CIZ v CJA - A case note of the High Court’s latest decision on excess of jurisdiction by tribunals

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The General Division of the Singapore High Court recently issued CIZ v CJA [2021] SGHC 178, where Senior Partner Ajinderpal Singh and Senior Associate John Paul Koh successfully acted in the setting aside of an SIAC arbitral award on grounds that the arbitral tribunal exceeded its jurisdiction.

Introduction

1. Singapore adopts the UNCITRAL Model Law on International Commercial Arbitration (Model Law) in its legislation on international arbitration, the International Arbitration Act (IAA). Under this regime, parties seeking the setting aside of an award are limited to establishing the grounds set out in Article 34 of the Model Law and the Section 24 of the IAA.

2. In CIZ v CJA [2021] SGHC 178, Dentons Rodyk successfully acted for a plaintiff in setting aside the adverse portion of an international arbitration award issued by an extremely eminent tribunal (the Tribunal) under the auspices of the Singapore International Arbitration Centre (SIAC).

3. Dentons Rodyk argued that the portions of the award against their client’s interests had been issued in excess of the arbitral tribunal’s jurisdiction pursuant to Article 34(2)(a)(iii) of the Model Law. We are pleased to report that the Singapore High Court granted the Plaintiff’s application and set aside the offending portions of the award.

4. Owing to the need to preserve confidentiality, the names of all parties involved in CIZ v CJA [2021] SGHC 178 have been anonymised in the report that follows.

Background

5. We summarise the facts of the case, as set out in the judgment.

The Parties and their Agreements

6. The Plaintiff to the setting aside application is an integrated oil company which was the respondent in the SIAC arbitration proceedings. The Defendant is a company providing consultancy services, and was the claimant in the arbitration.

7. On 7 September 2012, the Plaintiff entered into a consultancy agreement (the Agreement) with the Defendant’s sister company. The Agreement expired on 31 December 2012. Following the Agreement’s expiration, on 28 February 2013, the sister company requested an extension of the Agreement to 31 December 2013, and assignment of the Agreement to the Defendant.

8. This was duly done, and on 21 October 2013, the Amended and Restated Consultancy Agreement (the Amended Agreement) was entered into to document the extension to 31 December 2013.

The Salient Terms

9. Under the Agreement and Amended Agreement, the Defendant was to provide the Plaintiff with information and consultation/advisory services relating to opportunities for the Plaintiff to “acquire an interest in producing oil and gas fields around the world”. In return, the Plaintiff agreed to pay the Defendant a success fee subject to certain terms in the agreements.

The X Opportunity

10. In 2012, the Defendant’s sister company presented an opportunity for the acquisition shares in Company X, which operated oil fields (the X Opportunity). The Plaintiff gave a non-binding preliminary indication of interest to Company X for the acquisition of its shares, and began its due diligence in September 2012.

11. However, issues which prevented the acquisition arose, and no sale and purchase agreement relating to the X opportunity was entered into by 31 December 2013, when the Amended Agreement expired. There was no written extension of the Amended Agreement.

12. Ultimately, on 14 April 2014, the Plaintiff informed Company X that it was not proceeding with the proposed investment in Company X.

Subsequent Acquisition of Company X

13. Later in December 2015, the Plaintiff decided to acquire a company as part of its expansion plans. It considered Company X as one of its potential targets and began to work towards its acquisition.

14. On 31 July 2016, the Plaintiff signed an agreement to acquire Company X’s shares. The Plaintiff did not involve either the Defendant or its sister company in the acquisition of Company X’s shares.

The Demand for Success Fees and Arbitration Proceedings

15. After the agreement for Company X’s shares was entered into, the Defendant demanded success fees for the X Opportunity. However, as the Amended Agreement had expired about two and a half years before, the Plaintiff refused payment.

16. Following a “without prejudice” discussion and a mediation – which failed to resolve the dispute, the Defendant commenced SIAC arbitration proceedings.

17. In the arbitration, the Defendant acknowledged that the Agreement and Amended Agreement had expired on 31 December 2013. Its case, therefore, was that:

17.1. There was an oral agreement between the plaintiff and the defendant to extend the Agreement for “a further period” during which the Defendant would continue to provide services to the Plaintiff. The oral agreement would be reflected in a written contract in due course.

17.2. Alternatively, there was an implied contract as between the Plaintiff and Defendant, governing the period between the expiration of the Amended Agreement and the execution of the new written contract. The terms of the implied contract were the same as the Agreement.

17.3. The Plaintiff was estopped from asserting that the Agreement and Amended Agreement were no longer valid.

18. This remained the Defendant’s position throughout its pleadings, witness statements, opening statement, and in its closing submissions.

19. The Plaintiff, for its part, denied the alleged oral agreement, implied contract and estoppel.

The Tribunal’s decision

20. In its Final Award, the Tribunal agreed with the Plaintiff’s case. Crucially, the Tribunal found that (a) there was “plainly no express contract in existence” and “simply no extension by mutual agreement after 31 December 2013” (b) “no such implied contract(s) as pleaded by [the Defendant] exist(s)”.

21. However, despite having found against the Defendant on its pleaded case, the Tribunal nevertheless held that the Plaintiff was liable to pay success fees. In coming to its conclusion, the Tribunal held that that success fees were payable as long as there was a clear link between the oil fields which were acquired by the Plaintiff and the X Opportunity. Having found that the acquisition of Company X was part of the X Opportunity, the Tribunal held that the Plaintiff was liable to the Defendant for success fees.

22. Accordingly, the Plaintiff applied to the Singapore High Court to set these portions of the Tribunal’s award aside.

The High Court’s decision in CIZ v CJA [2021] SGHC 178

23. In the High Court, the Plaintiff argued that the Tribunal had exceeded its jurisdiction pursuant to Article 34(2)(a)(iii) of the Model Law, which states:

“Article 34. Application for setting aside as exclusive recourse against arbitral award

(2) An arbitral award may be set aside by the court specified in Article 6 only if:

(a) the party making the application furnishes proof that:

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or

…”

24. In CIZ v CJA [2021] SGHC 178, the Court agreed with the Plaintiff, and held that the Tribunal had exceeded its scope of jurisdiction by finding for the Defendant on grounds that were entirely different from the Defendant’s case in the arbitration. It was not possible to describe the Tribunal's findings as being ancillary to the matters submitted to arbitration.

25. The Court stated that whilst the Defendant’s claim ought to have failed after its case that there was a subsisting agreement following the expiry of the Amended Agreement was rejected, the Tribunal nevertheless found for the Defendant on grounds that had not been set out in its Notice of Arbitration, pleadings or submissions. The Court also noted that the Tribunal had arrived at findings which were inconsistent with the Defendant’s case at the arbitration.

26. In coming to its decision, the Court found that the facts of CIZ v CJA [2021] SGHC 178 were similar to that of GD Midea Air Conditioning Equipment Co Ltd v Tornado Consumer Goods Ltd [2018] 4 SLR 271 (GD Midea). In GD Midea, an arbitrator’s award was premised on a finding that was never part of the successful party’s case, and was, in fact, inconsistent with that party’s position.

27. The Court also considered TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] 4 SLR 972 (TMM), which states:

“an issue which surfaces in the course of the arbitration and is known to all the parties would be considered to have been submitted to the arbitral tribunal even if it is not part of any memorandum of issues or pleadings”

28. However, the Court highlighted that the statement above must be looked upon in its proper context. Citing CAI v CAJ [2021] SGHC 21 (CAI v CAJ), the Court held that TMM was referring to the scenario where the law had changed or a new fact arose after the arbitration reference had started and such change was not known to the parties. The Court also noted that even in that scenario, what may be raised in the arbitration, although not pleaded, are only matters that are ancillary to the dispute submitted for arbitration.

29. In its analysis of TMM, the Court agreed with the view expressed in CAI v CAJ that:

“... TMM, read in its proper context, does not ... open the door for an arbitrant to raise a new claim, defence or issue at any stage of the arbitration and in any manner it pleases. ... one has to always bear in mind that in an arbitration, the tribunal's jurisdiction is demarcated by what the parties agree to submit to the tribunal for determination ...”

30. The Court therefore granted a partial setting aside of the Final Award, and the holding that the Plaintiff ought to pay success fees was accordingly set aside.

Conclusion

31. While the Singapore Court adopts a favourable approach to arbitration as a dispute resolution mechanism and may be slow to set aside arbitral awards, as shown by the instant case, tribunals do not possess an unfettered jurisdiction in relation to the disputes brought before them. A tribunal can exceed its jurisdiction if it makes an award based on grounds entirely different from the parties’ cases in the arbitration, which cannot be said to be ancillary to the matters submitted for arbitration.

The judgment, CIZ v CJA [2021] SGHC 178, can be downloaded from this link. The Defendant has brought an appeal before the Court of Appeal.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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