. Even though the Tribunal (by a majority) found that the defendant had breached its good faith obligation, the Tribunal (by a different majority, referred to as the “Damages Majority”) held that the plaintiffs had failed to prove causation and quantification of actual loss, based on certain exhibits (the “Exhibits”).
5. In particular, the Damages Majority held that the plaintiffs (a) had failed to substantiate the existence of particular projects for which the Company would have been eligible to tender, (b) had not shown that the Company possessed the qualifications to bid for such projects, and (c) had not shown that the Company’s failure to pursue such tender opportunities resulted in a negative EBITDA which destroyed the prospects of an Earn-Out Payment. Accordingly, the Damages Majority concluded that the plaintiffs had failed to show that the defendant’s breach had occasioned loss of the Earn-Out Payment. It was this finding by the Damages Majority which the plaintiffs sought to challenge.
6. In its Originating Summons (“OS”), the plaintiffs sought to set aside two paragraphs of the Award pursuant to Articles 34(2)(a)(ii), 34(2)(a)(iii) and 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration, and s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed).
7. The nub of the plaintiffs’ complaint was that the Damages Majority decided on the issue of causation and quantification of actual loss, when this issue was not before the Tribunal. The plaintiffs’ claimed that their case was not premised on actual loss; rather, their case was that damages were to be quantified based on the EBITDA for FY 2021 as projected in Business Plan 2015 (“BP 2015”), a plan which contained the parties’ reasonable and agreed expectations of the Company’s potential future earnings. As for the Exhibits, they were tendered not for the purpose of establishing actual loss, but for the limited purpose of rebutting fresh materials in the defendant’s expert evidence, which suggested that the Company’s business had no market or growth potential generally.
8. Hence, the plaintiffs complained that the findings of the Damages Majority were made in excess of the parties’ submission to arbitration, in breach of the rules of natural justice and contrary to the public policy of Singapore.
9. After the three-month time limit for applying to set aside the Award, the plaintiffs sought to amend its OS to challenge two additional paragraphs of the Award. The plaintiffs claimed that these two extra paragraphs would also fall, if they were right in their substantive critique of the original two paragraphs challenged in its OS.
The Court’s grounds of decision
10. Whether the plaintiffs’ amendment application ought to be allowed was a moot point, as the Court found no basis to set aside any of the impugned paragraphs (at ). The issue of causation and quantification of actual loss was squarely before the Tribunal (at ).
11. From the plaintiffs’ pleading, it was apparent that the plaintiffs recognised that they needed to show causation (at ). Moreover, by virtue of the defendant’s defence on the lack of causation, the Tribunal was entitled to determine the issue of whether causation in respect of the alleged loss of Earn-Out Payment had been made out (at ).
12. It was also plain to the Tribunal, based on the parties’ Issues List and the plaintiffs’ closing submissions, that the plaintiffs were not only advancing a case on loss based on BP 2015, but also a case seeking an assessment of damages on some alternative basis (at , , ). In this regard, the plaintiffs should have appreciated that the Exhibits were bound to be considered in connection with the issue of causation and quantification of actual loss (at ). During the evidentiary hearing, the Tribunal had invited the plaintiffs to make good the deficiencies in their factual evidence on actual loss of the Earn-Out Payment (at –). Having realised their predicament, the plaintiffs deployed the Exhibits in support of a case of actual loss in their closing submissions (at  and ).
13. In these circumstances, the Court found that the Damages Majority did not exceed the Tribunal’s jurisdiction and was instead tackling an issue on which the plaintiffs had ample opportunity to respond. Consequently, there was nothing contrary to Singapore public policy in how the Tribunal had conducted the arbitration (at ). The plaintiffs’ application to set aside two paragraphs in the Award was thus dismissed, along with their application to amend its OS to set aside two further paragraphs (at ).
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.
Quick Links & Resources