CASE UPDATE: BBA V BAZ [2020] SGCA 53
In BBA v BAZ [2020] SGCA 53 ("BBA v BAZ"), the Court of Appeal dealt with various issues raised by the Appellants seeking to set aside an arbitral tribunal's award in relation to the sale and purchase of shares in an Indian company.
Background. BAZ, a Japanese corporation, signed a Sale and Purchase Agreement ("SPA") with several individuals and companies (the "Sellers") to purchase shares in an Indian pharmaceutical company, C ([9] BBA v BAZ). The SPA contained an arbitration clause referring all claims to arbitration ([13] BBA v BAZ).
It was later revealed that C had made an internal report which detailed its falsification of data in order to obtain regulatory approval for its drug products in an expedited fashion ([10] BBA v BAZ). BAZ thus commenced arbitration proceedings under the SPA alleging misrepresentation and concealment of facts ([11] BBA v BAZ).
The majority of the arbitral tribunal hearing the dispute decided in favour of BAZ. In particular, it (1) found that BAZ's claim was not time-barred under Indian law ([15] – [16] BBA v BAZ); (2) awarded BAZ damages of INR 25 billion for fraudulent misrepresentation ([17] – [23] BBA v BAZ); and (3) awarded BAZ pre-award interest of INR 8 billion ([24] BBA v BAZ).
Enforcement proceedings. BAZ then attempted to enforce the tribunal's award in both India and Singapore ([25] BBA v BAZ). In Singapore, BAZ obtained an ex parte order for enforcement ([3] BBA v BAZ), and the Sellers filed two summons to set aside the order. The High Court judge allowed the setting aside application by the Sellers who were minors, but dismissed the application by the other Sellers. The latter group (the "Appellants") appealed ([5] BBA v BAZ).
Issues on appeal. On appeal, the Court of Appeal had to deal with three issues:
(1) The Damages and Interest Issue: Whether the tribunal acted beyond its jurisdiction by making its awards of damages and pre-award interest, given the prohibition on “punitive, exemplary, multiple or consequential damages” in the arbitration clause (the "Express Prohibition") ([38(a)] BBA v BAZ);
(2) The Time-Bar Issue: Whether BAZ's claim was time-barred under the Indian Limitation Act ([38(b)] BBA v BAZ); and
(3) The Joint and Several Liability Issue: Whether the tribunal’s finding of joint and several liability gave rise to a challenge on grounds of breach of natural justice, excess of jurisdiction or public policy ([38(c)] BBA v BAZ).
The Damages and Interest Issue. The Court of Appeal dismissed the Appellants' arguments on this point ([39] BBA v BAZ). It pointed out that the Appellants' argument regarding the correct quantification of damages "should have been urged upon the tribunal rather than the seat court, because it went towards the substantive merits of which approach to quantification the tribunal should adopt" [emphasis in original] ([41] BBA v BAZ). Furthermore, a court would not deal with any errors of law or fact (even if serious) as these relate to the merits of the award ([43] BBA v BAZ).
In the Court of Appeal's view, the Tribunal's award of damages was not in breach of the Express Prohibition ([51] BBA v BAZ), and neither was its award of pre-award interest ([55] and [57] BBA v BAZ). The award of pre-award interest was also not an award of punitive or multiple damages ([59] – [61] BBA v BAZ).
The Time-Bar Issue. As for the Time-Bar Issue, the Court of Appeal found that the issue of time-bar could not be reviewed de novo by a Singapore court in setting-aside applications ([73] BBA v VAZ).
The court recognised that it was first necessary to determine whether an issue of time bar arising from the expiry of statutory limitation periods goes towards jurisdiction or admissibility ([64] BBA v BAZ). Matters regarding admissibility (i.e. whether it is appropriate for the tribunal to hear a case) are for the tribunal to decide, while matters regarding jurisdiction (i.e. the power of the tribunal to hear the case) are for the court to decide ([73] – [74] BBA v BAZ).
The Court of Appeal then held that Singapore law governs the classification question since it is the law of the lex arbitri and of the seat court ([65] – [66] BBA v BAZ). In doing so, it rejected the appellants' argument that Indian law as the governing law should be taken into account in determining the classification question. It held that the parties' choice of Singapore as the seat of the arbitration (despite the strong connection of the transaction to India) also means that the parties the seat’s laws to govern the classification question independently of their choice of Indian law as the governing law ([66] BBA v BAZ).
Finally, the Court of Appeal held that under Singapore law, issues of time bar which arise from the expiry of statutory limitation periods go towards admissibility, not jurisdiction ([73] and [80] – [82] BBA v BAZ).
The Joint and Several Liability Issue. Regarding the tribunal's finding that the Sellers were jointly and severally liable to BAZ, the Court of Appeal found that there was no breach of natural justice.
In the court's view, the allegation that there was a breach of natural justice was a serious one which the Sellers should have taken before the tribunal during the arbitration proceedings ([90] and [91] BBA v BAZ).
In any case, even if the tribunal had not heard arguments on the issue of joint and several liability, that could be attributed to the manner in which the Sellers ran their case, merely aligning itself with BAZ's case without any alternative argument in case the tribunal found that BBA was liable for fraud ([93] BBA v BAZ).
The Court of Appeal held that the tribunal had not acted in excess of its jurisdiction either. It found that para 46(g) of the Terms of Reference to arbitration stated that the tribunal has the authority to apportion liability between the Sellers ([96] BBA v BAZ).
Finally, the Court of Appeal found that the Tribunal's finding of joint and several liability did not breach public policy. It rejected the argument that the finding ignored the fundamental principle of shareholders' rights and liabilities in a company, because that principle had to do with the recovery of company debts in the insolvency context and was thus irrelevant ([99] – [100] BBA v BAZ).
It also saw the Appellants' arguments on this point as "redolent of an attempt to recast an “egregious” error of law as a matter of public policy", something which it "has taken a firm stand against and rejected since 2007" ([102] BBA v BAZ).
Significance of decision. The decision by the Court of Appeal in BBA v BAZ shows that it remains a tall order for an applicant to succeed in an application to set aside an arbitral award. It highlighted that analogies based on court-administered matters are inapplicable to arbitration, where the “principle is that of limited curial intervention” ([103] BBA v BAZ). The Court of Appeal also took a dim view of the Appellants' attempts to frame their arguments as issues of public policy (as seen above).
This decision highlights the importance of considering whether objections to the conduct of the arbitral proceedings should be brought to the attention of the arbitral tribunal during the proceedings itself, instead of doing so only at the setting-aside stage, given that the failure of doing so may mean that the door is shut should the party belatedly seek to raise such objections later.
Tags: Arbitration; Setting aside arbitral award; Admissibility and jurisdiction; Breach of Natural Justice; Breach of Public Policy
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