ADG and another v ADI and another matter

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 15 April 2014
• Neutral Citation: [2014] SGHC 73
• Year: 2014
• Date: 15 April 2014
• Published date: 10 July 2014
• Hearing Date: 17 February 2014,28 November 2013,04 February 2014
• Subject Matter: Setting aside,Recourse against award,Arbitration
• Plaintiff Counsel: Alvin Yeo SC, Chou Sean Yu, Lionel Leo, Edmund Koh and Oh Sheng Loong (WongPartnership LLP)
• Citation: [2014] SGHC 73
• Defendant Counsel: Ang Cheng Hock SC and Margaret Ling (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Docket Number: Originating Summons No [K], Originating Summons No [L] (Summons No [M])

Vinodh Coomaraswamy J: Introduction

By the two applications before me, the plaintiffs seek to set aside, and thereby to resist enforcement of, an arbitral award issued recently in favour of the defendant at the Singapore International Arbitration Centre.

The plaintiffs bring their application on two grounds: First, they argue that they were unable to present their case within the meaning of Article 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration. Alternatively, they argue that that their rights were prejudiced by a breach of the rules of natural justice in connection with the making of the award within the meaning of s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed).

The plaintiffs rely for both grounds on the Tribunal’s decision to declare proceedings in the arbitration closed on 4 June 2013 and its decision to dismiss the plaintiffs’ application to re-open proceedings on 9 June 2013. The result of those decisions, the plaintiffs say, is that they had no opportunity to put before the Tribunal potentially relevant evidence upon which they wished to rely and which they expected to become available on or before 8 July 2013. It is undisputed that some additional evidence did in fact materialise after the Tribunal declared the proceedings closed and before 8 July 2013. It is also undisputed that the Tribunal did not have an opportunity to take into consideration this additional evidence in arriving at its determination of the parties’ disputes. But the defendant maintains that no grounds for setting aside the award are thereby established. It submits that these applications are nothing more than a contrived attempt by the plaintiffs to re-litigate the disputes in the arbitration and to delay enforcement of the award.

Having considered the parties’ written and oral submissions and the other material they put before me, I dismissed the plaintiffs’ applications. The plaintiffs have now appealed to the Court of Appeal. I therefore now set out the grounds for my decision.

Background The parties

The first plaintiff is engaged in the business of exploring for, developing, producing, distributing and marketing a natural resource which I shall refer to as “Mithril”. Its particular focus is on a country which I shall call “Moria”. The second plaintiff is ADG’s ultimate holding company. Mr Z is the Chairman, Chief Executive Officer and ultimate owner of both plaintiffs.

The defendant’s principal activity includes exploring for and extracting natural resources in Moria.

The dispute in summary

The award sets out the factual background to the underlying dispute between the parties in great detail at [87] to [150]. That background can, for present purposes, be summed up in two paragraphs.

The first plaintiff secured rights to survey for Mithril in certain geographical regions in Moria under three contracts (“the Survey Agreements”) in 2003. Arising from these three Survey Agreements, the first plaintiff entered into a separate agreement (“the Option”) with the defendant in 2009. Under the Option, the defendant agreed to fund the first plaintiff’s surveys under the Survey Agreements in exchange for an option to purchase a certain percentage of the first plaintiff’s rights under any given Survey Agreement. In the Option, the first plaintiff made certain threshold and continuing representations and warranties to the defendant about the status of the first plaintiff’s rights under the Survey Agreements. At the same time that the first plaintiff and the defendant entered into the Option, the second plaintiff executed a guarantee in favour of the defendant, guaranteeing the first plaintiff’s liabilities to the defendant up to a certain maximum.

In 2010, the defendant asserted that it had a right to terminate the Option. The first plaintiff denied that the defendant had any such right and alleged that it was in fact the defendant who was in breach of the Option. On 30 September 2010, the first plaintiff served a notice of default on the defendant under the Option, expiring on 30 October 2010. On 29 October 2010, the defendant did three things. First, it claimed to exercise its right to terminate the Option. Second, it called on the second plaintiff under its guarantee of the first plaintiff’s liabilities. Third, it commenced arbitration, seeking to validate the defendant’s termination of the Option and to recover damages against the first plaintiff, and seeking payment under the second plaintiff’s guarantee.

I now go into the underlying facts in a little more detail before dealing with the Tribunal’s reasoning in its award and the grounds on which the plaintiffs seek to set that award aside.

The first plaintiff and the Corporation enter into the Survey Agreements

The first plaintiff entered into the three Survey Agreements on or around January 2003. Its counterparty was a Morian enterprise in the Mithril industry (“the Corporation”).

The three Survey Agreements gave the first plaintiff the right to explore for, develop, produce and sell Mithril in three geographical regions of Moria namely: (a) Region 1, (b) Region 2; and (c) Region 3. The disputes between the first plaintiff and the defendant relate only to the Survey Agreements for Region 1 and Region 2.

Each Survey Agreement had a term of 30 years comprising (a) a survey period; (b) a development period; and (c) a production period. The survey period was the first five years of the Survey Agreement’s 30-year life. The survey period included a pilot phase to evaluate the commercial potential of each block. Each Survey Agreement would terminate if the first plaintiff failed to discover any commercially-exploitable Mithril within the area covered by that Survey Agreement before the five-year survey period expired. Each Survey Agreement allowed the survey period to be extended if: (a) the first plaintiff discovered Mithril shortly before the survey period expired and there was insufficient time to complete pilot development; or (b) a committee comprising representatives of both the first plaintiff and the Corporation (“the Committee”) agreed to extend the pilot phase beyond the survey period. In either case, a Moria government ministry (“Ministry A”) had to approve any such extension.

It is the first plaintiff’s position that the result of these provisions is that both the Survey Agreements for Region 1 and Region 2 were valid up to and after the date the first plaintiff and the defendant entered into the Option. This is because, the first plaintiff says, it had not finished pilot development at the end of the five-year survey period in 2008. As a result, the survey period under both the Region 1 and Region 2 Survey Agreements was automatically extended when the initial five-year survey period ended in March 2008. The Survey Agreements are governed by Moria law. The first plaintiff adduced evidence from a Moria law expert that the Survey Agreements continued to be valid on this ground. The plaintiff further points out that the defendant could not shake this expert evidence in cross-examination and did not contradict this expert evidence by calling its own expert on Moria law.

The Option and the guarantee

In August 2009, the defendant and the first plaintiff entered into the Option. The Option consisted of two phases: In the first phase, the first plaintiff had to comply with a work programme by performing certain works under the Survey Agreements. In exchange, the defendant agreed to pay the first plaintiff a substantial sign-on bonus and to provide substantial further funding for the first plaintiff’s work programme against the first plaintiff’s calls for payment. The Option entered its second phase once the defendant had invested the full amount under the first phase. In this second phase, the defendant had an option to acquire a certain percentage of the first plaintiff’s participating interest in each Survey Agreement. The defendant would by then be in a position to make an informed decision whether to exercise its option from the information gained in the first phase. If the defendant exercised its option, it would have to provide further substantial funding to the first plaintiff plus substantial contingency bonuses.

As part of the same overall transaction which led to the Option, the second plaintiff executed a guarantee on the same day that it entered into the Option by which it guaranteed the first plaintiff’s liabilities to the defendant under the Option up to a certain maximum. Both the Option and the guarantee are expressly governed by English law. Both contracts have, in effect, identical arbitration clauses providing for arbitration in Singapore at the Singapore International Arbitration Centre (“SIAC”).

By the time the defendant terminated the Option on 29 October 2010, it had paid the initial sign-on bonus plus a further substantial sum to the first plaintiff under the first phase of the Option.

The Tribunal’s decision

In its award, the Tribunal found in favour of the defendant. It therefore held that: (a) the defendant had validly terminated the Option on 29 October 2010; (b) that by reason of the termination, the first plaintiff was liable to repay to the defendant the entire sum which the defendant had paid it plus interest; (c) that the second plaintiff was liable as the first plaintiff’s guarantor to pay the defendant the maximum guaranteed sum plus interest, less any sums paid by the first plaintiff; and (d) that the first plaintiff’s and the second plaintiff’s counterclaims ought to be dismissed.

The first plaintiff’s representations and warranties under the Option

The first plaintiff’s representations and warranties under the Option and the Tribunal’s findings about them are critical to understanding the Tribunal’s reasoning and the first plaintiff’s grounds for setting aside the award. The first plaintiff’s principal...