Singapore court declines to set aside arbitral award on public policy grounds

The decision, in the case of CHY v CIA, affirms the pro-arbitration and minimal intervention stance of the Singapore courts and is a reminder of the high thresholds to meet to justify such intervention in setting aside arbitral awards in Singapore.

In particular, the case makes clear that the Singapore courts will not lightly open up an arbitral tribunal’s findings of fact, unless there are vitiating factors such as fraud. This approach, combined with the position that an arbitral tribunal’s findings on foreign law are treated as findings of fact rather than findings of law, signals the difficulty applicants will have in seeking to set aside arbitral awards in Singapore on the basis that an award is contrary to Singapore’s public policy as it contravenes foreign law. This may be a significant consideration for parties who wish to resolve disputes by way of arbitration seated in Singapore when choosing the governing law of the underlying agreement.

The decision also highlights an area of uncertainty in the law, which is whether or not findings of law can be reopened by the court, or if the court can only do so in limited circumstances, that would greatly benefit from clarification by the Court of Appeal, given the possible differing interpretations.

The case

The plaintiffs were CHY and CHZ while the defendant was CIA. CHY and CIA were shareholders of CHZ. CIA sought to exercise a ‘put option’ in the shareholders’ agreement, which was governed by Indian law. The agreement obliged CHY to pay the put price to buy CIA’s put shares in CHZ. CHY refused and claimed that the put option was contrary to Indian law, specifically the regulations under the Foreign Exchange Management Act 1999 (FEMA Regulations).

The dispute was referred to arbitration. The tribunal ordered that CHY and CHZ should pay damages to CIA in the amount of the put price, and thereafter CIA should transfer the put shares to CHY.

CHY and CHZ then applied to set aside the award. Among other things, they argued that the award required them to pay CIA assured returns as consideration for the put shares which is illegal under Indian law, and it would be contrary to Singapore’s public policy for an arbitral award to compel a party to perform an illegal act punishable by criminal sanctions in a foreign state.

The court emphasised that in Singapore, an award governed by the International Arbitration Act (IAA) “is final and binding on the parties, subject only to narrow grounds for curial intervention”. One of these grounds is that the award is in conflict with Singapore's public policy under Article 34(2)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law).

The first issue the court was concerned with was the extent to which it could review the arbitral tribunal’s findings based on Indian law.

The court referred to and examined in detail the leading decision in Singapore on illegality and its relationship with public policy, being the Singapore Court of Appeal’s decision in AJU v AJT (53-page / 3.17MB PDF). In applying AJU v AJT, the court stated that it considered “on an application to set aside an award under Art 34(2)(b)(ii), the court may reopen findings of law but, in the absence of fraud or other vitiating factors, the court cannot reopen findings of fact made by the arbitral tribunal”.

As the court found that the tribunal’s findings of Indian law, such as the its findings regarding the effect of the FEMA Regulations, were all findings of fact, and there was no fraud or other vitiating factors, the court held that it could not open up the tribunal's findings on the basis of AJU v AJT. 

Interestingly, the parties had brought to the court’s attention, after the hearing had concluded, that the UK Privy Council had considered AJU v AJT in a recent decision of its own – Betamax Ltd v State Trading Corporation (Mauritius) (42-page / 340KB PDF) (Betamax).

In considering AJU v AJT, the Privy Council in the Betamax case made some comments about how the judgment was seemingly inconsistent. More crucially, the Privy Council came to a different interpretation of AJU v AJT from the court in CHY v CIA – the Privy Council was of the view that the SGCA in AJU v AJT had held that “in the absence of fraud or other vitiating factors… a decision of fact or law within the jurisdiction of the arbitral tribunal was final and binding”, a position which the Privy Council agreed with.

Despite noting these observations in Betamax, the court in CHY v CIA nonetheless preferred its own interpretation of AJU v AJT. However, the court did not state its reasons for this.

In any event, as the court had found that the relevant findings in this case were findings of fact and not findings of law, no difference between the two approaches arose. Therefore, the court stated that it would “leave it to the Court of Appeal in a case where it does arise, to decide whether findings of law can be reopened by the court or whether the only possibility of reopening findings arise in the undefined ‘exceptional cases’”.

If the Singapore Court of Appeal later finds that the Privy Council’s interpretation in the Betamax case is correct, this would result in a further narrowing of the public policy ground for setting aside awards. It would also be interesting to see if and how the Singapore Court of Appeal would address the criticisms of AJU v AJT levelled by the Privy Council. 

Written by Melissa Heng of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons.