Holland Leedon Pte Ltd (in liquidation) v Metalform Asia Pte Ltd

Philip Pillai J:

[1] This is the plaintiff’s application for leave to appeal against a summary determination of issues (“the Decision”) by the sole arbitrator in the arbitration between the parties in SIAC Arbitration No 069/DA17/05 (“the Arbitration”). The plaintiff, Holland Leedon (“the Vendor”), is the respondent in the Arbitration, while the defendant, Metalform Asia Pte Ltd (“the Purchaser”). The dispute between the parties relate to the interpretation of terms in an agreement between the parties for the sale and purchase of the Vendor’s business (“the SPA”).

[2] The relevant statutory provision is s 49 of the Arbitration Act (Cap 10, 2002 Rev Ed) (“the Act”), the material part of which read as follows:

[3] The present application turns on subsections (2), (5) and (6). I will deal with each in turn.

[4] The Purchaser argued that the parties had agreed to exclude the appellate jurisdiction of the court granted by s 49(1) by virtue of cll 21.2, 21.6 and 21.7 of the SPA, which read as follows:

[5] I can see nothing in cl 21.2 which avails the Purchaser. As for cl 21.6, the Purchaser argues that the clause excludes the jurisdiction of the court by providing that the decision or award shall be “final and binding”. I am unable to agree. In every arbitration agreement there must be some form of words providing for the binding effect of the award. It would not be sensible to construe such words as serving the further function of excluding an appeal – otherwise parties to every arbitration agreement would have to positively provide for a right of appeal. This would be contrary to the tenor of s 49(1) and (2), which provide for a right of appeal in the first place, which the parties may then exclude. So, in my view, the exclusion of the right of appeal must be effected through something more than a provision which merely provides for the binding effect of the arbitral award. On the facts, I appreciate that the word “final” can, read alone, be taken to be that something more, but reading clause 21.6 as a whole I think that the overall effect of the clause is merely to provide for the binding effect of the arbitral award. I am fortified in this conclusion by the dicta of Ramsey J in Essex County Council v Premier Recycling Ltd [2006] EWHC 3594 at [22] that:

[6] I turn now to cl 21.7. The Purchaser submitted that cl 21.7 tracks s 45 of the Act, which provides in material part as follows:

This is a linguistic argument, and ordinarily the court will not engage in fine linguistic distinctions when construing commercial contracts – a relevant example being the construction of the scope of arbitration agreements. In this case, however, the Act draws a distinction between a party’s right to apply to court to “determine any question of law arising in the course of the proceedings”, contained in s 45(1), and a party’s right to appeal to court “on a question of law arising out of an award made in the proceedings”, contained in s 49(1). The precise language adopted by the parties is therefore important. On the facts, cl 21.7 only relates to “questions of law arising in the course of any arbitration” (emphasis added). This, in my view, is referable only to s 45(1) and is insufficient to exclude the right of appeal in s 49(1).

[7] I turn now to s 49(5), which lays down the requirements to be satisfied before leave can be granted. There is no serious dispute that s 49(5)(a) and (b) are satisfied. The main issue is s 49(5)(c), which lays down the threshold of merit which must be met. There are two alternative thresholds: either (i) on the basis of the findings of fact in the award the decision of the arbitral tribunal is obviously wrong, or (ii) on the basis of the findings in the award the question is one of general public importance and the decision of the arbitral tribunal is at least open to serious doubt. As is apparent, the threshold is lower when the question of law sought to be presented on appeal is of general public importance.

[8] On the facts, there were three questions of law put to the learned arbitrator. It is not necessary to rehearse them here. Essentially they come to this. The SPA computed the purchase price for the Vendor’s business via the commonly used mechanism of applying a multiplier to the Vendor’s EBIDTA, ie, earnings before interest, depreciation, tax and amortisation. The EBIDTA was not based simply on the relevant audited financial statements. Instead it was to be derived from the agreed completion accounts jointly prepared by the accountants of both parties. See Robert Thompson, gen ed, Sinclair on Warranties and Indemnities on Share and Asset Sales (Sweet & Maxwell, 7th Ed, 2008) at para 13-04. There is, in the SPA, no warranty as to the final EBIDTA, and quite naturally so since the Purchaser participated in the completion accounts process which yielded the EBIDTA. The purchaser takes the EDIBTA which he agreed to and to which was then applied the agreed multiple to arrive at the purchase price. The underlying business approach reflected here is one of caveat emptor.

[10] For similar reasons, I think it is just and proper in all the circumstances for an appeal to lie to the court.

[11] The Purchaser argued that the Vendor has not formulated or identified any question of law arising from the Decision by the learned arbitrator, and therefore failed to satisfy s 45(6) of the Act. Again I am unable to accede. It is first of all doubtful that s 49(6) of the Act is a condition precedent to the grant of leave (as opposed to a mere procedural requirement), since it is not placed in s 49(5). In any case, the Vendor is clearly disputing the effect of a contractual term, and it is beyond controversy that the true construction of contractual terms is a question of law: Permasteelisa Pacific Holdings Ltd v Hyundai Engineering Construction Co Ltd [2005] 2 SLR(R) 270.