postimage

    03:46 PM Kaden Goh Hua Zhou (Associate, Loo & Partners LLP)

    The court’s power to remit matters back to the arbitral tribunal and the consequences of setting aside an arbitral award

        

    In AKN and another v ALC and others and other appeals [2015] SGCA 63 (“AKN v ALC”), the Singapore Court of Appeal (“SGCA”) held that the court has no power to remit any matter, which was the subject of an award that has been set aside, back to the same arbitral tribunal. In addition, it also held that the arbitral tribunal’s jurisdiction does not revive upon the setting aside of the award, and that parties will have to commence a fresh arbitration, albeit subject to a few limitations.

    While AKN v ALC does bring greater certainty to the legal landscape in this aspect of arbitration law, it is regrettable that the court did not provide a deeper analysis with regard to certain issues. That said, parties interested in arbitration as an alternative method of dispute resolution should nonetheless take note of the decision, as they now have to incur further costs by commencing a fresh arbitration should the original award be set aside.

    Background

    In AKN and another v ALC and others and other appeals [2015] 3 SLR 488 (the “Main Judgment”), the SGCA allowed an appeal in part and held that some parts of the award (the “Award”) should be set aside. The SGCA further invited parties to file written submissions on costs and consequential orders they wished to seek.

    The SGCA subsequently wrote to the parties indicating their determination in respect of some of the orders or declarations sought by the parties, and directed certain parties to file further submissions on four particular points which arose out of the orders/declarations sought by the appellants in the Main Judgment (the “Purchasers”). Of the various questions posed by the SGCA, only one received a common answer, which is that the court has no power to refer to matters to arbitration before a new tribunal. This was agreed by the SGCA, which opined that it does not have any power, beyond or aside from Art 34(4) of the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”), to remit matters to a tribunal in cases governed by the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) or the Model Law.

    However, the Purchasers and the respondents in the Main Judgment which are still involved took opposed positions as to the effect of setting aside an arbitral award, and whether the court has the power to remit matters to the same arbitral tribunal after the setting aside.

    In light of the foregoing, the main issues in AKN v ALC, which will also be the focus of this commentary are:-

    • Whether the court can remit any matter, which is the subject of an award that has been set aside (in whole or in part), to the same tribunal that made the award;
    • The consequences of setting aside an arbitral award; and
    • The relevance of res judicata once an award has been set aside.

    Decision of the SGCA

    The SGCA decided that, pursuant to Art 34(4) of the Model Law, the court can only remit a matter before the award has been set aside. Accordingly, there is no power of remission after the court has set aside the award. The court further held that while an arbitral award which is set aside has no legal effect, the arbitral tribunal’s jurisdiction will not be revived as a result. Parties will therefore have to commence a fresh arbitration, although their ability to do so will be subject to limitations, viz, the strict and “extended” doctrine of res judicata.

    No remission after the setting aside of an arbitral award

    The SGCA emphasised that “remission” in this decision meant the court referring certain matters arising from an arbitral award back to the same arbitral tribunal which made the award. Accordingly, the effect of a remission is to confer further jurisdiction on that tribunal to consider the remitted matters, as a tribunal would usually be unable to vary, review or amend its award upon the issuance of a final and binding award in respect of any given matter.

    In this regard, the SGCA held that Art 34(4) of the Model Law (“Art 34(4)”) is the only avenue by which the court may direct the tribunal to review its award. The SGCA further held that the court has no residual power beyond Art 34(4) to remit matters in relation to matters governed by the IAA or the Model Law. Art 34(4) states:

    The court, when asked to set aside an award, may, where appropriate and so requested by a party, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.

    The SGCA decided that Art 34(4), on its face, confers a limited power and does not empower the court to remit any matter after setting aside an award. In doing so, the court disagreed with the Purchasers’ contention that Art 34(4) implicitly recognises the court’s power to remit matters even after it has set aside the award. The court first held that there is no basis for concluding from the use of the word “may” in Art 34(4) that there are no limits to the power to remit that is conferred by the provision.

    In addition, the court disagreed with the Purchasers that adopting an expansive reading of Art 34(4) that allows the court to remit matters after the setting aside would further the policy of minimum curial intervention. Instead, the court took the opposite view that an expansive reading would result in more curial intervention. The SGCA further noted that the Purchasers’ expansive reading would do violence to the language used in Art 34(4).

    Lastly, the court held that an examination of the travaux préparatoires made it apparent that the power to remit was conceived as an alternative to setting aside.

    In light of the reasons above, it was held that Art 34(4) is a curative provision which only enables the court, faced with the fact that there has been some defect which could result in the award being set aside, to take a course that might forestall that consequence via suspending the proceedings and remitting the matter back to the tribunal. Simply put, remission only operates as an alternative to setting aside and the question of remission does not arise in this case where parts of the Award have been set aside in the Main judgment.

    In deciding this issue, the SGCA further held that Kempinski Hotels SA v PT Prima International Development [2011] 4 SLR 633, in so far as it stands for the proposition that remission may be ordered after setting aside, is wrong and should be regarded as overruled.

    Consequences of setting aside an award

    While it is generally recognised that the immediate effect of setting aside an award is that it ceases to have legal effect (at least in so far as its status in this jurisdiction is concerned), the Purchasers further sought a declaration that the arbitration would also revive at the point immediately before the award was made. This would allow parties to return to the same tribunal for the determination of the portions of the award that had been set aside.

    The SGCA first considered the legal basis of such a revival of the tribunal’s jurisdiction. In this regard, the court noted that the tribunal has no jurisdiction to consider the matter afresh once it has rendered an award addressing the same. The court then cited the decision of the Honourable Justice Belinda Ang (“Ang J”) in L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd [2014] 1 SLR 1221 (“L W Infrastructure (HC)”) with approval, and held that the tribunal’s mandate and the status of the arbitration agreement is a different matter from the award ceasing to have legal effect upon it being set aside.

    The SGCA held that the tribunal’s mandate ends with the making of its award unless it is restored pursuant to an order remitting the award for the further consideration of the tribunal. Consequentially, parties cannot return to the arbitration at the point it was at before the tribunal’s issuance of the award.

    That said, the court further held that the arbitration agreement will generally survive the setting aside of an award. Should the dispute remain unresolved since the setting aside and if the arbitration agreement remain binding on the parties, a party whose award has been set aside could start a fresh arbitration. However, this is subject to certain other limitations, which the court viewed as the relevance of finality in arbitral proceedings, and in particular, res judicata and abuse of process.

    The relevance of res judicata and abuse of process once an award has been set aside

    The SGCA opined that finality is of importance to arbitration as well. The court therefore supported the view that the “extended” doctrine of res judicata (the “Extended Doctrine”) operates to preclude the reopening of matters that are covered by an arbitration agreement, are arbitrable, and could and should have been raised by one of the parties in an earlier set of proceedings that had already been concluded. Accordingly, should the aforementioned conditions be met, parties will not be allowed to re-arbitrate the same matters after the award (or the relevant parts of it) has been set aside.

    The court then proceeded to consider the relevance of res judicata for the portions of the Award that were set aside, viz, the loss of profits claim and the “Lost Land Claims” issue.

    As regards the loss of profits claim, that part of the Award was set aside as it was made in breach of natural justice. The breach was caused by the arbitral tribunal rejecting the Purchasers’ case where the Purchasers sought for recovery in respect of actual loss of profits, and then going on to find for the Purchasers on an alternative basis (i.e. the loss of opportunity) that had never been squarely advanced by the purchasers nor been addressed by the other parties. Consequentially, the court opined that the dispute in this part of the Award has already been dealt with by the Tribunal in its finding that there was no actual loss. The SGCA therefore held that there is no basis on which a fresh reference to arbitration could take place on this issue.

    As regards the Lost Lands Claims issue, that part of the Award was set aside because the arbitral tribunal had, in effect, overlooked the merits of the case of one of the respondents in the arbitration because it mistakenly thought that a concession has been made by that party. Thus, neither the strict doctrine of res judicata nor the Extended Doctrine is engaged for this part of the Award as the arbitral tribunal never dealt with the merits of the case. Accordingly, it was held that the Purchasers may commence fresh arbitration proceedings before a new tribunal for this particular issue.

    Commentary

    Despite being a decision stemming from consequential orders and declarations, AKN v ALC is a landmark decision that clarifies the court’s power of remission and the consequences of an award being set aside. While the wording of Art 34(4) is relatively clear on the face of it, no cases before AKN v ALC provided a reasoned decision on whether the court may, pursuant to Art 34(4) remit an award after its setting aside, and commentators have differing views.

    In Arbitration in Singapore: A Practical Guide (The Honourable The Chief Justice Sundaresh Menon editor-in-chief) (Sweet & Maxwell, 2014), it was mentioned that the setting aside of an award and the remission of an award are mutually exclusive. This is in contradistinction to the views of the authors in Singapore International Arbitration: Law and Practice (David Joseph QC and David Foxton QC gen ed) (LexisNexis, 2014), where the authors apparently suggested that a closer examination of the drafting of Art 34(4) indicates that there was an intention to allow the court to remit matters pertaining to the award which has been set aside.

    Accordingly, by holding that the setting aside of an award and its remission are mutually exclusive under Art 34(4), AKN v ALC certainly clarifies the position in Singapore. However, parties wishing to still resort to arbitration to settle the dispute will now have to commence a fresh arbitration. This is especially so due to the SGCA’s decision as regards the consequences of setting aside an award.

    As for the decision on the consequences of setting aside an award, it is respectfully suggested that the SGCA ought to have further analysed the relevant authorities and further explained its decision that there is no automatic revival of the tribunal’s jurisdiction after the setting aside of the award.

    In rejecting the Purchasers’ contention that the arbitration would revive at the point immediately before the award was made after the setting aside, the SGCA mainly applied L W Infrastructure (HC) without providing much analysis. In particular, the court did not delve into authorities which took the view that the tribunal’s jurisdiction is automatically revived upon the setting aside of the award, nor did it discuss Ang J’s analysis of these authorities in L W Infrastructure (HC).

    In Hussmann (Europe) Ltd v Pharaon (formerly trading as Almeen Development and Trade Establishment) [2003] EWCA 266 (“Hussmann v Pharaon”), the English Court of Appeal held, inter alia, that where there is an order setting aside an arbitral award, there is no need for a power of remission, as the arbitration merely carries on or revives as necessary. In L W Infrastructure (HC), Ang J confined the application of Hussmann v Pharaon to invalid awards made in excess of the tribunal’s jurisdiction. It is a pity that the SGCA did not analyse Ang J’s decision in this regard, for it is arguable that this narrow reading of Hussmann v Pharaon is erroneous.

    The relevant holding in Hussmann v Pharaon is based on the opinions of the learned authors in The Law and Practice of Commercial Arbitration in England (Sir Michael J. Mustill and Stewart C. Boyd) (Butterworths, 2nd Ed, 1989) (“Mustill & Boyd”). In Mustill & Boyd, the learned authors opined that the logical consequence upon the setting aside of an arbitral award is for the arbitration to revert to the position in which it stood immediately before the arbitrator published his award. This suggests that the English Court of Appeal intended for the revival of the tribunal’s jurisdiction upon the setting aside of the award to be of general application, and not merely in “Situation 3” as defined in L W Infrastructure (HC).

    That this was the intention can be further inferred from the relevant extract in Singapore Law on Arbitral Awards (Chan Leng Sun SC) (Academy Publishing, 2011) (“Singapore Law on Arbitral Awards”), where the learned author mentioned, inter alia, that “the rationale in [Hussmann v Pharaon] that an award that is set aside merely brings parties back to the position where it had never been made is one that may be of application in Singapore.”

    Ang J further held in L W Infrastructure (HC) that Hussmann v Pharaon should not be followed in Singapore if it is of general application due to the scheme under the Model law being different from the English regime. However, this goes against the abovementioned extract in Singapore Law on Arbitral Awards. Furthermore, it is suggested that the general application of the proposition in Hussmann v Pharaon might not go against the Model Law regime. In this regard, a perusal of the travaux préparatoires suggests that the effect of a setting aside order on arbitral proceedings was raised but was not discussed by the Working Group or Commission during the drafting of the Model Law. Accordingly, it could possibly be argued that the effect of a setting aside is not a matter governed by the Model Law, and that the Model Law is consequentially not an obstacle in applying Hussmann v Pharaon in Singapore.

    In light of the foregoing, it is regrettable that the SGCA did not further analyse the reasoning in L W Infrastructure (HC) when deciding on the issue regarding the consequences of setting aside an arbitral award. That said, the decision nonetheless clarifies the local position and provides certainty. Where an arbitral award has been set aside, the parties involved will have to commence a fresh arbitration (if they still wish to seek arbitration). This would undoubtedly result in parties incurring higher costs.

    * This blog entry may be cited as Kaden Goh Hua Zhou, “The Court’s Power to Remit Matters Back to the Arbitral Tribunal and the Consequences of Setting Aside an Arbitral Award”, Singapore Law Blog (13 January 2016) (http://www.singaporelawblog.sg/blog/article/148)

    ** A PDF version of this entry may be downloaded here

Comment Section