Singapore International Commercial Court

... The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases. This important proscription is reflected in the policy of minimal curial intervention in arbitral proceedings, a mainstay of the Model Law and the IAA...

(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this Article.

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

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(b) the court finds that:

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(ii) the award is in conflict with the public policy of this State.

58 It can be seen from the foregoing discussion that thus far, the English courts have adopted two divergent approaches vis-à-vis the circumstances in which the court may reopen an arbitral tribunal's decision that an underlying contract is legal. On the one hand, there is the approach taken by Colman J in Westacre (HC) ([40] supra) and the majority of the English CA in Westacre (CA) ([23] supra); on the other hand, there is the more liberal (and `interventionist') approach taken in Soleimany ([23] supra) and by Waller LJ in Westacre (CA) . As noted in Shai Wade, `Westacre v. Soleimany: What Policy? Which Public?' [1999] Int ALR 97 ("Wade's article"), although Soleimany adopted many aspects of the decision in Westacre (HC) , it also (at 99):

... promote[d] a rather different approach to the balance to be struck between the public policy of upholding arbitration awards and the policy against unsavoury international trade practices. In the judgment of the [English CA] in [that] case, which was delivered by Waller L.J., the limits to the principle of the separability of an illegal underlying agreement [from an arbitral award] were decidedly more strict. While Soleimany accepts that there are cases in which an arbitrator would have jurisdiction to decide on questions of illegality (such as [in Westacre (HC) ] itself), the emphasis in the judgment is exemplified by the statement ...:

`The English court would not recognise an agreement between the highwaymen to arbitrate their differences any more than it would recognise their initial agreement to split the proceeds.'

In exercising its supervisory role over the enforcement of arbitral awards, the court was:

`concerned to preserve the integrity of its process and to see that it is not abused. The parties ... cannot by procuring an arbitration conceal that they, or rather one of them, is seeking to enforce an illegal contract' ...

59  In contrast, in Westacre (CA) , the majority of the English CA (namely, Mantell LJ and Sir David) rejected the approach taken in Soleimany (and by Waller LJ in Westacre (CA) itself), and chose "a return to the emphasis normally placed on the continued unhindered operation of the New York Convention as an overriding policy in matters concerning international arbitration" (see Wade's article at 100).

60 With respect, we do not agree with the approach taken in Soleimany and by Waller LJ in Westacre (CA) . In our view, it is the majority's approach in the latter case (which endorses Colman J's approach in Westacre (HC)) which is consonant with the legislative policy of the IAA of giving primacy to the autonomy of arbitral proceedings and upholding the finality of arbitral awards (whether foreign arbitral awards or IAA awards).

62 Be that as it may, since the law applied by the Tribunal was Singapore law, the question that arises is whether, if a Singapore court disagrees with the Tribunal's finding that the Concluding Agreement is not illegal under Singapore law, the court's supervisory power extends to correcting the Tribunal's decision on this issue of illegality. In our view, the answer to this question must be in the affirmative as the court cannot abrogate its judicial power to the Tribunal to decide what the public policy of Singapore is and, in turn, whether or not the Concluding Agreement is illegal (illegality and public policy being, as pointed out at [19] above, mirror concepts in this regard), however eminent the Tribunal's members may be. Accordingly, we agree with the Judge that the court is entitled to decide for itself whether the Concluding Agreement is illegal and to set aside the Interim Award if it is tainted with illegality, just as in Soleimany , the English CA refused to enforce the Beth Din's award as it was tainted with illegality.

In short, this case is not a Soleimany -type case involving an underlying contract clearly tainted by illegality, but a Westacre (CA) or OTV -type case, where the respective arbitral tribunals found that the underlying contracts in question did not involve the giving of bribes to, but merely the lobbying of, government officials, which lobbying was not contrary to English public policy ( ie , the public policy of the Enforcing State).

... On the facts of this case, s 19B(1) of the IAA calls for the court to give deference to the factual findings of the Tribunal. The policy of the IAA is to treat IAA awards in the same way as it treats foreign arbitral awards where public policy objections to arbitral awards are concerned, even though, in the case of IAA awards, the seat of the arbitration is Singapore and the governing law of the arbitration is Singapore law. Arbitration under the IAA is international arbitration, and not domestic arbitration. That is why s 19B(1) provides that an IAA award is final and binding on the parties, subject only to narrow grounds for curial intervention. This means that findings of fact made in an IAA award are binding on the parties and cannot be reopened except where there is fraud, breach of natural justice or some other recognised vitiating factor.

66 In this connection, we would reiterate the point which this court made in PT Asuransi Jasa ([27] supra) at [53]-[57], viz, that even if an arbitral tribunal's findings of law and/or fact are wrong, such errors would not per se engage the public policy of Singapore. In particular, we would draw attention to the following passage from [57] of that judgment:

... [T]he [IAA] ... gives primacy to the autonomy of arbitral proceedings and limits court intervention to only the prescribed situations. The legislative policy under the [IAA] is to minimise curial intervention in international arbitrations. Errors of law or fact made in an arbitral decision, per se, are final and binding on the parties and may not be appealed against or set aside by a court except in the situations prescribed under s 24 of the [IAA] and Art 34 of the Model Law. While we accept that an arbitral award is final and binding on the parties under s 19B of the [IAA], we are of the view that the [IAA] will be internally inconsistent if the public policy provision in Art 34 of the Model Law is construed to enlarge the scope of curial intervention to set aside errors of law or fact. For consistency, such errors may be set aside only if they are outside the scope of the submission to arbitration. In the present context, errors of law or fact, per se, do not engage the public policy of Singapore under Art 34(2)(b)(ii) of the Model Law when they cannot be set aside under Art 34(2)(a)(iii) of the Model Law . [emphasis added]

This passage recognises the reality that where an arbitral tribunal has jurisdiction to decide any issue of fact and/or law, it may decide the issue correctly or incorrectly. Unless its decision or decision-making process is tainted by fraud, breach of natural justice or any other vitiating factor, any errors made by an arbitral tribunal are not per se contrary to public policy.

67 That said, since s 19B(4) of the IAA, read with Art 34(2)(b)(ii) of the Model Law, expressly provides that an arbitral award can be challenged on public policy grounds, it is necessary for us to clarify the application of the general principle laid down in PT Asuransi Jasa (at [57]) that `errors of law or fact, per se , do not engage the public policy of Singapore'. It is a question of law what the public policy of Singapore is. An arbitral award can be set aside if the arbitral tribunal makes an error of law in this regard, as expressly provided by s 19B(4) of the IAA, read with Art 34(2)(b)(ii) of the Model Law. Thus, in the present case, if the Concluding Agreement had been governed by Thai law instead of Singapore law, and if the Tribunal had held that the agreement was indeed illegal under Thai law (as the Respondent alleged) but could nonetheless be enforced in Singapore because it was not contrary to Singapore's public policy , this finding - viz , that it was not against the public policy of Singapore to enforce an agreement which was illegal under its governing law - would be a finding of law which, if it were erroneous, could be set aside under Art 34(2)(b)(ii) of the Model Law (read with s 19B(4) of the IAA).

68 In contrast, Art 34(2)(b)(ii) of the Model Law does not apply to errors of fact . ....

69 In our view, limiting the application of the public policy objection in Art 34(2)(b)(ii) of the Model Law to findings of law made by an arbitral tribunal - to the exclusion of findings of fact (save for the exceptions outlined at [65] above) - would be consistent with the legislative objective of the IAA that, as far as possible, the international arbitration regime should exist as an autonomous system of private dispute resolution to meet the needs of the international business community. Further, such an approach would also be fair to both the successful party and the losing party in an arbitration. Taking the present case as an example, we have held that the Respondent is bound by the Tribunal's factual finding that the Concluding Agreement did not require the Appellant to do anything illegal under Thai law and was therefore not an illegal contract. If the Tribunal had made the converse finding of fact instead - ie , if the Tribunal had found as a fact that the Concluding Agreement did indeed require the Appellant to engage in illegal conduct in Thailand and was therefore an illegal contract - and if the Tribunal had erred in this regard, the Appellant would equally have been bound by this finding as it would have no recourse under the IAA (read together with the Model Law) against such an error of fact.

39. ... It has not been questioned that it is for the court to determine the nature and extent of the public policy of the state; and that, if an arbitral tribunal decides that an agreement is illegal, but makes an award which enforces the agreement, the court is entitled to set aside the award under section 39(2)(b)(ii) of the [Mauritius] International Arbitration Act as conflicting with public policy. That was the actual position in Soleimany . In AJU, the judge had reversed the determination in the award on the interpretation of the Concluding Agreement governed by Singapore law, held it was illegal and set the award aside. The Court of Appeal held that the judge should not have reopened the finding on the legality of the Concluding Agreement in these circumstances and should not have set it aside. The better view of the observations in the judgment in AJU which are set out above is that they did no more than affirm the position that: (a) in the absence of fraud or other vitiating factors (as set out in section 24 of Singapore's International Arbitration Act - the equivalent of sections 39(2)(b)(ii) and (iv) of the [Mauritius] International Arbitration Act) a decision of fact or law within the jurisdiction of the arbitral tribunal was final and binding; and (b) the determination of the nature and extent of public policy was a question of Singapore law for determination by the courts of Singapore. The observations in para 62 referring to it being in the power of the courts under article 34(2)(b)(ii) to review the determination in the award of the legality of the agreement went further than was necessary for the decision in the case and are inconsistent with the judgment read as a whole. As had been observed in PT Asuransi Jasa , to read article 34 broadly in this way would be inconsistent with the principle of finality in respect of matters determined by the arbitral tribunal within its jurisdiction.

52. The issue in this appeal is the scope of section 39(2)(b)(ii) of the International Arbitration Act in relation to a decision of an arbitral tribunal which decided that a contract was not illegal on the basis of its interpretation of legislative provisions and regulations that were applicable to a contract. There may be unusual circumstances where different considerations may apply. More likely, as appears from the decided cases and observations made in them, are cases where the arbitral tribunal has expressly considered issues which have required the arbitral tribunal to inquire into circumstances suggesting illegality and set out their reasons for holding as a matter of fact and of law that there was no illegality. In cases of that kind, the arbitral tribunal's decision on fact and on law is a decision for the arbitral tribunal, if within its jurisdiction; if it holds that the contract is not illegal, then that decision will be final, in the absence of fraud, a breach of natural justice or any other vitiating factor. There may be some exceptional cases, where the court under the Model Law provision may be entitled to review the decision on legality, but it is not easy to think of such a case arising in practice. In the light of experience, it would not be helpful to seek in this appeal to go further by delineating possible circumstances or making observations about them. There would be a risk that such observations could be deployed in the cases which are in practice likely to arise in misguided attempts to expand the ambit of intervention under section 39(2)(b)(ii) of the International Arbitration Act / article 34 of the Model Law.

(1) The arbitrator ascertains the facts. This process includes the making of findings on any facts which are in dispute. (2) The arbitrator ascertains the law. This process comprises not only the identification of all material rules of statute and common law, but also the identification and interpretation of the relevant parts of the contract, and the identification of those facts which must be taken into account when the decision is reached. (3) In the light of the facts and the law so ascertained, the arbitrator reaches his decision.

(1) Foreign law a fact

9-002 The principle that, in an English court, foreign law is a matter of fact has long been well established: it must be pleaded, and it must be proved: these requirements are examined in detail below. It follows that a representation of foreign law is a representation of fact for the purposes of the law of misrepresentation, and a finding upon foreign law made by arbitrators is a finding of fact which may not form the basis of an appeal on a point of law under s.69 of the Arbitration Act 1996....

151. The effect of the FEMA regulations is undisputed between the Parties. The FEMA regulations do not operate to act as an absolute bar to a transaction like the Put Option. However, in the case of a non-resident selling shares in an Indian company to a resident, assured returns are barred. The maximum price payable in the case of a non-resident- to-resident sale is that arrived at by any internationally accepted pricing methodology for valuation of the shares on arm's length basis, duly certified by a chartered accountant or a Securities and Exchange Board of India-registered merchant banker .The Parties also agree that there is no such restriction on price in the case of a non- resident selling to another non-resident.

152 Given this agreement, it is clear that in the case of the Claimant selling its shares to the First Respondent, being a transaction between a non-resident selling to a resident, the Claimant would be unable to receive the Put Price as consideration for that sale.

153 The dispute between the Parties lies in their differing interpretations of clause 11 of the SHA, and whether the Respondents were obliged to procure a third party non-resident buyer so as to enable the Claimant to receive its assured return of its initial investment plus an amount equal to a 22% compounded annual rate of return on the initial investment. Further, the Respondents contend that the Non-Compete Agreement constitutes an agreement to agree, and is therefore [un]enforceable, or alternatively, that the Non-Compete Agreement constitutes an impermissible circumvention of the FEMA regulations.

On a proper construction, the Tribunal finds that the SHA and the Letter Agreement operate as follows:

a. In accordance with clause 11.2, the SHA allowed [CIA] to require that [CHY] purchase its shares and, if it were unable to purchase [CIA]'s shares due to legal impediment in completing the transaction as contemplated, [CHY] was required to procure a third party to purchase the shares which, given the restrictions of FEMA, would be a non--resident third party....

The reason why I said determination is not necessary is because if there's an adjudication in favour of the claimant, there's an undertaking by him to give those shares and that has to form part of the award. So yes, I'll only get the shares if I pay, but it will form part of the award, so there is no question of a drag being exercised there.

It is evident from the above that the factual background of the Docomo case is analogous to this aspect of the Claimant's case. Even though the parties to the Docomo case ultimately settled their dispute, the High Court of Delhi independently upheld the award, holding that ( i) the promoter could have lawfully performed its obligation to give an exit to the investor at any price, including at a price above the shares' market value, through a non-resident buyer, (ii) failure to do so entitled the investor to damages, and (iii) the agreement was not opposed to any Indian law including FEMA. The Claimant's present case is squarely covered and supported by the findings of the High Court of Delhi in the Docomo case.

64.... The High Court of Delhi held that `if an investment is made on representation which are breached, the investor would be entitled to its remedies including damages...Even if it is accepted that the Keepwell Agreement was designed to induce Cruz City to make investments by offering assured returns, Unitech cannot escape its liability to Cruz City.' The Court therefore held that if investor was induced to make an investment on a false assurance of the agreement being legal and valid, the respondent must bear the consequences for the unlawful agreement. In a similar manner, the Respondents induced the Claimant to invest, by assuring the Claimant of the fact that the SHA was a valid agreement. The Respondents now ought not to be allowed to evade their obligations by ... now asserting that the SHA is unlawful under the applicable law.

65. The Claimant is entitled to damages for this breach of representation and undertakings, amounting to the payment of the Put Price as agreed and calculated under the SHA.

As to the [plaintiffs'] second contention, the proof of loss in this case is set out in the agreement itself, being the loss of the bargain to which the [plaintiffs] have agreed. The [CIA]'s claim for damage does not involve any secondary losses flowing from the [plaintiffs'] failure to honour the Put Option on its terms. The [CIA] seeks only the amounts to which it would have received had the [plaintiffs] complied with their obligations. In such cases, the measure of damages is readily apparent by reference to the value of the agreements themselves. As stated by the [CIA], this was the measure of damages in the underlying decisions in D ocomo and City Cruz , and is a position that the Tribunal endorses.

204 The authorities demonstrate that the public policy ground under Art 34(2)( b )(ii) of the Model Law is a narrow ground, and the test is whether the upholding of the arbitral award would `shock the conscience'; is `clearly injurious to the public good or... wholly offensive to the ordinary reasonable and fully informed member of the public'; or `where it violates the forum's most basic notion of morality and justice': PT Asuransi Jasa ... at [59]. To succeed on a public policy argument, the party has to cross a `very high threshold' and demonstrate `egregious circumstances such as corruption, bribery or fraud, which would violate the most basic notions of morality and justice': Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1 at [48]; BAZ v BBA [2020] 5 SLR 266 at [156]-[159].

205 The relevant question is whether the illegality in the foreign state would demonstrate sufficiently egregious circumstances that would `shock the conscience' or violate the most basic notions of morality and justice so as to amount to a breach of Singapore public policy.

206 In the present case, there is no reason why a breach of the FEMA Regulations or the laws of India, without more, would `shock the conscience' or violate the `most basic notions of morality and justice'. If Mr Patnaik's submissions are taken to their logical conclusion, then any minor illegality or regulatory infringement by a contract in its place of performance would ipso facto lead to the conclusion that international comity, and thus Singapore public policy, would be breached so that the arbitral award would have to be set aside. The public policy ground under Art 34(2)( b )(ii) of the Model Law is a narrow ground and does not lead to that conclusion. I therefore reject Mr. Patnaik's submission that Art 34(2)( b )(ii) of the Model Law would have been satisfied, even if the SSSA and 2014 SPA, as amended, were found to be illegal because of a breach of the FEMA Regulations or the laws of India.