Knowledge Highlights 27 November 2024
Court of Appeal finds relief ordered by arbitral tribunal to be constructive remedy to compensate and a “pragmatic solution to the realities of the situation”
In Bloomberry Resorts and Hotels Inc & Anor v Global Gaming Philippines LLC & Anor [2021] SGCA 94, the Singapore Court of Appeal, in considering an application to set aside an arbitral award, provided guidance on interpreting the scope of an arbitration clause, jurisdictional challenges, and the powers of a tribunal in making orders affecting third parties.
Allen & Gledhill Partner Aaron Lee acted for the successful respondents.
Facts
The appellants operated the Solaire Casino in the Philippines (“Casino”). The parties entered into a Management Services Agreement (“MSA”), whereby the respondents were to provide management and technical services for the development of the Casino. The MSA was governed by Philippine law and contained an arbitration clause. The respondents were also granted the option to purchase up to 10% of shares in the appellant’s parent company (“Shares”), which it exercised shortly thereafter.
The appellants terminated the MSA. The respondents commenced arbitration proceedings for wrongful termination of the MSA (“Arbitration”) and was successful before the arbitral tribunal (“Tribunal”). The Tribunal issued a partial award on liability at this juncture (“Liability Award”) which the appellants sought to set aside before the courts in Singapore. Following an appeal from the High Court decision, the Court of Appeal (in Bloomberry Resorts and Hotels Inc & Anor v Global Gaming Philippines LLC & Anor [2021] SGCA 9) eventually upheld the Liability Award, finding that the appellants’ efforts to have it set aside lacked merit.
The Tribunal subsequently determined that the appellants interfered with the respondents’ attempts to sell the Shares after the MSA was terminated. This was taken into consideration in the Tribunal’s final award which concerned remedies for breach of contract (“Remedies Award”). The Remedies Award ordered the appellants to pay the respondents US$85.2 million as damages for lost management fees. In addition, in relation to the issue of wrongful interference of the Shares, the Remedies Award also ordered the appellants to pay the respondents more than PHP10 billion (approximately S$264 million) in exchange for the Shares (“payment component”). It also stipulated that should the appellants fail to comply with the payment component of the Remedies Award, the respondents would be entitled to sell the Shares on the market and, in that case, the appellants were to direct the appellants’ controlling shareholder (“PMHI”) to undertake steps to facilitate the sale of the Shares (“direction component”) (both components, “constructive remedy”).
The appellants sought to set aside the Remedies Award and to resist its enforcement before the High Court, contending that the Remedies Award dealt with matters beyond the scope of submission to arbitration, that the Tribunal made the Remedies Award in breach of natural justice, and that the enforcement of the Remedies Award would be contrary to the public policy of Singapore. The High Court dismissed the application. The appellants appealed for the second time.
Court of Appeal judgment
Interference with Shares
The court considered whether the arbitration clause was wide enough to cover the issue of the appellants’ interference with the Shares. The court opined that there was no reason why the generous approach to the interpretation of arbitration clauses, which the Singapore courts have routinely adopted, ought not to apply with equal force in this case.
The clause was phrased in broad terms and covered any dispute that “arises out of or is related to” the MSA. The court found that phraseology to be sufficient to encompass any dispute arising between the parties in respect of the Shares since the Shares were acquired pursuant to a right given to the respondents by the MSA. By extension, the clause covered the dispute over the propriety of the appellants’ actions in relation to the Shares.
The appellants argued that it had objected to the Tribunal’s competence to hear claims relating to interference with the Shares. The court found this to be misconceived, noting that the objection was never framed as jurisdictional. The court went on to draw a distinction between a party having made an argument on the merits in the arbitration and a reservation on jurisdiction (or a jurisdictional objection).
The court also noted that the appellants did not object to the Tribunal’s jurisdiction in respect of the issue of the Shares when the Tribunal was constituted up to the point of the Liability Award and did in fact actively submit this issue to the arbitration. It was only after the Tribunal found against the appellants in the Liability Award that they questioned the Tribunal’s jurisdiction, undermining the sincerity of their objections.
Nature of the constructive remedy
The appellants alleged that the constructive remedy was punitive in nature. The court disagreed, finding that the Tribunal’s reasoning demonstrated a clear compensatory methodology employed in awarding damages to the respondents for their losses arising from the appellants’ interference with the Shares. The Tribunal’s reasoning must be viewed in context. The court said that a close reading of the Remedies Award made it clear that the constructive remedy was fashioned to compensate the respondents for losses arising from the appellants’ continuing interference with the Shares and their declaration that they would continue with that course.
Viewed holistically, the constructive remedy was a pragmatic solution to the realities of the situation. Much like a court does, the Tribunal fashioned a remedy in light of all the circumstances, and it could not be faulted for doing so.
The court also addressed the appellants’ arguments that the constructive remedy affected the rights of a third party and non-party to the Arbitration, PMHI. The court rejected this argument, noting that the assertion that PMHI was a non-party entirely unrelated to the appellants and that such an order would prejudice its rights, was an issue raised late in the day. Further, the Tribunal did not make any orders that purported to bind PMHI (as a third party and a non-party to the Arbitration). No order was made against PMHI. The direction component of the constructive remedy specifically obliged the appellants to take various steps and if necessary, for them to direct “their agent and controlling shareholder to cooperate”. Nor did the Tribunal make any orders that would affect the rights of PMHI. The Tribunal was cognisant that any non-party to the Arbitration could not and would not be subject to any of its orders. It was the court’s opinion that the Tribunal’s relief reflected such an understanding.
Breach of natural justice
The appellants argued that there was a breach of natural justice in the making of the Remedies Award as they had been denied an opportunity to present its case. The Court of Appeal rejected this argument, finding that this argument had not been made out. The appellants had sought remedies for the situation that would arise if the Tribunal reversed its findings in the Liability Award, and in the alternative, also remedies “[i]f the Tribunal does not revisit the Liability Award and maintains its finding that the MSA was wrongfully terminated”, meaning the appellants had envisaged the situation in which the Tribunal did not revisit the Liability Award and hence made arguments solely on remedies too.
The court further held that the Tribunal’s decision not to consider evidence relating to alleged fraud and/or corruption only in so far as the evidence related to the issue of liability was entirely unimpeachable as a matter of law. Once an arbitral tribunal has issued an award (be it an interim, interlocutory, partial or final award), the arbitral tribunal is functus officio in relation to the specific issues dealt with by the award. A tribunal’s jurisdiction to substantively review its award is extinguished once that award is rendered.
Contrary to public policy
The appellants submitted that the portion of the Remedies Award granting damages to the respondents for lost management fees ought to be set aside or refused enforcement. They argued that in so far as the Remedies Award was interpreted by the High Court as a net or post-tax figure, compliance with the Remedies Award would be contrary to the Tribunal’s decision and would require the appellants to violate Philippine tax laws, as they “must, as the withholding agent under Philippine law, pay 30% of the monetary damages award not to [the respondents], but to the Philippine Bureau of Internal Revenue or face a threat of serious legal consequences and significant monetary penalties”.
The court rejected this argument, noting that nothing in the Remedies Award prevented the appellants from performing their alleged duties as withholding agents and paying any taxes due on the award sums. Enforcement of the Remedies Award did not require the appellants to violate Philippine tax laws. Nor had the appellants provided evidence to demonstrate that the respondent’s interpretation of the Remedies Award would violate Philippine tax laws.
For the reasons stated above, the Court of Appeal dismissed the appeal.
