Re Harish Salve and another matter

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 17 February 2017
• Neutral Citation: [2017] SGHC 28
• Plaintiff Counsel: Smitha Menon, Stephanie Yeo and Doralyn Chan (WongPartnership LLP)
• Docket Number: Originating Summons Nos 1114 and 1115 of 2016
• Date: 17 February 2017
• Hearing Date: 18 January 2017
• Subject Matter: Legal Profession,Ad hoc,Admission
• Year: 2017
• Defendant Counsel: Kelvin Poon, Alyssa Leong and Matthew Koh (Rajah & Tann Singapore LLP),Suresh Divyanathan, Aaron Leong and Victoria Choo (Oon & Bazul LLP),Christopher Anand Daniel and Harjean Kaur (Advocatus Law LLP),Jeyendran Jeyapal, Elaine Liew and May Ng (Attorney-General's Chambers)
• Court: High Court (Singapore)
• Citation: [2017] SGHC 28
• Published date: 08 February 2018

Steven Chong J: Introduction

These are two applications for Mr Harish Salve, a Senior Advocate of India (“the Applicant”), to be admitted to represent 20 plaintiffs (to whom I shall refer as the “Sellers”) in Originating Summonses Nos 784 and 787 of 2016 (“OS 784” and “OS 787”, or collectively “the OSes”) to set aside a Final Arbitral Award dated 29 April 2016 (the “Award”). The amount awarded was in excess of $500 million. The defendant in the OSes (to whom I shall refer as the “Buyer”) had successfully applied in Originating Summons No 490 of 2016 (“OS 490”) for leave to enforce the Award against all 20 Sellers, which the Sellers are also seeking to set aside. Five plaintiffs in OS 787, who are the 5th and 9th to 12th defendants in OS 490, are minors (“the Minors”). The Minors are separately represented in these proceedings though in the arbitration, all 20 Sellers were represented by the same counsel and no specific submission was made in relation to the legal status of the Minors.

The applications are somewhat out of the ordinary. For starters, it is the first occasion a Senior Advocate from the Indian Bar is seeking admission. That in itself does not warrant a treatment which is different from the usual cases involving Queen’s Counsel from the English Bar. The same regime governs the admission of all foreign counsel. Next, the admission is sought for the Applicant to only argue some but not all the issues in OS 784 and OS 787. It is acknowledged by the Applicant that the law governing the OSes is Singapore law and those issues which relate to Singapore law will be addressed by Singapore counsel, both of whom are Senior Counsel – Mr Alvin Yeo SC and Mr Lee Eng Beng SC. Finally, the Applicant seeks admission to address the court only on foreign law issues, specifically the disputed issues on Indian law.

Given that it is common ground that the setting aside applications in the underlying OSes are governed by Singapore law in particular the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), what then is the relevance of Indian law to the dispute? The Indian law connection stems from the fact that the arbitration arose from an agreement which is subject to Indian law. Essentially, the Applicant claims that the treatment of Indian law on the disputed issues by the majority decision of the Arbitral Tribunal (“the Tribunal”) was so wrong that it should be set aside as being contrary to Singapore’s public policy. In particular, it is alleged that the Tribunal relied on a High Court decision which had been overruled by the Indian Supreme Court in a case which was successfully argued by the Applicant. What is somewhat curious is that the Indian Supreme Court decision was not raised by any party in the arbitration. It was not even mentioned in the dissenting opinion by the former Chief Justice of the Supreme Court of India (“Dissenting Opinion”). It now appears to occupy centre stage of the Sellers’ submission in the OSes. It is also alleged that the Award exceeded the Tribunal’s jurisdiction when it purportedly awarded consequential damages in breach of the arbitration agreement.

Assuming that Indian law is relevant in the OSes (a point which is disputed by the Buyer), this judgment will examine how such a limited role of the Applicant will fit into the current admission regime. Since foreign law needs to be “proved”, what then is the role of the Applicant, particularly when the parties have each retained two experts on Indian law, all of whom are either retired judges of the Indian Supreme Court or former Chief Justices of Indian State Courts? All of the experts have already filed their reports. Under these circumstances, I invited the Sellers’ counsel to consider an application under O 28 r 4(3) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“ROC”) for leave to cross-examine the experts to assist the court hearing the OSes to determine the correct position under Indian law. I considered this both desirable and preferable especially since the substantive arguments to be presented by local counsel in the OSes, insofar as they relate to Indian law, would in turn be entirely dependent on the court’s determination of the disputed Indian law issues with reference to the expert reports already before the court. The Sellers, however, declined the invitation and elected, as is their prerogative, to pursue the applications to admit the Applicant.

Background

The underlying dispute concerns a Share Purchase and Share Subscription Agreement (“SPSSA”) dated 11 June 2008 under which the Buyer purchased the shares held by the Sellers in a company incorporated in India (“the Company”).¹ The SPSSA is governed by Indian law, although the Buyer disputes whether the arbitration agreement encapsulated in Article 13.14 of the SPSSA (“Arbitration Agreement”) is governed by Indian law as well. The transaction closed on 7 November 2008 with the Buyer acquiring a controlling stake in the Company.

Trouble surrounding the SPSSA stemmed from an investigation into the Company by US regulators and authorities. These investigations were ongoing during the period of negotiations leading up to the signing and completion of the SPSSA.² Although the Buyer was aware that investigations were being carried out, the parties disagree about the quality of its knowledge in relation to the source and severity of the investigations when it entered into the SPSSA. As things panned out, under the Buyer’s direction, the Company eventually signed a consent decree with a US regulator in January 2012. The cost of compliance with this consent decree is estimated at US$35m to US$50m per year.³ The Company also had to fork out a further US$500m as a penalty in a settlement agreement with a US government department on 13 May 2013.

The arbitration

Against this backdrop, the Buyer initiated arbitration proceedings against the Sellers on 12 November 2012. The thrust of the Buyer’s claim was that the Sellers had fraudulently misrepresented the level of risk posed by the investigations and suppressed key reports evidencing widespread and intentional breaches.⁴ It was averred that this conduct constituted fraud under the Indian Contract Act 1872 (Act No 9 of 1872) (“Indian Contract Act”) and that but for the fraud, the Buyer would not have acquired equity in the Company at all. The Buyer did not seek rescission but relied on s 19 of the Indian Contract Act to seek damages that would put it in the same position as if the representations had been true.⁵ It also sought pre-award and post-award interest.

Before the Tribunal, the Sellers vigorously contested their liability for fraud. I need not traverse their defences in detail as they are not relevant for present purposes. It is however worth noting that the Minors did not run any defences of proportionality, incapacity or non-attribution of their guardians’ fraud in contrast to the position they are now adopting for the purposes of the OSes. In addition, the Sellers disputed the Buyer’s computation of damages and the appropriate measure of damages under s 19 of the Indian Contract Act.⁶ It was argued that the Buyer had not suffered any actionable loss. Central to this argument was the fact that the Buyer had managed to enter into a share swap agreement with a third party (“Third Party”) sometime in April 2014. The Buyer sold the shares acquired under this swap in the open market on 21 April 2015 for a sum exceeding the Buyer’s original investment in the Company.⁷

The Award

On 29 April 2016, by a majority of 2–1, the Tribunal rendered the award. The Tribunal found that the Sellers were liable for fraudulently misrepresenting and/or concealing from the Buyer the source and severity of the Company’s regulatory problems and that the elements of s 17 of the Indian Contract Act had been satisfied.⁸ The fact that the Buyer had agreed to forgo any express representation, warranty or liability in the SPSSA did not preclude the Buyer from suing for fraud.

Of particular interest is the Tribunal’s basis for calculating the damages awarded, for it is the focus of the contest in the OSes. The Tribunal recorded that it was “not disputed” that under Indian law, the measure of damages recoverable under s 19 of the Indian Contract Act would be similar to those recoverable for fraudulent misrepresentation under general tort principles.⁹ This was taken to mean that in deceit claims, the plaintiff is entitled to be put back in the position he would have been in had the wrong not been committed. For this proposition, the Tribunal relied on the Gujarat High Court decision of R C Thakkar v Gujarat Housing Board AIR 1973 Guj 34 (“R C Thakkar High Court Decision”) as well as the English House of Lords decision of Smith New Court Securities Ltd v Citibank N A [1997] AC 254 (“Smith New Court”) in which a similar position was adopted.

It was repeatedly emphasised by the Tribunal that both parties accepted that it should apply the principles in Smith New Court, though they disagreed on how it applied to the facts.¹⁰Smith New Court was examined meticulously in the Award. With these principles in the background, the Award was directed at restoring the Buyer to its position pre-acquisition. This was calculated as the difference between what the Buyer paid for the shares and the actual worth of the shares, less any benefits it has received, together with pre and post-award interest.¹¹ The precise quantification merited numerous expert reports but it is unnecessary to set out the components of the quantum¹² awarded in greater granularity than this. I shall make just two further observations on the quantum. First, to ensure it did not breach the prohibition on “punitive, exemplary, multiple or consequential damages” in the Arbitration Agreement, the Tribunal benchmarked the sum awarded against alternative quantum calculations.¹³ Second, liability for damages was joint and several among all...