BBA and others v BAZ and another appeal

• Judge: Sundaresh Menon CJ
• Judgment Date: 28 May 2020
• Neutral Citation: [2020] SGCA 53
• Citation: [2020] SGCA 53
• Defendant Counsel: Gopal Subramanium Senior Advocate (ad hoc admitted), Suresh Divyanathan, Leong Yu Chong Aaron, Cherisse Foo Ling Er (Oon & Bazul LLP)
• Docket Number: Civil Appeal Nos 9 and 10 of 2019
• Hearing Date: 24 February 2020
• Plaintiff Counsel: Narayanan Sreenivasan SC, Rajaram Muralli Raja, Tan Kai Ning Claire, Ranita Yogeeswaran (K&L Gates Straits Law LLC),Yeo Khirn Hai Alvin SC, Rajan Menon Smitha, Stephanie Yeo Xiu Wen, Li Yiling Eden (WongPartnership LLP)
• Published date: 02 June 2020
• Court: Court of Appeal (Singapore)
• Date: 28 May 2020
• Subject Matter: Award,Setting aside,Arbitration

Quentin Loh J (delivering the judgment of the court): Introduction

These two appeals arise from the sale and purchase of a controlling 64% stake of the shares (“the Shares”) in a company, C, which was said to be India’s largest manufacturer of generic pharmaceutical products. The buyer was BAZ, a Japanese corporation. The sellers comprised the family members of C’s founder and several companies controlled by them (“the Sellers”). The Sellers were led by BBA, a grandson of C’s founder. Five of the Sellers were minors (“the Minors”).

Disputes arose over alleged misrepresentation and concealment of material facts by the Sellers. BAZ commenced arbitration in Singapore on 14 November 2012 against the Sellers, 20 of whom were eventually named as respondents in the arbitration. In an award dated 29 April 2016 (“the Award”), the majority of the tribunal (“the Majority”) held in favour of BAZ.

BAZ is the respondent in these appeals. It had applied in Originating Summons No 490 of 2016 (“OS 490”) for leave to enforce the Award, and obtained an ex parte order for enforcement on 18 May 2016. OS 490 was then opposed by the Sellers. The Sellers split themselves into two groups with each filing a summons on 15 September 2016 to set aside the ex parte enforcement order obtained by BAZ: a group comprising the Minors, being the 5th, 9th, 10th, 11th and 12th defendants in OS 490, filed Summons No 4497 of 2016 (“SUM 4497”); and the remaining defendants, being the 1st to 4th, 6th to 8th and 13th to 20th defendants, whom we shall call “the OS 784 Sellers” (see [4(b)] below), filed Summons No 4499 of 2016 (“SUM 4499”).

Before filing SUM 4497 and SUM 4499, the Sellers also commenced proceedings against BAZ on 3 August 2016 seeking to set aside the Award under s 24 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) and Arts 34(2)(a)(iii) and 34(2)(b)(ii) of the UNCITRAL Model Law (“ML”): The Minors filed Originating Summons No 787 of 2016 (“OS 787”). The OS 784 Sellers filed Originating Summons No 784 of 2016 (“OS 784”).

In BAZ v BBA and others [2018] SGHC 275, the High Court judge (“the Judge”) dismissed the OS 784 Sellers’ setting aside application and SUM 4499, but allowed the Minors’ setting aside application and SUM 4497. Only the OS 784 Sellers appealed.

On appeal, three of the OS 784 Sellers (the 5th, 6th and 7th defendants in OS 784) sought separate representation to bring Civil Appeal No 10 of 2019 (“CA 10”), while the remaining OS 784 Sellers brought Civil Appeal No 9 of 2019 (“CA 9”). We will refer to the appellants as the “CA 9 Appellants”, the “CA 10 Appellants”, or collectively, “the Appellants”, as the case may be.

We reserved judgment after hearing the parties, and now deliver our decision dismissing CA 9 and CA 10 in their entirety.

Facts Background to commencement of arbitration

It would be helpful to establish the timelines of the salient events in this dispute to appreciate some of the issues that arose and how they came to be resolved by the arbitral tribunal.

BAZ approached BBA at the end of 2007 to negotiate the purchase of the Shares. The parties signed the Sale and Purchase Agreement (the “SPA”) on 11 June 2008. Completion of the SPA took place on 7 November 2008. BAZ paid the Sellers around INR 198 billion (about US$4.6 billion) for the Shares. After completion, BBA initially continued as a director of C, but he subsequently resigned on 24 May 2009 following differences of opinion with BAZ’s appointees on the Board. By that time relations between BBA and BAZ had become strained.

The disputes that led to the arbitration arose over an internal report which BAZ alleged the Sellers had concealed from it. It transpired that in September 2004, the then-President of C’s Research and Development Department had issued a Self-Assessment Report (“the Report”) detailing how C engaged in data falsification to expedite the obtaining of regulatory approval for numerous drug products around the world. The Report did not garner much attention within C, but in 2005, an employee of C blew the whistle by secretly disclosing the Report to the United States authorities. The United States Department of Justice (“DOJ”) and the United States Food and Drug Administration (“FDA”) began investigations in early 2006. BAZ and the Sellers dispute when BAZ came to know of the Report or when BAZ could, with reasonable diligence have discovered it. Be that as it may, negotiations with the DOJ and FDA led to a settlement or consent decree in December 2011, and C made provision for paying an anticipated settlement sum of US$500 million.

As noted, on 14 November 2012, BAZ commenced arbitration against the Sellers under the SPA alleging misrepresentation and concealment of facts regarding the extent of the investigations by the DOJ and FDA.

After BAZ commenced arbitration, the following events occurred: On 13 May 2013, C paid the DOJ the settlement sum of US$500 million. On 6 April 2014, BAZ announced the merger of C with another company (“Y Co”), under which all of C’s shareholders would receive 0.8 Y Co shares for every one share in C (“the Merger”). From 29 September to 10 October 2014, the substantive hearings of the arbitration were held in Singapore. On 25 March 2015, the Merger of C with Y Co was completed. On 21 April 2015, BAZ sold all its shares in Y Co in the open market. On 29 April 2016, the Majority rendered their Award.

We note at this juncture that the governing law of the SPA is Indian law and the SPA contains the following arbitration clause: 13.14 Dispute Resolution; Arbitration 13.14.1 Any and all claims, disputes, questions or controversies involving the Sellers (or any of them) and the Company on the one hand and the Buyer and/or its Affiliates on the other hand … arising out of or in connection with this Agreement, or the execution, interpretation, validity, performance, breach or termination hereof (collectively, “Disputes”) which cannot be finally resolved by such Parties within 60 (sixty) calendar days of the arising of a Dispute by amicable negotiation and conciliation shall be resolved by final and binding arbitration to be administered by the International Chamber of Commerce (the “ICC”) in accordance with its commercial arbitration rules then in effect (the “Rules”), provided that following the Subsequent Sale Shares Closing, the Sellers on the one hand and the Company and the Buyer on the other hand shall be considered as separate Disputing Sides. The place of arbitration shall be Singapore. … The arbitrators shall not award punitive, exemplary, multiple or consequential damages. …

…

13.14.4 … The Award shall include interest from the date of any breach or other violation of this Agreement and the rate of such interest shall be specified by the arbitral tribunal and shall be calculated from the date of any such breach or other violation to the date when the Award is paid in full. The Majority’s decision in the Award

In its Award dated 29 April 2016, the Majority addressing the following key issues.

Time bar defence

The Sellers argued that BAZ’s claim was time-barred under s 17 of the Indian Limitation Act 1963 (Act No 36 of 1963) (India) (“Indian Limitation Act”). This provided that for a claim based on the defendant’s fraud, time begins to run once the plaintiff has discovered, or could with reasonable diligence have discovered, the fraud. BAZ could have discovered the concealment of the Report with reasonable diligence following multiple events occurring between October 2008 and end April 2009. A person in a senior leadership position in BAZ was allegedly informed that the US authorities were in possession of the Report. BAZ, on the other hand, argued that it only became aware of the concealment of the Report on 19 November 2009, such that the commencement of arbitration on 14 November 2012 was within the limitation period.

The Majority found that the commencement of the arbitration was not time-barred. It made a finding of fact that notwithstanding two meetings in March 2009 at which the Report was mentioned, this was insufficient to fix BAZ with the requisite knowledge of the fraud. BAZ had acted with reasonable diligence in the entire context and could not have discovered the Report before 19 November 2009 without having to take exceptional measures which it could not reasonably have been expected to take.

Damages for fraudulent misrepresentation

The Majority awarded about INR 25 billion in damages for fraudulent misrepresentation after finding that BBA was liable for fraud under the Indian Contract Act 1872 (Act No 9 of 1872) (India) (“Indian Contract Act”). BAZ had not sought rescission but instead 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. 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 performed, and that he shall be put in the position in which he would have been if the representations made had been true.

[emphasis added]

The Majority stated that it was “not disputed” that under Indian law, the measure of damages recoverable under the second limb of s 19 of the Indian Contract Act would be similar to those recoverable for fraudulent misrepresentation under general tort principles. The Majority relied on the Gujarat High Court decision in R C Thakkar v Gujarat Housing Board AIR 1973 Guj 34 (“RC Thakkar (HC)”) and the House of Lords decision of Smith New Court Securities Ltd v Citibank NA [1997] AC 254 (“Smith New Court”). The Majority noted...