CKR and another v CKT and another [2021] SGHCR 4

Introduction

The enforcement applications in Originating Summonses Nos 1274 and 1275 of 2020 (“OS 1274” and “OS 1275”, respectively) are unique. In OS 1274 and OS 1275, the Plaintiffs seek leave to enforce three separate arbitral awards before the Singapore seat court, when there are pending applications to set aside the same arbitral awards before the Singapore seat court. The issue was whether leave should be granted to enforce the arbitral awards. I granted leave and these are the grounds of my decision.

Facts

The parties

The Plaintiffs, together with another individual, were the beneficial owners of a company which conducted business in the travel industry (“the Company”). The principal operating company of the Company was CKU. CKU was jointly owned by the Plaintiffs and another individual. CKU is a Malaysian company.

The Company was acquired by CKT, which is a Mauritian company. Following CKT’s acquisition of the Company, the Plaintiffs remained the Chief Executive Officer and the Chief Technical Officer of CKU.

Background to the dispute

In late 2012, the Plaintiffs agreed to sell 100% of the Company to CKT. A Share Purchase Agreement dated 26 September 2012 (“the SPA”) was entered into by CKT, the Plaintiffs and two other beneficial owners of the Company. The SPA provided (amongst other things) that:

(a) CKT would acquire 100% ownership and control of the Company at both the shareholder and board level; and

(b) The 1st and 2nd Plaintiff, who were described as “Key Promoters” in the SPA would remain employed by CKU as Chief Executive Officer and Chief Technical Officer respectively, but would resign as directors of the Company. The Plaintiffs’ employment was to be pursuant to Promoter Employment Agreements (“PEAs”).

Under clause 2.2 of the SPA, the purchase price comprised of “Guaranteed Minimum Consideration” of US$25 million plus such “Earn Out Consideration”, if any, that became payable.

(a) The Guaranteed Minimum Consideration comprised of an initial consideration of US$15 million to be paid in cash up front and as Escrow Initial Consideration and a “Deferred Consideration” of US$10 million to be paid in tranches of CKT shares.

(b) The Plaintiffs were entitled to be paid the Earn Out Consideration only if they met certain Earn Out Targets, measured against CKU’s actual financial performance. The Earn Out Consideration was not to exceed the aggregate of US$35 million for the 2014-2015 Earn Out period and any extension pursuant to clause 12.1 of the SPA.

In January 2014, the Plaintiffs were issued termination letters, which dismissed their employment by CKU with immediate effect. The termination letters alleged that they had been terminated “With Cause”. The effect of a “With Cause” termination is that the Plaintiffs were not entitled to the “Earn Out Consideration”.

As the Plaintiffs took the view that they had been dismissed without cause, they commenced proceedings in the Malaysian Industrial Court (“the MIC”) for wrongful dismissal as their employment agreements (namely, the PEAs) were governed by Malaysian Law. The MIC granted awards on 6 April 2015 and 29 July 2015 (“the MIC Awards”) in favour of the Plaintiffs, finding that their dismissals had been “without just cause” and awarded them compensatory remedies based on their monthly salaries.

The arbitration proceedings

On 12 July 2016, the Plaintiffs commenced an arbitration against the Defendants pursuant to Article 17.4 of the SPA, on the basis that the Plaintiffs were entitled to the US$35 million in Earn Out Consideration from the Defendants because their terminations were “Without Cause”. The seat of the arbitration was Singapore. A three-member tribunal (“the Tribunal”) was constituted to hear the arbitration.

The First Partial Award

During the arbitration, pursuant to a case management conference and in consultation with the parties, the Tribunal directed (amongst other things) that there would be a hearing of a list of non-evidentiary legal issues for determination by the Tribunal. Parties agreed on the list of legal issues, and the hearing of the list of legal issues was conducted on 6 and 7 December 2017.

On 30 April 2018, the Tribunal issued a partial award (“the First Partial Award”). In the First Partial Award, the Tribunal found, amongst other things, that:

(a) The determinations by the MIC that the Plaintiffs were terminated without just cause or excuse were binding on the parties and conclusive as a matter of contract for the purposes of the SPA and the PEAs; and

(b) The Defendants were prevented from arguing that the Plaintiffs were terminated “With Cause” under the SPA and the PEAs by operation of the doctrine of issue estoppel under Singapore law, as the issue had already been determined by the MIC.

After the First Partial Award was issued, the Defendants filed an application seeking to review the Tribunal’s decision and to set aside the First Partial Award.

The Second Partial Award

The Tribunal proceeded with the arbitration and issued a Second Partial Award dated 11 October 2019 (“the Second Partial Award”). The Second Partial Award mainly concerned the Plaintiffs’ remaining claims and the issue of whether the Defendants’ counterclaims were precluded by the reasoning of the First Partial Award. The Tribunal found in favour of the Plaintiffs and dismissed all the Defendants’ counterclaims as being precluded by issue estoppel under Singapore law, save for one which it dealt with in the Final Award.

The Final Award

The Additional Final Award

Further to the Final Award, the Tribunal issued an Additional Final Award dated 3 July 2020 (“the Additional Final Award”). In this Additional Final Award, the Tribunal ordered the Defendants to pay the Plaintiffs damages for breach of the SPA.

The setting aside applications

Shortly after the Tribunal issued the First Partial Award, on 1 June 2018, the Defendants filed Originating Summons No 683 of 2018 (“OS 683”) in the High Court seeking to challenge the First Partial Award on the following grounds:

(a) that the Tribunal had jurisdiction to determine whether the respondents were terminated “Without Cause” for the purposes of the SPA pursuant to s 10(3)(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”);

(b) in the alternative, that the First Partial Award be set aside pursuant to s 24(b) of the IAA and Art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”).

The High Court dismissed the Defendants’ application in full. On appeal, the Court of Appeal dismissed the appeal in Civil Appeal No 178 of 2019 (“CA 178”) on 23 October 2020.

After the Second Partial Award was issued, on 8 November 2019, the Defendants applied to set aside the Second Partial Award in Originating Summons 1401 of 2019 (“OS 1401”). The Defendants (as in OS 683) sought to review the Tribunal’s decision on jurisdiction pursuant to s 10(3)(b) of the IAA and in the alternative, to set aside the Second Partial Award pursuant to s 24(b) of the IAA and/or Art 34(2) of the Model Law.

Subsequently, on 9 September 2020, the Defendants applied to set aside parts of the Final Award and the Additional Final Award in Originating Summons No 874 of 2020 (“OS 874”) , on the same grounds as the grounds for challenging the First Partial Award and the Second Partial Award.

Parties had agreed for OS 1401 and OS 874 to be held in abeyance pending the final determination of the appeal against the High Court’s decision to dismiss the Defendants’ application to set aside the First Partial Award. However, after the decision by the Court of Appeal in CA 178, the Defendants took the position that they would nevertheless proceed with OS 1401 and OS 874.

The leave to enforce applications

It is in above context that the Plaintiffs seek to enforce the orders in:

Crucially, the Plaintiffs seek leave to enforce these awards notwithstanding that in OS 1401 and OS 874, the Defendants have filed applications to set aside the same awards.

The Plaintiffs’ position was that leave to enforce the Second Partial Award, the Final Award and the Additional Final Award may be granted even when there are pending setting aside applications for the following reasons:

(a) There is nothing in the IAA or the Rules of Court (Cap 322, R 5, 2014 Rev Ed)(“Rules of Court”) which provides that leave to enforce cannot be given when there are pending setting aside applications and/or that the Court has no power to grant such leave;

(b) The awards are final and binding under the terms of the arbitration agreement and s 19B of the IAA;

(c) Case law supports the submission that a pending setting aside application did not affect the Court’s ability to exercise its discretion in favour of enforcement; and

(d) Order 69A r 6(4) of the Rules of Court provides a mechanism for a debtor to challenge an order granting leave to enforce. Therefore, there was nothing which prohibits leave to enforce from being granted if there were ongoing setting aside applications.

Decision

Whether leave to enforce the Second Partial Award, the Final Award and the Additional Final Award ought to be granted

The relevant legal principles

Enforcement of arbitral awards is a two-stage process in Singapore. First, an ex parte application is filed by the applicant for leave to enforce an award. The supporting affidavit filed in support must satisfy the requirements of s 30(1) of the IAA (in the case of enforcement of a foreign award) and O69A rr 6(1) and 6(1A) of the Rules of Court; in particular, the affidavit must:

Once the formal requirements of O 69A rr 6(1) and 6(1A) of the Rules of Court are met, the Court would grant leave to enforce. The award creditor must serve the order granting leave on the award debtor pursuant to O 69A r 6(2) of the Rules of Court.

The approach at the first ex parte stage was considered by the High Court in Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd [2006] 3 SLR(R) 174 (“Aloe Vera”). The High Court held (at [27] and [39] – [42]) that the examination that the court must make of the documents under O 69A r 6 is a mechanistic/formalist one, and not a substantive one:

The mechanistic approach laid down in Aloe Vera was endorsed by the High Court in Denmark Skibstekniske Konsulenter A/s I Livkidation (formerly known as Knud E Hansen A/S) v Ultrapolis 300 Investments Ltd (formerly known as Ultrapolis 3000 Theme Park Investments Ltd) [2010] 3 SLR 661 (at [15]–[22]).

At the second inter partes stage, recognition and enforcement may be refused only if the award debtor applies to set aside the order granting leave on any of the exhaustive grounds under ss 31(2) and 31(4) of the IAA (in the case of a foreign international award) or under s 19 of the IAA read with Art 36 of the Model Law (in the case of a domestic international award).

The approach at the second stage is different from the mechanistic approach at the first stage. At the second stage, the award debtor must prove on a balance of probabilities the grounds relied on to resist enforcement. In this regard, the High Court in Glasworthy Ltd of the Republic of Liberia v Glory Wealth Shipping Pte Ltd [2011] 1 SLR 727 observed (at [11]) that:

Application of the legal principles

Applying a mechanistic approach to the examination of the documents filed pursuant to O 69A r 6(1) of the Rules of Court, there is no doubt that the requirements under O 69A r 6(1) have been satisfied in the present case. The duly certified copy of the awards and a copy of the SPA containing the arbitration agreement have been exhibited to the supporting affidavit. The supporting affidavit further contains the information required under O 69A rr 6(1)(b)–(c) of the Rules of Court.

Even though there are pending applications to set aside the Second Partial Award, the Final Award and the Additional Final Award, this is not a reason to refuse leave to enforce. A pending application to set aside an award is not even a ground to refuse recognition and enforcement of an award under section 19 of the IAA read with Article 36 of the Model Law. Even if it were a valid ground for refusing recognition and enforcement, this is not an issue to be determined at the first ex parte stage in deciding whether leave to enforce an award should be granted.

Accordingly, simply because there are pending setting aside applications is not a reason to refuse leave to enforce the arbitral awards. This conclusion is consistent with the principle of finality. In this regard, the fact that there are pending setting aside applications does not affect the final and binding nature of arbitral awards.

In PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372, the Court of Appeal observed that Parliament’s intention in aligning the effect of interim awards with that of final awards under s 19B of the IAA was driven by its object of providing that all awards – interim and final – should reflect the principle of finality. That said, an award is not unimpeachable. There are curial remedies available to challenge an award. However, the fact that such curial remedies are available, per se, does not affect the final and binding consequences of an award. The Court of Appeal stated (at [140] and [142]) that:

In similar vein, the Hong Kong Court in L v B [2016] 4 HKC 254, held (at [12]–[13]) in the context of an application for security, that the fact that an award is being challenged in the supervisory court does not mean that the award has become not binding:

Gary B. Born in International Commercial Arbitration (Kluwer Law International, 3rd Ed, 2020) (at [3613]) takes the similar view that the final and binding nature of an award is not affected by a pending application to challenge an award:

Thus, it may be gleaned from the above that an award made by the tribunal is final and binding on the parties as to the merits of the subject-matter determined under that award. The fact that a party has curial remedies to challenge an award does not affect the final and binding nature of an award. Further, an award is binding on the parties even though there may be pending applications to set aside that award.

As a final point, while it might appear pertinent to consider whether enforcement proceedings ought to be adjourned, especially when the Plaintiffs are seeking to enforce awards at the seat court which is hearing the pending applications to set aside the same awards, this is an issue that would be more appropriately dealt with at the second inter partes stage of the enforcement proceedings.

In this regard, the High Court has observed in Man Diesel Turbo SE v IM Skaugen Marine Services Pte Ltd [2019] 4 SLR 537 (at [37]) that an adjournment pursuant to s 31(5) of the IAA “can only be made” at the second stage of enforcement:

The Court at the second inter partes stage of enforcement proceedings may decide whether to refuse recognition or enforcement of an award on any of the grounds under Article 36(1) of the Model Law or adjourn its decision if an application for setting aside has been made under Article 36(2) of the Model Law. The Court may also consider whether security ought to be provided.

At the first ex parte stage of enforcement proceedings, the approach is to consider if the requirements of O 69A r 6 of the Rules of Court have been met; rather than to consider the merits of any ground for refusing recognition or enforcement or if an adjournment is proper. Given the requirements of O 69A r 6 of the Rules of Court have been met in the present case, leave to enforce the Second Partial Award, the Final Award and the Additional Final Award ought to be granted.

Conclusion

For the reasons above, I granted the Plaintiffs leave to enforce the Second Partial Award, the Final Award and the Additional Final Award.