Singapore Court Considers A Negative Jurisdiction Argument And Refuses Set Aside

In BTN v BTP [2019] SGHC 212, the Singapore High Court dealt with an argument by the Plaintiff that a partial award constituted a negative jurisdiction decision. The court also dealt with the Plaintiff’s alternative argument that the partial award should be set aside under various grounds of Article 34(2) of the Model Law, including that the Plaintiff’s were deprived of the opportunity to present their case in defence to a US$35m claim and that the tribunal failed to deal with an issue where the determination of that issue was essential to the decision reached in the partial award.

The dispute arose from a shareholder’s agreement whereby BTN (a Mauritius company) acquired ownership of BTP/BTO (the later a Malaysian company) for a minimum price of US$25m and, upon reaching certain financial targets, a further amount up to a maximum of US$35m. The employees of BTO were subsequently dismissed and they commenced an action in the Malaysian Industrial Court, who gave judgment in their favour and awarded compensation for lost salary. The employees also commenced arbitration proceedings under the share purchase agreement, seeking the sum of US$35m.

The tribunal rendered a partial award, in which it held, inter alia, that the determinations by the Malaysian Industrial Court that the Claimants were terminated without just cause or excuse is binding and conclusive for the purposes of termination “Without Cause” under the share purchase agreement. The Plaintiff’s commenced proceedings in the Singapore High Court, arguing that:

  • the partial award was in substance a negative jurisdiction ruling as the Tribunal abdicated the jurisdiction conferred on it by the parties to decide disputes under the SPA. The ruling could therefore be considered de novo by the Court.
  • the jurisdiction was given to the Tribunal by virtue of the SPA to determine any dispute arising out of the SPA, including the dispute as to whether the employees had been terminated without cause within the meaning of the SPA, but that the Tribunal did not enter into the merits of this question at all (citing PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597, where it was held that an award must deal with the substance or merits of the dispute, failing which it is not an award.

The Court held that the partial award was not a ruling on jurisdiction which, in any event, also dealt with a related accounting issue which the parties agreed was a decision on substantive merits. The Court stated [2]:

“…a challenge on a jurisdiction ground is surprising. At the same time, a jurisdictional challenge is not that surprising seeing how any arguments on the legal or factual mistakes made by a tribunal can be reviewed based on a de novo review of the award if the challenger succeeds on the argument that a jurisdictional ground is engaged.”

Further [45]:

“…With respect, the jurisdictional challenge launched by the Companies is no other than a clever argument to mask a challenge on the substantive decision by the Tribunal on the questions submitted by the parties for decision…”

And [52]:

“In my view, on the Construction Issue, it is clear that the Tribunal decided on the substantive merits of the legal dispute between the parties, as encapsulated by the legal question in Procedural Order No 5: “whether the decisions of the Malaysian Industrial Court are binding as a matter of contract on a proper interpretation of the SPA and PEAs”. The construction of the parties’ contracts was clearly within the jurisdiction of the Tribunal. There was nothing said about the jurisdiction of the Tribunal to hear this issue. The Tribunal exercised its jurisdiction in deciding the construction of the contracts; it is not a case of the Tribunal abdicating its jurisdiction. If anything, any errors in contractual construction are errors of law and fact and such errors are not subject to review.”

The Court also examined in some depth the concept of jurisdiction and res judicata, stating [64]:

“In my view, the doctrine of res judicata falls within the concept of admissibility of claim: it takes aim at the claim, and not at the defect of the improper forum. Where the doctrine applies to preclude a party from arguing a certain issue or claim, it would mean that it is “inappropriate” or “unsuitable” for the tribunal to hear the substantive merits of the issue or claim, thus going to its admissibility.”

Regarding the Plaintiff’s alternative pleas:

In respect of the arguments under s 24(b), Art 34(2)(a)(ii), Art 34(2)(a)(iii) and/or Art 34(2)(a)(iv), that the Tribunal made findings on disputed facts despite the parties’ agreement to reserve the resolution of disputed facts to subsequent hearings, the Court held that there was no breach of natural justice, nor did the Tribunal breach the parties’ agreed arbitral procedure, nor did it exceed its jurisdiction.

In respect of the arguments under s 24(b) and/or Art 34(2)(a)(ii), that the Tribunal decided on an issue that was not pleaded or argued; failed to consider an argument submitted by the Companies against giving the MIC Awards res judicata effect under Singapore law,, the Court held that the parties’ respective positions were set out in the Partial Award and that they had ample opportunity to present their positions. There was therefore no breach of natural justice. The Court stated [103]:

“To fail to consider an important issue that has been pleaded in an arbitration is a breach of natural justice because the arbitrator would not have brought his mind to bear on an important aspect of the dispute before him. It will usually be a matter of inference that the arbitrator failed to consider an important pleaded issue, and such an inference, if it is to be drawn at all, must be shown to be “clear and virtually inescapable”.”

The Court held that there was no breach of natural justice as the tribunal is not obliged to deal with every argument and that the use of natural justice in this case was used to cover what was essentially an attempt to review the merits of the tribunal’s decision, which not permissible.In respect of the arguments under s 24(b), Art 34(2)(a)(ii), and/or Art 34(2)(a)(iii), that the Tribunal failed to decide on the merits of the substantive dispute between the parties because it regarded itself bound by the MIC’s determinations, the Court held that the Tribunal in the present case was tasked with determining whether the findings of the MIC were contractually binding and had res judicata effect and, in fact, decided the very matters submitted to it. The Plaintiff’s argument was a red herring and the partial award could not therefore be set aside.

In respect of the argument under Art 34(2)(b)(ii), that the partial award was in conflict with the public policy of Singapore, the Court rejected the submission, stating [112]:

“The public policy ground for setting aside or refusal of recognition/enforcement is very narrow in scope. The Court of Appeal has held that the ground should only succeed in cases where upholding or enforcing the arbitral award would “shock the conscience”, or be “clearly injurious to the public good or … wholly offensive to the ordinary reasonable and fully informed member of the public”, or violate “the forum’s most basic notion of morality and justice” (PT Asuransi at [59]). In a public policy challenge, it is important to identify whether the alleged public policy exists in the first place (BAZ v BBA at [159]).”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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