Enforcement of Foreign Arbitral Awards in Singapore



This article examines a recent decision of the High Court of Singapore in which it affirmed the approach to be adopted in permitting or refusing leave to enforce a foreign arbitral award. The Singapore court will adopt a mechanistic approach to enforcement and seek to respect the decisions of foreign tribunals. It will not necessarily have the same powers to review decisions of a foreign arbitral tribunal as the court having supervisory jurisdiction over the arbitration itself.

Summary

The High Court of Singapore has recently affirmed important points of principle in the enforcement of foreign arbitral awards in Singapore. In delivering its judgment in the case of Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd and another,¹ the court examined the scope of its jurisdiction to enforce an award made in a country that is party to the Convention of the Recognition and Enforcement of Foreign Arbitral Awards concluded on 10 June 1958 (‘the Convention’). In essence, the court held that a party seeking to challenge a Convention award has two courses of action open to it: it can apply to the supervising court to set aside the award and it may also apply to the enforcement court to set aside leave to enforce. The function of the enforcement court is not to undertake a judicial investigation into the circumstances in which the award was made because enforcement is a mechanistic process confined to the statutory framework of the International Arbitration Act² (‘the Act’).

Facts

The plaintiff, Aloe Vera of America (‘AVA’) had entered into an agreement with the first defendant, Asianic Food (S) Pte Ltd (‘Asianic’). The second defendant, a Mr Chiew, had signed the agreement on behalf of Asianic as its manager. The agreement was expressed to be governed by the law of the state of Arizona in the US.

AVA submitted disputes to arbitration in the US. In a preliminary award, the arbitrator found that Mr Chiew was a party to the arbitration agreement pursuant to a specific clause of the agreement which stated (amongst other things):

13.7  Mediation/Arbitration.  If a dispute arises relating to any relationship among any of the Forever Living Product Companies (“FLP”), their officers, employees, distributors or vendors or arising out of any products sold by FLP, it is expected that the parties will attempt in good faith to resolve any such dispute in an amicable and mutually satisfactory manner.

In the event such efforts are unsuccessful, either Party may serve a notice of mediation/arbitration … on the other Party.

Mr Chiew wrote to the arbitrator to disagree with that order but thereafter took no further part in the proceedings. AVA subsequently obtained a final arbitration award against both Asianic and Mr Chiew. Neither defendant sought to challenge the award in the courts of Arizona.

AVA successfully took out an originating summons to obtain leave to enforce the award in Singapore. At this stage Mr Chiew applied to set aside the order granting leave but the application was dismissed. It was Mr Chiew’s appeal against that decision that came before the High Court of Singapore.

Judgment

Mr Chiew argued that leave to enforce the award should be refused because (1) AVA had not established that there was an arbitration agreement between the parties; or (2) one or more of the grounds set out in ss 31(2) or (4) of the Act applied.

The court dismissed the appeal. It held that there was an ‘arbitration agreement’ between the parties within the meaning of the Convention and the Act. In construing the relevant provisions, the court recognised the need for a pragmatic approach that would give effect to arbitral awards granted 
outside Singapore.

The first question was, had AVA produced ‘the arbitration agreement’ between it and Mr Chiew? The court found that it was sufficient for AVA to produce an arbitration agreement which mentioned Mr Chiew and to which the arbitral tribunal had held that Mr Chiew was a proper party. The court had to respect the principle of international comity that is enshrined in the Convention and avoid a judicial investigation that would give the person against whom enforcement is sought a chance to 
re-litigate the jurisdiction of the arbitral tribunal. Therefore, the enforcement court’s approach has to be essentially mechanistic.

In this particular case, AVA had clearly produced the arbitration agreement ‘under which the award purports to have been made’ (s 30(1)(b) of the Act) together with the award itself. There were no reasons to depart from the mechanistic approach in the interests of justice because Mr Chiew had set up Asianic and had been actively involved in running its business. He would have anticipated that disputes arising from Asianic’s agreement with AVA would be settled by arbitration. Further, the arbitral tribunal, acting within its jurisdiction, had in fact ruled that Mr Chiew was a party to the arbitration agreement. For the Singapore court to re-investigate this issue would usurp the arbitrator’s function and entail an investigation that would offend the principles of international comity.

Since AVA had produced the arbitration agreement and award for enforcement in accordance with the provisions set out in the Act, Mr Chiew’s only avenue for resisting enforcement was to rely on certain grounds prescribed in s 31 of the Act. Subsection (1) of that section provides that ‘enforcement in any of the cases mentioned in subsections (2) and (4) may be refused but not otherwise’. The clear language of this wording therefore confines the court’s discretion to refuse enforcement to only those circumstances.

The court stressed that such grounds were not necessarily the same as the grounds that would entitle Mr Chiew to set aside the award in Arizona. The grounds on which a supervisory court may set aside an award will depend on the law of that jurisdiction. These may well differ from the enforcement grounds of a foreign enforcing court. In the case of Singapore, the court’s jurisdiction to refuse enforcement was restricted to the statutory grounds set out in the Act and that jurisdiction does not extend to a wholesale re-examination of the merits of an award.

The court found that none of the cases outlined in ss 31(2) and (4) of the Act and relied on by the defendants applied in the current circumstances and that enforcement should not be refused. Most of the arguments put forward by Mr Chiew in reliance on these provisions were simply reformulations of his earlier submission that there was no valid arbitration agreement between AVA and Mr Chiew.

Four arguments were made in relation to ss 31(2) and (4) of the Act. First, the arbitration agreement was not valid under Arizona law because Mr Chiew was not a party to it (s 31(2)(b) of the Act). The burden was on Mr Chiew to prove this as a matter of Arizona law. No expert evidence was adduced. Instead, Mr Chiew relied on the affidavit of his attorney who had represented him in Arizona. That affidavit repeated arguments that had been made to the arbitrator and had been rejected. There was, therefore, no independent expert evidence to satisfy the court that the arbitration agreement was invalid as it related to Mr Chiew under Arizona law and that the arbitrator was not entitled to find that Mr Chiew was a party to the arbitration agreement.

The second argument raised was that the award went beyond the scope of the submission to arbitration (s 31(2)(d) of the Act). The court rejected this argument on the basis that the ground for challenge relates to the scope of the arbitration agreement, rather than whether a particular person was a party to the agreement. Further, the court would need to apply Arizona law to the question of the scope of the arbitration agreement. No expert evidence had been adduced on this point.

The third argument was that enforcement should be refused because the subject matter of the dispute (namely, the theory that permits a person to be viewed in law as the alter ego of a company) was not capable of settlement by arbitration (s 31(4)(a) of the Act). The Act expressly provides that this ground is to be determined by reference to Singapore law. Alter ego theory was held not to fall within the generally accepted category of issues containing a public interest element (such as citizenship, copyright, winding up of companies and so on) that are not considered arbitrable.

The fourth argument was that enforcement of the award would be contrary to the public policy of Singapore. The court rejected the submission that Mr Chiew had been deprived of an opportunity to argue that he was not the alter ego of Asianic and that there had been a breach of natural justice. It held that the awards of foreign arbitration tribunals were to be given due deference and be enforced unless exceptional circumstances exist. In this case, Mr Chiew had taken legal advice and was at all times given the opportunity to deal with the substantive issues involved in the arbitration. He chose not to challenge the arbitrator’s preliminary order or final award in the courts of Arizona. The enforcement of the award could not, therefore, be said to offend the public policy of Singapore.

Comment

In this judgment, the Singapore court endorsed a pragmatic approach to the enforcement of foreign arbitral awards. In doing so, it emphasised the different roles played by the supervisory and enforcement courts in the arbitration process and examined the extent of the Singapore court’s jurisdiction to enforce foreign arbitral awards.

The ruling may at first seem surprising: Mr Chiew found himself personally liable for his company’s acts by virtue of signing an agreement on its behalf. So, should directors who routinely execute company documents be concerned that they too could become parties personally to arbitrations involving their companies? This would not seem to be the case. The court reached a result that, on a full appreciation of the facts, was the natural consequence of the calculated risks assumed by Mr Chiew in disputing AVA’s claims.

The salutary lesson to draw from the judgment is that supervisory and enforcement courts may each provide different redress for a party wishing to object to the jurisdiction of an arbitral tribunal. What powers these courts have will depend on what their local laws provide. There will be occasions where the remedies available in the two fora will overlap. How a party challenges a tribunal’s findings on jurisdiction in such circumstances will therefore be an important tactical decision based on the variables of a particular case.

Here, Mr Chiew objected to the tribunal’s jurisdiction but chose to take no further part in the substantive proceedings which resulted in findings of fact against him. Whilst he objected to the tribunal’s jurisdiction to the arbitrator, he did not then apply to the Arizona courts to set aside the arbitrator’s subsequent preliminary award. Nor did he challenge the final award in which he was held to have been Asianic’s alter ego. It appears that this approach was adopted because Mr Chiew had been advised that he could object to the tribunal’s findings in either the supervisory or enforcement court. Whilst that may be right as a matter of general principle, it does not necessarily mean that a ground of objection available in the supervisory court would be available in the enforcement court. As a result, Mr Chiew forewent the opportunity to raise all of the arguments on Arizona law that were later canvassed before the Singapore court.

This was the background against which the Singapore court was asked to enforce the award obtained by AVA against both Mr Chiew and Asianic. Mr Chiew’s argument was that leave to enforce should not be granted because the arbitrator had incorrectly held that he was a party to the arbitration agreement and that he was the alter ego of his company, Asianic.

The court found that enforcement was a mechanistic process to be adopted in accordance with the wording of the Act; the grounds for refusing enforcement are exhaustively stated in ss 32(2) and 32(4) of the Act and the court has no residual discretion to refuse enforcement. This approach avoids the difficulties of the Singapore court having to re-open issues decided by a tribunal in earlier proceedings in which the successful party has already participated. That party has a prima facie right to the recognition and enforcement of an award in its favour and, once it has satisfied the statutory requirements for enforcement as set out in the Act, it should not have to prove its case a second time.

But it was argued that such a mechanistic approach could lead to injustice. The suggestion was that foreign tribunals might, without any basis (as was submitted here), make awards against Singapore who were never parties to the contracts being arbitrated and the Singapore court would subsequently enforce them. The court rejected that there was, in this case, injustice that required it to refuse leave to enforce the award. For example, in the context of Mr Chiew’s subsequent submissions on breach of natural justice, the court emphasised that it was Mr Chiew’s informed decision not to apply to the Arizona courts to set aside the tribunal’s preliminary order or final award. He could not now complain that it was against the public policy of Singapore for the court to enforce an award arising out of proceedings about which he was kept fully informed and in which he could have intervened at any stage. The arguments on which he relied to oppose enforcement ought properly to have been raised before the supervisory court, which would have been best placed to deal with them and the Singapore court was not prepared to allow Mr Chiew to re-litigate the substance of the dispute.

The court then examined whether it should refuse enforcement on the various statutory grounds relied on by Mr Chiew. The burden of proof lay upon him to convince the court that leave to enforce should not be granted. The only evidence in support of Mr Chiew’s submissions that the arbitration agreement was not valid 
(s 31(2)(b) of the Act) was that of the lawyer representing him in the proceedings in Arizona. The substance of that evidence had already been presented by way of submissions to the arbitrator in those proceedings and had been rejected, as was clear from the terms of the preliminary order. It was not open to the enforcement court to evaluate the same arguments afresh without being satisfied that the arbitration agreement as regards Mr Chiew was invalid and that the arbitrator was not, as a matter of Arizona law, entitled to find that he was a party to the agreement. Given that there was no independent expert evidence to support such a finding, the court could not find that there was no valid arbitration agreement. The fact that the point had been argued before also probably gave rise to an issue of estoppel, though the court did not need to go so far as to rule on this point.

How should a director in a predicament similar to Mr Chiew’s object to the tribunal’s jurisdiction? The answer lies in the combination of opportunities to appeal or set aside an award in the supervisory court of the arbitration and to oppose enforcement proceedings in any enforcement court. This will necessitate seeking advice both in the jurisdiction of the seat of arbitration and also in those places where enforcement is likely. One option would be to take no part in the arbitral proceedings at all and then seek to challenge a final award in the supervisory courts and then, if unsuccessful, take up objections before the enforcement court. This is what Mr Chiew did in part, though by not seeing through his objections to the supervisory court, he arguably did not make full use of the opportunity available to him.

The risk with not participating in the arbitral proceedings is that a director could lose his right to object to jurisdiction and to resist the claim on its merits. In this case, Mr Chiew was held to be the alter ego of Asianic, without reasons being given. It is possible that had Mr Chiew participated in the proceedings, he would have been able to adduce evidence and present arguments to rebut such an allegation. By not participating, the arguments went unchallenged.

An alternative strategy (or one to be adopted in conjunction with refraining from taking part in the proceedings) would be for a director to make an application to the supervisory court for declaratory or injunctive relief in respect of the tribunal’s jurisdiction.

Another avenue of objection would be for a director to challenge a finding that he was a party to an arbitration agreement by way of appeal to the supervisory court. It is curious that having made submissions on this point to the arbitrator, Mr Chiew did not then bring those complaints to the Arizona court. Nor did he challenge the final award in respect of the finding that he was Asianic’s alter ego. This was undoubtedly a high risk strategy perhaps aimed at what the judge described as the ‘emotive’ point that it would be wrong for the Singapore court to enforce orders against a Singaporean who was allegedly never a party to a contract that was subsequently the subject of proceedings. But if that was the context of the decision to remove the dispute to Singapore, it is equally curious that expert evidence of Arizona law was not adduced, either before the assistant registrar (who first heard the application for leave to enforce) or the High Court. Had these steps been taken, it would seem that the court may have had the evidence before it to make a different determination.

This case highlights some of the important tactical decisions to be made when objecting to a tribunal’s jurisdiction. In particular, parties to an international arbitration need to consider how different courts would approach the enforcement of an award against their assets located in various jurisdictions. Those with assets in Singapore cannot be in any doubt about the mechanistic application of the exhaustive statutory grounds by the Singapore courts which are guided by the principle of respecting arbitrators’ decisions made in properly constituted proceedings in other parts of the world.

Timothy Cooke

Baker & McKenzie.Wong & Leow

E-mail: timothy.cooke@bakernet.com

Notes

1 [2006] SGHC 78.

2 Cap 143A, 2002 Rev Ed.