BYL and another v BYN

• Jurisdiction: Singapore
• Court: International Commercial Court (Singapore)
• Judge: Anselmo Reyes IJ
• Judgment Date: 03 March 2020
• Neutral Citation: [2020] SGHC(I) 6
• Citation: [2020] SGHC(I) 6
• Plaintiff Counsel: Davinder Singh SC, David Fong and Sivanathan Jheevanesh (Instructed), Kabir Singh and Tan Tian Yi (Cavenagh Law LLP)
• Published date: 07 March 2020
• Hearing Date: 17 February 2020
• Docket Number: Originating Summons No 9 of 2019
• Subject Matter: Award,Arbitration,Challenge against arbitrator,Bias,Recourse against award
• Date: 03 March 2020
• Defendant Counsel: Thio Shen Yi SC, Niklas Wong and Kevin Elbert (TSMP Law Corporation)

Anselmo Reyes IJ: Introduction

BYL (the “Promoter”) and BYM (the “Company”) (collectively, the “Plaintiffs”) applied to set aside a Partial Award (the “ICC Award”) dated 30 April 2019. The ICC Award was issued by a tribunal (the “Tribunal”) of three arbitrators in an ICC Arbitration (the “ICC Arbitration”) wherein BYN (the “Investor”) was the Claimant, while the Promoter and Company were the1st and 3rd Respondents respectively. The Tribunal consisted of two co-arbitrators (respectively, Mr. [X] SA (“SA”) and Mr. [Y] QC) and the chairperson (“Chairperson”). The ICC Arbitration started on 11 February 2016. The 2nd Respondent in the Arbitration had been dissolved on 10 September 2015 and so did not play a material part in the ICC Arbitration. The seat of the ICC Arbitration is Singapore. But, as found by the Tribunal, Indian law governs the arbitration agreement. The ICC Arbitration remains ongoing. SA has since resigned as co-arbitrator in the circumstances described below and has been replaced by Mr. [Z]. An oral hearing took place in the ICC Arbitration from 29 May to 1 June 2018. That was followed by several rounds of written closing submissions. On 22 March 2019 the Tribunal notified the parties that the arbitral proceedings were closed, and the Tribunal proceeded to its award.

The Plaintiffs’ setting aside application is premised on two grounds. The first ground (the “put option ground”) arises from the Tribunal’s decision to award reliefs under two put options in a shareholders’ agreement. According to the Plaintiffs, by the ICC Award the Tribunal ordered alternative reliefs. The Plaintiffs say that the Tribunal thus failed to decide the dispute before it and improperly conferred upon itself the power to change the ICC Award if part of it was later found to be unenforceable by a court. The second ground (the “bias ground”) arises from the conduct of a Tribunal member. The latter is said to have made belated and only partial disclosures of a co-counsel relationship that he negotiated and entered into with the Investor’s legal representatives in the ICC Arbitration while the ICC Award was still being drafted and finalised. The relevant arbitrator’s circumstances are said to give rise to a reasonable suspicion of bias (that is, apparent bias) vitiating the ICC Award.

Background

The dispute underlying the ICC Arbitration arose out of a Share Subscription and Shareholders Agreement dated 7 August 2008 (the “SSHA”) among the parties to the ICC Arbitration. The Company was set up by the Promoter as a special purpose vehicle for the construction and operation of a development (“Development”). Under the SSHA, the Investor became a 35% shareholder in the Company, with the Promoter holding the remaining 65%. The Investor was obliged under the SSHA to provide capital for the Development. In consideration for the Investor’s investment, the Promoter undertook to construct the Development by a commercial operation date (“COD”) of 1 January 2012 and thereafter to promote the Development. Construction was delayed, so that the Development only commenced operations on 23 September 2017, after the start of the ICC Arbitration. Part of the Development has yet to come into operation.

Clauses 14 and 17 of the SSHA gave the Investor two put options. The clause 14 put option could be exercised upon the Promoter’s failure to undertake an IPO of the Company. By the clause 14 put option, the Promoter was obliged to purchase the Investor’s shares in the Company at their “Fair Market Value” (“FMV”) as at a specified date. The clause 17 put option was exercisable upon an “Event of Default” (“EOD”) as defined in clause 17, including delay to the Development’s COD and a material breach of the SSHA. By the clause 17 put option, the Promoter was obliged to purchase the Investor’s shares in the Company at a price corresponding to an “Internal Rate of Return” (“IRR”) of 25% compounded annually. Clause 28.3 of the SSHA further provided that:

Each of the rights of the Parties hereto under this [SSHA] are independent, cumulative and without prejudice to all other rights available to them, and the exercise or non-exercise of any such rights shall not prejudice or constitute a waiver of any other right of the Party, whether under this [SSHA] or otherwise.

On 1 April 2016 the Investor nominated Mr. [Y] as co-arbitrator. The Investor was represented by the Indian firm [AAA]. On 2 May 2016 the Investor informed the ICC and the Plaintiffs that an international firm of solicitors [BBB] (“the Firm”) would act as co-counsel for the Investor.

The Plaintiffs nominated SA as arbitrator on 7 April 2016. SA practises as an independent counsel and as an arbitrator. He signed a Statement of Acceptance, Availability, Impartiality and Independence on 9 May 2016 when he was designated by the Plaintiffs as arbitrator. There SA disclosed that he was acting as mediator in a dispute between the two partners of [CCC] firm. [CCC] split into two firms, one of which, [DDD], had previously represented the Plaintiffs and had nominated SA in the ICC Arbitration. On 19 May 2016 the Investor confirmed that it had no objection to SA’s appointment as arbitrator. The Investor noted that neither it nor its associated companies had engaged SA in the past. The Investor further stated that, due to SA’s stature as an advocate, it was aware that SA “has been instructed on a regular basis by [[AAA]] as a counsel and … that he has been (and continues to be) instructed by [[DDD]]”. The Investor did not regard those matters as problematic. For their part, the Plaintiffs did not complain that [AAA] had been instructing SA. As for the Firm, it had previously only had two contacts with SA before the ICC Arbitration. In 2003 the Firm engaged SA as an expert for an unrelated arbitration. In 2012 the Firm, including the lead lawyer (Mr. [N] QC) of the Firm’s team representing the Investor in the ICC Arbitration, had acted against SA in another unrelated arbitration. Prior to the events set out below, the Firm had never acted as co-counsel with SA.

On 31 May 2016 the ICC confirmed the appointments of Mr. [Y] and SA as co-arbitrators. The Chairperson was appointed as presiding arbitrator on 28 July 2016.

SA circulated that part of the ICC Award drafted by him to the other members of the Tribunal on 5 March 2019. On 22 March 2019 the Tribunal sent a draft of the ICC Award to the ICC for scrutiny. On 18 April 2019 the ICC approved the draft ICC Award with comments. On 25 April 2019 the Tribunal informed the parties that it had revised the draft ICC Award on the basis of the ICC’s comments and had sent the same to the ICC for final approval. The ICC transmitted the finalised ICC Award to the parties on 3 May 2019.

A major area of dispute in the ICC Arbitration was whether the Investor could invoke the clauses 14 and 17 put options at the same time. The Investor maintained throughout the ICC Arbitration that, by clause 28.3 of the SSHA, it was entitled to bring claims under clauses 14 and 17 “in tandem”.

More specifically, the Investor’s Statement of Claim dated 9 February 2017 (the “SOC”) in the ICC Arbitration asked in [201] that:

[The Investor] be granted, the highest sum of the prayers sought below:

i. direct specific performance of the [Promoter]’s obligation to pay the price set out in Clause 17.2(a) of the [SSHA], being USD 70.5 million; ii. in the alternative, direct the [Promoter] to pay to the [Investor] the maximum price permissible under Indian law, being USD 24.86 million, and a further sum of USD 45.6 million as damages / compensation for the [Plaintiffs’] failure to perform their obligations under Clause 17; iii. in the further alternative, direct the [Promoter] to pay to the [Investor] damages / compensation equivalent to the price set out in Clause 17.2(a) for the [Plaintiffs’] breach of their obligations under Clause 17, being USD 70.5 million; iv. damages equivalent to the FMV Price, which amounts to USD 24.86 million; and v. in the further alternative, direct the [Promoter] to pay to the [Investor] such other sums as the Tribunal thinks fit.

By the time of its Post-Hearing Brief dated 24 September 2018, the Investor had refined the relief being sought as follows:

… In respect of amounts sought under paragraph 201 of the SOC, the [Investor] wishes to clarify that the priority of relief requested is as follows:

(a) damages in the amount of the Clause 17.2 price calculated in accordance with paragraph 8.4(d) above (the Relevant Clause 17.2 Price) as compensation for the [Promoter]’s breach of Clause 17.2; (b) specific performance of the [Promoter]’s obligation to pay the Relevant Clause 17.2 Price up to the maximum amount permissible under the FEMA [that is, India’s Foreign Exchange Management Act 1999] regime, being the FMV Price of USD 25.88 million, and damages for the remainder of the Relevant Clause 17.2 Price as compensation for the [Plaintiffs’] breach of Clause 17.2; (c) specific performance enforcing the [Promoter]’s obligation to pay the Relevant Clause 17.2 Price; (d) damages of USD 25.88 million (being the FMV Price) as compensation for the [Promoter]’s breach of Clause 14.2; or (e) in the alternative, directions to the [Promoter] to pay to the [Investor] such other sums as the Tribunal sees fit.

[emphasis in original]

The Investor repeatedly stressed, as the Tribunal put it in the ICC Award, that “it does not seek double recovery, and it has only sought recovery of the highest amount available”.

The Plaintiffs’ case, on the other hand, was summarised by the Tribunal in the ICC Award as follows:

… [I]n their Post-hearing Brief, at paras 338-340, the [Plaintiffs] repeat their pleaded submission, contending that to pursue rights under clauses 14 and 17 in tandem is absurd and cannot be accepted – "the [Investor] cannot sell the same shares twice by...