Akm v Akn

• Jurisdiction: Singapore
• Judgment Date: 31 July 2014
• Date: 31 July 2014
• Docket Number: Originating Summonses Nos [L], [M] and [N]
• Court: High Court (Singapore)

AKM

Plaintiff

and

AKN and another and other matters

Defendant

[2014] SGHC 148

Vinodh Coomaraswamy J

Originating Summonses Nos [L], [M] and [N]

High Court

Arbitration—Recourse against award—Setting aside—Funds purchasing right to payment under notes—Funds formally joining arbitration and aligning themselves with secured creditors—Tribunal holding funds liable for breaches under asset purchase agreement—Whether tribunal exceeded its jurisdiction—Whether natural justice was denied

Arbitration—Recourse against award—Setting aside—Purchasers characterising claim as one for loss of profits—Tribunal re-characterising and determining claim as one for loss of opportunity to earn profits without hearing from parties—Whether the two claims were substantively different—Whether determining claim as re-characterised caused prejudice—Whether tribunal exceeded jurisdiction in determining claim as re-characterised—Whether natural justice was denied

Arbitration—Recourse against award—Setting aside—Tribunal determining it had jurisdiction to suspend payment and security obligations under notes and to enjoin funds and secured creditors from declaring default under notes—Different dispute resolution mechanisms existing under notes documentation and asset purchase agreement—Whether tribunal exceeded its jurisdiction under arbitration agreement in asset purchase agreement

Arbitration—Recourse against award—Setting aside—Tribunal's general statement that it had considered unsuccessful parties' arguments—Tribunal's reasoning failing to take into account unsuccessful parties' evidence and submissions—Tribunal failing to refer to successful parties' concession adverse to their case—Tribunal relying on an unsuccessful party's concession taken out of context—Tribunal relying on concession which another unsuccessful party did not make—Tribunal departing from parties' submissions—Whether natural justice was denied

As part of the process of liquidating a corporation in Moria, its liquidator and its secured creditors entered into a Morian law governed agreement (‘the APA’) with the defendant purchasers in relation to the acquisition of the corporation's production plant and related assets (‘the Plant Assets’). As part of the purchase consideration, the defendants agreed in the APA to issue two secured notes to the secured creditors, the terms of which were found in a separate agreement (‘the OMNA’).

The APA and OMNA contained separate dispute resolution provisions. Sections 10.1 and 10.2 of the APA provided for any disputes under the APA to be resolved by way of arbitration. Section 10.3, however, provided that‘ [n] otwithstanding anything herein, the provisions of Sections 10.1 and 10.2 of this APA shall not apply to any default under the [OMNA and the notes] ’.

It was a condition precedent to closing under the APA that the municipal authorities approve a deferred payment scheme for unpaid taxes owed by the corporation in relation to the Plant Assets. This condition precedent was satisfied and the transaction closed in 2004 when the liquidator delivered a tax amnesty agreement (‘the TAA’) to the defendants. The TAA granted the corporation a waiver of the payment of interest and penalties on unpaid taxes provided the terms of the TAA were adhered to.

The TAA was revoked in 2006 when certain taxes were not paid on time. The Plant Assets subsequently became encumbered with a statutory lien for tax liabilities which included unpaid taxes and all previously waived penalties and interest.

On 10 October 2008, the defendants commenced arbitration shortly before it was due to perform its initial obligations under the notes. The defendants claimed that the Plant Assets were encumbered by a statutory lien arising from unpaid taxes since the date of closing in 2004, thereby putting the liquidator in breach of his obligations under the APA to deliver clean title to the Plant Assets on closing. The defendants alleged that as a result, they were unable to obtain the financing secured on the Plant Assets which they needed to modernise the production plant, causing them a loss of profits. The defendants claimed that the secured creditors were jointly and severally liable with the liquidator for this loss. The defendants also claimed that the secured creditors had failed to settle civil claims in respect of land sold under the APA as a result of which this parcel of land was ‘lost’ and were therefore obliged to indemnify the defendants (‘the Lost Land Claims’).

In reply, the liquidator argued that the TAA qualified its obligation to deliver clean title to the Plant Assets under the APA because it contemplated that the unpaid tax (and associated penalties and interest) would be deferred and eventually paid off in regular instalments. The liquidator and secured creditors further contended that it was the defendants who were responsible for the revocation of the TAA because of their failure to pay certain taxes. In the premises, the liquidator and secured creditors argued that they were not liable for any loss suffered by the defendants. Further, the secured creditors argued that the land which was the subject of the Lost Land Claims was not yet ‘lost’ and that the Lost Land Claims were premature.

Separately, between 2005 and 2008, a group of funds purchased the right to receive payments under the notes in the secondary market. These funds were not original parties to the arbitration but were formally joined as parties to the arbitration in 2011.

The tribunal found in favour of the defendants and held, inter alia: (a) that the liquidator, secured creditors and the funds were jointly and severally liable for US$80 m in damages representing the loss of the defendants' opportunity to earn profits (not loss of profits); (b) the defendants were entitled to US$23.7 m by way of an indemnity in respect of the Lost Land Claims; and (c) the defendants' obligations to make payment and provide further security were suspended and the secured creditors and funds were enjoined from declaring the defendants in default of those obligations.

Dissatisfied, the liquidator, secured creditors and the funds brought three separate applications to set aside the award. Their seven principal complaints were that the tribunal: (a) breached the rules of natural justice in rejecting the liquidator's case that the APA was qualified to the extent of the TAA; (b) failed to consider the secured creditors' and the liquidator's cases that it was the defendants who were responsible for the revocation of the TAA; (c) exceeded its jurisdiction by determining that the defendants suffered damage in the form of a loss of an opportunity to earn profits even though the defendants' advanced their claim on the basis of a loss of profit; (d) did not give the liquidator and secured creditors the opportunity to present on their cases on the defendants' loss of an opportunity to earn profits; (e) exceeded its jurisdiction under the arbitration agreement in the APA by suspending the defendants' payment and security obligations under the notes which were governed by the OMNA; (f) failed to consider the secured creditors' case in relation to the Lost Land Claims; and (g) exceeded its jurisdiction/did not give the funds the opportunity to present their case when it held that the funds were liable for breaches of the APA.

In response, the defendants argued that (a) the tribunal considered and rejected the liquidator and secured creditors' cases on these main issues, (b) the tribunal had the jurisdiction to determine all of the issues which it did; and (c) the funds could not complain about the substantive result in the award since they submitted themselves to the jurisdiction of the tribunal voluntarily and without qualification.

Held, allowing the applications:

(1) On the first complaint, a general statement by a tribunal that it had considered the liquidator's submissions could not in itself resolve the issue of whether the tribunal actually did so. The central inquiry was whether the award showed that the tribunal had applied its mind to the arguments put forward by the liquidator. The tribunal's line of reasoning did not suggest that it had. The tribunal appeared to have misunderstood the liquidator's case and this misunderstanding was reinforced by the defendants' submissions in the arbitration. It was inexplicable that the tribunal did not even engage with the liquidator's argument that the TAA had to have been in the parties' contemplation when they entered into the APA and that the TAA thus qualified the liquidator's obligation to deliver clean title. In the circumstances, the liquidator was denied natural justice and the award should be set aside: at [100] , [109] , [111] , [120] and [123] .

(2) On the second complaint, the tribunal did not analyse the liquidator's submissions on this issue and appeared to have misstated the liquidator's position. The tribunal failed to mention the defendants' express concession that they were obliged to make payment of taxes in relation to the Plant Assets after closing. It also did not refer to the liquidator's submission that the defendants' failure to pay these taxes caused the revocation of the TAA. The tribunal's reliance on the liquidator's concession that he was liable for the payment of all the taxes in 2005 (including taxes in relation to the Plant Assets after closing) was taken out of context. The tribunal also departed in a significant respect from the submissions of both parties, and in particular, from the submissions of the defendants themselves. In the circumstances, the liquidator was denied natural justice and the award should be set aside: at [131] , [140] , [142] to [144] and [154] .

(3) On the third complaint, the defendants had throughout the arbitration characterised their claim as one for the actual profits that they would have earned but which they failed to earn because of the breaches of...