BLB and another v BLC and others

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 30 September 2013
• Neutral Citation: [2013] SGHC 196
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1006 of 2012
• Year: 2013
• Published date: 14 November 2013
• Hearing Date: 11 April 2013,26 February 2013
• Plaintiff Counsel: Hri Kumar Nair SC and Teo Chun-Wei Benedict (Drew & Napier LLP)
• Defendant Counsel: Chenthil Kumar Kumarasingam and Aston Lai (Lawrence Quahe & Woo LLC)
• Citation: [2013] SGHC 196

Belinda Ang Saw Ean J: Introduction

This application vide Originating Summons No 1006 of 2012 (“OS 1006/2012”) is to set aside an arbitral award dated 31 July 2012 (“the Award”) for the sole arbitrator’s purported failure to decide a counterclaim that was submitted to arbitration. The arbitration proceedings followed an unsuccessful joint venture in Malaysia between two groups of companies. For convenience, the parties have referred to the subject arbitration as “the BOA Arbitration”. The abbreviation “BOA” stands for the “Business Operations Agreement” as described in [12(c)] below.

The first to third defendants viewed OS 1006/2012 as an attempt by the plaintiffs to have the court interfere with and judicially review the merits of the findings of fact and law reached by the sole arbitrator (“the Tribunal”). In such a case, there would be no recourse to the court, and the losing parties would remain contractually bound to accept the Tribunal’s decision whether or not they think it right. In contrast, the plaintiffs’ principal ground of complaint, viz. that the Tribunal’s treatment of their counterclaim was contrary to the rules of natural justice, represents the other extreme. On this ground of complaint, the law permits recourse to the courts pursuant to s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) and Art 34(2) of the UNCITRAL Model Law for International Commercial Arbitration 1985 (“the Model Law”). The parties’ opposing positions embody a tension that is becoming increasingly apparent in the context of curial challenges to arbitral decisions. On one hand, the supervisory function of the court requires it to step in to provide relief in cases of genuine challenges. On the other hand, the linked principles of minimal curial intervention and finality in proceedings demand that this power of intervention be exercised warily and only in meritorious cases where statutorily prescribed grounds for setting aside have been established. This tension is further heightened when the losing party attempts to air its grievances before the court as complaints of breaches of natural justice or other established grounds of challenge and in doing so attempts to re-open the arbitration or traverse over the issues in the arbitration. The court must firmly resist any such attempts.

The recent case of TMM Division Maritama SA de CV v Pacific Richfield Marine Pte Ltd [2013] SGHC 186 (“TMM”) exemplifies this tension. There, Chan Seng Onn J declined to set aside the arbitral award in question, finding that no breaches of the rules of natural justice had occurred in connection with the making of the award. Implicit in the reasoning of Chan J was the finding that curial recourse against the award had been improperly used to invite the court to judge the full merits and conduct of the arbitration (see TMM at [126]). The following observations in TMM (at [2]) merit citation:

Although parties have a right and expectation to a fair arbitral process and the courts should give maximum effect to these safeguards in deserving cases, parties must not be encouraged to dress up and massage their unhappiness with the substantive outcome into an established ground for challenging an award. Particularly for international commercial arbitrations under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), it is imperative that an application to set aside an award under s 24 read with Art 34(2) of the UNCITRAL Model Law for International Commercial Arbitration 1985 (“Model Law”) is not a guise for a rehearing of the merits. Unfortunately, as this case exemplifies, sieving out the genuine challenges from those which are effectively appeals on the merits is not easy under the present law. [emphasis added]

The central issue before me relates to which of the two diametrically opposing scenarios the present application falls into. Nevertheless, due to the concerns just discussed, it is my view that in a borderline case the benefit of doubt would invariably favour the tribunal. Contractual Background The parties

The second plaintiff (“P2”) is a public company incorporated in Malaysia primarily involved in the automotive industry and a component member of the [P] group of companies (loosely referred to by the Tribunal as [P]).

The second defendant (“D2”) is a company incorporated in Germany in the business of producing butt-weld pipe fittings and bespoke piping components mainly using hydroforming technology. This last-mentioned technology is acknowledged by the parties to be a core competence of the [D] group of companies (hereafter [D]), of which D2 is a component member.

The fourth defendant is a Malaysian-incorporated subsidiary of D2 established to undertake manufacturing operations for D2 in Malaysia. D4 is now in liquidation (see below at [10]).

The first defendant (“D1”) is also a subsidiary of D2 and is in the business of selling and distributing products made by D2.

The third defendant was and is the sole shareholder of D2. He is regarded by the first two defendants as the alter ego of the [D] group of companies.

The first plaintiff (“P1”) is a Malaysian-incorporated company and a joint venture vehicle between P2 and D2. Pursuant to the joint venture, P2 holds 75% and D4 holds 25% of the issued shares in P1.

The plaintiffs were represented by Mr Hri Kumar Nair SC (“Mr Kumar”). The first to third defendants were represented by Mr Chenthil Kumar Kumarasingam (“Mr Kumarasingam”) who indicated, at the hearing of this present application, that an order had been made to wind up D4. D4 did not participate in the present application even though OS 1006/2012 was served on the liquidator. D4 was not affected by the bulk of the counterclaim but only by a claim for RM 22,185.88.

The agreements

In 2002, [P] and [D] negotiated a possible joint venture in which D2 would sell its shares and business operations in D4 to P2, which was desirous of acquiring [D]’s expertise in the aforementioned hydroforming technology.

Following negotiations between the parties, a Heads of Agreement dated 3 July 2003 was entered into between D2 and P1. It was followed in time by, inter alia, the following agreements: An Asset Sale Agreement (“the ASA”) dated 13 October 2003 between D4 and P1 effecting the sale by D4 to P1 of D4’s business; A Shareholders Agreement dated 3 April 2004 between D4 and P2 pursuant to which P2 subscribed for sufficient shares in the enlarged capital of P1 to constitute P2 as owner of 75% of P1; A Business Operations Agreement dated 3 April 2004 (“the BOA”) between D1 and P1 regulating the obligations of the parties in promoting the commercial success of the joint venture; and A Licence Agreement dated 3 April 2004 (“the LA”) between D1 and P1 granting P1 a licence to use the [D] trademark on products manufactured by P1, subject to the products meeting [D]’s quality standards. Upon the completion of the ASA on 23 June 2005, the purchase consideration was paid in the following modes: RM14m paid in cash, RM10m by way of an issue to D4 of shares in P2 and RM26m by way of an issue to D4 of shares in P1 (making D4 the owner of 25% of P1).

In the context of the present application, the following terms of the BOA and LA are pertinent. Clause 5 of the BOA provided for D1’s purchase of a minimum quantity of the annual production of all “[P1] Product Lines” (defined in the BOA) from P1. Clause 5.4.1 of the BOA provided that upon call-offs being made by [D], P1 was to ensure that the products for which call-offs had been sent were ready for delivery within a period of time prescribed by the BOA. Finally, under the LA (see above at [12(d)]), D1 granted P1 a non-transferable and non-exclusive licence to use the [D] trademark on products manufactured and sold by P1 subject to the products meeting D1’s quality standards.

The breakdown of the joint venture

In or around June 2005, P2 took over operation of P1. Between July and December 2005, D2 made various call-offs for the [P1] Product Lines. However, P1 could not fulfil all the orders and failed to deliver all of the products ordered within the time period prescribed by the BOA. On or about 18 May 2006, D2 issued a Notice of Default in delivery to P1. On or about 11 July 2006, D1 also issued a Notice of Default for purported breaches of the BOA and LA, particularly in respect of delay of supply, failure to adequately stock raw materials, and defective products. Following further correspondence, D1 wrote to P1 on 15 August 2006 to terminate the BOA and LA.

Notwithstanding the purported breaches by P1, D1 issued 14 purchase orders to P1 between July 2006 and February 2007 amounting to €6,704,065. On or about 13 February 2007, P1 wrote to D1 to demand payment of RM4,653,604.78 purportedly owed for goods sold and delivered by P1 as of December 2006. On 14 February 2007, D1 responded to this demand as follows:¹ 2. We dispute that there is an outstanding amount of RM4,653,604.78 due from [D1] to [P1]. We are currently undertaking our own verification exercise on the goods/products purchased from [P1] (the “Verification Exercise”). 3. Firstly, please note that the anti-dumping cost and the cost for defective products are obviously not taken into consideration in your outstanding amount. Full particulars of these issues are very well known to you and I’d like to remind that we have not received an answer to our letter dated 19th of January 2007. 4. As is obvious from the foregoing and:- (i) Subject to us receiving a satisfactory clarification from you with regards to the debit notes for the defective products; and (ii) Without Prejudice to the Verification Exercise and after taking into account and setting-off the outstanding amount of RM4,653,604.78 purportedly due from [D1] to [P1] against a reciprocal amount from the Receivable (the “Set-Off”);

there is an amount of RM224,630.00...