What happened between the parties?
In 1996, the defendant, Keppel FELS Ltd (Keppel), and A/S Hydralift (Hydralift) entered into a contract (the Contract) governed by Singapore law. The Contract provided for disputes to be resolved by arbitration in Singapore. In 1999, a dispute arose between Keppel and Hydralift which they attempted to resolve without arbitration until 2007.
Meanwhile, as a result of a series of corporate actions, Hydralift ceased to exist.
(a) In 2002, Hydralift became a wholly owned subsidiary of National Oilwell-Hydralift AS (NOH).
(b) In 2004, following its merger with NOH, Hydralift was struck off the Norwegian companies register and ceased to exist in accordance with Norwegian law. NOH then merged with the plaintiff, then called National Oilwell Norway AS.
(c) In 2010, the plaintiff changed its name to National Oilwell Varco Norway AS (NOV).
In 2007, Keppel commenced arbitration proceedings against Hydralift claiming damages for breach of contract. NOV defended the claims and counterclaimed for damages, in the name of Hydralift.
A tribunal was appointed in 2008 and following an evidentiary hearing in 2018, it issued an award dismissing Keppel’s claim and allowing the counterclaim. The award named Hydralift as the respondent and awarded it $3.8 million plus interest.
NOV obtained leave to enforce the award under section 19 of the International Arbitration Act (Cap. 143A, 2002 Rev. Ed.) (IAA) read with Order 69A, rule 6 of the Rules of Court (Cap. 322, R 5, 2014 Rev. Ed.).
Keppel applied to set aside that leave in accordance with the procedural rules.
What did the High Court decide and why?
The court made three preliminary observations on the effect of the mergers under Norwegian law:
(a) Hydralift ceased to exist the moment it was struck off the Norwegian companies register.
(b) There was no evidence that Norwegian law deemed Hydralift’s name to be a reference to NOH, and subsequently to NOV, after the relevant mergers.
(c) NOV was never known as NOH despite absorbing Hydralift’s entire business via NOH.
Having made the above observations, the court set aside leave to enforce the award for the following reasons.
1. The tribunal intended to and issued an award in favour of Hydralift and not NOV
The court held that the award was issued in favour of Hydralift and not NOV because:
(a) The award described the respondent in the arbitration as the legal person who entered into the Contract. As a matter of historical fact that was Hydralift. The mergers did not operate to bring NOV under this description.
(b) The award identified Hydralift as “the Respondents” and NOV by its full name or as the respondent’s parent thereby distinguishing the legal persons.
The court clarified that section 19 of the IAA did not empower it to vary or deviate from the dispositive terms of an award without party consent or statutory basis. This ‘mechanical’ approach to enforcement was dictated by twin policy imperatives of party autonomy and minimal curial intervention.
Applying this approach, the leave granted to NOV to enforce an award in favour of Hydralift went beyond allowing NOV to enforce the award “in the same manner as a judgment … to the same effect”. Only Hydralift (regardless of its existence) had standing to apply for leave under section 19 of the IAA.
2. The use of Hydralift’s name in the arbitration was not a misnomer
Where an arbitration is commenced by a non-existent legal person, the arbitration is invalid unless the use of that person’s name can be characterised as a misnomer. The court reasoned that this proposition applied to arbitrations commenced by and against a non-existent legal person.
The test to identify a misnomer was formulated as follows: “to whom did each party objectively intend to refer when it used the misnamed party’s name in the arbitration?” The court held that both parties used Hydralift’s name to refer only to Hydralift and did not intend to include NOV in that reference. The use of Hydralift’s name was therefore not a misnomer.
The material facts for the test were as follows: (a) the 2004 mergers transferred Hydralift’s contractual rights and obligations to NOV, and (b) Hydralift ceased to exist after its merger with NOH. NOV clearly had knowledge of these facts given: (i) it continued to use Hydralift’s name in arbitration and in related proceedings, (ii) it described the respondent as the legal person who performed the Contract (i.e., Hydralift), and (iii) it deliberately concealed the 2004 merger in related proceedings.
The court found it credible that Keppel did not know the material facts until 2019, noting that a reasonable claimant would not have incurred the time, cost and expense of pursuing a claim for 12 years in arbitration unless it was ignorant of such facts.
3. NOV was estopped by representation from denying that Hydralift was the respondent in the arbitration
The court accepted Keppel’s submission that (i) NOV represented that Hydralift existed as a legal person and was the respondent in the arbitration, (ii) Keppel relied on that representation, and (iii) Keppel did so to its detriment.
NOV was therefore estopped from denying that Hydralift was the respondent in the arbitration.
4. The 2004 merger did not grant NOV a right to enforce the award
Based on submissions from experts on Norwegian law, the court held that Hydralift’s rights under the Contract and, in particular, its right to arbitrate a counterclaim arising from the Contract, now vested in NOV.
However, the counterclaim could only be brought by NOV if Keppel commenced arbitration against NOV, which it did not do in this case.
What does this decision mean for you?
Companies frequently reorganise or restructure themselves through mergers and consolidations. The questions concerning misnomer and the proper identity of parties to arbitration proceedings therefore occasionally arise in practice. The court’s analysis of the issues in this case provide helpful guidance on the substantive and procedural considerations that arise.
Parties performing long term contracts
Where a party to a contract has undergone some form of reorganisation or restructuring, it should consider what effect that has on its standing to pursue or defend claims arising under that contract. Similar investigations or enquiries should be made where a party becomes aware of a counterparty’s reorganisation or restructuring. The problems that arose in this decision can be particularly acute in the context of long term contracts, where contracting entities may change or be subsumed into other entities, sometimes more than once, such that careful due diligence is required to ensure that claims are brought by or against the correct entity.
NOV has appealed the High Court’s decision.
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Client Alert 2021-174