AKM v AKN and another and other matters

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy JC (as he then was)
• Judgment Date: 31 July 2014
• Neutral Citation: [2014] SGHC 148
• Court: High Court (Singapore)
• Docket Number: Originating Summons No [L]; Originating Summons No [M]; Originating Summons No [N]
• Published date: 19 September 2014
• Year: 2014
• Hearing Date: 12 March 2013,06 March 2013,19 April 2013,07 March 2013,04 March 2013,17 April 2013,16 April 2013,05 March 2013,26 February 2013,11 March 2013,01 March 2013,08 March 2013,18 April 2013
• Plaintiff Counsel: Alvin Yeo SC, Chan Hock Keng, Wendy Lin and Lawrence Foo (WongPartnership LLP)
• Defendant Counsel: Andre Yeap SC, Adrian Wong and Tang Hui Jing (Rajah & Tann LLP)
• Citation: [2014] SGHC 148

Vinodh Coomaraswamy J:IntroductionThree applications

By the three applications before me, the plaintiffs seek to set aside an award issued in favour of the defendants by a three-member tribunal in an arbitration administered by the Singapore International Arbitration Centre. I shall refer to the award as a single award, although in truth it comprises a partial award issued on 9 May 2012 as amended by a further partial award issued on 15 June 2012 and as further amended by a memorandum of corrections issued on 5 July 2012.

To maintain the confidentiality attached to the arbitration, the plaintiffs in each application applied for and secured, without objection from the defendants, an order under s 22 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) that the proceedings in each application be heard otherwise than in open court and that the court’s electronic file in each application be sealed to prevent public inspection. To maintain that confidentiality, I have used pseudonyms in this judgment to refer to the parties and to any names by which they or their arbitration may be identified. I have also converted all sums denominated in local currency into the approximate equivalent in US dollars at a representative exchange rate.

The arbitration arises from the liquidation of a company I shall call the Corporation. The Corporation was the largest regional producer of a product I shall call Mithril. It carried on business in a country I shall call Moria, with its principal production facility in a city I shall call Erebor.

In the course of the Corporation’s liquidation, all of the following parties entered into an Asset Purchase Agreement (“the APA”): (a) the liquidator, (b) the Corporation’s secured creditors, (c) the Corporation’s shareholders and (d) the defendants. Under the APA, the defendants agreed to purchase certain assets from the Corporation. Some of these assets were encumbered with security interests in favour of the Corporation’s creditors. In exchange for these secured creditors’ agreement to the sale, and as part of the consideration for the assets they purchased, the defendants agreed to issue two notes for the benefit of the secured creditors. The terms of the notes were set out in an agreement between the defendants and the secured creditors known as the Omnibus Agreement (“the OMNA”).

At the time the parties entered into the APA, the Corporation owed a large amount of unpaid tax to the municipal authorities of Erebor. One of the conditions precedent to the closing of the transactions under the APA was the approval by the municipal authorities of a deferred payment scheme for this unpaid tax. This condition precedent was eventually satisfied when the liquidator delivered to the defendants what the parties referred to as a “tax amnesty agreement” (or “the TAA”). The TAA was liable to be revoked if any taxes in relation to the Corporation’s assets, including the assets which the defendants purchased under the APA, were not paid on time.

The transactions under the APA closed in 2004. Very soon thereafter, the defendants, the liquidator and the secured creditors of the Corporation became embroiled in disputes with the municipal authorities over the taxes that had to be paid in relation the Corporation’s assets, including assets which the defendants had purchased under the APA. The TAA was eventually revoked in 2006 because of the failure to pay certain taxes on time.

In 2008, the defendants commenced arbitration against a number of entities. In its final incarnation, the defendants’ case in the arbitration was that the liquidator, the secured creditors and the shareholders of the Corporation were in breach of the APA because they had failed to deliver to the defendants clean title to the assets which the defendants had purchased under the APA. The defendants alleged that title was not clean because the assets were subject to a tax lien. The defendants also claimed that the liquidator, the secured creditors and the shareholders were jointly and severally liable to indemnify the defendants for the failure of the secured creditors, in breach of their obligations under the APA, to settle certain property claims (“the Lost Land Claims”).

The tribunal agreed with the defendants. It awarded the defendants US$80m as damages for a lost opportunity to earn profits and an indemnity of about US$23.7m in respect of the Lost Land Claims. It also declared that the defendants were entitled to suspend performance of their payment obligations under the two notes (see [4] above) without consequence for so long as the plaintiffs remained in breach of their obligation to deliver clean title to the assets.

Dissatisfied with the award, the plaintiffs now apply to set it aside on two grounds:That they were unable to present their case in the arbitration within the meaning of Art 34(2)(a)(ii) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (“the Model Law”) and/or 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 IAA.That the award deals with disputes not contemplated by or not falling within the terms of the submission to the arbitration and/or contains decisions on matters beyond the scope of the submission to the arbitration, contrary to Art 34(2)(a)(iii) of the Model Law.

The parties

The plaintiff in Originating Summons No. [L] is the Corporation’s liquidator. The liquidator is represented by a team from WongPartnership LLP led by Mr Alvin Yeo SC.

The plaintiffs in Originating Summons No. [M] are 11 out of 24 secured creditors of the Corporation. For convenience, I shall refer to these 11 parties collectively as “the secured creditors”. They are represented by a team from Drew & Napier LLC led by Mr Davinder Singh SC.

The first to third plaintiffs in Originating Summons No. [N] are three investment funds which purchased on the secondary market the notes issued by the defendants (see [4] above) from some of the original 24 secured creditors of the Corporation. I shall refer to these three parties collectively as “the Funds”. The fourth plaintiff in this originating summons is the sub-custodian and agent for the Funds. These plaintiffs are represented by a team from Rodyk & Davidson LLP led by Mr Philip Jeyaretnam SC.

The two defendants in all three applications are special purpose vehicles incorporated under the laws of Moria. They are subsidiaries of a company I shall call Galaxy, incorporated under the laws of the Isle of Man. The defendants are represented by a team from Rajah & Tann LLP led by Mr Andre Yeap SC.

The parties’ cases in a nutshell and my decision

A number of the plaintiffs’ complaints about the award are common to all of the plaintiffs. The remaining complaints are specific to a particular set of plaintiffs. It suffices for now to list the plaintiffs’ seven principal complaints about the tribunal’s decision without attributing specific complaints to specific plaintiffs:The tribunal failed to consider the liquidator's submissions, arguments and evidence in support of his case that the obligation to deliver clean title to the assets under the APA was qualified to the extent of the TAA.The tribunal failed to consider the secured creditors’ and the liquidator’s submissions, arguments and evidence in support of their separate cases that it was the defendants – and not the liquidator – who were responsible for the TAA being revoked.The tribunal exceeded its jurisdiction by determining that the defendants suffered damage in the form of a loss of an opportunity to earn profits as a result of the plaintiffs’ breaches of the APA.As an alternative to (c), the secured creditors and the liquidator were unable to present their separate cases on whether the defendants had suffered damage in the form of a loss of an opportunity to earn profits as a result of the plaintiffs’ breaches of the APA.The tribunal exceeded its jurisdiction by suspending the defendants’ payment obligations under the two notes.The tribunal failed to consider the secured creditors' submissions, arguments and evidence in support of their case in relation to the Lost Land Claims.The tribunal exceeded its jurisdiction when it held that the Funds – who were merely purchasers of the notes in the secondary market – were liable to the defendants for breaches of the APA; further and in the alternative, the tribunal did not give the Funds an opportunity to present their case as to why they were not, as mere assignees of the notes, liable under the APA.

The defendants’ response, in short, is to deny that any of the grounds for setting aside the award have been established. They argue that the tribunal considered and rejected the plaintiffs’ separate cases on these main issues, leaving no basis on which to set aside the award. The defendants also maintain that the tribunal did have the jurisdiction to determine all of the issues which it did. Further, the defendants contend that the Funds submitted themselves to the jurisdiction of the tribunal voluntarily and without qualification, and therefore cannot be heard to complain about the result.

Having considered the parties’ written and oral submissions and the material that the parties have placed before me, I allow all three applications and set aside the award in its entirety. I now set out my reasons.

Background

As I have alluded to above, at the heart of the parties’ dispute is the question of how the existence of unpaid taxes over the Corporation’s property sold to the defendants under the APA affected the parties’ rights and obligations under the APA and, separately, under the notes. Before I deal with that issue, however, it is useful to flesh out the facts in a little more detail.

The Corporation goes into liquidation

In 1999, the Corporation...