CUG and others v CUH

• Judge: Sir Henry Bernard Eder IJ
• Judgment Date: 02 December 2022
• Neutral Citation: [2022] SGHC(I) 16
• Citation: [2022] SGHC(I) 16
• Court: International Commercial Court (Singapore)
• Published date: 07 December 2022
• Docket Number: Originating Summons No 10 of 2022
• Plaintiff Counsel: Toh Wei Yi and Jaclyn Leong Shan Wei (Harry Elias Partnership LLP)
• Defendant Counsel: Abraham Vergis SC, Zhuo Jiaxiang and Vanathi Eliora Ray (Providence Law Asia LLC),Prakash Pillai, Koh Junxiang and Charis Toh Si Ying (Clasis LLC)
• Subject Matter: Arbitration,Arbitral Tribunal,Jurisdiction,Contract,Formation
• Hearing Date: 07 July 2022

Sir Henry Bernard Eder IJ: Introduction

The present application before the court, SIC/OS 10/2022 (the “main application”), is a challenge against the decision of the sole arbitrator (the “Arbitrator” or “Tribunal”) on jurisdiction contained in a Partial Final Award on Jurisdiction (the “Partial Award”) delivered in Case No ICC XXXXX/ABC (the “ICC Arbitration”). The parties sought and were granted a sealing order to preserve the confidentiality of the parties and the arbitral proceedings. Therefore, all references to the parties, their places of business or any other details that might otherwise reveal their identities have been anonymised in this judgment.

In the Partial Award, the Tribunal determined that it lacked jurisdiction over the second arbitration respondent, CUH, to hear the claims brought by the arbitration claimant, CUG. The other parties to the ICC Arbitration are CTM, CTN, and CTO, who are the first, third and fourth arbitration respondents in the ICC Arbitration respectively (together “the Original Parties”).

Dissatisfied with the Tribunal’s determination on the issue of jurisdiction, CUG, CTM, CTN and CTO (together “the Applicants”) filed separate applications under s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “Act”) to challenge the Tribunal’s decision. CUG filed its application under SIC/OS 10/2022 (“OS 10”). The Original Parties filed their application under SIC/OS 17/2022 (“OS 17”).

At a case management conference that I conducted with the parties shortly before the hearing of the main application, the Applicants applied to the court for an order consolidating OS 10 and OS 17. CUH objected to any such consolidation on the basis that the Original Parties did not have locus standi in respect of the Original Parties’ participation in OS 10 in particular because, according to CUH, the Original Parties did not have a sufficient “legal interest” in the outcome of OS 10 which is (again according to CUH) a necessary requirement of any party making an application under s 10(3) of the Act. For present purposes, it is sufficient to note that after considering the parties’ submissions, I accepted that the Original Parties had the necessary locus standi by reason of being a party to the Partial Award and having a direct legal interest in seeking to ensure that CUH remained a co-respondent in the ICC Arbitration. Accordingly, I allowed the Applicants’ request for consolidation and ordered the consolidation of OS 10 and OS 17 under one action, ie, OS 10.

As appears below, the crucial issue before this Court is whether a legally binding arbitration agreement came into existence between, in particular, CUG and CUH. It is common ground that CUH never signed any agreement containing any arbitration agreement. Notwithstanding, it is CUG’s case (supported by the Original Parties) that such an agreement came into existence by reason of a course of conduct – in particular, the payment of certain monies by or at least on behalf of CUH. This has required a close examination of the parties’ conduct over a period of almost three years between 2017 and 2020. The inferences to be drawn from such conduct are hotly disputed. Notwithstanding and although it is well established that an application of the present kind concerning the jurisdiction of an arbitral tribunal is determined by way of a de novo hearing, it is important to note that the present hearing took place without any oral evidence. The only evidence consisted of a number of affidavits (together with a selection of contemporaneous exhibited thereto) submitted by (a) on behalf of CUG, Mr G, Group Business Development Assistant Manager of CUG; (b) on behalf of the Original Parties, Mr P, Vice-President of CTM and Construction Director of the JV Project (as referred to below); and (c) on behalf of CUH, Mr H, Vice President and Project Director of CUH.

With that brief introduction, I turn to consider the issues with regard to the main application. I begin by summarising the main background facts leading up to the ICC Arbitration based on the affidavit evidence and the contemporaneous documents.

Summary of the relevant background The Parties

The first applicant, CUG, is a company incorporated under the laws of Ruritania. It was the claimant in the ICC Arbitration.

The second,third and fourth applicants, ie, the Original Parties, are all companies incorporated under the laws of Suburbia.

The respondent, CUH, is a company incorporated under the laws of Suburbia. It was the second respondent in the ICC Arbitration.

The JV Project

On 19 November 2013, CTM, CTN, CTO and CUH (each a “JV Party” and collectively referred to as the “JV Parties”) entered into a joint venture agreement (the “JV Agreement”) to form an unincorporated joint venture (the “JV”). The JV was formed to enable the JV Parties to act as joint contractors of a large refinery construction project in Osteria (the “JV Project”). The JV Project was awarded by the Osteria State Company (“OSC”) to the JV in February 2014 (the “Main Contract”).

Under the JV Agreement, CTM was appointed as the leader of the JV (the “JV Leader”). The JV operated one bank account (the “JV Bank Account”). Any transactions involving the payment of money out of the JV Bank Account required the authorisation of all the JV Parties, including CUH. Specifically, the relevant rules governing the banking transactions out of the JV Bank Account state that the mode of operation for the JV Bank Account is to require one approving signature from each JV Party’s authorised representatives and joint execution for each instruction to the bank. In practice, however, written authorisation documents and signatures are not required for banking transactions. Instead, each JV Party enters its unique electronic token into the online banking system.

Engagement of CUG to provide services for the collection of outstanding payments under the Main Contract

In the course of performing the Main Contract, the JV Parties were unable to collect payments due under the Main Contract. These included progress payments, payments for Detailed Variation Notices issued by OSC (“DVN”) and payments for Extension of Time (“EOT”) claims (together the “Outstanding OSC Payments”).

Sometime in 2017, the JV and CUG entered into negotiations involving, inter alia, the provision of services by CUG in assisting the JV to secure the Outstanding OSC Payments (the “Services”). In return, the plan was that CUG would be entitled to fees on a commission basis, ie, a percentage of the payments which CUG collected from the OSC.

The JV Parties and CUG initially agreed to pay CUG a commission rate of 1% as consideration for CUG’s performance of the Services. Following further discussions, the Original Parties agreed, on certain conditions, to increase CUG’s commission rate to 2.2%. CUH, however, did not agree to the increment of 1.2% in CUG’s fee structure. The parties thus reached an impasse on CUG’s fees.

On 16 November 2017, CTM as the JV Leader issued what purported to be a provisional resolution supposedly on behalf of the JV to the effect that the JV would enter into agreements with CUG at the rate of 2.2% of the progress payments and the Outstanding OSC Payments (the “First Provisional Resolution”). The First Provisional Resolution was invoked pursuant to clause 4.7.15 of the JV Agreement, which states as follows:

Notwithstanding the provisions of Article 4. 7.14 hereinabove and without prejudice to the rights of the [JV Parties] pursuant to Article 13 herein, in the event that the necessary unanimity cannot be reached on any matter, then the matter in question shall be provisionally resolved by the [JV Leader]. [The JV Leader] can provisionally resolve the issue, commercial impact should be shared in such cases by each [JV Party] in accordance with each [JV Party’s] Proportionate Share until the issue is finally resolved.

CUH maintained its objection to the First Provisional Resolution and stated that it would not agree to pay CUG a fee in excess of 1%. However, it is important to note that it did not resort to the dispute resolution mechanism in the JV Agreement.

In November 2017, the Original Parties and CUG commenced negotiations in respect of two agreements relating to the engagement of CUG for the aforesaid services. These two agreements were termed the Subcontract Agreement and the Services Agreement (collectively referred to as the “Agreements”).

The terms of the Agreements

The Subcontract Agreement provided that the JV was obliged to pay CUG 1% of the portion of Outstanding OSC Payments which CUG successfully procures. The Services Agreement, on the other hand, provided that the JV was obliged to pay CUG 1.2% of the portion of Outstanding OSC Payments which CUG successfully procures.

Other than the clauses stipulating the calculation of fees payable to CUG, the rest of the clauses in the Agreements are identical.

Clause 2 of each of the Agreements provided that payment obligations retroactively applied to any progress payments made from 1 January 2017, regardless of the date the Agreements were executed: 2. The … price (the “Agreement Price”) of the Services shall be … payment amount actually paid to the JV under the Main Contract during the period commencing from 1st January 2017 until the end of the term of this Agreement.

[emphasis added]

Clause 3(7) of each of the Agreements provided that each JV Party shall be severally liable to CUG for payment of its respective proportionate share of fees, viz: CTM was liable for 26.5% of the fees; CTN was liable for 25% of the fees; CTO was liable for 11% of the fees; and CUH was liable for 37.5% of the fees.

Clause 12 of each of the Agreements provided that the Agreements shall be effective from the date of signing by CUG and the JV Parties: 12. This Agreement shall be effective from the date of...