Phoenixfin Pte Ltd and others v Convexity Ltd

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 07 March 2022
• Neutral Citation: [2022] SGCA 17
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 31 of 2021
• Published date: 10 March 2022
• Year: 2022
• Hearing Date: 26 October 2021
• Plaintiff Counsel: Gregory Vijayendran SC, Lester Chua and Ng Shu Wen (Rajah & Tann Singapore LLP) (instructed), Sathinathan s/o M R Karuppiah and Jhogasundram Jayanthi (Lincoln's Law LLC)
• Defendant Counsel: Daniel Chia Hsiung Wen, Ker Yanguang and Wong Ru Ping Jeanette (Morgan Lewis Stamford LLC)
• Subject Matter: Arbitration,Award,Recourse against award,Setting aside
• Citation: [2022] SGCA 17

Judith Prakash JCA (delivering the grounds of decision of the court): Introduction

This matter was an appeal against the High Court Judge’s (the “Judge”) decision in Convexity Ltd v Phoenixfin Pte Ltd and others [2021] SGHC 88 (“Judgment”) to set aside part of an arbitral award on the basis that there had been a breach of natural justice which prejudiced the respondent, that the arbitral tribunal had exceeded the scope of submission to arbitration and that it had acted contrary to the arbitral procedure agreed to between the parties. The appeal was dismissed on 26 October 2021. We now give our full grounds of decision.

Background to the Award

The respondent, Convexity Ltd, is a company incorporated in Gibraltar. On 18 December 2018, it entered into a Services Agreement (“the Agreement”) with the first appellant, Phoenixfin Pte Ltd, a company incorporated in Singapore, to provide the latter with IT security consulting services. The second and third appellants are companies affiliated with the first appellant and they agreed to guarantee the latter’s obligations under the Agreement.

The Agreement was for an initial term of 24 months but the first appellant purported to terminate it on 30 September 2019 alleging breach of contract by the respondent. The respondent asserted that the termination was wrongful. It then commenced arbitration proceedings against the appellants on 14 October 2019, pursuant to the arbitration clause in the Agreement, which provided for arbitration in Singapore in accordance with the rules of the Singapore International Arbitration Centre (the “SIAC”) – the applicable version of the rules being the 6th Edition dated 1 August 2016 (the “SIAC Rules”). Significantly, however, the Agreement provided for English law to be the governing law of the contract.

The respondent’s main claim was against the first appellant for alleged breaches of the Service Agreement. The respondent also claimed against the second and third appellants as guarantors/indemnitors. At some point in the arbitration however, these two appellants ceased to participate in it, leaving the first appellant as the active defendant.

Clause 10.2 of the Agreement provided that if it was terminated during the initial term, the first appellant would be liable to pay the respondent a “Make-Whole Amount” (“the Make-Whole Clause”). Clause 11 provided that if the first appellant failed to meet its payment obligations, the respondent would be entitled to simple interest of 5% per month on the unpaid amount until the date of actual payment (“the Interest Clause”). The respondent’s claim in the arbitration was for payment of US$2.8m allegedly due under the Make-Whole Clause and interest thereon at 5% per annum in accordance with the Interest Clause.

The arbitration was commenced under the expedited procedure provided for in the SIAC Rules which meant that it was intended to be completed within six months. On 2 January 2020, the SIAC appointed Ms Maria Chedid as the sole arbitrator (“the Tribunal”). On 2 October 2020, the Tribunal issued her final Award (“the Award”) in which she dismissed the respondent’s claim on the sole basis that the Make-Whole Clause was unenforceable in that it imposed an “unconscionable penalty that [was] unenforceable as [being] against public policy under English law.” The respondent’s claim for recovery under the Make-Whole Clause was thus denied (Award at [124]). The Tribunal further found that the Interest Clause was similarly an unenforceable penalty clause, although the question of whether the interest amount was a penalty had been rendered moot since the Tribunal had already dismissed the respondent’s claim under the Make-Whole Clause (Award at [125]).

How the arbitration proceedings were conducted

The setting aside proceedings centred on the way in which the Tribunal had conducted the arbitration. We therefore set out in some detail the key events leading up to the application in Originating Summons No 1158 of 2020 (“OS 1158”) to set aside part of the Award.

On 17 January 2020, after consultation with the parties, the Tribunal issued Procedural Order No 1 (“PO1”), which included a Procedural Timetable for the arbitration. The Tribunal noted in the Award (at [16]) that the Procedural Timetable adopted “agreed procedures and dates jointly proposed by the Parties during the Preliminary Meeting”. It provided that the exchange of Witness Lists and Agreed List of Issues was to take place on 17 April 2020 with hearing dates in mid-May 2020. On 4 May 2020 the evidentiary hearing dates were re-scheduled to late May.

On 28 April 2020, the first appellant sent an e-mail to the Tribunal enclosing an amended list of witnesses, annexing the scope of evidence that was intended to be given by two experts from the United Kingdom, Mr Oliver Spence (“Mr Spence”) and Dr David McIlroy (“Dr McIlroy”). The evidence that Dr McIlroy was slated to give included whether the Make-Whole and Interest Clauses were penalty clauses under English law (“Penalty Issue”).

On 6 May 2020, the first appellant made an application for leave to adduce expert evidence from Mr Spence and Dr McIlroy. In the application, the issues that the first appellant wanted Dr McIlroy to give evidence about included the issue of whether the Make-Whole Amount or the Interest Clause amounted to penalties under English law.

The Tribunal stated in the Award that she had ruled during a telephonic session held on 13 May 2020 (“13 May Teleconference”) that she would “receive submissions on the English law issues proposed to be included in the report of [Dr McIlroy], and that such submissions would be made by way of counsel (rather than expert) submissions” (Award at [12]). The import of the Tribunal’s ruling at this teleconference was disputed by the parties.

Application to amend Defence & Counterclaim

On 18 May 2020, the first appellant applied to amend its Defence & Counterclaim (“D&CC”), in order to (amongst other proposed amendments) “aver that the ‘Make-Whole Amount’ and interest claimed are ‘penalty clause[s]’ and unenforceable”. It sought to amend [39] of its D&CC as follows (the underlined portions being the amendments) (the “Amendment Application”):

Paragraphs 35 to 39 are denied as the ‘Make-Whole Amount’ is not payable if termination is contemplated pursuant to Clause 16.3, specifically due to Clause 16.3.1 nor any interest thereof as the Services Agreement has been validly terminated. The 1st Respondent [ie, the first appellant] asserts that the payment of USD2 million for the services rendered by the Claimant is manifestly excessive and does not commensurate with the services provided, if any, by the Claimant. Further or in the alternative the ‘Make-Whole Amount’ is a ‘penalty clause’ and is unenforceable. The claim for interest under the Late Payment of Commercial Debts (Interest) Act 1998 is not applicable in law or is a ‘penalty clause’, thus unenforceable and they both are not genuine pre-estimates of the damages or loss.

On the same day, the respondent notified the Tribunal that it objected to the Amendment Application as an attempt to “put in an entirely new and different cause of action and defences on the doorstep of the evidentiary hearing and after all the [witnesses’] statements [had] been exchanged”. On 20 May 2020, the respondent made its full submissions on the point. It submitted that the first appellant’s sole pleaded defence to the claim in relation to the Make-Whole Amount was that the Agreement had been properly terminated pursuant to cl 16.3, and that the obligation to make payment therefore did not arise. This, according to the respondent, was a “purely legal defence based on contractual interpretation”. The first appellant’s new defence on the Penalty Issue would, however, require evidence on factual issues which were not currently before the Tribunal. It was “likely [that] any in-depth cross examination of these issues [would] also take longer than the time allotted between the parties”.

On 26 May 2020, the Tribunal reserved its decision on whether the Amendment Application should be granted. The Tribunal informed the parties by e-mail (“26 May 2020 e-mail”) that: 2. [first appellant’s] APPLICATION TO AMEND THE [D&CC]

The Tribunal has received the two written submissions on this Application made by each of the [respondent] and [first appellant] last week, and is further considering these submissions at this time. In the meantime, separate and apart from the specific question of amendment of the language of the pleadings, I remind the Parties of the Tribunal’s prior ruling, issued orally at the 13 May 2020 telephonic session, which (i) denied the [first appellant’s] application to submit evidence on English law by way of an expert report from Dr. David McIlroy, but permitted such English law evidence to be presented by way of counsel or co-counsel submissions; and (ii) granted the [first appellant’s] application for leave to call Mr. Oliver Spence as an expert witness.

[emphasis in original]

The Tribunal eventually gave her ruling on 29 May 2020 (the third day of the evidentiary hearing), disallowing the Amendment Application. The ruling on the application read as follows:

… As I said the other day, I see this as an issue of a formal request to amend the pleadings that came very late. I heard you, Mr Chia, on the prejudice caused by a request to amend the pleadings at such a late date. I think those are valid concerns that you raised with respect to many of the issues.

At the same time, as I mentioned the other day, I have ruled that certain documents, that a certain expert report, can be submitted and that you are able, for [the respondent], to object to that evidence. I also already ruled that what was proposed for the English law expert report could be addressed by way of counsel submissions.

Now, there is a certain balancing that needs to go on here...