29 September 2021
CBX v CBZ  SGCA(I) 3
In CBX v CBZ, the Singapore Court of Appeal set aside various awards rendered by an arbitral tribunal on the basis that they had been made in excess of jurisdiction. The decision highlights the significance of jurisdictional issues arising during an arbitration when claims are introduced late or not properly pleaded. The Court of Appeal also provided clarity on the circumstances under which a costs order can survive the setting aside of an element or elements of a substantive award.
The parties’ dispute arose from two sale and purchase agreements (“SPAs”) governed by Thai law for the sale and purchase of shares in a company which indirectly owned windfarm projects in Thailand, some of which were incomplete. The SPAs each provided for disputes to be resolved by International Chamber of Commerce (“ICC”) arbitration seated in Singapore. Disputes arose between the buyers (“Buyers”) and the sellers (“Sellers”) under the SPAs, which led to two arbitrations heard together by the same arbitral tribunal (“Tribunal”). The Tribunal rendered, among other things, two Phase II Partial Awards (“Phase II Partial Awards”) and a Final Award (Costs) (“Costs Award”) in favour of the Sellers.
The Buyers applied to the Singapore High Court to set aside parts of the Phase II Partial Awards and the whole of the Costs Award. The impugned parts of the Phase II Partial Awards related to the Tribunal’s decisions that (1) the Buyers pay the Sellers certain amounts described as the “Remaining Amounts”, and (2) interest should run on the Remaining Amounts at the rate of 15% compounded annually.
The Remaining Amounts had originally been claimed on the basis that their due dates had been accelerated by reason of the Buyers’ defaults or conduct. Instead, the Tribunal ordered that the Buyers make payment pursuant to the original due dates in the SPAs. None of such payment dates had passed before the parties concluded their submissions before the Tribunal, although the payment dates for the first tranches had passed by the date of the Phase II Partial Awards.
In addition to the orders for payment of part of the Remaining Amounts, the Tribunal by its Phase II Partial Awards also awarded compound interest on those amounts (“Compound Interest Order”). The Compound Interest Order was made under the terms of the SPAs. They were made following what the Tribunal later described as a “regrettable oversight” on its part, since the parties had in fact agreed that compounding was unlawful and unenforceable under Thai law, and had informed the Tribunal accordingly during the proceedings leading up to the issue of the Phase II Partial Awards.
The applications to set aside were made on the grounds that, as regards the relevant parts of the Phase II Partial Awards, the Tribunal (1) exceeded its jurisdiction, (2) failed to afford the Buyers a reasonable opportunity to present their case, and/or (3) contravened Singapore public policy. The setting aside of the Costs Award was sought on the basis that it could stand if the relevant parts of the Phase II Partial Awards, on which it was predicated, were set aside in whole or part. In the High Court, the applications were dismissed. The Buyers appealed.
Decision of the Court of Appeal
The Court of Appeal allowed the appeal and set aside (1) the Phase II Partial Awards insofar as they ordered payment of the Remaining Amounts, (2) the Costs Award, and (3) the Compound Interest Order.
Phase II Partial Awards set aside
The Court of Appeal observed that the Terms of Reference in the arbitrations did not include any claims to the Remaining Amounts except by way of acceleration. While the arbitration clauses provided that the Terms of Reference “shall not include a list of issues to be determined”, Article 23(4) of the ICC Rules provides: “After the Terms of Reference have been signed or approved by the Court, no party shall make new claims which fall outside the limits of the Terms of Reference unless it has been authorised to do so by the arbitral tribunal, which shall consider the nature of such new claims, the stage of the arbitration and other relevant circumstances.”
According to the Court of Appeal, Article 23(4) of the ICC Rules clearly contemplated that if a party wished to make a new claim, the arbitral tribunal had to expressly consider and determine whether this should be permitted having regard to its nature, the stage of the arbitration, and all other relevant circumstances.
However, the Tribunal had failed to make a ruling on whether any claim should be permitted to the Remaining Amounts other than by way of acceleration, despite the Buyers’ repeated objection to the claims for the Remaining Amounts being considered by the Tribunal.
Consequently, the Tribunal had no jurisdiction to rule on such claims and the Court of Appeal set aside the Phase II Partial Awards on the basis that they had been made in excess of jurisdiction, insofar as they ordered payment of the Remaining Amounts. In any event, the making of the Phase II Partial Awards involved breaches of the rules of natural justice by which the Buyers’ rights were prejudiced under the International Arbitration Act.
Costs Award set aside
In relation to the Costs Award, the Court of Appeal stated that an award which is based in material part on illegitimate considerations is flawed and cannot in fairness stand. In this regard, the Court of Appeal observed that the Tribunal’s conclusions regarding the substantive aspects set aside by the Court of Appeal (i.e. the award for the Remaining Amounts independently of acceleration and the Compound Interest Order) were clearly a significant matter in the Tribunal’s consideration when it made the Costs Award. The Court of Appeal reasoned that where a later order is ancillary to and depends upon the validity and premises of a prior order, it could not have intended, whether under the International Arbitration Act or the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), that the later order should survive the setting aside of the former. Ultimately, the test of whether a costs order can survive must therefore be one of materiality and judgment. The Court of Appeal therefore set aside the Costs Award.
Compound Interest Order
Given that the orders made for payment of the Remaining Amounts were set aside, the Compound Interest Order also fell to be set aside. In any event, the Court of Appeal observed that the Compound Interest Order had gone beyond the scope of submission to arbitration within the meaning of the Model Law, in that it had gone (inadvertently) outside the scope of what both parties had agreed that the Tribunal could, under the relevant governing law, or should, afford by way of relief.
Independently of the issue of jurisdiction, the Court of Appeal also regarded the making of orders contrary to the parties’ agreed position, without first giving the parties warning and an opportunity to make further submissions, as involving an inadvertent breach of natural justice.