Singapore HC Refuses to Set Aside Partial Award on Public Policy Grounds

In Bloomberry Resorts and Hotels Inc & Anor v Global Gaming Philippines LLC and Anor [2020] SGHC 01, the Singapore High Court dealt with an application to set aside a partial award under s.34(2) of the Model Law, alternatively that the partial award was contrary to public policy, arising out of the wrongful termination of a management services agreement.

The plaintiffs and defendants entered into the MSA on 9 September 2011 “to provide management and technical services in the development and construction, and to manage the operation of” Solaire for a period of 10 years. The plaintiffs sought to terminate the MSA and the defendants duly commenced arbitration against the plaintiffs pursuant to the MSA. On 20 September 2016, following the hearings on liability in October 2015, the Tribunal decided in the partial award that, inter alia, there was no causal fraud or misrepresentation by the defendants in relation to the MSA and that the plaintiffs’ termination of the MSA was not justified and constituted a breach of the MSA.

Time Extension for Setting Aside the Partial Award

The application to set aside the partial award was brought 1 year after the partial award was made. An extension of time to bring the application was therefore required. The Court stated [22]:

“…the rulings of the Singapore High Court on Art 34(3) of the Model Law in ABC Co v XYZ Co Ltd [2003] 3 SLR(R) 546 (“ABC v XYZ”) at [9], PT Pukuafu Indah and others v Newmont Indonesia Ltd and another [2012] 4 SLR 1157 (“PT Pukuafu”) at [30] and Astro Nusantara International BV and Others v PT Ayunda Prima Mitra and others [2013] 1 SLR 636 (“Astro Nusantara (HC)”) at [97], is that the time limit prescribed in Art 34(3) Model Law is strict. It is clear that Art 34 is meant not only to limit the grounds for setting aside an arbitral award, but it also prescribes that any challenge made on Art 34 grounds must be brought promptly within the period specified: see Astro Nusantara (HC) at [97]. This legal position is followed in two recent decisions of the Singapore International Commercial Court (“SICC”) in BXS v BXT [2019] SGHC(I) 10 (“BXS v BXT”) at [39]–[41] and BXY and others v BXX and others [2019] SGHC(I) 11 (“BXY v BXX”) at [83] that were published after the hearings for OS 1432 were completed.”

The Plaintiff argued that the Court should depart from the reasoning in ABC v XYZ and PT Pukuafu, urging the Court to instead adopt the approach of the Hong Kong court in Sun Tian Gang v Hong Kong & China Gas (Jilin) [2016] HKCFI 1611 (“Sun Tian Gang”), where Chan J held that the Model Law does not preclude the court from regulating the procedure of applications to set aside awards, and therefore the court has the discretion to grant an extension of time under Art 34(3) (at [90]).

The Court agreed with Reyes IJ [24]: (see here for the post on Reyes IJ’s decision)

“I am unpersuaded by the court’s reasoning in Sun Tian Gang which starts with and draws support from the court’s permissive interpretation of the word “may” in Art 34(2) of the Model Law to give a similar permissive interpretation to the words “may not” in Art 34(3). Such an interpretation cannot be correct. A different meaning is convey by the single word “may” in Art 34(2) as compared to the words “may not” in the context of Art 34(3).

Concluding [26]:

“Hence, starting with the decision of ABC v XYZ and, more recently, the decisions of the SICC, the legal position in Singapore is that the time limit in Art 34(3) of the Model Law is strict, favouring the policy of finality of arbitral awards (see BXS v BXT at [40]) and legal certainty.”

In relation to the Plaintiff’s argument that the time limit in Art 34(3) of the Model Law (for setting aside the partial award) should be extendable in cases of fraud and, more so, where the fraud is discovered only after the expiry of the time limit, the Court stated:

  • [42]: the three-month time limit in Art 34(3) is strict, favouring the policy of finality of arbitral awards and legal certainty. The drafters of the Model Law decided that cases of fraud, bribery or corruption should be subject to the strict time limit in Art 34(3) of the Model Law;
  • [43:] it is left to national laws to decide whether to adopt the time limit set out in Art 34(3) or to provide separate time limits for setting aside of fraudulently obtained arbitral awards and/or for the situation where there is subsequent discovery of new facts or evidence post award;
  • [46]: applications brought under s 24 of the IAA are subject to the three-month time limit in Art 34(3) of the Model Law, which is an absolute one that favours finality of arbitral awards. The plaintiffs’ application to set aside the Partial Award under s 24 of the IAA and Art 34(2) of the Model Law was filed out of time and it is therefore dismissed with costs.

Time Extension for Setting Aside the Enforcement Order

The plaintiffs did not apply to set aside the order enforcing the partial award within fourteen days of service, and hence sought an extension of time to do so pursuant to O.3 r.4(1) of the Rules of Court, which provides that “The Court may, on such terms as it thinks just, by order extend or abridge the period within which a person is required or authorised by these Rules or by any judgment, order or direction, to do any act in any proceedings.” The application was made 9 months and 11 months after the relevant deadline had expired (for the 1st Plaintiff and 2nd Plaintiff respectively). The Court stated [49]:

“The words “such terms as it thinks just” gives the court discretion to grant time extension in order to achieve justice in the circumstances of the case. Generally, the factors the court takes into consideration in deciding whether to grant an extension of time are: (a) the length of delay; (b) the reasons for delay; (c) the chances of the defaulting party succeeding on appeal if the time for appealing were extended; and (d) the degree of prejudice to the would-be respondent if the extension of time were granted: see Sun Jin Engineering Pte Ltd v Hwang Jae Woo [2011] 2 SLR 196 at [29]; AD v AE [2004] 2 SLR(R) 505 at [10]) with the courts generally focusing on the first two: Falmac Ltd v Cheng Ji Lai Charlie and another matter [2014] 4 SLR 202 at [14].”

The Court referred to the Hong Kong Court of Appeal’s decision in Astro Nusantara International B.V. and Others v PT First Media TBK [2018] HKCFA 12, where the CFA allowed an extension of time notwithstanding the fact that the order granting leave to enforce was set aside 14 months out of time, noting that while the delay of 14 months was substantial, it took into consideration the fact that the opposing party had not suffered any substantial prejudice (other than costs) and to refuse extension would be to “deny First Media a hearing where its application has decisively strong merits” (at [87]).” (See here for our earlier post regarding the CFA’s decision in the Astro v Lippo case)

The court noted that while the length of delay was a factor, the main focus was on the reason for the extension – ie. based on new evidence that was discovered post-award. At [54], the Court stated:

“…given the circumstances of the present case, the plaintiffs ought to be allowed to assert the allegations of fraud as put forward in the application for time extension without reference to the further point of whether they are likely to succeed or not at the substantive hearing. This approach is in the overall interest of justice having regard also to the minimal prejudice caused to the defendants. Accordingly, I allow the time extension to the plaintiffs’ application to set aside HC/ORC 6609/2016 and the Enforcement Judgment made in default of the Plaintiffs’ noncompliance with the relevant timeline. The plaintiffs are to pay the defendants costs of the time extension application.”

Merits of the Application to Resist Enforcement

In relation to public policy under Art 36(1)(b)(ii) of the Model Law, the Court stated [56]:

“In this case, the only purpose of the plaintiffs’ allegations of fraud is to use fraud under public policy considerations as a defence to resist the recognition or enforcement of the Partial Award and to set aside the enforcement orders. Whilst public policy exception exists to prevent enforcement in appropriate cases, proving the defence of violation of public policy based on the ground of fraud presents legal and evidentiary challenges that require the court to go behind a valid award. At any rate, the court will not disturb the principles of finality in arbitration without good reason; the court has to be satisfied that some form of reprehensible or unconscionable conduct that is within the spectrum of gravity of public policy considerations had contributed in a material way to procuring the Partial Award or had an important influence on the result. In this case, the public policy question under Art 36(1)(b)(ii) of Model Law hinges on the plaintiffs’ allegations of fraud. If fraud is not proved, that is the end of the inquiry and the application to resist enforcement of the Partial Award fails. Likewise, the outcome of the plaintiffs’ reliance on Art 36(1)(a)(ii) (ie, no opportunity to present their case), which also hinges of the same allegations of fraud, would be the same if fraud is not proved.”

The relevant legal principles applicable to public policy objections was stated as follows [96]:

“While the term “public policy” appears open-ended and is undefined in either the Model Law or the IAA, case law on the scope of the public of policy of Singapore is that it should be construed narrowly and consequently, the threshold for resisting enforcement of an award is a high one. The Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 (“PT Asuransi”) held that the public policy ground is invoked when the upholding of the award would “shock the conscience” or is “clearly injurious to the public good or … wholly offensive to the ordinary reasonable and fully informed member of the public” or “where it violates the forum’s most basic notion of morality and justice” (at [59]). While PT Asuransi concerns a setting aside application under Art 34 of the Model Law, the definition and principles therein also apply to the present case of resisting enforcement under Art 36 of the Model Law. A similar observation has been made by the Court of Appeal in AJU v AJT [2011] 4 SLR 739 (“AJU v AJT”) where it was stated that the question of public policy under both the setting aside regime and the enforcement regime for foreign arbitral awards is the same (at [34]). Likewise, there should be no difference in the enforcement regime for domestic international arbitral awards under Art 36(1)(b)(ii) of the Model Law.”

The Court held that fraud, whether substantive or procedural, would generally fall within the ambit of being “contrary to public policy” under Article 36(1)(b)(ii) of the Model Law, stating that where fraud is alleged, strong and cogent evidence has to be adduced and the court will not infer a finding of fraud.

The interesting aspect of the present case was that the new evidence (from which the Plaintiff argued fraud arose) was not in existence at the time of the arbitration. The Court admitted the new evidence and dealt with the law concerning perjury and the concealment of evidence (by reference to Swiss Singapore and Dongwoo Mann+Hummel Co Ltd v Mann+Hummel Gmbh [2008] 3 SLR(R) 871, and BVU v BVX [2019] SGHC 69) and the law concerning non-disclosure or concealment of material documents (by reference to BVU v BVX at [47], and Swiss Singapore at [25] approving Elektrim SA v Vivendi Universal SA [2007] 1 Lloyd’s Rep 693), stating that while different, the three core elements common to both forms of procedural fraud were: (a) dishonesty or bad faith; (b) the materiality of the new evidence to the decision of the tribunal; and (c) the non-availability of the evidence during the earlier proceeding.

The court held that the Plaintiff’s allegations of concealment of information had not been made out and that, in any event, the procedural fraud allegation was short on the materiality requirement ie. it was not so material that it would have substantially affected the Partial Award.

Significantly, in relation to the oft-stated “fraud unravels all”, the Court stated:

“Not any or every case of fraud would impugn a judgment or award. As alluded earlier, even where fraud is proven, there must be sufficient degree of connection between the fraud and the award that is being enforced for the ground of public policy under Art 36(1)(b)(ii) of the Model Law to be engaged: The English decision in Sinocore International Co Ltd v RBRG Trading (UK) Ltd [2019] 1 All ER (Comm) 810 (“Sinocore”) is illustrative. This degree of connection test demonstrates that fraud does not unravel all and is in substance no different from the concepts of materiality and “causative link” adverted to….”

Concluding [219]:

“In sum, there is no sufficient degree of connection between the alleged procedural fraud and the Partial Award and it also cannot be said that the FCPA Findings were so material that earlier discovery would have prompted the arbitrator to rule in favour of the applicant: Elektrim (see [105]–[106] above). It follows also from the foregoing analysis that there was a good reason for nondisclosure of the information relating to the FCPA Findings.”

In relation to the “otherwise unable to present his case” the Court considered that the Plaintiffs’ case that they were arguably deprived of an opportunity to present a different case rather than one where there were unable to present their case per se, did not engage Article 36(1)(a)(ii) of the Model Law.

In summary, the Court concluded [230]:

“In summary, the FCPA Findings do not constitute strong and cogent evidence of any species of fraud that the plaintiffs have so sought to impress upon me. In the absence of any finding of fraud, it cannot be said that the FCPA Findings have any material effect on either the arguments that were advanced in the Arbitration as to the Causal Fraud Issue and Termination Issue, or that the Arbitration would have proceeded differently altogether. For the all foregoing reasons, the plaintiffs’ application to resist enforcement under Art 36(1)(a)(ii) and Art 36(1)(b)(ii) of the Model Law is dismissed with costs.”

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 Hong Kong 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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