Singapore Court of Appeal sets aside injunction against Maldivian state-owned company in airport dispute

The Singapore Court of Appeal has set aside an interim injunction granted by the High Court against a Maldivian state-owned corporation ("MACL"), by which MACL had been restrained from interfering with the operation of the Maldives airport by the relevant concession holder ("GMIAL"), a joint venture entity partly owned by the India-based infrastructure group, GMR. (A copy of the decision can be found here).

In deciding the injunction application, the Court of Appeal had to consider the question of whether it had the power to grant an injunction – in light of the fact that MACL was a state-owned corporation; and whether the circumstances of the case justified grant of an injunction.

The Court of Appeal rejected MACL's claim to state immunity and found that it had jurisdiction to grant an injunction. In reaching this conclusion, the Court of Appeal laid particular emphasis on the fact that MACL had waived any right it may have had to sovereign immunity and that in any event the transaction with GMIAL was purely contractual and commercial in nature and therefore no sovereign immunity was available.

However, in the exercise of its discretion, it found that GMIAL had not demonstrated that the balance of convenience lay in favour of an injunction. The substantive dispute was referred to arbitration.

The decision has been met with some disappointment inside India by those who see it as lessening Singapore's attraction as an arbitral seat.  This appears to be an unfair reading.  The ultimate decision of the Singapore Court of Appeal involved a balancing of the competing interests of the parties, coupled with recognition of the limits of the court's powers in purporting to restrain actions in a foreign jurisdiction.  The Court also concluded that it would be possible, albeit not easy, for expert evidence to be used to assess the monetary value of any harm caused to GMIAL; in other words, monetary damages would be an adequate remedy if GMIAL succeeded on its arbitration claim. 

 Facts

GMR formed GMIAL together with a Malaysian entity, for the redevelopment and management of the Maldives airport under a concession agreement (the "Agreement") with MACL, whilst a previous Maldivian government was in power. The project was to be financed partly by levying a charge on outgoing passengers. However, that charge was held illegal by the Maldivian courts, so a corresponding reduction in concession fees was agreed with MACL, to ensure that the project remained viable for GMIAL.

Under the new Maldivian government, MACL sought to end the project entirely. Accordingly it purported to cancel the Agreement and gave GMIAL notice to vacate the airport.

Two arbitrations were commenced independently in the summer of 2012. GMIAL sought a declaration that it was entitled to the deduction in concession fees. The Government sought a declaration that the Agreement was void ab initio or frustrated. The Agreement provided for arbitration seated in Singapore.

Further to the notice to vacate, GMIAL obtained an injunction from the Singapore High Court in November 2012 restraining MACL and the Maldivian Government from interfering with GMIAL's performance of the Agreement and from taking possession of the airport pending resolution of the dispute.  MACL and the Maldivian Government appealed this order before the Singapore Court of Appeal.

 The decision of the Singapore Court of Appeal

The issues before the Court of Appeal were twofold: (1) did the High Court have the power to grant the injunction, particularly against the government of a foreign sovereign state; and (2) if the Court did have such power, should it have exercised it to grant the injunction?

 (1)        Did the Singapore High Court have power to grant the injunction?

            (a) State Immunity

MACL and the Maldivian Government sought to rely on state immunity under the Singapore State Immunity Act. The Court of Appeal dismissed this argument, as the wording of the Agreement clearly demonstrated an unconditional waiver of state immunity. The Court of Appeal also dismissed the argument that, because the Agreement was allegedly void ab initio, the waiver of immunity by the Government was also void. The Court of Appeal held that the entire dispute resolution mechanism (including the waiver of immunity) would in any case survive under the doctrine of separability.

            (b) Act of State

The Government also argued that the notice to vacate was an "act of State" and as such the courts and tribunal had no jurisdiction over its actions. The Court of Appeal followed English case law to the effect that a very high standard must be discharged to demonstrate an act of State. The Court considered that the dispute was a "private law dispute" involving "private law remedies". Further it considered that since MACL and the Maldivian Government were claiming that the Agreement was void ab initio or frustrated, those were purely matters of contract law.

            (c) Power to grant injunctions

The Singapore courts have the power to grant interim measures in support of arbitration proceedings where such measures are "necessary for the purpose of preserving evidence or assets" (section 12A(4) International Arbitration Act). 

It was accepted that "preserving assets" could include protecting contractual rights, such as choses in action.  However, the Court of Appeal cautioned against reading this power too broadly: "not all contractual rights may be the subject-matter of a preservation order" limiting this to "those which, if lost, would not adequately be remediable by an award of damages."

The Court of Appeal first considered what particular contractual rights protection was sought for: namely, the right to be served appropriate notice for termination of the Agreement and the right to have the dispute over entitlements under the Agreement resolved by the tribunal before those entitlements were destroyed.  The Court concluded that these were not rights that it would be appropriate to protect by injunction, not least because their loss could adequately be compensated for in damages. 

However, GMIAL also sought the preservation of its interest in the land on which the airport was situated.  On this basis, the Court considered that it did have the power to grant an injunction for the preservation of assets.

 (2)        Should the Court have exercised its power to grant an injunction in this case?

After an extensive review of the facts, the Court of Appeal considered that the injunction should not have been granted on the balance of convenience, in light of the difficulties in enforcing such an injunction, and also as damages were an adequate remedy.

Finally the Court found that the lack of support by GMIAL for its cross-undertaking in undermined its request for injunctive relief.

The decision of the Singapore Court of Appeal reaffirms that courts in Singapore have the power to assist with providing interim relief in support of arbitration, but it also highlights the fact that the party seeking interim relief will have to discharge a fairly high burden before being entitled to claim such a relief. The decision is also a reminder of Singapore's position on the issue of sovereign immunity.

If you would like further information on this dispute and its significance to your business, please contact Nick Peacock (nicholas.peacock@hsf.com or on +44 20 7466 2803) or Donny Surtani (donny.surtani@hsf.com or on +44 20 7466 2216) in London or Vikas Mahendra (vikas.mahendra@hsf.com or on +65 6868 8059) or Kritika Venugopal (kritika.venugopal@hsf.com or on +65 6868 8017) in Singapore.