By: Chan Leng Sun, SC1Chan Leng Sun, SC, is Head of Dispute Resolution in Baker & McKenzie.Wong & Leow, Singapore and is Baker & McKenzie’s Global Head of International Arbitration. and Adam Giam2Adam Giam is an associate in Baker & McKenzie.Wong & Leow, Singapore.
A. Legislation, Trends and Tendencies
A.1 Legislation
International arbitration in Singapore continues to be governed by the International Arbitration Act (IAA), the Arbitration Act (AA) and the Arbitration (International Investment Disputes) Act, to which no legislative amendment was made in 2015.
A.2 Trends and Tendencies
The Singapore International Commercial Court (SICC) was officially launched on 5 January 2015. At the time of writing this report, the first international commercial court case has reached trial with two distinguished international judges sitting with a presiding local judge to hear a US$800 million (S$1.1 billion) dispute.
Further, the new Singapore International Mediation Centre (SIMC), which maintains a panel of more than 65 international mediators from 14 jurisdictions who are experienced in cross-border dispute resolution, collaborated with SIAC to offer an “arbitration-mediation-arbitration” service, officially referred to as the SIAC-SIMC Arb-Med-Arb Protocol (“AMA Protocol”). This service enables parties to commence proceedings under the AMA Protocol by filing a Notice of Arbitration with the Registrar of SIAC. The Registrar will then notify the SIMC of the filing. After the filing of the Response to the Notice of Arbitration and the constitution of the tribunal, the tribunal will stay the arbitration pending the outcome of mediation at the SIMC.
The SIMC will subsequently fix a date for the commencement of mediation at SIMC (“Mediation Commencement Date”), which will be conducted under the SIMC Rules. Unless the Registrar of the SIAC, in consultation with the SIMC, extends the time, the mediation must be completed within eight weeks of the Mediation Commencement Date. For the purposes of calculating time in the arbitration proceeding, time will stop running at the Mediation Commencement Date and resume once the Registrar of the SIAC notifies the tribunal of the termination of the mediation proceeding.
In the event that the dispute has not been settled by mediation either partially or entirely, the Registrar of the SIAC will inform the tribunal that the arbitration proceeding is to resume. Upon the date of the Registrar’s notification to the tribunal, the arbitration proceeding in respect of the dispute or remaining part of the dispute (as the case may be) will resume in accordance with the Arbitration Rules. However, in the event of a settlement of the dispute by mediation between the parties, SIMC will inform the Registrar of the SIAC that a settlement has been reached. Parties may request the tribunal to record their settlement in the form of a consent award (on the terms agreed to by the parties).
B. Cases
B.1 Court Clarifies That Minority Oppression Claims Are Arbitrable
In Tomolugen Holdings Limited and another v. Silica Investors Limited [2015] SGCA 57, the Singapore Court of Appeal clarified that minority oppression claims (unlike claims arising from the liquidation of an insolvent company) are generally arbitrable. The Court of Appeal disagreed with the reasons of the first-instance judge for concluding that minority oppression claims were nonarbitrable. The first-instance judge had expressed two main concerns: remedial inadequacy and procedural complexity. According to the Court of Appeal, with respect to remedial inadequacy, the fact that there are jurisdictional limitations on an arbitral tribunal’s ability to grant certain relief (such as an order for the winding up of the company) will not in itself render the subject matter of a dispute nonarbitrable.
As for procedural complexity, the Court of Appeal accepted that there will be a measure of procedural difficulties (which the court appreciated may even cause substantial inconvenience to the parties) whenever a dispute involving some common parties and issues has to be resolved before two different fora, if only part of the dispute falls within the scope of the arbitration clause. However, this alone will not render the dispute nonarbitrable.
B.2 Assignee Bound by Arbitration Agreement in Assigned Contract
In Cassa di Risparmio di Parma e Piacenza SpA v. Rals International Pte Ltd. [2015] SGHC 264, the Singapore High Court held that the assignee bank was bound by the arbitration agreement between the assignor and the obligor, even though it was not a party to the contract. The court acknowledged the established rule that an assignment can only convey contractual benefits to the assignee. It reasoned, however, that the burden of an arbitration agreement may be transferred to an assignee by the principle of conditional benefit. Under this principle, the successor in title to a right takes the benefit of that right, subject to all of the burdens that are annexed to it, including the obligation to arbitrate.
B.3 Court May Grant Mareva Injunction in Aid of Foreign Arbitration
In Dukkar S.A. v. Thailand Integrated Services Pte Ltd. [2015] SGHC 234, the Singapore High Court confirmed that it had the power to grant a Mareva injunction (freezing order) in aid of a foreign arbitration if the following two conditions are satisfied: First, the plaintiff must demonstrate that it has a good arguable case against the defendant; and, secondly, the plaintiff must demonstrate that there is a real risk of dissipation of assets by the defendant to frustrate the enforcement of an intended arbitral award against the defendant. Importantly, the court noted that each ground relied upon to prove dissipation would have to be objectively assessed to determine how it would bear on the question of whether there is a real risk of dissipation of assets by the defendant. It was not sufficient that the cumulative effect of the factors on which the plaintiff relied might indicate a risk of dissipation.
B.4 Difference Between Interim, Partial and Provisional Awards
In PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation [2015] 4 SLR 364, the Singapore Court of Appeal clarified the distinction between interim, partial, and provisional awards, namely:
(a) A partial award finally disposes of part, but not all, of the parties’ claims in an arbitration. The remaining claims will be considered and resolved in future proceedings in the arbitration.
(b) An interim award does not dispose finally of a particular claim (e.g., one of several claims for damages arising from several alleged breaches of contract), but decides a preliminary issue relevant to the disposal of such claims (e.g., choice of law, liability, or construction of a particular provision).
(c) A provisional award is issued to protect a party from damage during the course of the arbitral process. Provisional awards do not definitively or finally dispose of either a preliminary issue or a claim in the arbitration. The Court of Appeal clarified that these provisional orders or directions are not regarded as “awards” for the purposes of the IAA.
B.5 Scope of a De Novo Hearing in an Application to Set Aside
In AQZ v. ARA [2015] SGHC 49, the Singapore High Court laid down guidelines on the scope of hearings to review a tribunal’s decision de novo. The court observed that it was settled law that it will undertake a de novo hearing of a tribunal’s decision on its jurisdiction in an application to set aside an award on the ground that it lacked jurisdiction to hear the dispute. On the scope of de novo hearings, the court made the following points:
(a) A de novo hearing does not necessarily require a rehearing of all the evidence in every application to set aside an award.
(b) A de novo hearing contemplates that generally, the matter will be resolved by affidavit evidence. Affidavits filed in support of the application should include, among other things, the arbitral tribunal’s award, the official transcripts of the proceedings before the arbitral tribunal (if any) and the documents that the parties relied on at the arbitration.
(c) Courts may, however, allow oral evidence and/or cross-examination if they consider: (1) that there was or may be a dispute as to fact; and (2) that to do so would secure the “just, expeditious and economical” disposal of the application.
(d) Therefore, in view of the above conditions, the mere existence of substantial disputes of fact as to whether a party has made the relevant arbitration agreement is not sufficient reason to allow oral evidence and/or cross-examination.
(e) Parties are not restricted from adducing new material that was not before the arbitrator.
If a party considers that the just way to deal with the application is for the oral evidence to be re-taken, that party should, at an early stage, and preferably at the time he files an application, if he is the applicant, file the affidavits of evidence of the witnesses he intends to call and a further application to have these witnesses and the witnesses for the other side heard and cross-examined in court.
B.6 Setting Aside for Failure to Consider Important Pleaded Issue
In AKN and another v. ALC and others and other appeals [2015] SGCA 18 (“AKN v. ALC No. 1”), the Singapore Court of Appeal confirmed that a failure to consider an important issue pleaded in an arbitration amounts to a breach of natural justice and is a basis for setting aside an award. In this case, disputes arose in relation to the sale of assets of a company under liquidation. The appellant purchasers commenced arbitration in accordance with an arbitration clause in the sale agreement and secured a favorable award. Displeased with the arbitrator’s decision, the liquidator and secured creditors applied to the High Court to set aside the award on the grounds that the tribunal failed to consider the liquidator’s arguments, evidence and submissions on whether the contractual obligation to deliver a clean title was qualified by the fact that the parties had procured a Tax Amnesty Agreement (TAA) from the municipal authorities. The High Court held that the tribunal failed to take into account the TAA and that the entire award should be set aside on this basis alone. The appellant-purchasers appealed, arguing that the High Court had overstepped its bounds by scrutinizing the merits of the award.
On the evidence, the Court of Appeal disagreed with the High Court’s finding that the tribunal failed to take into account the TAA, and upheld the award on this basis. However, it decided to set aside two aspects of the award broadly referred to as the loss of profits claim and lost land claims. In respect of the former, the Court of Appeal held that the award of damages for loss of an opportunity to earn profits was made in breach of natural justice. This was so for two main reasons: First, the parties had, throughout the course of the arbitration, proceeded on the basis that the appellant-purchasers’ claim was for actual loss of profits, not loss of an opportunity to earn profits; and, second, the liquidator and secured creditors were not afforded the opportunity to address the case on loss of opportunity, either when it was raised or at all. In respect of the latter claim, the Court of Appeal decided that the tribunal failed to engage with the merits of the secured creditors’ case, because it mistakenly found that the secured creditors had conceded an important issue on its liability for breach of the obligations of the sale agreement. In reaching its decision, the Court of Appeal acknowledged that failure to consider an important issue pleaded in an arbitration would constitute a breach of natural justice. However, the court made the following cautionary statements:
(a) An inference of the arbitrator’s failure would only be drawn if it was clear and virtually inescapable, on the basis of the award, that the tribunal failed to apply its mind to the parties’ arguments.
(b) The mere fact that the tribunal made a general statement that it had considered the submission of the party in question is not conclusive that it actually did so.
(c) Even if the arbitrator simply misunderstood the case, was mistaken as to the law, or mischaracterized certain arguments (such as the argument in this case on whether the TAA qualified the terms of the sale agreement), the arbitrator would not necessarily have acted in breach of natural justice and parties would not be entitled to set aside an award on this basis.
Award Cannot be Remitted to the Tribunal After Being Set Aside
Following the decision in AKN v. ALC No. 1, the parties applied for leave to hear certain outstanding issues related to the consequences of setting aside an award. The Singapore Court of Appeal in AKN and another v. ALC and others and other appeals [2015] SGCA 63 recently considered these and held that courts can either remit or set aside an award; they cannot do both. Once an award is set aside, courts have no power to remit the award. Where an award is set aside, the original tribunal remains functus officio (i.e., its mandate is spent), and it cannot be asked to reconsider any matters covered by the award. In the interests of finality, any matters covered by the award cannot be re-arbitrated before a different Tribunal. The court further cautioned that where a party could have been expected to raise certain issues in an arbitration but chose not to do so, it will be precluded from reopening such issues, although there may be exceptions in some circumstances.
B.7 Prima facie Existence of Arbitration Agreement Suffices for Stay
In Tomolugen Holdings Limited and another v. Silica Investors Limited [2015] SGCA 57, the Singapore Court of Appeal confirmed that a party applying for a stay under Section 6 of the IAA, where the very existence of the arbitration agreement is in question, need only show that the arbitration agreement existed on a prima facie standard. It was not necessary to prove that an arbitration agreement existed on the usual civil standard (balance of probabilities). This was a departure from the approach of the English courts (as adopted in Nigel Peter Albon v. Naza Motor Trading Sdn Bhd [2007] 2 All ER 1075). England, however, is not a Model Law jurisdiction.
C. Costs in International Arbitration
C.1 Allocation of Costs
In Singapore, “costs of the arbitration” has been defined in Article 31.2 of the SIAC Rules (2013) to include the fees and expenses of the arbitrator, the fees of the arbitral institution and other costs such as expert advice and other assistance required by the tribunal. The costs of the parties include the fees and expenses of their lawyers and the costs incurred in preparing and presenting the case, including the costs of witnesses.
Section 39(4) of the AA expressly empowers the tribunal to award costs. If the tribunal does not fix the amount of costs directed to be paid, the amount will be taxed by the Registrar of the Supreme Court. The AA renders void any agreement where parties agree to bear their own costs of the reference or award in any event, unless such agreement arises after the dispute. Such a provision is not found in the IAA.
The IAA does not specifically spell out the power of the tribunal to award costs, but this is implicit in Section 12(5)(a) of the IAA, which empowers the tribunal to award any remedy or relief that the High Court can award in civil proceedings. Furthermore, Section 21 of the IAA provides that the quantum of costs awarded shall be taxed (i.e., fixed) by the Registrar of the SIAC if not otherwise directed by the award.
While an arbitral tribunal is not bound by court practices, many arbitrators tend to follow the principle of “costs follow the event” that is generally adopted by judges. This means that, in the ordinary case, the successful party should recover its costs. This is not an invariable rule, as the tribunal may also decide on alternative apportionments if the conduct of the parties warrants a departure from the standard order or if the successful party has not won all the issues argued; for example, each party may bear its own costs, or only a percentage of the costs may be awarded.
While Section 40(1) AA provides that parties are jointly and severally liable for the tribunal’s fees, the IAA (and the Model Law) are silent on this. If the tribunal acts under the rules of arbitration institutions like SIAC or the Singapore Chamber of Maritime Arbitration, provisions are made for the tribunal’s fees. In ad hoc arbitrations, the tribunal should procure the parties’ agreement to pay its fees, usually based on an hourly rate. If there is any disagreement between the parties and the tribunal on the fees of the tribunal, the amount can be taxed by the Registrar of the Supreme Court if it is an arbitration under the AA, or by the Registrar of SIAC if it is an IAA arbitration. In a SIAC arbitration, the arbitration institution determines the tribunal’s fees according to a scale based on the quantum in dispute, much like the ICC method.
C.2 Security for Costs
In litigation before the Singapore courts, a defendant may apply to the court for security for costs if there is reason to believe that the plaintiff will be unable to pay the costs of the defendant if the defense is successful.3Section 388 Companies Act, which applies to a plaintiff corporation. The court will take into account other circumstances to see if there are special circumstances not to do so, for example, if the defendant is trying to stifle the claim or is acting oppressively, or the merits of the case clearly do not favor the defendant. In Singapore, therefore, it is only the defendant who may apply for security for its costs.
An arbitral tribunal seated in Singapore is empowered to order security for costs under Section 12(1)(a) IAA and Section 28(2)(a) AA. Tribunals tend to be influenced by the considerations that are applicable in court, with one exception with regard to the location of the claimant. While the fact that a plaintiff is located outside Singapore is a ground for ordering security for costs in a court action, Section 12(4) IAA says that this alone is not sufficient to order security for costs against a claimant in an arbitration. In Zhong Da Chemical v. Lanco Industries, the Singapore High Court held that in an arbitration-related matter where circumstances are evenly balanced, the court would ordinarily not order security for costs.4[2009] SGHC 112.
C.3 Recovery of Costs
In Singapore, it is normal for external counsel’s costs to be included as part of the costs that a successful party recovers according to the “costs follow the event” principle. Generally, an arbitral tribunal, just like a court in Singapore, is guided by the test of reasonableness: costs are recoverable only if they are reasonably incurred.
Since 15 September 2010, the principle of proportionality has been incorporated into the “Rules of Court” as one of the considerations that the Registrar must have regard to in fixing the amount of costs to be allowed in a court action. In Lin Jian Wei v. Lim Eng Hock Peter,5Lin Jian Wei v Lim Eng Hock Peter [2011] SGCA 29. the Court of Appeal affirmed that the principle of proportionality applies to the assessment of legal costs. V K Rajah JA noted that the contrary decision in VV v. VW, an arbitration case, was made before the 2010 amendment to the Rules of Court.6Lin Jian Wei v Lim Eng Hock Peter [2011] SGCA 29 at [34]. He did not comment on whether VV v. VW7VV v VW [2008] 2 SLR(R) 929. should be decided differently now in an arbitration context, as the case before the Court of Appeal was on taxation of costs in a court action. It is also an open question whether an allegation that a costs award is excessive is enough to satisfy the public policy threshold for setting aside an award.