Frequency of M&A disputes
The frequency of M&A disputes, especially M&A disputes with a foreign element, is expected to remain fairly stable. The frequency of M&A disputes can be gleaned from the volume of M&A deals in Singapore, and the number of corporate disputes handled by the Singapore International Arbitration Centre (SIAC).
Broadly, M&A deal volume for 2019 has been stable over the past five years. M&A deal values recorded in 2019 were lower than those of 2018 and 2017, in line with the overall region. Singapore recorded 630 M&A deals valued at a total of US$72.4 billion in 2019, compared to 688 M&A deals valued at a total of US$99 billion in 2018, 698 deals valued at US$75.4 billion in 2017, and 684 deals valued at US$82.7 billion in 2016. In 2019, there were 442 cross-border M&A deals in Singapore, registering a total value of US$53.5 billion (compared to US$89.1 billion in 2018). The bulk of the deal value came from 291 outbound transactions worth US$47.5 billion, representing 66 per cent of the total 2019 deal value (in 2018, cross-border M&A deals contributed to over 89 per cent of the total deal value). Domestic transactions contributed to only 26.1 per cent of the total M&A deal value, with 188 deals worth US$18.9 billion.
However, Singapore’s M&A activity has slowed sharply in 2020 due to the effects of the coronavirus outbreak. In the first quarter of 2020, M&A deals decreased in value by 22.4 per cent, from US$13.1 billion in the same period in 2019 to US$10.2 billion, and the number of deals decreased by 30 per cent from 30 in 2019 to 21.
The cross-border element of M&A deals is expected to increase the risk of disputes, perhaps because of differing cultures, expectations and practices. Indeed, there has been a steady increase in corporate disputes (which include M&A disputes) handled by the SIAC from approximately 46 in 2015, to 61 in 2018 and 140 in 2019.
Form of dispute resolution
The increase in cross-border M&A deals means that many of the disputes are likely to find their way into arbitration instead of litigation because arbitration is often perceived to be a neutral mode of dispute resolution among parties of different nationalities. Arbitration also has the advantage of privacy and confidentiality, as well as relative ease of enforcement around the world, by virtue of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Hence, M&A agreements executed in Asia with a cross-border element frequently specify arbitration as the designated mode of dispute resolution, with Singapore being the most frequently chosen legal seat of the arbitration.
The establishment of the Singapore International Commercial Court (SICC) in 2015 offers contracting parties an additional option. The advantages of the SICC are its high-quality commercial bench comprising eminent judges from other jurisdictions, Singapore’s own strong local bench, the availability of a right of appeal to the Singapore Court of Appeal, and the ability to join third and related parties. The judgments of the SICC may be enforced pursuant to bilateral arrangements with other jurisdictions, the Hague Convention on Choice of Court Agreements, and by way of an action on judgment debt.
Expert determinations are often adopted when the dispute is one of price adjustment under express contractual provisions.
Grounds for M&A arbitrations
|Failure to complete the transaction||Rare|
|Pre-contractual failure to disclose or fraud||Frequent|
|Breach of representations and warranties||Very frequent|
Fraud and failure to disclose
Tort of deceit
A person who claims to have suffered loss from a fraudulent representation can seek to claim under contract law or in the tort of deceit.
The elements to be established in a claim under the tort of deceit are as follows:
- there must be a representation of fact made by words or conduct;
- the representation must be made with the intention that it should be acted on by the claimant, or by a class of persons that includes the claimant;
- it must be proved that the claimant had acted on the false statement;
- it must be proved that the claimant suffered damage by so doing; and
- the representation must be made with knowledge that it is false; it must be wilfully false, or at least made in the absence of any genuine belief that it is true.
The claimant must prove actual fraud. The allegation of fraud is a serious one, and the standard of proof is that based on a balance of probabilities; but the more serious the allegation, the more the party on whose shoulders the burden of proof falls may have to do to establish its case. This fraud is proved only when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false. Dishonesty is the touchstone that distinguishes fraudulent misrepresentation from other forms of misrepresentation. It is the representor’s own (subjective) belief that is crucial. This must be ascertained by the court based on the objective evidence available, but the court cannot substitute its own view as to what it thinks the representor’s belief was. Even if a reasonable person would think that the belief the representor claimed to have had at the time he or she made the statement was unreasonable, that would not render that particular statement fraudulent if the representor honestly believed in what he or she was representing. The concept of recklessness means indifference to or wilful disregard of the truth.
There are two different causes of action available for negligent misrepresentation: (1) liability in the tort of negligence for negligent misstatement, and (2) liability pursuant to Section 2(1) of the Misrepresentation Act. Liability for negligent misstatement in the tort of negligence requires the claimant to establish a duty of care owed by the representor to the representee that has been breached. On the other hand, liability under the Misrepresentation Act does not require the duty of care to be owed (but it does require a contractual relationship between the representor and the representee). Representees only need establish the elements of actionable misrepresentation, and the representors would be liable unless they can prove their honesty and that they were reasonable in their belief of the truth of the representation.
An innocent misrepresentation would be actionable misrepresentation that has been proven but is not fraudulent or negligent. The following must be proven:
- the representor made a false representation of fact; and
- the representation induced actual reliance on the part of the representor.
Burden of proof
Sections 103 and 105 of the Evidence Act place the burden of proving a fact on the party that asserts the existence of any fact in issue or relevant fact, respectively. However, the Evidence Act, which applies to all judicial proceedings in any court in Singapore, expressly states that it does not apply to arbitration proceedings. Accordingly, the arbitral tribunal is not bound by the rules of evidence that apply in the courts of Singapore. Indeed, the parties are free to agree on the procedure to be followed by the arbitral tribunal. Failing such agreement, the tribunal may conduct the arbitration as it considers appropriate; and the power conferred on it includes the power to determine the admissibility, relevance, materiality and weight of any evidence. Nevertheless, it is commonly accepted that parties shall have the burden of proving the facts relied on to support their claim or defence, and the standard of proof is that of ‘balance of probability’.
Section 2(1) of the Misrepresentation Act provides the claimant a significant advantage in terms of burden of proof in an action for misrepresentation under common law. This is because a claimant representee need only show that the representor made a false representation that induced the representee to enter into the contract, and the burden of proof then shifts to the representor to show that he or she had reasonable grounds to believe, and did believe up to the time the contract was made, that the facts represented were true. In contrast, the burden on a claimant suing for negligent misstatement in tort is significantly heavier as the claimant must establish a duty of care owed by the representor to the representee and that the representor breached this duty of care.
Unlike Section 2(1) of the Misrepresentation Act, it is not a defence in an action for innocent misrepresentation for the representor to claim a belief in a representation that was objectively false.
In domestic arbitration, the parties may agree on the arbitral tribunal’s powers as regards remedies, and unless otherwise agreed by the parties, the tribunal may award any remedy or relief that could have been ordered by the Singapore High Court if the dispute had been the subject of civil proceedings in that court. In international arbitration, subject to the law applicable to the dispute, the tribunal may grant similarly broad relief.
The Supreme Court of Judicature Act provides that the Singapore High Court has the power to ‘grant all reliefs and remedies at law and in equity, including damages in addition to, or in substitution for, an injunction or specific performance’.
In the case of actionable misrepresentation under contract law, the representee may rescind or affirm the contract. The right to rescind a contract entitles representees to have the contract set aside and be restored to their original position. This entails the avoidance of the transaction ab initio, and the restoration of the parties to the position occupied prior to the entry into the contract. The effect is the cancellation of all future obligations, and the retrospective restoration of any benefits that may already have been transferred at the date of the rescission. Until the moment of rescission (at the option of the representee), the contract is effective to create rights and obligations, and to transfer property. In the case of non-fraudulent (i.e., innocent and negligent) misrepresentation, the court may award damages in lieu of rescission under Section 2(2) of the Misrepresentation Act if the court is of the opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused if the contract were upheld, as well as to the loss that rescission would cause to the other party.
Damages are available as of right for negligent and fraudulent misrepresentation, and breach of contract.
Measure of damages
The object of damages for breach of contract is to put the victim, so far as money can do it, in the same situation as if the contract had been performed. In other words, victims are entitled to be compensated for the loss of their bargain, so that their expectations arising out of or created by the contract are protected.
On the other hand, the object of damages in tort (as in fraudulent and negligent misrepresentation) is to put victims into the position in which they would have been, had the tort not been committed. Tortious misrepresentation does, indeed, create new expectations, but the purpose of damages even for that tort is to put victims into the position they would have been in if the misrepresentation had not been made, rather than if the representation had been true. Victims may even be compensated for loss of profit if the tort impairs expectations that exist independently of it.
The general principle is that damages for fraudulent misrepresentation would include all loss that flowed directly as a result of the entry by the plaintiff (in reliance on the fraudulent misrepresentation) into the transaction, regardless of whether the loss was foreseeable, and would include all consequential loss. The approach to awarding damages for the tort of deceit is broader than the tort measure applicable to that for negligent misrepresentation. In particular, damages awarded with respect to a negligent misrepresentation are constrained by the doctrine of remoteness of damage (as manifested in the concept of reasonable foreseeability). However, damages awarded with respect to a fraudulent misrepresentation are not subject to such a constraint, and are recoverable even if they are not reasonably foreseeable.
The measure of damages under Section 2(1) of the Misrepresentation Act is that which would have been awarded for fraudulent misrepresentation or deceit, but this view has been doubted by the Singapore Court of Appeal, which appears to favour the measure of damages to be that awarded under common law for negligent misrepresentation.
Special substantive issues
It is common for the target to expressly exclude claims based on pre-contractual representations that are not repeated as representations and warranties in the M&A agreement by way of a non-reliance clause. However, depending on the wording of the non-reliance clause, it may be subject to Section 3 of the Misrepresentation Act, which provides that a contractual term that excludes or restricts ‘any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made’, or ‘any remedy available to another party to the contract by reason of such a misrepresentation’, shall have no effect except insofar as it satisfies the requirement of reasonableness as stated in Section 11(1) of the Unfair Contract Terms Act, and it is for those claiming that the term satisfies that requirement to show that it does. Section 11(1) provides that the requirement of reasonableness is that the term shall have been ‘a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made’. Nevertheless, it may be possible to argue that some variants of non-reliance clauses have the effect of preventing (instead of excluding or restricting) liability in misrepresentation from arising by negating one or more of the elements of liability, and hence do not attract the requirement of reasonableness. In any event, given that the acquisition agreement is usually entered into between sophisticated parties under legal advice, it would be difficult to strike down non-reliance clauses that are freely negotiated between commercial parties as being unreasonable.
A recent decision of the Singapore High Court in an application to set aside an arbitration award made in relation to a cross-border M&A illustrates how contractual terms affect claims in misrepresentation. In that case, the sale and purchase agreement excluded liability for misrepresentations other than those made fraudulently, and placed the burden on the buyer to undertake its own due diligence.
Special procedural issues
Article 30.2 of the SIAC Rules (2016) provides that a party may apply for emergency interim relief prior to the constitution of the tribunal. The Emergency Arbitrator (EA) provisions were introduced in the SIAC Rules 2010 to address the need for emergency interim relief before a tribunal is constituted. SIAC was the first international arbitral institution in Asia to introduce EA provisions in its arbitration rules. Since 2010, parties have applied for emergency relief in 32 corporate disputes (including M&A disputes).
The key mechanics of the EA procedure are as follows.
- The President of the Court of Arbitration of SIAC shall, if he or she determines SIAC should accept the application for emergency interim relief, seek to appoint an EA within one day of receipt by the Registrar of such application and payment of the administration fee and deposits.
- The EA shall, within two days of his or her appointment, establish a schedule for consideration of the application for emergency interim relief. Such schedule shall provide a reasonable opportunity for the parties to be heard, but may provide for proceedings by telephone or video conference or on written submissions as alternatives to a hearing in person. The EA shall have the powers vested in the tribunal pursuant to these Rules, including the authority to make a finding on his or her own jurisdiction, without prejudice to the tribunal’s determination.
- The EA may order or award any interim relief that he or she deems necessary, including preliminary orders that may be made pending any hearing, telephone or video conference or written submissions by the parties.
- The EA shall make an interim order or award within 14 days of the date of appointment.
- The EA may not act after the tribunal is constituted. The tribunal may reconsider, modify or vacate any interim order or award issued by the EA, including a ruling on the EA’s jurisdiction.
Joinder and consolidation
The Arbitration Act applies to any arbitration where the place of arbitration is Singapore, and where the International Arbitration Act does not apply to that arbitration. The International Arbitration Act applies to international arbitrations (unless the parties expressly agreed otherwise) or where the parties agree in writing that the International Arbitration Act would apply. The Arbitration Act and International Arbitration Act do not provide for automatic joinder and consolidation. The International Arbitration Act is silent on joinder and consolidation, whereas the Arbitration Act provides that the tribunal has no power to order consolidation of arbitral proceedings or concurrent hearings without the parties’ agreement.
The Singapore courts take a conservative approach to joinder of non-parties. The Singapore Court of Appeal has ruled that any provision in the arbitration rules purporting to have the effect of forced joinder of non-parties would need to be in clear and certain terms. This is because forced joinder of non-parties may expose an arbitrating party to further obligations to arbitrate and impinges on party autonomy and confidentiality. Indeed, the Court of Appeal held that forced joinder of non-parties is also a major derogation from the principle of party autonomy because it compels an arbitration with other persons with whom the parties had not specifically agreed to arbitrate.
It has also been held that the Singapore court may order a joinder only with the parties’ consent. This is because if a court orders a joinder notwithstanding the lack of consent, it would force a party to bring its dispute to be adjudicated by a forum that has no jurisdiction to decide the matter, and from which no enforceable award could be rendered. More fundamentally, the non-consenting party would be denied its right to access the courts when it has not waived its right to do so in the form of an arbitration agreement.
The SIAC Rules (2016) provide for joinder of parties. After the constitution of the tribunal, a party or non-party to the arbitration may apply to the tribunal for one or more additional parties to be joined in an arbitration as a claimant or a respondent, provided that either of the following criteria is satisfied:
- the additional party to be joined is prima facie bound by the arbitration agreement; or
- all parties, including the additional party to be joined, have consented to the joinder of the additional party.
Prior to the constitution of the tribunal, a party or non-party to the arbitration may also file an application with the Registrar for one or more additional parties to be joined in an arbitration as a claimant or a respondent, provided that the same criteria have been satisfied.
The SIAC Rules (2016) provide for consolidation. After the constitution of a tribunal, a party may apply to it to consolidate two or more arbitrations, provided that any of the following criteria is satisfied in respect of the arbitrations to be consolidated:
- all parties have agreed to the consolidation;
- all the claims in the arbitrations are made under the same arbitration agreement, and the same tribunal has been constituted in each of the arbitrations or no tribunal has been constituted in the other arbitration or arbitrations; or
- the arbitration agreements are compatible, the same tribunal has been constituted in each of the arbitrations or no tribunal has been constituted in the other arbitration or arbitrations, and: (1) the disputes arise out of the same legal relationships; (2) the disputes arise out of contracts consisting of a principal contract and any ancillary contracts; or (3) the disputes arise out of the same transaction or series of transactions.
Prior to the constitution of any tribunal in the arbitrations sought to be consolidated, a party may also file an application with the Registrar to consolidate two or more arbitrations, provided that the same criteria have been satisfied.
 Philip Jeyaretnam SC is a senior partner and Lau Wen Jin is a partner at Dentons Rodyk & Davidson LLP.
 Srividya Gopalakrishnan and Ashish McLaren, Transaction Trail Annual Issue 2019, available at http://www.duffandphelps.com/insights/publications/valuation/transaction-trail-2019-report (last accessed 1 October 2020).
 ‘Singapore M&A deals shrink 22.4% to $14.7b in Q1 amid Covid-19 outbreak: Mergermarket’, The Straits Times (6 April 2020), available at http://www.straitstimes.com/business/banking/singapore-ma-deals-shrink-224-to-147b-in-q1-amid-covid-19-outbreak-mergermarket (last accessed 1 October 2020).
 Annual reports of the Singapore International Arbitration Centre, 2015, 2016, 2017, 2018 and 2019.
 Panatron Pte Ltd and another v. Lee Cheow Lee and another  2 SLR(R) 435, at .
 ibid., at .
 Tang Yoke Kheng v. Lek Benedict  3 SLR(R) 263 at ; Alwie Handoyo v. Tjong Very Sumito and another and another appeal  4 SLR 308 at  to .
 Panatron Pte Ltd and another v. Lee Cheow Lee and another  2 SLR(R) 435, at .
 Raiffeisen Zentralbank Osterreich AG v. Archer Daniels Midland Co and others  1 SLR(R) 196 at .
 Wee Chiaw Sek Anna v. Ng Li-Ann Genevieve (sole executrix of the estate of Ng Hock Seng, deceased) and another  3 SLR 801 at .
 ibid., at .
 Cap 390, 1994 Rev Ed.
 Andrew Phang Boon Leong (ed.), The Law of Contract in Singapore (Academy Publishing, 2012), at paras. 11.006 to 11.096.
 Cap 97, 1997 Rev Ed.
 Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International), Singapore Branch v. Motorola Electronics Pte Ltd  2 SLR 63 at .
 Evidence Act (Cap 97, 1997 Rev Ed), s. 2(1).
 Arbitration Act (Cap 10, 2002 Rev Ed), s. 23(1); Article 19(1) Model Law.
 Arbitration Act (Cap 10, 2002 Rev Ed), s. 23(2); Article 19(2) Model Law.
 See UNCITRAL Arbitration Rules, Article 27(1).
 Sundaresh Menon (ed.), Arbitration in Singapore: A Practical Guide (Sweet & Maxwell, 2nd Ed., 2018) at para. 11.038.
 Lim Koon Park and another v. Yap Jin Meng Bryan and another  4 SLR 150 at –.
 Forum Development Pte Ltd v. Global Accent Trading Pte Ltd and another appeal  3 SLR(R) 1097 at .
 Arbitration Act (Cap 10, 2002 Rev Ed), s. 34(1).
 ibid., s. 34(2).
 International Arbitration Act (Cap 143A, 2002 Rev Ed), s. 12(5).
 Cap 322, 2007 Rev Ed, Schedule 1, para. 14.
 Andrew Phang Boon Leong (ed.), The Law of Contract in Singapore (Academy Publishing, 2012), at para. 11.098.
 ibid., at para. 11.100.
 Wishing Star Ltd v. Jurong Town Corp  2 SLR(R) 909 at .
 ibid., at .
 ibid., at .
 ibid., at .
 ibid., at .
 RBC Properties Pte Ltd v. Defu Furniture Pte Ltd  1 SLR 997 at .
 Cap 396, 1994 Rev Ed.
 Orient Centre Investments Ltd and another v. Société Générale  3 SLR(R) 566 at .
 BNX v. BOE and another matter  SGHC 289.
 Annual report of the Singapore International Arbitration Centre, 2018, p. 19.
 SIAC Rules (2016), Schedule 1, para. 3.
 ibid., Schedule 1, para. 7.
 ibid., Schedule 1, para. 8.
 ibid., Schedule 1, para. 9.
 ibid., Schedule 1, para. 10.
 Arbitration Act (Cap 10, 2002 Rev Ed), s. 3.
 International Arbitration Act (Cap 143A, 2002 Rev Ed), s. 5.
 Arbitration Act (Cap 10, 2002 Rev Ed), s. 26.
 PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v. Astro Nusantara International BV and others and another appeal  1 SLR 372 at .
 ibid., at .
 ibid., at .
 The ‘Titan Unity’  SGHCR 4 at .
 SIAC Rules (2016), Article 7.8.
 ibid., Article 8.7.
 ibid., Article 8.1.