Blockchain law: A "Telegram" to SAFTs: "Beware!"
Robert Schwinger discusses one approach issuers have tried in order to avoid facing securities law requirements: SAFTs.
This article offers a cross-border update of recent jurisprudential and legislative developments on challenges to arbitral awards in Singapore, Hong Kong, and England and Wales.
Recent jurisprudence in Singapore has continued to explore the relationship between Article 16(3) and Article 34 of the Model Law.
Article 16(3) allows a party, where a tribunal has made a preliminary ruling that it has jurisdiction to hear the dispute, to challenge that ruling before the courts of the seat within 30 days of receiving notice of the ruling. Article 34 provides for the remedy of setting aside an award on grounds including that 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.
In Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd  SGCA 33 (Rakna) the Singapore Court of Appeal had to consider whether a respondent who fails to participate in an arbitration and therefore does not avail itself of its rights pursuant to Article 16(3) to challenge a tribunal’s determination that it has jurisdiction, can nevertheless raise the jurisdictional objection before the supervisory court in set-aside proceedings.
In the earlier case of PT First Media TBK v Astro Nusantara International BV  1 SLR 372 (Astro) the Court of Appeal held that properly construed, the Model Law provides for the system of “choice of remedies”, and parties who do not actively attack an award remain able to passively rely on defences to enforcement absent any issues of waiver. The Court concluded that the “preclusive effect” of Article 16(3) does not apply where what is sought to be achieved is a defence to enforcement, rather than the active remedy of set-aside. In dealing with the relationship between the active remedy in Article 16(3) and the active remedy of set-aside under Article 34, the Court held obiter that Article 16(3) was not intended to be a “one-shot remedy”.
In Rakna, the Court of Appeal was concerned not only with the “preclusive effect” of Article 16(3) on subsequent set-aside applications, but also whether the preclusive effect operates in all circumstances. The Appellant argued that even if Article 16(3) operates to preclude a set-aside application on jurisdictional grounds in circumstances where a party has not availed itself of the appeal grounds in Article 16(3), this preclusive effect does not apply to a party that has not participated in the arbitral proceedings. On the basis of the travaux préparatoires including the Analytical Commentary to the Model Law, the Court held that “It is clear that the drafters intended Art 16(2) to have a preclusive effect and, in all likelihood, intended the same effect for Art 16(3).”
The Court then went on to analyze the effect of non-compliance with Article 16(3) on a non-participating party. The Court found the policy objective underlying Article 16(3) was to “effect a compromise between the policy consideration of avoiding wastage of resources … and the policy consideration of preventing parties from trying to delay arbitral proceedings by bringing challenges before the court”. In the Court’s view, the claimant who insists on proceeding in the face of a non-participating respondent who has indicated its objection to the tribunal’s jurisdiction, must take the risk of wasted costs. In the absence of a clear duty on the respondent to participate in the arbitration proceedings imposed either by the Model law or the International Arbitration Act, a non-participating respondent should not necessarily be bound by the award no matter the validity of its reasons for believing that the arbitration was wrongly undertaken. The Court concluded that Article 16(3) should not be construed as having a preclusive effect to prevent a non-participating respondent from seeking set-aside of the award.
As a result, it is possible to now articulate two exceptions in Singapore to the “preclusive effect” of Article 16(3) of the Model Law, stemming from the jurisprudence. The first is where a respondent exercises its “choice of remedies” and relies on its jurisdictional objection to resist enforcement of an award (rather than seeking to have the award set-aside). The second is in circumstances where the respondent elects not to participate in the arbitration, having made known its objection to the tribunal’s jurisdiction, it is not precluded from seeking a set-aside of the award at the courts of the seat.
There has been a rare but notable example of the English court’s exercise of its power to review negative jurisdictional findings of an arbitral tribunal under Section 67 of the Arbitration Act 1996. In GPF GP Sàrl v The Republic of Poland  EWHC 409 (Comm), the Commercial Court set aside a tribunal’s ruling that it lacked jurisdiction to hear Fair and Equitable Treatment (FET) claims and examine creeping expropriation claims arising under the Bilateral Investment Treaty (BIT) between Belgium/Luxembourg and Poland. Mr Justice Bryan granted the application, and set aside part of the tribunal’s award, substituting wording to the effect that the tribunal did have jurisdiction over all measures relied on by the applicant under the BIT. On the expropriation claim, the Court held that it was possible to have regard to alleged creeping expropriation even in circumstances that also allege a directly expropriatory act. On the FET claim, the Court held that the wording of the relevant clause was concerned with consequences rather than measures, such that the tribunal has jurisdiction to hear claims concerning measures other than expropriation that could cause consequences similar to expropriation, as alleged in the FET claim.
In its first arbitration-related judgment to date, the Singapore International Commercial Court has held in BXS v BXT  SGHC(I) 10 that it has no power under Singapore law to extend the time limit in Article 34(3) of the Model Law for filing an application to set aside an arbitral award. Anselmo Reyes IJ held that on its face, Article 34(3) is a written law that appears to impose a mandatory limit, which therefore circumscribed the court’s power to amend time limits. The Plaintiff’s application to set aside was accordingly struck out as being out of time.
In CL v SCG, an award creditor who was unsuccessful in enforcing an award in China sought to enforce the same in Hong Kong. However, whilst the enforcement efforts were ongoing in China, no action had been taken to enforce the award in Hong Kong. In the judgment, it was held that the limitation period for enforcement of an award in Hong Kong (based on an implied contractual obligation to honor the award) is six years from when the cause of action accrued. The time when the cause of action accrued was when the award debtor failed to honor the implied obligation which the court held to be 21 days from the date of the award creditor’s demand based on the facts of the case. The court further noted that this limitation period is not changed in any way by reason of the agreement for mutual enforcement of arbitral awards between Hong Kong and China, which prohibits the taking of enforcement actions in the two jurisdictions at the same time. Accordingly the award creditor was time barred. This case is a useful reminder for award creditors, that where assets might be held in multiple jurisdictions, a comprehensive global enforcement strategy must be devised. A thorough investigation is needed as to the whereabouts of assets, and enforcement efforts across jurisdiction/s must be chosen strategically.
Public policy arguments made to set aside awards and resist enforcement of awards can coalesce around allegations of fraud or corruption, including fraud upon the tribunal. Allegations of this kind recently emerged in BVU v BVX  SGHC 69 in which the Singapore High Court refused to set aside an ICC award (that concerned a food supply agreement in favor of a South Korean state-owned entity) alleged to have been procured by fraud or that it offended public policy; in this case because of the decision not to call upon a particular witness. The purchaser decided in the arbitration to only call one factual witness and not to call three other individuals involved in negotiations for the supply agreement. Following the award, the supplier reached out to one of these three witnesses who agreed to provide evidence attesting to the purchaser’s understanding of the nature of the agreement. The supplier submitted that the decision not to call this witness constituted the “withholding and suppressing [of] crucial evidence.”
The Court noted three requirements for a finding of this kind (1) deliberate concealment aimed at deceiving the tribunal; (2) an absence of a good reason for the non-disclosure and; (3) a causative link between the concealment and the decision favoring the concealing party.
On the facts, the Court rejected the suggestion that there was deliberate concealment, and strongly rejected any causative link between the purchaser’s alleged concealment and the award in its favor. The Court held instead that the decision not to call factual witnesses was a legitimate forensic judgment as to the evidential requirements in the arbitration. The Court made a distinction between the exigencies of the adversarial process and unconscionable conduct, finding that the decision not to call upon a particular witness, while deliberate, did not constitute the fraudulent suppression of evidence in the absence of a positive obligation to do so. The Court noted that the IBA Rules on the Taking of Evidence in International Arbitration (IBA Rules) do not create a general obligation to disclose all potentially relevant materials; Article 3.1 requiring only that parties disclose documents “available to it on which it relies”. The decision once again affirms the high threshold for setting aside an award on these grounds.
Similar issues concerning alleged fraud upon the tribunal were considered in the English case of Carpatsky Petroleum Corporations v PJSC Ukrnafta  EWHC 2516 (Comm). In resisting enforcement of the SCC award in England under Section 103 of the Arbitration Act 1996, the defendant argued that the award had been obtained by fraud because a witness, who had been cross-examined in the arbitration, had deliberately misrepresented the claimant’s financial position. This allegation was said to be supported on the basis of documents the defendant had obtained subsequent to the arbitration. CPC successfully applied to strike out the fraud allegations on the basis that the documents did not satisfy the conditions in Westacre Investments Inc v Jugoimport SPDR Holding Co Ltd  Q.B. 288, which required that (1) the documents were not available before the arbitrators or could not with reasonable diligence have been available in time to be raised before the tribunal and; (2) would have been decisive where the fraud alleged was that the witness was being dishonest before the arbitrators.
Both cases point to a need for parties and their counsel to take care to obtain documentary evidence that they feel may be important to their case in adequate time to allow argument on the material before the tribunal.
In England and Wales there have been three recent successful challenges on the ground of serious irregularity under Section 68 of the Arbitration Act 1996. In Oldham v QBE Insurance (Europe) Ltd  EWHC 3045 (Comm), the Commercial Court allowed a challenge to an arbitral award on costs where the applicant had not been given a reasonable opportunity to make submissions as to costs. In P v D  EWHC 3273 (Comm), the Commercial Court upheld a challenge to an LCIA award on the basis that the tribunal failed to deal with all the issues that were put to it; in particular, it failed to consider the claimant’s contribution claim in the proceedings. Finally, in RJ and another v HB  EWHC 2833 (Comm), the Commercial Court set aside an arbitral award for serious irregularity due to the tribunal’s failure to give the parties notice and a proper opportunity to consider and respond to a new point that ultimately affected the arbitrator’s reasoning in the award.
A series of recent decisions in Hong Kong have also considered questions of serious irregularity. The contracts that were the subject of the arbitration were construction contracts wherein certain claims advanced by contractors were subject to contractual requirements for notices to be given. Such notices are often said to be conditions precedent for claims being advanced and must be strictly followed. In an unpublished judgment of a Hong Kong court, it was held that an arbitrator’s finding that the notice requirements were satisfied instead by letters and emails issued by the contractor, without hearing full submissions from the parties on the issue, amounted to a serious irregularity warranting remittance of the award back to the arbitrator for reconsideration. The approach of the Court was similar to that in the 2018 decision in Maeda Corporation v Bauer Hong Kong Ltd where the Court held that the arbitrator’s broad interpretation of notice provisions for making a claim under a sub-contract, that was a “like right” claim under the main contract which was said to have to be strictly complied with, was open to serious doubt.
Xiamen v Eton Properties is a 12-year running case to do with the enforcement in Hong Kong of a CIETAC award, not under the Arbitration Ordinance but by way of a common law action. The arbitration concerned enforcement of an agreement to sell the right to develop a plot of land. The seller had breached an agreement to sell the development right for the land, and restructured the project vehicle so as to render the purchaser’s right in the vehicle to be substantially diluted thereby frustrating the purchaser’s control over the vehicle. The seller was unsuccessful in the arbitration, and subsequently failed to honor the award against it. The purchaser therefore initiated an action against the seller in the Hong Kong courts seeking damages under common law, in lieu of seeking specific performance of the award. The purchaser failed at first instance. On appeal, the Court of Appeal held that whenever parties submit a dispute to arbitration there is an implied contract to the effect that the losing party will honor the award. The seller was therefore in breach of this implied contract and was ordered to pay the purchaser damages for breach of contract. The Court of Appeal dismissed both parties’ applications for leave to appeal further. In the dismissal judgment, the Court held that the loss and damage arising from a breach of the underlying commercial contract and those arising from breach of the implied contract to honor the award could be different, and in the enforcement action brought by the purchaser, the court was concerned with the latter. One interesting observation arising from this decision is that it has the potential of opening up a whole range of remedies against third parties who may have procured or assisted in the award debtor’s effort to frustrate the award creditor’s ability to enforce an award. This is particularly relevant in situations where shareholders or affiliates of the award debtor have taken steps to interfere with the implied agreement to make the award debtor somehow judgment proof.
A recent Hong Kong case has demonstrated that an arbitration agreement may well be binding on a third party even though they are not signatory thereto, particularly in circumstances where a benefit is conferred on a third party under the original contract (here, a shareholder agreement) containing the arbitration agreement. In Dickson Valora Group v Fan Ji Qian, a Hong Kong court granted Fan an anti-suit injunction against a mainland individual restraining him from commencing Chinese court proceedings to claim a success fee based on an addendum to a shareholder agreement among three joint venture partners for the development of a property project in China. Fan was successful in obtaining a freezing order against the assets of the joint venture vehicle and resisting the joint venture vehicle’s challenge of the jurisdiction of the Chinese court. The injunction was granted on the basis that the addendum was to do with Fan’s enforcement of a contractual right under the shareholder agreement even though he was not a signatory thereto. The Court further held that the judgment of the Chinese court was not enforceable in Hong Kong and did not bar the Hong Kong court from deciding any of the issues before it.
In Buda Pipe Rehabilitation Engineering v CPC, a Hong Kong court dismissed an application to challenge an award (on grounds of an error of law) on the basis that Schedule 2 of the Arbitration Ordinance did not apply to the award as there was insufficient indication that the award was a domestic award. The Court rejected the contention that the arbitration provisions in the main contract between the Water Services Department and an affiliate of CPC (i.e. Lam Woo) could be carried down into the sub-contract between Buda and CPC pursuant to Section 101(1) of the Arbitration Ordinance. It reasoned that there was a break in the contractual chain between the employer and Lam Woo, the agreement between Lam Woo and CPC (which was only an oral contract), and the sub-contract between CPC and Buda with there being no arbitration agreement in the agreement between Lam Woo and CPC. By way of obiter, the Court held that even if it was wrong on the contractual chain issue, the decision of the arbitrator in the Buda/CPC arbitration was not obviously wrong to warrant the court’s interference.
In the case of Chun Wo Construction & Engineering v The Hong Kong Housing Authority, the Court of Appeal has confirmed the correct test for deciding a leave to appeal application under Schedule 2 of the Arbitration Ordinance in respect of an error of law. The Court held the test to be the “obviously wrong test” in a one-off question of contractual interpretation, as opposed to the “serious doubt” test in respect of a question of general importance. As to the “obviously wrong” test, the Court of Appeal said that the same will not be satisfied if the arbitrator “might be right”. The judgment also noted that the interpretation of a non-standard contractual provision will likely be considered as not one of general importance. The applicable test in an appeal proper was stated by the Court in a recent decision in Maeda Corporation v Bauer Hong Kong Ltd to be whether the arbitrator’s decision was one which “no reasonable arbitrator could reach” or “outside the permissible range of solutions open to him” – i.e. the “obviously wrong” and “serious doubt” tests no longer being applicable.
The law concerning challenge to awards has recently been considered in the legislative sphere in Singapore. The Singapore Ministry of Law’s public consultation on proposed amendments to the International Arbitration Act includes new proposals in this area. Of particular interest is the proposal to allow parties engaged in international arbitration seated in Singapore to appeal to the High Court on a point of law, provided they have agreed to opt-in to this mechanism. (Parties engaged in domestic arbitration in Singapore already have the ability to appeal to the High Court on a point of law but may opt-out of this option by agreement.) There is also a proposal to allow parties to agree to waive or limit by agreement, after the award has been rendered, the annulment grounds under the Article 34(2) (a) of the Model Law and Section 24 of the International Arbitration Act. A third proposal suggests empowering Singapore courts to make an order in respect of the costs of the arbitral proceedings when a party is successful in its application to set aside the arbitral award. The consultation period closes on August 21, 2019.
Robert Schwinger discusses one approach issuers have tried in order to avoid facing securities law requirements: SAFTs.
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