Case Note

Citation(2013) 25 SAcLJ 325
Published date01 December 2013
AuthorGerald Chien-Yi KUPPUSAMY LLM (Harvard), LLB (National University of Singapore); FCIArb, FSIArb; Advocate and Solicitor (Singapore), Attorney and Counsellor-at-Law (New York State); Senior Legal Consultant, Baker & McKenzie.Wong & Leow.
Date01 December 2013


PT Prima International Development v Kempinski Hotels SA [2012] 4 SLR 98

This Court Of Appeal Decision Clarifies The Role Of Pleadings In Determining An Arbitrator's Mandate. The Decision Deserves Careful Consideration Because It Shows (in What Was Decided As Well As What Was Not Decided) That There Are Not Only Similarities, But Also Differences In The Role Of Pleadings, Techniques Of Pleading, And Even What Is Considered Pleadings In Litigation And Arbitration.

I. Introduction

1 In PT Prima International Development v Kempinski Hotels SA1 (“Kempinski”), the Court of Appeal reinstated awards set aside, on the grounds that the arbitrator had decided issues that had not been formally pleaded, thereby acting beyond the scope of his mandate.

2 The Court of Appeal decision has been lauded as “mark[ing] the long trend of the Singapore courts' pro-arbitration and pro-enforcement approach and confirms the position that the Singapore courts will not interfere with the decision of the arbitral tribunal except on the limited grounds set out in the International Arbitration Act[2] and in the absence of real prejudice being caused to the wronged party”.3

3 In particular, the Court of Appeal's judgment is noteworthy for four reasons. First, it clarifies that pleadings play a role in arbitration, in delimiting the jurisdiction of the tribunal. Second, while the court

affirmed the role of pleadings arbitration, it declined to impose fact-based pleading techniques on international arbitration; instead, the court held that “any new fact or change in the law in the course of the Arbitration which would affect [the Claimant's] right to [its] remedies must fall within the scope of the parties' submission to arbitration”.4 Third, as will be argued below, the decision does not limit what may be considered “pleadings” for the purposes of arbitration. In particular, it is argued that it would be dangerous to read the Court of Appeal judgment as limiting the “pleadings” to the notice of arbitration, or the notice of arbitration and the statements or points of claim and defence. Finally, this case demonstrates that the court will look at whether real prejudice is caused to the wronged party.
II. Background

4 In 1994, Kempinski Hotels SA (“Kempinski”) entered into an operating and management contract (“the Management Contract”) to operate and manage, for at least 20 years, a hotel in Jakarta (“the Hotel”) owned by PT Prima International Development (“Prima”). The Management Contract was governed by Indonesian law and contained an arbitration agreement, which provided that “[a]ny dispute or difference arising out of or in connection with or resulting from [the Management Contract], its application or interpretation … shall be referred to and determined by arbitration under the Rules of the [Singapore International Arbitration Centre]”.5

5 Between 1996 and 2000, the Indonesian Ministry of Tourism issued three decisions that essentially made it illegal for a foreign entity to manage hotels in Indonesia unless it set up a company incorporated in Indonesia or entered into a joint venture with Indonesian partners (the “Three Decisions”). Acting on certain legal advice, however, Kempinski continued to manage the Hotel, without changing the entity operating the Hotel to an Indonesian company or amending the Management Contract.

III. The arbitration and the “pleadings”

6 Disputes arose between the parties, and on 6 February 2002, Prima gave Kempinski written notice of termination of the Management Contract. In May 2002, Kempinski commenced arbitration proceedings, by its notice of arbitration essentially claiming that Prima had wrongfully repudiated the Management Contract and seeking, among

other things, specific performance of the Management Contract or, alternatively, damages including loss of profits for the remainder of the term of the Management Contract. The same remedies were reiterated in its points of claim.

7 Initially, Prima, in its points of defence and counterclaim, pleaded that the termination of the Management Contract was valid under Indonesian law and counterclaimed for damages for breach of the Management Contract. However, in the course of the arbitration, Prima applied for and was granted leave to amend its points of defence to plead force majeure and supervening illegality, specifically that the contract had become illegal due to the Three Decisions after 3 May 2000 (when the last of the Three Decisions was issued). If Prima was right and the Management Contract was illegal, then Prima argued that Kempinski's claim for damages would be limited to a period ending on 3 May 2001 (in other words, that one year was a reasonable time for Kempinski to comply with the Three Decisions). Therefore, Kempinski's claim that the 6 February 2002 notice of termination was a breach of the Management Contract would be moot.

IV. The first and second awards

8 The issues of illegality and force majeure were heard as preliminary issues in two tranches. The arbitrator issued a first award, finding the Management Contract valid but incapable of being performed except in a manner consistent with the Three Decisions. In a second award, the arbitrator answered four questions that the parties had referred to him. The questions concerned whether, given the finding in the first award, remedies arising from the Management Contract including claims for damages were still available to Kempinski or, if not, whether Kempinski's claim should be dismissed. The second award ruled out force majeure because the contract might still be performed through three alternative methods consistent with the Three Decisions.6 Thus, Kempinski could still claim damages and Kempinski's claim need not be dismissed.

V. The third and fourth awards

9 Before the second award was published, Kempinski entered into a contract to manage another hotel – on the same street and within one mile of the Hotel – through an Indonesian incorporated company

(“the New Management Contract”). Prima discovered this after the second award was published, and wrote to the arbitrator purporting to seek “clarification” of the first and second awards in light of this information. Specifically, Prima requested the arbitrator to consider whether the three methods of performing the Management Contract in compliance with the Three Decisions were still possible in light of the New Management Contract, which, it contended, was in breach of exclusivity provisions in the Management Contract.

10 A procedural conference was held, and Kempinski was directed to provide specific disclosures. Kempinski did not comply with those directions, save to disclose that the New Management Contract was entered into on 28 April 2006. What followed was characterised by the Court of Appeal as “extensive correspondence, written submissions and expert opinions … exchanged vis-à-vis the legal effect of the New Management Contract”.7 The tribunal then published its third award, holding, among other things, that the alternative methods to perform the contract consistently with the Three Decisions were no longer possible in light of the New Management Contract, but there remained the possibility of damages for the period between the alleged termination of the Management Contract and the date on which Kempinski entered into the New Management Contract (“the Intervening Period”).

11 The arbitrator directed the parties to file submissions on whether, in the event Kempinski succeeded on liability, any damages would be payable for the Intervening Period. Prima argued that reasonable time for Kempinski to comply with the Three Decisions had expired before the Intervening Period began, and that any award of damages for the Intervening Period would be contrary to the public policy of Indonesia. Kempinski did not comply with the arbitrator's directions, and instead commenced proceedings in the High Court to set aside the third award. The arbitrator agreed that awarding damages for the Intervening Period would be against the public policy of Indonesia. In a fourth award, the tribunal ruled that Kempinski could not claim damages for the Intervening Period, and that its claims for relief, including specific performance, had wholly failed.

12 Kempinski commenced proceedings in the High Court to also set aside the fourth award and a consequential cost award on the basis that, amongst other grounds, that they dealt with an issue that had not been formally pleaded (“the Pleading Argument”). In the High Court, Kempinski only succeeded in setting aside the third, fourth and the cost

award on the basis of the Pleading Argument, and it is this aspect of the case on which this note focuses.
VI. The High Court set aside the awards

13 The High Court agreed with Kempinski that the third award should be set aside on the ground that failure to plead the New Management Contract had resulted in the tribunal making a decision that was beyond the scope of the submission to arbitration. Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration8 (the “Model Law”; set out in the First Sched to the International Arbitration Act)9 provides that an award that decides matters beyond the scope of the submission to arbitration may be set aside. The High Court reasoned that to determine whether matters in an award were within or outside the scope of submission to arbitration, a reference to the pleadings would usually have to be made. The High Court held that the New Management Contract had not been pleaded, and therefore its legal effect was not an issue that was submitted for arbitration. As the Court of Appeal said:10

The Judge held that the Arbitrator would have had the jurisdiction to decide what legal effect the New Management Contract had only if Prima applied for leave to amend its pleadings to plead that new point and thereby allowed Kempinski to...

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