ENFORCEMENT OF ARBITRATION AWARD ISSUED IN FAVOUR OF NON-EXISTENT PARTY
In National Oilwell Varco Norway AS (formerly known as Hydralift AS) v Keppel FELS Ltd (formerly known as Far East Levingston Shipbuilding Ltd) [2021] SGHC 124, the High Court set aside leave which the plaintiff had obtained to enforce an award issued in favour of “another legal person”. In reaching its decision, the High Court considered that the proper approach to enforcement of an arbitral award under the statute was a pure mechanical one.
Facts. This application involves the defendant attempting to set aside leave which the plaintiff secured under s 19 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”) to enforce an award issued in favour of A/S Hydralift (“Hydralift”) against the defendant (at [2]).
The plaintiff and Hydralift are companies incorporated in Norway, while the defendant is a company incorporated in Singapore (at [1]).
The key sequence of events is as follows (at [6]-[13]):
1996 – The defendant entered into a contract with Hydralift (“the Contract”).
1999 – A dispute under the Contract arose between the defendant and Hydralift.
2002 – Hydralift became a wholly owned subsidiary of a Norwegian company called National Oilwell-Hydralift AS (“NOH”).
6 October 2004 – Hydralift merged with NOH, and upon the merger taking effect, Hydralift was struck off the Norwegian companies register and ceased to exist.
15 October 2004 – NOH merged with National Oilwell Norway AS (the former name of the plaintiff).
2007 – The defendant commenced the arbitration against Hydralift, claiming for damages for breach of contract. In the name of Hydralift, the plaintiff defended the claim and counterclaimed against the defendant for breach of contract.
2008 – A tribunal comprising three arbitrators was constituted.
2010 – The plaintiff changed its name from National Oilwell Norway AS to National Oilwell Varco Norway AS (the current name of the plaintiff).
November and December 2018 – The evidential hearing took place.
September 2019 – The tribunal issued its final award, dismissing the claim and allowing the counterclaim.
December 2019 – The plaintiff commenced proceedings under s 19 of the Act read with O 69A r 6 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed), seeking the court’s leave to enforce the award against the defendant in the same manner as a judgment.
January 2020 – The plaintiff secured leave to enforce the award against the defendant.
The defendant accepts that it was aware that Hydralift had been acquired in or around 2002 without knowing the details of the acquisition, but denies knowledge that Hydralift had merged with the plaintiff (at [9]). According to the defendant, it learned only in 2019 that Hydralift had ceased to exist when the plaintiff asked the defendant to satisfy the award by making payment to a bank account in the plaintiff’s name rather than in Hydralift’s name.
The defendant has not satisfied the award, nor did it apply to have the award set aside. Instead, the defendant waited for the plaintiff to secure leave to enforce the award and applies to set that leave aside (at [14]).
Issue. The High Court stated that the ultimate issue on this application is whether the plaintiff is entitled to enforce the award against the defendant under s 19 of the Act (at [15]).
To determine whether the plaintiff can enforce the award, the starting point is, as set out by the defendant, the award itself (at [16]-[17]).
Therefore, the High Court adopted the defendant’s starting point and approach, which poses five questions for the court (at [18]-[19]):
(a) “Did the tribunal issue the award in favour of Hydralift or in favour of the plaintiff?”;
(b) “Is the use of Hydralift’s name for the respondent in the arbitration merely a mistake as to the name of the correct respondent, ie the plaintiff?”
(c) “Is the plaintiff estopped by representations that it made to the defendant in the arbitration and in certain related litigation … from denying that the respondent in the arbitration is Hydralift?”
(d) “Does the Contract prohibit the 2004 mergers from transferring Hydralift’s rights under the Contract to the plaintiff, including its rights under the arbitration agreement in the Contract?”
(e) “Did the plaintiff make full and frank disclosure to the court when it applied ex parte for leave to enforce the award?”
The High Court set aside the plaintiff’s leave to enforce the award on three independent grounds (at [185]). This article will only focus on the first ground, which “finding is sufficient in itself to set aside the plaintiff’s leave to enforce the award.” (at [57])
Expert evidence. As a preliminary, the effect of the 2004 mergers is a matter relating to the status of the companies involved and is therefore governed by Norwegian law (at [21]).
The High Court made three observations about the expert evidence on Norwegian law (at [23]-[28]):
It is undisputed that Hydralift ceased to exist as a legal person from the moment it was struck off the Norwegian companies register as a result of its merger with NOH.
There is no evidence that the effect of a merger under Norwegian law is that the transferee acquires the name of the transferor. This is in contrast with the position in Singapore on the effect of a change of name.
On the evidence, the only name by which the plaintiff has ever been “formerly known” is the name “National Oilwell Norway AS”. The plaintiff was never “formerly known” by NOH’s name or Hydralift’s name, although it is true that the plaintiff absorbed the entire business of Hydralift via NOH.
Tribunal issued award in favour of? The High Court found that the tribunal intended to and did issue its award in favour of Hydralift and not in favour of the plaintiff, for two reasons (at [30]-[33]).
First, “the award describes the respondent in the arbitration as the legal person who entered into the Contract with the defendant in 1996.” The 2004 mergers do not change the historical facts of 1996 nor operate to bring the plaintiff within this description.
Second, “the award describes the respondent in the arbitration as being a legal person other than the plaintiff.” (emphasis in original) The award refers to the plaintiff only in the capacity of the respondent’s parent company, and not as the legal person who subsequently acquired all of Hydralift’s rights and obligations under the Contract following the 2004 mergers, because the plaintiff never told the tribunal about the 2004 mergers.
As such, the question which follows is whether the plaintiff is entitled to enforce an award which the tribunal intended to issue, and did issue, in favour of another legal person (at [35]).
Enforcement under s 19 of the Act. The High Court thus considered the proper approach to enforcement under s 19 of the Act as it stood at the time of the plaintiff’s application (which is in pari materia to the current version) (at [36]-[37]).
The procedure for invoking s 19 of the Act is set out in O 69A r 6 (at [37]).
The High Court noted that enforcement under s 19 is a two-step process which “does not empower an enforcing court to vary or deviate from the dispositive terms of the award at either of these two steps” (at [38]-[39]).
The High Court found that such a mechanical approach to enforcement under s 19 is dictated by the policy imperative of party autonomy and of minimal curial intervention (at [40]-[41]). Accordingly, “The only way to advance both of these policy imperatives is for the court to grant leave to enforce an award and to enter judgment thereafter in terms which mirror, precisely and mechanically, the dispositive terms of the award. That is why s 19 of the Act gives an enforcing court no power to vary or deviate from the dispositive terms of an award, however well-intentioned the desire to do so might be.” (at [42]) The High Court also noted that this is the position in English law (at [43]-[45]).
The High Court therefore accepted that the court’s approach to an application under s 19 of the Act ought to be and is a pure mechanical one, subject only to four qualifications which must be kept within narrow confines (at [46]-[50]).
Since arbitration is founded on parties’ autonomy, “a deviation from the terms of the award supported by the parties’ consent at the time of enforcement cannot be objectionable” and is hence one of the qualifications to the mechanical approach (at [48]).
Applying the mechanical approach. The High Court found that the pure mechanical approach applies without any qualification on the facts of the case (at [51]). The leave which has been granted to the plaintiff to enforce an award in favour of Hydralift cannot stand because it goes beyond merely allowing the plaintiff to enforce the award in the same manner as a judgment to the same effect (at [52]).
Since the court has no power under s 19 to vary or deviate from the dispositive terms of the award, the mere fact that Hydralift has ceased to exist or even a hypothetical prospective transfer to the plaintiff of the contractual benefit of the award pursuant to the 2004 mergers cannot supply such power to the court (at [53]-[54]).
The High Court opined that if Hydralift had ceased to exist after the arbitration commenced in 2007, the plaintiff could have plausibly made the argument that “at the enforcement stage, the court should carry the tribunal’s manifest but miscarried intent [to benefit Hydralift] through to the transferee of Hydralift’s contractual rights, ie, the plaintiff.” (at [55]) But the High Court was careful to emphasise that it meant “this argument would have been plausible, not that it would have succeeded.”
On the facts of this case, since Hydralift ceased to exist well before the defendant commenced the arbitration, “the tribunal’s objective intent, manifest in the award, did not miscarry. To grant leave to the plaintiff to enforce this award against the defendant would be to assume a power to enforce an award that the tribunal never intended to issue, had no reason to issue and did not in fact issue.” (at [56])
Conclusion. The High Court stated that its decision was made with great reluctance (at [190]) as the “decision now to refuse enforcement sets to nought all of the time, money, effort and other resources which the parties and the tribunal have expended over 12 years. In addition, the limitation period for any fresh arbitration on the same claim and counterclaim has long since expired.” (at [191]) The High Court has described this “predicament” as “entirely the result of [the plaintiff’s] own extraordinary decision, sustained over 12 years, to impersonate Hydralift both in the arbitration and in the related litigation.” (at [192])
This decision makes clear that enforcement under s 19 of the Act is a pure mechanical approach, and the section does not empower the court to vary or deviate from the dispositive terms of the award. Therefore, a party to an arbitration should be careful not to assume that at the enforcement stage, the court has powers to do otherwise.
More importantly, if you find yourself to be in a similar position as that of the plaintiff in this decision, before commencing an arbitration, you should seek legal advice to avoid the issues as highlighted in this decision.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.