Singapore High Court rejects creative arguments to seek de novo appeal on merits of arbitral award via setting aside applications

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A recent decision of the Singapore High Court, BTN v BTP [2021] SGHC 271, reinforced the principle that it is only in exceptional circumstances that parties to an arbitration can successfully seek recourse through curial intervention. In dismissing the plaintiffs’ applications to set aside various arbitral awards, the court emphasised that parties are not entitled to seek a right of appeal against a tribunal’s decision on the merits by applying to the courts to set aside an award. The courts are particularly wary and critical of creative arguments being deployed by an aggrieved party or their counsel to disguise what is in effect no more than a de novo appeal on the merits of a dispute.

What are the practical implications of this case?

This case reinforces the principle in setting aside applications that it is only in exceptional circumstances that parties to an arbitration can successfully seek recourse through curial intervention. There is no right of appeal to the courts against decisions of an arbitral tribunal on the merits. The courts should be wary of creative arguments being deployed by an aggrieved party or their counsel which, in substance, amount to a de novo appeal on the merits of the dispute.

What was the background?

The background of the dispute had been summarised in an earlier case analysis: Singapore – Court of Appeal considers doctrine of res judicata in clarification of public policy ground for setting aside awards: BTN v BTP [2020] SGCA 105.

The plaintiffs had unsuccessfully applied to set aside the First Partial Award at both the Singapore High Court and Court of Appeal. Subsequently, the tribunal released a Second Partial Award, a Final Award and an Additional Award (collectively, ‘the Awards’) in favour of the defendants.

Case HC/OS 1401/2019 (‘OS 1401’) was the plaintiffs’ application to set aside the Second Partial Award while Case HC/OS 874/2020 (‘OS 874’) was their application to set aside the Final Award and the Additional Award. The outcome of OS 874 was parasitic to that of OS 1401.

The plaintiffs contended that the tribunal had rendered the Second Partial Award: (a) infra petita (i.e. failing to decide a material issue that was within the scope of submission of an arbitration); (b) in breach of natural justice; and/or (c) contrary to public policy.

The plaintiffs alleged that the tribunal did not allow them to plead a defence that the defendants had breached their confidentiality obligations under the Sale and Purchase Agreement (‘SPA’) and therefore did not satisfy certain conditions precedent set out within the SPA for the defendants to be entitled to the Earn Out Consideration (‘Earn Outs’). This was the Confidentiality Pleading Issue.

The plaintiffs also alleged that the tribunal had wrongly decided that, by reason of issue estoppel, the plaintiffs were precluded from raising as part of their counterclaim various factual allegations accusing the defendants of misconduct in various respects. This was the Counterclaim Preclusion Issue.

What did the court decide?

Decision

The court dismissed OS 1401 and OS 874 entirely, holding that none of the grounds raised by the plaintiffs to set aside the Awards succeeded.

The leave granted by the court for the defendants to enforce the Awards (‘Leave Orders’) were upheld and the plaintiffs’ applications to set aside the Leave Orders also failed.

Issue one: The Confidentiality Pleading Issue

Whether the plaintiffs were precluded from raising the Confidentiality Pleading Issue

The court found that the Confidentiality Pleading Issue was not a new issue raised by the plaintiffs. In his first affidavit, Mr K had repeatedly raised the contention that the plaintiffs’ main defence was not considered by the tribunal. The main defence was that the defendants were not entitled to the Earn Outs because they were terminated With Cause or did not comply with the conditions precedent necessary to be entitled to the Earn Outs.

Mr K’s averments in his first affidavit were, in substance, the same as the Confidentiality Pleading Issue. It is therefore not a new ground raised belatedly, even though Mr K’s first affidavit was found to be ‘sorely lacking in detail’.

No prejudice was occasioned as the defendants were able to respond, by way of reply affidavits, to the Confidentiality Pleading Issue raised in Mr K’s second affidavit. The issue was fully dealt with in evidence and the parties’ written and oral submissions.

However, the court cautioned that in future cases, the plaintiff should fully traverse all the facts, circumstances and grounds relied upon for its setting aside application in its primary supporting affidavit(s) so that the defendant knows the exact case it has to meet.

Whether the dismissal of the Confidentiality Pleading Issue was infra petita

The court found that the tribunal’s decision not to hear the Confidentiality Pleading Issue on the basis that it was a new issue that was ‘pleaded belatedly’ without adequate justification was a decision on the tribunal’s jurisdiction. The court can undertake a de novo review in cases where it is confronted with arguments relating to the tribunal’s jurisdiction.

As the Confidentiality Pleading Issue was pleaded and put in issue before the tribunal based on a holistic reading of the pleadings and the issues framed, it was brought to the defendants’ notice and in play in the arbitration. By not allowing it to be heard, the tribunal fell foul of the infra petita rule, i.e. the tribunal failed to consider a material issue within its scope of submission.

Whether the dismissal of the Confidentiality Pleading Issue resulted in any actual or real prejudice

The dismissal of the Confidentiality Pleading Issue did not result in any actual or real prejudice to the plaintiff. Not every failure to deal with every issue referred to a tribunal affords grounds for setting aside. The critical inquiry is whether there has been actual or real prejudice to either (or both) parties and this must be conducted by considering the award as a whole: CRW Joint Operation v PT Perushaan Gas Negara (Persero) TBK [2011] 4 SLR 305 (at paras [31]–[32]).

Even if the tribunal had allowed the Confidentiality Pleading Issue and considered it on the merits, it would not have altered the balance of the award. The tribunal’s findings in relation to issue estoppel on the Counterclaim Preclusion Issue would, logically, also apply to bar the plaintiffs’ defence based on the allegations of breach of confidentiality. As the Confidentiality Pleading Issue had already been considered and determined by the Malaysian Industrial Court (‘MIC’), it was precluded by issue estoppel.

Whether the dismissal of the Confidentiality Pleading Issue resulted in a breach of natural justice

It was not strictly necessary for the court to address the plaintiffs’ arguments on breach of natural justice in detail as they were, first, closely intertwined with their infra petita arguments, and second, the lack of actual or real prejudice caused to the plaintiffs would be equally fatal to the plaintiffs’ success on this ground.

Accordingly, even if it was assumed that there was a breach of natural justice in relation to the fair hearing rule by the tribunal’s failure to decide the Confidentiality Pleading Issue, the lack of any actual or real prejudice caused by such assumed breach would mean the plaintiffs must fail on this ground.

Issue two: The Counterclaim Preclusion Issue

Whether the tribunal’s decision on the Counterclaim Preclusion Issue was infra petita

The court rejected the plaintiffs’ argument that the tribunal’s decision on the Counterclaim Preclusion Issue was a ‘negative jurisdictional ruling’. The tribunal was fully aware that it had jurisdiction to determine the counterclaim on the merits, and had decided that the factual allegations in support of it were precluded by issue estoppel. The plaintiffs were presumed to be aware of the MIC proceedings via valid service on BTO of the notices and letters from the MIC and BTO’s attendance at the conciliation meeting. Hence, no special circumstances existed that warranted disapplying the doctrine of issue estoppel in this case.

The court found the plaintiffs’ arguments to be a creative but nonetheless disguised attempt to persuade the court to revisit the tribunal’s decision on the Counterclaim Preclusion Issue. As the tribunal’s decision on issue estoppel touched only on the question of admissibility, not jurisdiction, and was purely a substantive issue, there was no justification whatsoever for curial intervention.

The court was critical of the plaintiffs’ ‘misconceived’ attempt at re-characterising this issue as a jurisdictional question. The court also criticised the plaintiffs for ‘recirculating a number of the arguments they raised in their attempts to set aside the First Partial Award… which have been roundly rejected by the High Court and Court of Appeal’.

While the court was sympathetic to the plaintiffs’ argument that they have not had the opportunity to ventilate the counterclaim allegations either before the MIC or the tribunal, this was ultimately due to the plaintiffs’ own internal management failures. The outcome, while perhaps ‘harsh’ on the plaintiffs, was correct as the court must not interfere in the merits of an arbitral award.

Whether the tribunal’s decision on the Counterclaim Preclusion Issue breached natural justice or is contrary to public policy

The tribunal’s decision on the Counterclaim Preclusion Issue did not breach the rules of natural justice as the plaintiffs were given a reasonable opportunity to be heard and to present their case.

Having applied the doctrine of issue estoppel to the plaintiffs’ counterclaim, the tribunal was correct in not having gone on to consider the merits of the counterclaim.

The plaintiffs’ public policy objection was without merit. For the plaintiffs to succeed, the court must be satisfied that upholding the Awards would shock the conscience, be clearly injurious to the public good or violate the forum’s most basic notions of morality and justice: PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 (at para [59]). For the same reasons the plaintiffs’ infra petita arguments failed, the plaintiffs’ submissions here were also rejected.

This article was first published by Lexis®PSL on 20 December 2021.