The difficulty in challenging an arbitral tribunal’s findings on the effect of decisions in earlier proceedings before Singapore’s court
Due to the complex nature of certain contracts or transactions, or because of the choices made by the parties, a dispute can be dealt with in more than one forum. If a decision is reached by the first forum, what effect could that decision have on the proceedings in the second forum? The Singapore Court of Appeal in BTN and another v BTP and another  SGCA 105 recently clarified this question with regards to arbitral proceedings with key implications for parties to such proceedings (see ‘Implications’ below).
The dispute arose from the acquisition of shareholdings in online travel agencies. BTN bought BTP’s and BTQ’s shares in companies owning the online agencies. The transaction was governed by a Share Purchase Agreement (SPA) with BTN. Pursuant to the SPA, both BTP and BTQ were to be employed by BTO, a BTN subsidiary based in Malaysia. The employment of BTP and BTQ was governed by Promoter Employment Agreements (PEAs) with BTO.
The dispute resolution clauses under the SPA and PEAs
The SPA provided for disputes to be resolved by arbitration under the rules of the Singapore International Arbitration Centre (SIAC) and seated in Singapore. The PEAs were governed by Malaysian law, and also provided for disputes to be resolved by arbitration according to the SIAC rules. In addition, the PEAs also had an exclusive jurisdiction clause (EJC) in favour of the Malaysian courts. The EJC was expressly made subject to the arbitration clause, meaning that if either party invoked arbitration the EJC would not take effect.
The Malaysian court proceedings
BTP and BTQ were dismissed in January 2014 on grounds for ‘With Cause’ termination. Under both the SPA and the PEAs, if BTP and BTQ were dismissed ‘Without Cause’ they would each be entitled to a maximum ‘Earn Out Consideration’ of US$35m, which would not be the case if they were dismissed ‘With Cause’.
Believing their dismissal was wrongful, BTP and BTQ took action against BTO under Malaysian employment law. BTO participated in the Malaysian proceedings at the conciliation stage but not when the matter was referred to the Malaysian Industrial Court (‘MIC’). BTN was also aware of the conciliation proceedings and the possibility that the conciliation proceedings could determine issues that could also have arisen in an arbitration under the SPA.
The MIC eventually found that the dismissals were ‘without just cause’. BTO claimed its manager, who received notices about the MIC proceedings, failed to alert senior management, which was why BTO did not attend the MIC proceedings. Nevertheless, BTO accepted the MIC’s ruling on the dismissals being ‘without just cause’.
Arbitration under the SPA
Since the MIC found the dismissal was ‘without cause’ BTP and BTQ claimed their US$35m Earn Out Considerations from BTN, commencing the SIAC arbitration against BTN under the SPA to recover those sums. BTN argued the claim against it should fail because the dismissals were ‘with cause. BTP and BTQ argued the MIC’s ruling that their dismissal was ‘without cause’ dismissal was binding on BTN under the SPA read with the PEAs, and therefore the issue of whether their termination was ‘with cause’ or ‘without cause’ was res judicata.
The arbitral tribunal’s res judicata decision
The res judicata doctrine provides that where a final judgment has been obtained by one party against, it will bind the other party in subsequent litigation between them as long as three conditions are present, namely identity of:
- Issue, and
- Cause of action
The policy underlying this doctrine is one of ensuring finality of litigation, with courts not wishing for parties to re-litigate issues that have been properly decided by other courts.
The arbitral tribunal found that the question it was being asked to decide, namely whether the dismissal of BTP and BTQ was ‘with cause’ or not was effectively the same as the issue the MIC had decided, and therefore BTN was precluded from raising this issue again in the arbitration. The tribunal issued its Partial Award on this basis, which BTN sought to set aside.
BTN’s argument before the Court of Appeal
BTN argued that the tribunal’s decision on the res judicata issue was mistaken in law. Under Singapore law, there is no appeal from an award based on a mistake of law, but BTN’s argument was that since the tribunal’s error of law led it to wrongly conclude it could not deal with BTN’s claim that the dismissals were ‘with cause’, BTN was wrongly shut out of the arbitration, and therefore that as a matter of public policy the resulting award should not be upheld.
Accordingly, BTN sought to set aside the Partial Award on the public policy ground under Article 34(2)(b)(ii) of UNCITRAL’s Model Law, which is incorporated into Singapore Law under the International Arbitration Act (IAA). This article empowers the court to set aside an arbitral award it finds conflicts with Singapore’s public policy.
The Court of Appeal’s reasoning
The Court took the view that BTN was effectively arguing that the tribunal’s decision on the res judicata issue amounted to a decision on its jurisdiction to hear the claim, i.e. whether it was authorised by the parties to hear the claim. The Court rejected this position, holding instead that such a decision went to the admissibility of the claim, i.e. whether the claim was one that it would be appropriate for the tribunal to decide.
BTN relied on German and Swiss authorities providing that arbitral awards based on a mistaken application of the res judicata doctrine could be set aside for violating public policy. The Court rejected those arguments, noting they did not represent the position in Singapore where the courts favoured minimal intervention with arbitral awards so that arbitration would provide an efficient alternative to litigation for resolving disputes. In doing so, the Court clarified that under Singapore law there was no basis to challenge an award on public policy grounds where the tribunal made a mistake concerning a claim’s admissibility.
In addition, the Court’s determination that decisions by an arbitral tribunal on res judicata issues are decisions as to admissibility and not jurisdiction is also significant because a decision on jurisdiction is fully reviewable the Singapore’s courts while a decision on admissibility is not. This determination thus effectively shuts the door on Singapore’s courts’ power to review arbitral tribunals’ decisions on res judicata issues, including with regards to attempts to set aside an award or, if the award was made outside Singapore, to resist enforcement of that award in Singapore
Following this decision, parties before Singapore’s courts seeking to set aside, or resist the enforcement of awards should be mindful of the following:
- The nature of a contract’s dispute resolution clause, including if it has an EJC as well as an arbitration agreement. A decision made under the EJC could later bind the arbitration.
- How related contracts could be construed such that the determination of an issue under one contract could be binding under the related contract. In this case, the SPA and PEAs were construed such that the ‘without cause’ dismissal finding against BTO under the PEAs bound BTN under the SPA.
- The impact of proceedings occurring in alternative forums:
- Whether the possibility of res judicata could arise? BTN was apparently aware of this in connection with the MIC proceedings.
- If res judicata could arise, what impact that might have on subsequent arbitral proceedings?
- If there is concern that the earlier proceedings were not conducted properly, evidence regarding this should be presented to the arbitral tribunal in full so that the tribunal is given the opportunity to conclude that res judicata does not apply. BTN failed to do this.
- A tribunal’s mistake in its ruling on the res judicata issue will not provide grounds for challenging the award since it is a decision going to admissibility and not jurisdiction.
- Accordingly, it should be noted that in addition to decisions on res judicata, the following also involve questions of admissibility: objections concerning preconditions to arbitration, like time limits, the fulfilment of conditions precedent such as conciliation provisions before arbitration may be pursued, mootness, and ripeness.
- Ensure you participate in the earlier proceedings or be aware that if you do not participate in them the decision could be binding under res judicata. Here BTO did not participate apparently due to internal issues and that proved fatal. Further, it was apparent that BTN was aware the MIC proceedings would deal with issues that were also relevant to any arbitration under the SPA.
- Ensure that you avail of all avenues of appeal within the time allowed. Here BTO did not appeal the MIC ruling under judicial review and so we held bound by that ruling.
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