BAZ v BBA and others and other matters

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 21 December 2018
• Neutral Citation: [2018] SGHC 275
• Plaintiff Counsel: Suresh Divyanathan and Aaron Leong (Oon & Bazul LLP) and Gopal Subramanium (Senior Advocate as Co-Counsel),Suresh Divyanathan, Aaron Leong and Victoria Choo (Oon & Bazul LLP) and Gopal Subramanium (Senior Advocate as Co-Counsel),Lee Eng Beng SC. Kelvin Poon, Alyssa Leong and Matthew Koh (Rajah & Tann Singapore LLP) and Harish Salva (Senior Advocate and Co-Counsel)
• Docket Number: Originating Summons No 490 of 2016 (Summons No 4497 of 2016) (Summons No 4499 of 2016); Originating Summons No 784 of 2016 and Originating Summons No 787 of 2016
• Date: 21 December 2018
• Hearing Date: 09 April 2018,10 April 2018,13 April 2018,11 April 2018,12 April 2018
• Subject Matter: Foreign award,Award,Enforcement,Arbitration,Recourse against award,Setting aside
• Year: 2018
• Defendant Counsel: Alvin Yeo SC, Smitha Menon and Stephanie Yeo and Doralyn Chan (WongPartnership LLP) and Harish Salva (Senior Advocate and Co-Counsel),Suresh Divyanathan, Aaron Leong and Victoria Choo (Oon & Bazul LLP) and Gopal Subramanium (Senior Advocate as Co-Counsel)
• Court: High Court (Singapore)
• Citation: [2018] SGHC 275
• Published date: 12 June 2020

Belinda Ang Saw Ean J: Introduction

The plaintiff in Originating Summons No 490 of 2016 (“OS 490”) has obtained leave of Court to enforce an award of 29 April 2016 (“the Award”), which is in excess of S$720 million, as a judgment of the High Court. The ex parte leave order dated 18 May 2016, namely HC/ORC 3190/2016, was made pursuant to s 19 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”). In opposing the ex parte leave order, the defendants in OS 490 filed, amongst them, Summons No 4499 of 2016 and Summons No 4497 of 2016 to set aside HC/ORC 3190/2016. Amongst them, they also filed Originating Summons No 784 of 2016 (“OS 784”) and Originating Summons No 787 of 2016 (“OS 787”) to set aside the Award pursuant to s 24 of the IAA, Article 34(2)(a)(iii) and Article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) as set out in the First Schedule to the IAA.

For convenience, the plaintiff in OS 490 is hereinafter referred to as the “Buyer”. The 1st to 4th, 6th to 8th, 13th to 20th defendants in OS 490 are the plaintiffs in OS 784. The 5th, 9th to 12th defendants in OS 490 are the plaintiffs in OS 787. I will refer to all the defendants in OS 490 and the plaintiffs in OS 784 and OS 787 collectively as the “Sellers”. As there are minors involved in these proceedings, whenever it is necessary to distinguish the minors, who are the plaintiffs in OS 787 and the 5th, 9th to 12th defendants in OS 490, the minors shall be collectively referred to as the “Minors” and the rest of the defendants in OS 490 shall be collectively referred to as the “OS 784 Sellers”.

The OS 784 Sellers are represented by Mr Alvin Yeo SC (“Mr Yeo”). The Minors are represented by Mr Lee Eng Beng, SC (“Mr Lee”). Mr Suresh Divyanathan (“Mr Divyanathan”) represents the Buyer. As for the several discrete issues on Indian law in the present case, Mr Harish Salve, SA (“Mr Salve”) represents the OS 784 Sellers and the Minors, and Mr Gopal Subramanium (“Mr Subramanium”) represents the Buyer.

The parties entered into a Share Purchase and Share Subscription Agreement dated 11 June 2008 (“the SPSSA”) under which the Buyer purchased shares in an Indian company (“C”) that were held by the Sellers in their respective sizes of shareholding (collectively referred to as the “Shares”). It is not disputed that Indian law governs the SPSSA. The SPSSA was completed on 7 November 2008 and the Buyer became the controlling shareholder of C. The SPSSA contains an arbitration agreement (the “Arbitration Agreement”), which is clause 13.14.1 (reproduced at [71] supra).

In brief, the arbitration arose out of the Sellers’ concealment of a September 2004 internal report called the Self-Assessment Report (“SAR”) on the improper regulatory transgressions and practices involving false data for submissions to regulatory agencies in several countries. The Buyer said that the SAR was driving foreign government investigations into C’s distribution and sales overseas, and there was concealment from the Buyer of the genesis, nature and severity of the investigations that were ongoing at the time of the acquisition of the Shares. The Buyer claimed that the concealment was perpetrated by the Sellers so as to induce the Buyer to buy the Shares at a price that did not reflect their true value.

The Award was a decision of a majority (“the Majority”) of the three-member tribunal (“Tribunal”). The Majority decided that the Sellers are jointly and severally liable in damages for the harm suffered by the Buyer as a result of the concealment. The Sellers’ jurisdictional challenges on the damages and pre-award interest (“Pre-Award Interest”) are that the Majority exceeded the powers conferred on the Tribunal by the Arbitration Agreement. Specifically, clause 13.14.1 of the SPSSA provided that “[t]he arbitrators shall not award punitive, exemplary, multiple or consequential damages”. Another jurisdictional challenge raised by the OS 784 Sellers pertains to the question of time limitation which is a jurisdictional issue under Indian law.

It is not disputed that the Award is a Singapore-seated award. As to the governing law of the Arbitration Agreement, there is no express choice of law governing the Arbitration Agreement. Mr Salve for the Sellers submits that Indian law is the governing law, being the law that has the closest and most real connection with the underlying contract.¹ As Mr Yeo explains, regardless of whether the governing law of the Arbitration Agreement is Indian or Singapore law, the challenge to the Award would be based on Singapore law as the law of the seat of the arbitration. To this end, given that the proper law of the SPSSA is Indian law, this court accepts that the implied choice of law of the Arbitration Agreement is Indian law in the absence of any contrary intention of the parties, applying BCY v BCZ [2017] 3 SLR 357. The Indian law issues are, inter alia, premised on Indian law as the governing law of the Arbitration Agreement and relevant aspects of Indian law would have to be adduced in evidence as facts for this court’s determination in the setting aside proceedings. This court agrees that the question as to whether HC/ORC 3190/2016 giving leave to enforce a Singapore award as a High Court judgment should be set aside or whether the Award should be set aside based on s 24 of the IAA and Article 34 of Model law is a matter of Singapore law as the law of the country where the Award was made.

Mr Lee for the Minors claim that although Indian law, being the substantive law of the SPSSA, should be used to construe the Arbitration Agreement, Singapore law might still have some relevance to the construction of the Arbitration Agreement because Indian law stipulates that the law of the seat should govern the interpretation of an arbitration agreement.² This proposition is curious since Mr Salve, also acting for the Minors, has accepted that Indian law is the governing law, without acknowledging the correctness of the proposition. The determination of the governing law of an arbitration agreement is a matter for Singapore law, being that of the curial court which is adjudicating the current setting aside proceedings (OS 784 and OS 787) and enforcement proceedings (OS 490).

I take the background facts largely from the Award.

The ICC Arbitration and the Award

The Award consists of 374 pages. I propose to summarise the details that illuminate the issues in the present applications. I start with the facts of the case and the findings of facts by the Majority that are not challenged. I will then touch on the Majority’s decision that is the subject matter of the setting aside proceedings.

As stated, the underlying dispute between the parties concerns the SPSSA whereby the Buyer acquired a controlling stake in C. The warranties and representations given by the Sellers were limited. In the same vein, the sale price of the Shares reflected to a certain extent the ongoing investigations into C by regulators and authorities in the United States of America. Whilst it was agreed that the Buyer was aware of the investigations throughout the period of negotiations, signing and completion of the SPSSA, the parties disagreed as to the Buyer’s knowledge of the source, extent and severity of the investigations that were being pursued in the USA at the time the Buyer entered into the SPSSA. The severity concerned the prospect of C facing criminal liability.³ After the Buyer took over C, the Buyer settled with the regulator in the USA on 13 May 2013 by paying a sum of money (“the Settlement Sum”). Subsequently, the Buyer entered into a share exchange (the “Share Swap”) with another company for its shares (“the Swapped Shares”), in the ratio of one C share for 0.8 of that company’s share. This Share Swap transaction was announced on 6 April 2014 and was completed on 25 March 2015.

The Buyer commenced arbitration proceedings against the Sellers on 14 November 2012. The Buyer’s primary claim in the arbitration was that the Sellers had concealed the SAR that was driving the investigations in the USA on the improper regulatory transgressions and practices involving false data for submissions to regulatory agencies in several countries, thereby fraudulently misrepresenting the level of risks posed by the investigations. The Buyer said that there was concealment from the Buyer of the genesis, nature and severity of the investigations. The Buyer claimed that the concealment was perpetrated by the Sellers so as to induce the Buyer to buy the Shares at a price that did not reflect their true value. It was averred that the concealment constituted fraud under the Indian Contract Act 1872 (Act No 9 of 1872) (India) (“Indian Contract Act”) and that but for the fraud, the Buyer would not have entered into the SPSSA. The Buyer did not seek rescission of the SPSSA but relied on s 19 of the Indian Contract Act to seek damages that would put it in the same positon as if the representation had been true. The Buyer also sought pre-award and post-award interests.

The Majority found that the elements of s 17 of the Indian Contract Act had been satisfied and that the Sellers were liable for fraudulently misrepresenting or concealing from the Buyer the genesis, nature and severity of C’s regulatory problems. The Majority held that the Buyer would not have bought the Shares had it known of the SAR, but also found that the Buyer did not seek to avoid the SPSSA, so the second limb of s 19 of the Indian Contract Act applied. Section 19 states: 19. Voidability of agreements without free consent:– When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be...