The Singapore Court of Appeal has started the new year with a decision on an interesting point of law; whether a non-participating party to an arbitration can challenge an arbitral award on the ground that the arbitrator had failed to consider a point which was not put in issue (the “Infra Petita Challenge”).
Background
The underlying dispute concerned the sale of a franchise under a Business Purchase Agreement (the “BPA”) between the respondent and three parties including the appellant. Shortly after the sale the respondent realised that the appellant and the two other parties (Ms Y and Z Co) had diverted clients and staff to a competing business.
On 14 August 2020, the respondent filed the Notice of Arbitration against the appellant, Ms Y and Z Co under the BPA (the “Arbitration”) claiming, inter alia against the appellant for misrepresentation and breach of obligations of confidentiality, non-compete and non-solicit covenants.
The SIAC informed the parties of the appointment of the arbitrator on 22 October 2020. On 20 August 2021, before the substantive hearing was scheduled to take place, the respondent reached a settlement with Ms Y and Z Co. Thereafter, the arbitration proceeded only against the appellant. However, the appellant did not participate in the arbitration proceedings, notwithstanding that notice of the same was given to him in accordance with the provisions of the BPA.
The arbitrator published her award on 27 April 2023 (the “Award”), finding in favour of the respondent on all its claims against the appellant. The respondent then obtained a judgment entered in terms of the Award on 12 June 2023.
The appellant sought to set aside the Award on 8 August 2023 under s 48 of the Arbitration Act 2001 (2020 Rev Ed) (“AA”) inter alia by reason of the tribunal’s alleged failure to consider an essential issue. The central issue which the appellant claimed the arbitrator failed to consider was that there was no consideration to support the BPA as against the appellant.
Infra Petita Challenge
At its core, an infra petita challenge is directed at the tribunal’s failure to deal with a matter falling within the scope of submission to the arbitral. It is often seen as the flipside to an ultra petita challenge – which is directed at a tribunal dealing with a matter falling outside the scope of submission to the arbitral tribunal.
Several local decisions have rationalised both infra petita and ultra petita challenges as falling within the ambit of Art 34(2)(a)(iii) Model Law[1].
However, the Court of Appeal took the view that infra petita challenges should be better rationalised as a separate and independent natural justice challenge (and not under Art 34(2)(a)(iii) Model Law[2]). The plain wording of Art 34(2)(a)(iii) is phrased in the positive. In other words, it only contemplates ultra petita challenges – where the tribunal exceeds its mandate by dealing with a dispute not contemplated by or not falling within the terms of the submission to arbitration or deciding matters beyond the scope of submission to arbitration. It does not apply to the negative scenario where the tribunal fails to deal with an issue referred to it by the parties (ie, an infra petita challenge).
Given this approach, the principles for an infra perita challenge will be those that apply to all natural justice challenges (see China Machine New Energy Corp v Jaguar Energy Guatemala LLC[3].
The Court of Appeal went on to accept the appellant’s argument that the tribunal did not address the lack of consideration issue (see para 6 above), but ruled that this did not constitute a breach of natural justice because the omission was the direct consequence of the appellant’s failure to raise the issue by reason of his non-participation in the arbitration.
The Court of Appeal ruled that it is not open to a party to raise an infra petita challenge where:
(a) he had elected not to participate in the arbitration;
(b) he did not file any pleadings; and
(c) consequently, he failed to raise the key issues especially the issue which was the subject matter of his infra petita challenge.
In any event, for the appellant to succeed on the natural justice challenge, it was incumbent on him to establish prejudice arising from the tribunal’s breach, i.e. its failure to deal with the lack of consideration issue. The Court of Appeal ruled that there was no prejudice as the appellant’s argument could not succeed as they were based on a flawed understanding of the law of consideration.
Consideration signifies a return recognised in law given in exchange for the promise that is sought to be enforced. Here the promises sought to be enforced against the appellant were the non-compete and non-solicit provisions of the BPA. In this context, the appellant was the promisor, and the respondent was the promisee. To enforce the appellant’s promise, the respondent needed to furnish consideration. It is trite law that whilst the consideration must move from the promisee, it need not move to the promisor[4]. There was no dispute that the respondent had made payment under the BPA albeit not to the appellant, and thus had provided consideration.
Conclusion
With this decision the Court of Appeal has placed infra petita challenges on a firm legal basis. The previous position taken by the Singapore courts, that it was under article 34, was unsatisfactory as it was not consistent with the language of the provision and was contrary to the position taken by most leading commentators[5].
[1] CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011]
4 SLR 305 (“CRW”) at [31]–[33]; BLB v BLC [2013] 4 SLR 1169 at [96]–[97]).
[2] The relevant provision is as follows “An arbitral award may be set aside by the court … only if … the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside”
[3] [2020] 1 SLR 695
[4] KLW Holdings v Straitsworls Advisory [2017] 5 SLR 184 at [54]
[5] Jean-François Poudret & Sebastien Besson, Comparative Law of International Arbitration (Sweet & Maxwell, 2nd Ed, 2007) at pp 836–837, para 914; Emmanuel Gaillard & John Savage, Fouchard Gaillard Goldman on International Commercial Arbitration (Kluwer Law International, 1999) at pp 987–988, para 1700; Stefan Michael Kröll, Arbitration in Germany: The Model Law in Practice (Kluwer Law International, 2007) at pp 541–542, para 84