Government of the Republic of the Philippines v Philippine International Air Terminals Co, Inc

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 17 November 2006
• Neutral Citation: [2006] SGHC 206
• Docket Number: Originating Motion No 3 of 2005
• Date: 17 November 2006
• Year: 2006
• Published date: 20 November 2006
• Plaintiff Counsel: Chandra Mohan, Celia Sia and Khoo Yuh Huey (Rajah & Tann)
• Citation: [2006] SGHC 206
• Defendant Counsel: Loo Ngan Chor and Mervyn Foo (Lee & Lee)
• Court: High Court (Singapore)
• Subject Matter: Whether award contemplating matters beyond its remit,Section 24, First Schedule Art 34 International Arbitration Act (Cap 143A, 2002 Rev Ed),Arbitration,Recourse against award,When award may be set aside under Act,Whether award rendered in breach of natural justice,Setting aside,Application to set aside partial arbitral award under s 24 International Arbitration Act and Art 34 UNCITRAL Model Law,Award

17 November 2006 Judgment reserved.

Judith Prakash J:

1 This is a motion under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”) to set aside the “Partial Award on the Law Governing the Arbitration Proceedings and the Law Governing the Arbitration Agreement” (“the Award”) made on 20 October 2004 in the arbitration between the Government of the Republic of the Philippines (“GOP” or “the applicant”) and Philippine International Air Terminals Co, Inc (“PIATCO” or “the respondent”).

Background

2 The dispute between the parties arises from a project involving the construction of a third terminal building at the Ninoy Aquino International Airport in Manila. There is a long history of the dealings between the parties that led up to this point but, for present purposes, it is not necessary to go too much into the backstory. These dealings resulted in the conclusion of various concession agreements, including a 1997 concession contract, an amended and restated concession agreement dated 26 November 1998 (“the ARCA”) and various amendments and supplements. These are collectively referred to as “the Concession Contracts”.

3 The ARCA contains the following arbitration clause (“the arbitration agreement”):

Section 10.2 Arbitration

All disputes, controversies or claims arising from or relating to the construction of the Terminal and/or Terminal Complex or in general relating to the prosecution of the Works shall be finally settled by arbitration in the Republic of the Philippines following the Philippine Arbitration Law or other relevant procedures. All disputes, controversies or claims arising in connection with this Agreement except as indicated above shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by three (3) arbitrators appointed in accordance with the said Rules. The place of arbitration shall be Singapore and the language of the arbitration shall be English.

4 By the Concession Contracts, PIATCO was awarded the right to build and operate the third airport terminal. It duly commenced construction and asserted that by November 2002, the terminal was practically ready and prepared to start operations. In January 2003, however, GOP advised PIATCO that the award of the project to PIATCO and the Concession Contracts were null and void ab initio.

5 In response to GOP’s stand, on 13 January 2003, PIATCO issued a notice for arbitration. In its subsequent request for arbitration (lodged with the International Chamber of Commerce International Court of Arbitration (“ICC”)), PIATCO alleged that GOP had failed to “fulfil, comply with and fully perform, in good faith, its obligations under its award to and contracts with [PIATCO]”. PIATCO put forward a claim for not less than US$565m and GOP in turn put forward a counterclaim for not less than US$900m.

6 It is also important to note that between September 2002 and December 2002 several petitions seeking to enjoin enforcement of the Concession Contracts were filed with the Philippine Supreme Court. On 5 May 2003, the Philippine Supreme Court issued its decision on the petitions (“the Agan decision”). It held by a majority that there had been serious violations of the Philippine Constitution, certain statutes and rules and of fundamental public policy and that therefore the Concession Contracts were null and void ab initio.

The arbitration proceedings

7 From the beginning, GOP has taken the stand that the arbitration agreement is not valid and that an ICC arbitration tribunal has no jurisdiction to adjudicate any dispute between it and PIATCO.

8 In April 2003, GOP wrote to inform the ICC of the petitions that had been filed with the Philippine Supreme Court. It also told the ICC that it considered the Concession Contracts to be void and that since the question of their validity had been submitted for resolution before the Philippine Supreme Court, it would be prudent for the ICC to dismiss PIATCO’s request for arbitration. On 20 June 2003, GOP raised further objections to the ICC’s jurisdiction over the parties and their dispute. Subsequently, the ICC was informed of the Agan decision. GOP argued that in the light of the Agan decision, PIATCO’s request for arbitration should be immediately dismissed for lack of jurisdiction. PIATCO filed submissions in reply to these arguments.

9 On 28 July 2003, the ICC informed the parties that it had decided that the arbitration should proceed in accordance with Art 6(2) of the ICC Rules of Arbitration (“the ICC Rules”) as it was prima facie satisfied that an ICC arbitration agreement might exist between the parties. It also indicated that the arbitral tribunal, when constituted, would have to decide on its own jurisdiction. The arbitral tribunal subsequently constituted (“the Tribunal”) comprised three persons: Prof Michael Pryles (chairman), Justice Florenz D Regalado (nominated by the respondent) and Justice Bernardo P Pardo (nominated by the applicant).

10 On 30 January 2004, GOP reiterated its jurisdictional objections to the arbitration in a document entitled “Respondent’s Answer, Jurisdictional Objections and Counterclaims”. After PIATCO’s reply was filed in April 2004, GOP took out a motion to bifurcate the arbitration proceedings into two phases – the jurisdiction/liability phase and the quantum phase. In this motion, it identified the four grounds on which it objected to the Tribunal’s jurisdiction as being:

(a) First, the Philippine Supreme Court’s nullification of the ARCA necessarily nullified the parties’ reference to the ICC arbitration contained in that agreement.

(b) Second, the evidence establishes that PIATCO obtained its concession agreements – including the agreement to submit to ICC arbitration – by fraudulent and unlawful means, thus rendering those agreements null and void ab initio.

(c) Third, GOP entities that are alleged to have accepted the ARCA’s reference to ICC arbitration did so without legal authority, and thus cannot bind GOP.

(d) Finally, the parties’ agreement to arbitrate was procured by fraud, and thus it cannot be enforced as a matter of law and public policy.

11 PIATCO agreed to the bifurcation and on 5 August 2004, the Tribunal issued an order bifurcating the arbitration as requested.

12 In the meantime, the Tribunal held a preliminary conference. At it, GOP’s lawyers proposed, and the Tribunal recognised, that parties would have to brief the Tribunal on the issues of the law governing the arbitration agreement and the law governing the arbitration proceedings. The determination of these issues was a necessary prerequisite to enable parties to make their submissions on jurisdiction and the validity of the arbitration agreement. On 28 June 2004, the Tribunal issued an order requiring the parties to, inter alia, provide their respective submissions on the law governing the arbitration agreement and the law governing the arbitration proceedings by 20 August 2004. The parties duly filed their respective submissions on that date.

13 On 3 September 2004, the Tribunal wrote to the parties informing them that it intended to render its decision in the form of a partial award. On 1 October 2004, the Tribunal informed them that it had prepared a draft partial award on the applicable law and that this draft had been sent to the ICC court for scrutiny on 24 September 2004. GOP’s solicitors, M/s White & Case, thereafter sent two letters to the Tribunal (dated 3 October 2004 and 21 October 2004 respectively) objecting to the decision being issued in the form of a partial award. The objection was made on the basis that an award would, in contrast to an order, resolve disputed issues finally and definitely and, in this case, the Tribunal could not decide with finality, the issue of the lex arbitri until it had considered and decided certain related jurisdictional issues which would be adjudicated with the merits. The letters also reiterated the jurisdictional objections that GOP had raised in January 2004. The Tribunal did not reply to these letters.

The award

14 The parties received the Award on 27 October 2004. The Tribunal decided:

(a) that Singapore law was the law governing the arbitration proceedings; and

(b) that Singapore law was the law governing the arbitration agreement.

15 In the course of coming to its decision on the first point, the Tribunal observed that it was unlikely that Singapore was chosen as the place of arbitration for non-construction disputes for reasons of convenience. It observed that PIATCO had substantial foreign equity but then went on to state that whether or not there was foreign equity in PIATCO at the time when it entered into the ARCA, it appeared to the Tribunal that Singapore was designated as the place of arbitration in order to obtain a neutral venue for the resolution of disputes in view of the fact that PIATCO was contracting with the government of the Philippines with respect to a project in the Philippines. Singapore was not a more convenient venue than the Philippines. It followed, in the Tribunal’s view, that the parties would have contemplated that the procedure of the arbitration would be governed by the law of Singapore rather than the law of the Philippines because to provide for arbitration in Singapore but in accordance with Philippine procedural law would not have resulted in the selection of a neutral venue.

16 In relation to its decision on the second point, the Tribunal spent much time discussing the principle of severability of an arbitration clause from the contract in which it is contained. It found that the principle of severability applied in this case. Then, it discussed the rules for determining the law applicable to an arbitration agreement and adopted the approach taken in Michael Mustill & Stewart C Boyd, The Law and Practice of International Commercial Arbitration in England (Butterworths, 3rd Ed, 1998). It noted that the parties had not specifically chosen a law...