So, you have won the arbitration case, but is it cause for celebration? Winning in arbitration is only part of the equation, because if the other side refuses to comply with the arbitration award, you are then faced with the next stage of the battle, which is that you will need to proceed with enforcement proceedings in the country where the respondent’s assets are located. So, what happens if a party refuses to comply with the award?
The winning party may bring the award to the court of the country in which the losing party resides or has its place of business or in the country where the losing party has assets that may be seized. The courts of that country may then, upon making the necessary application by the enforcing party, intervene and review the enforceability of the award.
In Singapore, the process for enforcing arbitral awards is governed by a number of rules, notably the International Arbitration Act of Singapore (the IAA), the Arbitration Act of Singapore (the AA), and the Rules of Court 2021 (the ROC) which came into operation on 1 April 2022.
Recognition and Enforcement of Foreign Arbitral Awards
A foreign arbitral award is an award that is made in a country outside Singapore. Under the IAA, a foreign arbitral award may be enforced in Singapore if it satisfies the requirements of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“). Singapore is a signatory to the Convention, which provides a streamlined procedure for the recognition and enforcement of foreign arbitral awards. Under the requirements of Order 48 rule 6 of the ROC, to enforce a foreign arbitral award in Singapore, the party seeking enforcement (the Award Creditor) must follow the following procedures:
- File an application for enforcement with the High Court supported by an affidavit setting out the relevant facts and grounds for the application, exhibiting the original arbitral award or a certified copy of it;
- Once the application has been filed, it must be served on the party against whom the award is to be enforced (the Award Debtor);
- Service must be in accordance with the ROC whereby a copy must be sent to the award debtor’s usual or last known place of residence or business, or if the award debtor is located outside of Singapore, service may be through diplomatic channels or by any other means permitted under the law of the country where the award debtor is located; and
- The award debtor may file a response to the application within 14 days of being served the application with a supporting affidavit setting out the grounds of opposing enforcement; and
- If the award debtor fails to file a response within the prescribed time, the court may proceed to enforce the award without further notice to the party.
Once the application is filed, the Singapore courts will examine the documents and may order enforcement of the award unless it finds one of the grounds for refusal set out in Article V of the Convention. These grounds include, for example, the fact that one party was not capable of entering into the arbitration agreement, or that the agreement is invalid, or if enforcement would be contrary to public policy.
Recognition and Enforcement of Domestic Arbitral Awards
A domestic arbitral award is an award that is made in Singapore. Domestic arbitral awards are enforced under the AA, which is modeled after the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration (“Model Law”). The key steps in the enforcement procedures for domestic and foreign arbitral awards are the same in Singapore. The steps in the process include filing an application for enforcement, serving the application on the award debtor, responding to the application if necessary, attending a hearing if one is scheduled, and ultimately enforcing the award if the court grants the application. The application must be made within six years from the date on which the award was made.
The enforcement of the award is usually granted unless the court finds one of the grounds for refusal set out in the AA. These grounds include, for example, whether one party was under some incapacity when the arbitration agreement was made, whether there was failure to give a party proper notice of the arbitration proceedings, or if enforcement would be contrary to public policy.
Case Studies
The case of Re Shanghai Xinan Screenwall Building & Decoration Co, Ltd [2022] SGHC 58 involved an example of an attempt being made to challenge an arbitral award in Singapore by an enforcement creditor. Shanghai Xinan (“Xinan”), a Chinese company, had successfully obtained an arbitral award made in China against Great Wall Technology Aluminum Industry Pte Ltd (“Great Wall”), a Singapore company. The contracts between the two parties had contained identical arbitration agreements provided for arbitration by the non-existent “China International Arbitration Center”, rather than the correct institution of China International Economic and Trade Arbitration Commission (CIETAC). Xinan sought to enforce the award in Singapore and Great Wall applied to set aside the leave order, arguing that it did not receive proper notice of the arbitration and that the use of the non-existent arbitral institution nullified the parties’ consent to arbitration. The High Court dismissed Great Wall’s application, holding that there was proper notice and service of the arbitration, and that the use of the non-existent arbitral institution did not nullify the parties’ consent to arbitration. As a result, Xinan was allowed to proceed with the enforcement of the foreign arbitral award.
Shanghai Xinan demonstrates the Singapore courts’ dedication to assisting the enforcement of arbitral awards whenever feasible, as it had interpreted a potential defective arbitration clause as being effective.
In the case of CZD v CZE [2023] SGHC 86, the High Court of Singapore addressed various aspects related to the enforcement of arbitration awards. Mainly, the High Court adopted a narrow and strict approach when considering applications to set aside Singapore arbitral awards. It emphasized that the grounds for refusing enforcement of a foreign award under section 31 of the IAA should be strictly construed.
The case involved a loan agreement entered into in September 2017 between the claimant, defendant, and a Chinese company. The loan was intended for the restructuring of TargetCo and another related PRC company. Ancillary agreements, including a cooperation agreement between the claimant and TargetCo, were also executed. In 2020, the claimant initiated arbitration proceedings in the PRC, alleging non-repayment of the loans. An award was issued in the claimant’s favor in 2021. Subsequently, a PRC court issued a notice of enforcement assistance to freeze the defendant’s bank account and shares in a publicly listed company from June 2021 to June 2024. The claimant sought enforcement of the Chinese award in Singapore. The defendant applied to set aside the enforcement order.
The High Court of Singapore rejected the defendant’s appeal against the Assistant Registrar’s order denying his application to file a further affidavit. Additionally, the court dismissed the defendant’s application to set aside the enforcement order granted by the High Court, which permitted the claimant to enforce the PRC arbitration award.
The defendant alleged that the foreign award was obtained through procedural fraud due to inconsistent positions taken by the claimant regarding the authenticity of a letter of undertaking. The court swiftly dismissed this ground, noting that the claimant did not dispute the contents of the letter and that the transferred funds were indeed from the claimant. Therefore, there were no inconsistent evidential positions, and the defendant’s application to set aside the enforcement order on procedural fraud and public policy grounds was unfounded.
The defendant argued that the enforcement order should be set aside because the award had been fully or partially satisfied, as evidenced by the freezing of his shares in a publicly listed company. The court clarified that the mere freezing of shares does not constitute satisfaction of the award. Moreover, the fact that an award might have been satisfied does not provide a valid ground for challenging enforcement under section 31 of the IAA.
The defendant claimed that the claimant failed to disclose his pending application to the PRC court for civil supervision of the decision to enforce the award. The judge acknowledged that the claimant breached its duty of full and frank disclosure by not stating this material fact. However, since the defendant’s application was already rejected by the time the matter was heard, the non-disclosure was deemed inconsequential. As a penalty for the breach, the court denied the claimant’s costs claim in the present application.
In summary, the court adopted a strict approach, emphasizing that grounds for refusing enforcement of a foreign award should be narrowly construed.
On the other hand, in the case of CVG v CVH [2022] SGHC 249, the Singapore High Court refused to enforce an emergency arbitration award from Pennsylvania, USA. The court ruled that the defendant was not given an opportunity to present its case regarding new matters raised in the claimant’s post-hearing submissions, which breached the rules of natural justice.
The dispute arose between the claimant and the defendant, who were parties to a franchise agreement in Singapore. The claimant alleged breaches of the franchise agreement and sought emergency relief by commencing arbitration proceedings with the International Centre for Dispute Resolution (ICDR).
The emergency arbitration proceeded swiftly, with the emergency arbitrator granting the award (the Emergency Award) about three weeks after the claimant’s application. The claimant then filed an application to enforce the Emergency Award in Singapore, and the court initially granted permission to enforce it on an ex parte basis (the Enforcement Order). However, the defendant later applied to set aside the Enforcement Order on various grounds.
The court ultimately set aside the Enforcement Order based on the claimant’s post-hearing submissions. It found that the claimant introduced a new case in those submissions, which the defendant had no opportunity to address. The emergency arbitrator had issued the Emergency Award without considering these new submissions from the defendant. The court determined that the defendant’s lack of opportunity to respond to the claimant’s new case prejudiced its rights. Furthermore, expert opinion provided by the defendant suggested that, according to Pennsylvania law (governing the franchise agreements), the claimant would not have been entitled to the relief sought. The court concluded that the defendant’s arguments, if presented, could have reasonably affected the outcome of the Emergency Award.
Despite setting aside the Enforcement Order, the court confirmed that foreign emergency arbitration awards can be enforced in Singapore, aligning with a pro-arbitration approach. The court rejected the defendant’s argument that emergency awards were excluded from the enforcement provisions of the IAA. Instead, it determined that the term “arbitral award” within the Act included awards by emergency arbitrators.
The key takeaway for this case is that parties should exercise caution when developing their cases in post-hearing submissions, ensuring that all claims are pleaded in earlier documents and that the opposing party has a fair opportunity to respond.
Conclusion
Arbitration is a reliable and efficient method for resolving disputes, but this is only inasmuch as the parties can rely on the courts of the seat to enforce arbitral awards.
While there are always some challenges to enforcement of awards, Singapore has a well-established pro-arbitration stance, with its courts consistently enforcing arbitral awards. By conducting the arbitration in strict adherence to procedural requirements, parties can steer clear of common pitfalls that may render an arbitral award unenforceable. Thus, Singapore provides a reliable framework for the enforcement of arbitral awards.