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Reopening an Arbitral Tribunal’s Finding on the Legality of an Underlying Contract.

14 November, 2011

 

 

INTRODUCTION
 
In AJU v AJT [2011] SGCA 41, the Singapore Court of Appeal provided guidance, after reviewing divergent approaches of the English courts, on the circumstances in which a Singapore court may reopen an arbitral tribunal’s finding on the legality of an underlying contract and set aside an arbitral award on public policy grounds. 
 
The Court of Appeal held that where illegality in an underlying contract is invoked, the court would only reopen an arbitral tribunal’s finding of fact where there is fraud, breach of natural justice or some other recognised vitiating factor. 
 
BACKGROUND
 
The parties had entered into an agreement (“Concluding Agreement”). The Concluding Agreement provided that the Respondent was to receive evidence of withdrawal of criminal proceedings that the Appellant had instituted against the Respondent in Thailand in exchange for the Respondent terminating arbitration proceedings that it had commenced against the Appellant.  
 
The parties submitted their dispute over the validity of the Concluding Agreement to an arbitration held under the auspices of the Singapore International Arbitration Centre (“SIAC”).  
 
The arbitral tribunal (“Tribunal”) issued an interim award (“Interim Award”) in which it decided that the Concluding Agreement was valid and enforceable.
 
The High Court allowed the Respondent’s application to set aside the Interim Award. The High Court rejected the Tribunal’s findings and held that the Concluding Agreement was an agreement to stifle the prosecution in Thailand of non-compoundable criminal offences and was therefore illegal under both Singapore law and Thai law.
 
The Appellant appealed to the Court of Appeal on the ground that the High Court had erred in law in rejecting the Tribunal’s findings and setting aside the Interim Award. The Appellant contended that the High Court had failed to give effect to the principle of finality applicable to arbitral awards.  
 
The appeal was allowed. 
 
COURT OF APPEAL’S DECISION
 
The Court of Appeal held that the High Court had erred in going behind the Interim Award and reopening the Tribunal’s finding that the Concluding Agreement was valid and enforceable.
   
Further, no issue of public policy arose which entitled the Respondent to set aside the Interim Award under Art 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) read with section 19B(4) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”).
 
In any event, the Court of Appeal held that the Concluding Agreement was not illegal. 
 
The same concept of public policy applies to the enforcement of 
foreign arbitral awards and the setting aside of IAA awards 
 
There are separate regimes under the IAA for the enforcement of foreign arbitral awards and the setting aside of IAA awards.
 
The Court of Appeal held that the legislative purpose of the IAA is to treat all IAA awards as having an international focus. Therefore, the threshold for invoking public policy to set aside an arbitral award is the same as that for invoking public policy to resist enforcement of a foreign arbitral award.  
 
The public policy objection in question must therefore involve either: (a) exceptional circumstances which would justify the court in refusing to enforce the award; or (b) a violation of the most basic notions of morality and justice.  
 
The divergent approaches of the English courts 
 
The Court of Appeal noted that the English courts have adopted two divergent approaches vis-à-vis the circumstances in which the court may reopen an arbitral tribunal’s decision that an underlying contract is illegal.  
 
On the one hand, there is the approach taken by Colman J in the English High Court decision of  Westacre Investments Inc v Jugoimport-SPDR Holding Co Ltd and Others [1999] QB 740 (“Westacre (HC)”) and by the majority of the English Court of Appeal ([2000] 1 QB 288) 
(“Westacre (CA)”).  
 
Colman J’s view in Westacre (HC) was that: (i) if the court concluded that the arbitration agreement conferred jurisdiction to determine whether the underlying contract was illegal and by the award the arbitrators determined that it was not illegal, prima facie the court would enforce the resulting award; and (ii) if the party against whom the award was made then sought to challenge enforcement of the award on the grounds that, on the basis of facts not placed before the arbitrators, the contract was indeed illegal, the enforcement court would have to consider whether the public policy against the enforcement of illegal contracts outweighed the countervailing public policy in support of the finality of awards in general and of awards in respect of the same issue in particular.  
 
On the other hand, there is the more liberal (and interventionist) approach taken by the English Court of Appeal (obiter) in Soleimany v Soleimany [1999] QB 785 and by Waller LJ in Westacre (CA). Pursuant to this approach, where enforcement of an arbitral award is resisted on the ground of illegality in the underlying contract, an enforcement judge, if there is prima facie evidence from a party that the award is based on an illegal contract, should inquire further to some extent and decide 
whether it is proper to give full faith and credit to the arbitrator’s award. The court can, in an appropriate case (and not only in cases where the relevant facts were not put before the arbitrator), reopen the arbitral tribunal’s finding that there was no such illegality.  
 
The Court of Appeal endorsed the approach taken by Colman J and the majority of the English Court of Appeal in Westacre. It held that this approach was consonant with the legislative policy of the IAA of giving primacy to the autonomy of arbitral proceedings and upholding the finality of arbitral awards.
    
An IAA award is final and binding subject only to narrow grounds for curial intervention 
 
As a starting point, the Court of Appeal held that it was entitled to assume that members of the Tribunal had adequate knowledge of Singapore law because: (a) the parties selected arbitration by the SIAC (an arbitration body equally competent to the “impressively competent” International Chamber of Commerce (“ICC”)); (b) the Tribunal consisted of experienced members of the local Bar; and (c) the Tribunal decided the issue of illegality according to Singapore law.
 
The Court of Appeal recognised that the legislative policy of the IAA is to give primacy to the autonomy of arbitral proceedings and to uphold the finality of arbitral awards. It observed that section 19B(1) of the IAA calls for the court to give deference to the factual findings of the arbitral tribunal and provides that an IAA award is final and binding on the parties, subject only to narrow grounds for curial intervention.  
 
The Court of Appeal reiterated its view in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597 that where an arbitral tribunal has jurisdiction to decide any issue of fact and/or law, it may decide the issue correctly or incorrectly. Unless its decision or decision-making process is tainted by fraud, breach of natural justice or any other vitiating factor, any errors made by an arbitral tribunal are not per se contrary to public policy.
 
The Court of Appeal considered this in light of section 19B(4) IAA read with Art 34(2)(b)(ii) of the Model Law, which provides that an arbitral award can be challenged on public policy grounds. It held that an arbitral award may be set aside if the arbitral tribunal makes an error of law as to what the public policy of Singapore is. 
 
However, the public policy objection does not apply to findings of fact by the arbitral tribunal save where the decision or decision-making process was tainted by fraud, breach of natural justice or any other vitiating factor. 
 
Such an approach would be fair to both the successful and the losing party in arbitration and would also be consistent with the legislative objective of the IAA that, as far as possible, the international arbitration regime should exist as an autonomous system of private dispute resolution to meet the needs of the international business community.
 
In this case, the Tribunal had considered the relevant surrounding factual circumstances and had not ignored palpable and indisputable illegality. This was therefore not an appropriate case to reopen the Tribunal’s finding that the Concluding Agreement was valid and enforceable. Accordingly, no issue of public policy arose that entitled the Respondent to invoke Art 34(2)(b)(ii) of the Model Law. 
 
COMMENT
 
This is a significant judgment which shows the importance that the Singapore courts accord to the finality of arbitral awards and the autonomy of arbitral proceedings.
 
The Court of Appeal has clarified that, barring errors of law or exceptional circumstances surrounding a finding of fact made by an arbitral tribunal, the Singapore courts will not intervene in an arbitral tribunal’s findings of fact even where a question of public policy is invoked.
 
 
For further information, please contcat:
 
Cavinder Bull, Drew & Napier
 
Kong Man Er, Drew & Napier

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