Why is this important? Do matters such as issue estoppel and the extended doctrine of res judicata preclude parties from raising jurisdictional challenges in setting aside proceedings? Not necessarily. A recent decision by the Singapore High Court reinforces this position, highlighting the primacy and judicial supervision of the seat court over arbitral awards.
Key things you should know:
- The issue estoppel doctrine has no place in an arbitration framework where the seat court has primacy in the review of an award.
- The extended doctrine of res judicata is extraneous to the court’s role in reviewing arbitral awards.
- If parties have consented to the jurisdiction of a given tribunal, the tribunal’s determinations as to the admissibility of claims (e.g. whether a claim is time-barred) should be final.
- The public policy ground for setting aside or refusal of recognition and/or enforcement is very narrow in scope. This ground would generally apply only when the violation of that policy shocks the conscience or would be contrary to the forum’s basic notion of morality and justice.
The background
In the Singapore High Court case of BAZ v BBA and others and other matters [2018] SGHC 275, parties entered into a Share Purchase and Share Subscription Agreement (“SPSSA”). The SPSSA was governed by Indian law. Under the SPSSA, the Buyer acquired a controlling stake in a company that was held by the Sellers. The Sellers include Non-Management Sellers and Minors.
The Buyer subsequently discovered that the Sellers had concealed an internal Self-Assessment Report (“SAR”). The SAR documented improper regulatory transgressions involving false data for submissions to regulatory agencies in several countries. As a result of the Sellers’ concealment, the Buyer was induced to buy shares at a price that did not reflect the shares’ true value.
The arbitration
The majority of the Tribunal (“the Majority”) in the Singapore-seated arbitration found the Sellers jointly and severally liable for fraudulent misrepresentation. The Majority awarded damages in excess of S$720 million (“the Award”) for the harm suffered by the Buyer as a result of the concealment.
Enforcement of Award in India and Singapore courts
The Buyer commenced simultaneous proceedings for leave to enforce the Award as a court judgment in New Delhi and Singapore. The New Delhi High Court issued a decision in favour of the Buyer in the enforcement proceedings (the “DHC Judgment”) before the Singapore proceedings were heard.
Issues considered before the Singapore High Court
The Sellers then sought to set the Award aside. In doing so, the Singapore court had to consider, inter alia: (i) whether the doctrine of issue estoppel arises from the DHC Judgment; (ii) whether the extended doctrine of res judicata is applicable; (iii) whether time limitation is a jurisdictional issue; and (iv) whether the Award against the Non-Management Sellers and Minor could be set aside on public policy grounds.
Singapore Courts would be reluctant to recognize the determination of a foreign enforcement court as giving rise to issue estoppel: The Buyer argued that the DHC Judgment should give rise to issue estoppel against the same issues brought by the Sellers before the Singapore court. The court disagreed, holding that the seat court’s determination of the issues brought by the Sellers should be given primacy.
The seat court can decide whether to set aside an award first, and direct the enforcement court to give regard to the seat court’s judgment in setting aside an award.
Nevertheless, the Court was prepared to refer to the DHC Judgment where necessary when addressing the different claims made. However, it clarified that this approach would not erode the primacy and judicial supervision of the seat court over the Award.
Extended doctrine of res judicata inapplicable to court’s review of the Award: The Buyer also argued that the Sellers were precluded from raising the jurisdictional challenges against the damages on the basis of the extended doctrine of res judicata.
The Court found the extended doctrine of res judicata to be extraneous to the court’s role in reviewing arbitral awards. The court was not concerned with the merits of the substantive claims between the parties. Instead, an enforcement proceeding or a setting aside of proceeding of an arbitral award involves the review of the outcome of the arbitration proceedings.
Although the court did not find that the Sellers were precluded on the basis of issue estoppel and the extended doctrine of res judicata from raising the jurisdictional challenges, the court held that the Majority had not exceeded the powers conferred on them by the arbitration agreement in relation to the Award. Hence, the application filed by the Non-Management Sellers to set aside the Award was dismissed.
Time limitation is not a jurisdictional issue: The Sellers further argued that the Buyer’s claim under the SPSSA was time-barred (the “Time-bar Argument”). In deciding which law – Indian law or Singapore law – applied to govern the classification of the issue of limitation, the Singapore court held that as the curial court, it had to apply Singapore law to the setting aside of arbitral awards.
The court noted that its power to set aside an arbitral award is limited to the grounds provided under Section 24 of the IAA and Art 34(2) of the Model Law. It held that the Time-bar Argument did not fall under any of the grounds. The court additionally regarded the Time-bar Argument to be an issue of admissibility of claim, something which is appropriate for the tribunal to hear.
The Award against the Minors violated Singapore’s public policy: The court was prepared to set aside the Award against the Minors, who were between three to eight years old when the SPSSA was signed.
The court held that the liability imposed on the Minors had the effect of violating the protection given to minors under s 35(7) of the Civil Law Act. The court also held that the Award against the Minors “shock[ed] the conscience” and violated Singapore’s most basic notion of justice.
The court was also prepared to sever the Award, even though there was no express reference to severability under Art 34(2)(b)(ii) of the Model Law.
What this means for parties:
In the event where enforcement proceedings are commenced concurrently in multiple jurisdictions, it is important to know that the seat court would be slow to recognize the determination of a foreign enforcement court as giving rise to issue estoppel.
Where the ground of challenge attracts a de novo review from the seat court, the determination by the seat court should be given primacy. A de novo review calls upon the seat court to examine the award and the evidence in detail with a view to setting aside the award if the challenge succeeds.
The full decision in BAZ v BBA may be accessed here.
Eversheds Harry Elias has extensive experience advising and successfully representing commercial enterprises with respect to international dispute resolution and the conduct of commercial and investment arbitration (including enforcement and setting aside proceedings) both in South East Asia and throughout the world.
Authors:
Francis Goh
Head, International Arbitration
Partner, Eversheds Harry Elias
Shaun Leong
Of Counsel, Eversheds Harry Elias
Janice Lee
Foreign Legal Associate, Eversheds Harry Elias