Singapore Court of Appeal rules that arbitral award should not be reopened despite alleged conflict with public policy

The Singapore Court of Appeal has overturned a High Court judgment setting aside an arbitral tribunal's decision on public policy grounds. The tribunal had found that a settlement agreement entered into between the parties was legal and enforceable. The High Court set aside the arbitral tribunal's decision on the basis that the settlement agreement was illegal and, by enforcing the illegal agreement, the tribunal breached the public policy of Singapore. The Court of Appeal ruled that the alleged conflict with Singapore's public policy did not entitle the High Court to re-open the arbitral tribunal's findings of fact and overturned the High Court's ruling.

Factual Background

In AJU v AJT, a dispute arose in respect of the early termination of a contract between the parties, relating to the staging of a tennis tournament in Bangkok. The contract provided for disputes to be settled by arbitration in Singapore under the UNCITRAL Arbitration Rules.

During the course of the dispute, AJU made a complaint to the Thai prosecution authority that various entities associated with AJT had forged documents to induce AJU to enter into the contract. The Thai prosecution authority commenced investigations in relation to charges of both fraud and forgery.

In an attempt to settle the dispute, the parties signed an agreement under which AJU agreed to discontinue the criminal proceedings and pay a fee to AJT by way of settlement. In return, AJT agreed to terminate the arbitration. The settlement agreement was governed by Singapore law. AJU duly withdrew its complaint to the Thai authorities, resulting in a cessation order in respect of the allegation of fraud and a non-prosecution order in respect of the allegation of forgery. However, AJT refused to terminate the arbitration proceedings, claiming that the settlement agreement had been procured through duress and undue influence and the non-prosecution order had been obtained by bribing Thai officials. Further, it claimed that the performance of the settlement agreement was invalid because it required AJU to stifle the prosecution of a 'non-compoundable' offence in contravention of Thai law.

The arbitral tribunal found that the settlement agreement was legal under Thai law and that the arbitration was terminated in accordance with it. AJT applied to the Singapore High Court (under Article 34(2)(b)(ii) of the Model Law,read in conjunction with section 3(1) of the Singapore International Arbitration Act) to set aside the tribunal's decision, on the basis that:

• the settlement agreement was illegal under the law at the place of performance (ie. Thailand); and
   
• that enforcement of such an agreement would be in conflict with the public policy of Singapore.
   
• The High Court found in AJT’s favour and AJU appealed against the decision, arguing that:
   
• the High Court was wrong to re-open the tribunal’s finding which it can only do in exceptional cases; and
   
• the High Court was wrong to find that the settlement agreement was illegal as it was not, on the facts, an agreement to stifle the prosecution of a non-compoundable offence.

Decision

The Court of Appeal found in AJU’s favour. It held that the High Court was not entitled to re-open the tribunal's finding in relation to the legality of the settlement agreement. When considering an application to either enforce or set aside an arbitral award, the Court considered that the existence of a potential public policy issue should not automatically entitle the court to re-open an arbitral tribunal's findings. To do so would be contrary to the principle of finality of arbitral decisions under the Singapore International Arbitration Act.

Rather, a tribunal's findings can only be re-opened when the tribunal has made an error in deciding what constitutes a violation of Singapore public policy. Court intervention is justified in such cases because the state does not give authority to arbitral tribunals to decide what constitutes a public policy violation. In this case, the High Court's objection to the tribunal's decision was an alleged error of fact, not of law or public policy. The tribunal had correctly based its decision on whether the settlement agreement represented an attempt to stifle the prosecution of a non-compoundable offence. Furthermore, the tribunal had focused on the correct legal question and, accordingly, its finding of fact could not be questioned on the basis of public policy.

Comment

This case demonstrates the Singapore courts' continued pro-arbitration jurisprudence. The Court of Appeal's judgment reinforces the general rule that the courts will only set aside an arbitral award in very limited circumstances and will respect the autonomy of arbitral proceedings and the finality of arbitral awards, even in the face of public policy considerations.

AJU v AJT [2011] SGCA 41

A version of this Herbert Smith briefing has also been published by Practical Law Company.