Indian Farmers Fertiliser Cooperative Ltd v Gutnick

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

ARBITRATION LIST

S CI 2015 05409

INDIAN FARMERS FERTILISER COOPERATIVE LIMITED

KISAN INTERNATIONAL TRADING FZE

First Applicant

Second Applicant

JOSEPH ISAAC GUTNICK

LEGEND INTERNATIONAL HOLDINGS, INC

First Respondent

Second Respondent

---

JUDGE:	CROFT J
WHERE HELD:	Melbourne
DATE OF HEARING:	19 November 2015
DATE OF JUDGMENT:	21 December 2015
CASE MAY BE CITED AS:	Indian Farmers Fertiliser Cooperative Ltd v Gutnick
MEDIUM NEUTRAL CITATION:	[2015] VSC 724

---

ARBITRATION – Enforcement of foreign award – Public policy ground for refusing enforcement – Whether enforcement of a foreign award that allows for double recovery would be contrary to public policy – Discretion to enforce where enforcement otherwise contrary to public policy – Permissibility of imposing a condition on enforcement – Role of the courts – International Arbitration Act 1974 (Cth) ss 8(2), 8(7)(b) – UNCITRAL Model Law on International Commercial Arbitration, art 36(1)(b)(ii) – Convention on the Recognition and Enforcement of Foreign Arbitral Awards, art V(2)(b).

EQUITY – Rescission of contract for the purchase of shares for fraudulent misrepresentation – Meaning of rescission – Whether consequential orders required to effect restitution – Revesting of equitable ownership of shares – Spence v Crawford [1939] 3 All ER 271 – Alati v Kruger (1955) 94 CLR 216 – Kramer v McMahon [1970] 1 NSWR 194 – Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160.

---

APPEARANCES:	Counsel	Solicitors
For the Applicants	N.J. Young QC with C.J. Horan	Ashurst Australia
For the Respondents	B. Walker SC with P. Kulevski	Herbert Smith Freehills

TABLE OF CONTENTS

Introduction......................................................................................................................................... 1

Background to the arbitration.......................................................................................................... 2

The enforcement of arbitral awards................................................................................................ 4

The public policy ground for refusing enforcement................................................................. 10

Would enforcement be contrary to public policy?..................................................................... 16

Overview of submissions.......................................................................................................... 17
The proper approach.................................................................................................................. 18
Does the Award allow for double recovery?.......................................................................... 21
Would enforcement of an award that allows for double recovery be contrary to public policy? 37

Does s 8(7)(b) of the Act confer a discretion?.............................................................................. 42

Conclusions and orders.................................................................................................................. 47

HIS HONOUR:

Introduction

This is an application under s 8(2) of the International Arbitration Act 1974 (Cth) (“the Act”) for the enforcement of a foreign arbitral award.

By Originating Application to Enforce Foreign Award filed on 15 October 2015, the Applicants, Indian Farmers Fertiliser Cooperative Ltd (“IFFCO”) and Kisan International Trading Fze (“KIT”), seek an order that the final award dated 7 May 2015 (“the Award”) in the matter of an arbitration under the Arbitration Rules of the Singapore International Arbitration Centre[1] between the Applicants and the Respondents, Mr Joseph Isaac Gutnick (“Gutnick”) and Legend International Holdings, Inc (“Legend”), be enforced as if the Award were a judgment or order of this Court.[2]
[1]Arbitration Rules of the Singapore International Arbitration Centre (4^th ed, 2010) (“the SIAC Rules”).
[2]Gupta Affidavit, Exhibit MCG-1, Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015).

In response, the Respondents contend that enforcement would be contrary to public policy because the Award allows for double recovery. Accordingly, the Respondents argue that enforcement must be refused pursuant to s 8(7)(b) of the Act and art 36(1)(b)(ii) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”).[3]
[3]UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) art 36(1)(b)(ii). The Respondents also made reference to art 34 of the Model Law; however, this article does not apply to this application: see below [28].

The evidence before the Court is contained in the following affidavits:

(a) Affidavit of Mr Mahesh Chandra Gupta affirmed on 8 October 2015 (“the Gupta Affidavit”);

(b) Second Affidavit of Mr Mahesh Chandra Gupta affirmed on 16 November 2015 (“the Second Gupta Affidavit”); and

(c) Affidavit of Mr Probin Stephan Dass affirmed on 18 November 2015 (“the Dass Affidavit”).

Background to the arbitration

On 14 July 2008 —

(a) IFFCO and Legend entered into a Share Options Agreement whereby IFFCO acquired the option to purchase shares in Legend;

(b) IFFCO and Gutnick entered into a Shareholders Agreement in order to regulate their relationship as shareholders in Legend; and

(c) By an Affiliate Deed of Adherence, KIT agreed to be bound by the terms of the Shareholders Agreement.

Pursuant to the terms of those agreements, the Applicants purchased 20 million shares in Legend for a total of US$40.4 million. IFFCO later purchased a further 14,300,464 shares in Legend in an open market transaction. IFFCO’s sole interest in entering into these transactions was to purchase concentrated rock phosphate for use in its Paradeep plant.[4]
[4]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [126].

The parties later fell into dispute and on 18 January and 25 March 2013 the Applicants referred matters to arbitration under the SIAC Rules, in accordance with cl 10.7 of both the Shareholders Agreement and the Share Options Agreement.[5] The juridical seat and the venue of the arbitration was Singapore, and the governing law of the agreements was that of England.[6]
[5]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [15], [18].
[6]Gupta Affidavit, Exhibit MCG-2, Share Options Agreement cl 10.6, Exhibit MCG-3, Shareholders Agreement cl 10.6; Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [12]–[14].

The arbitration was conducted in English before a tribunal of three arbitrators, namely, Mr Philip Jeyaretnam SC, Mr Thio Shen Yi SC, and Mr Raymond Chan (“the Tribunal”).[7] The Tribunal conducted a hearing from 12 to 16 May 2014 and the parties were directed to exchange closing submissions by 27 June 2014. The Tribunal rendered its final award on 7 May 2015.
[7]Gupta Affidavit, Exhibit MCG-2, Share Options Agreement cl 10.7(b), Exhibit MCG-3, Shareholders Agreement cl 10.7(b); Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [21]–[22].

In the arbitration, the Respondents were found to have induced, by fraudulent misrepresentation, the purchase by the Applicants of shares in Legend by their entry into the Share Options Agreement and the Shareholders Agreement, but not their subsequent open market purchase of shares.[8] The Tribunal made the following awards and orders:[9]
[8]Outline of Submissions of the Respondents (13 November 2015) [5].
[9]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [180].

a. A declaration that the Shareholders Agreement and the Share Options Agreement are rescinded.
b. An order that [Gutnick] pay to the [Applicants] the sum of US$28,050,000.00 together with interest from 14 July 2008 calculated at the rate of 5.33% per annum until the date of the Award.
c.An order that [Legend] pay to the [Applicants] the sum of US$12,350,000.00 together with interest from 7 August 2008 calculated at the rate of 5.33% per annum until the date of the Award.
d. An order that the [Applicants] are to pay the Respondents the sums of SG$96,262.65 and US$35,250 as costs necessitated by or thrown away as the result of the amendments and the vacation of the original evidential hearing dates.
e.An order that the Respondents pay to the [Applicants] 80% of their legal and other costs for the conduct of the arbitration, to be taxed by the Registrar of SIAC if not agreed.
f.An order that the Respondents bear 80% and the [Applicants] bear 20% of total costs of arbitration which is SG$596,170.89, as determined by the Registrar of SIAC.

On 22 June 2015, the High Court of Singapore granted the Applicants leave to enforce the Award in the same manner as a judgment of that court. Judgment was entered and the Award was enforced in Singapore as against Gutnick on 9 July 2015, and as against Legend on 2 September 2015.[10]
[10]Dass Affidavit [12], [15], [19].

The Respondents have not complied with the Tribunal’s awards and orders and KIT continues to hold the legal title to the 20 million shares in Legend purchased pursuant to the terms of the Share Options Agreement and the Shareholders Agreement.[11]
[11]Gupta Affidavit [15]; Second Gupta Affidavit [7]; Transcript 35.

The enforcement of arbitral awards

The general principles applicable to the enforcement of arbitral awards in Australia are not in dispute between the parties.[12] Nevertheless, and as I have noted elsewhere, it is of great importance to recall these general principles before turning to the issues in dispute between the parties.[13] In this vein, I will now consider the key features of the legislative context in which the present application arises, the nature of the Court’s enforcement power, and the judicial approach to be taken to enforcement applications under both the Act and the Model Law.
[12]Applicants’ Outline of Argument in Support of Application (9 November 2015) [17]; Outline of Submissions of the Respondents (13 November 2015) [3]–[4]; Applicants’ Outline of Submissions in Reply (17 November 2015) [8]–[12]; Transcript 9, 18–9.
[13]See, eg, Robotunits Pty Ltd v Mennel (2015) 297 FLR 300 at 304–6 [10]–[14]. See also Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163, [9]–[13].

The objects of the Act are set out in s 2D, which provides:

2D Objects of this Act
The objects of this Act are:
(a)to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
(b)to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
(c)to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
(d)to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty‑fourth meeting; and
(e)to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
(f)to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.

Further, s 39 of the Act relevantly provides:
39 Matters to which court must have regard
(1) This section applies where:
(a) a court is considering:
(i)exercising a power under section 8 to enforce a foreign award; or
(ii) exercising the power under section 8 to refuse to enforce a foreign award, including a refusal because the enforcement would be contrary to public policy; or
(iii)exercising a power under Article 35 of the Model Law, as in force under subsection 16(1) of this Act, to recognise or enforce an arbitral award; or
(iv)exercising a power under Article 36 of the Model Law, as in force under subsection 16(1) of this Act, to refuse to recognise or enforce an arbitral award, including a refusal under Article 36(1)(b)(ii) because the recognition or enforcement of the arbitral award would be contrary to the public policy of Australia; or

…
(b)a court is interpreting this Act, or the Model Law as in force under subsection 16(1) of this Act; or
(c)a court is interpreting an agreement or award to which this Act applies; or

…

(2) The court or authority must, in doing so, have regard to:
(a) the objects of the Act; and
(b) the fact that:
(i)arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and

(ii) awards are intended to provide certainty and finality.

…

As set out above, s 2D(e) provides that an object of the Act is to give effect to the Model Law.[14] Following the adoption of the Model Law, the United Nations General Assembly recommended that —[15]

all States give due consideration to the Model Law … in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.

The Model Law was amended for the first time by UNCITRAL in December 2006. Again, the General Assembly resolved that all States “give favourable consideration” to enacting the revised articles of the Model Law.[16] The Model Law has the “force of domestic law” in Australia by virtue of s 16(1) of the Act,[17] and it is also substantially reproduced in uniform legislation governing domestic commercial arbitration in Australia.[18] Another important object of the Act in the present enforcement context is to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”) which,[19] together with the Model Law, forms the primary basis of the provisions in the Act.

[14]UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006). The Model Law is set out in Schedule 2 to the International Arbitration Act 1974 (Cth).

[15]Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, GA Res 40/72, UN GAOR, 40^th sess, 112^th mtg, Supp No 17, UN Doc A/RES/40/72 (11 December 1985) annex I [2].

[16]Revised Articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, and the Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Done at New York, 10 June 1958, GA Res 61/33, UN GAOR, 61^stsess, 64^th mtg, Agenda Item 77, Supp No 17, UN Doc A/RES/61/33 (18 December 2006) annex I.

[17]Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at 96 [194].

[18]See Commercial Arbitration Act 2011; Commercial Arbitration Act 2010 (NSW); Commercial Arbitration Act 2013 (Qld); Commercial Arbitration Act 2012 (WA); Commercial Arbitration Act 2011 (SA); Commercial Arbitration Act 2011 (Tas); Commercial Arbitration (National Uniform Legislation) Act 2011 (NT).

[19]Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature 10 June 1958, 330 UNTS 3 (entered into force 7 June 1959); International Arbitration Act 1974 (Cth) s 2D(d).

The Applicants seek to have the Award enforced under s 8(2) of the Act. It is common ground between the parties that the formal requirements contained in s 9 of the Act and in O 9 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 have been met.[20] Section 8(2) of the Act provides:

Subject to this Part, a foreign award may be enforced in a court of a State or Territory as if the award were a judgment or order of that court.

Although s 8(2) appears to confer a discretion on the court by the use of the word “may”, s 8(3A) now provides that the “court may only refuse to enforce the foreign award in the circumstances mentioned in subsections (5) and (7).” The Explanatory Memorandum to the 2010 amending bill confirms that the insertion of sub-s (3A) was intended to make it clear that the grounds set out in sub-ss (5) and (7) are exhaustive of the circumstances in which a court can refuse to enforce a foreign arbitral award under the Act.[21] Accordingly, unless a circumstance set out in either sub-ss (5) or (7) is made out, the court must enforce the foreign award. The Explanatory Memorandum also notes that this position is consistent with art V of the New York Convention, one of the provisions upon which ss 8(5) and (7) of the Act are based.[22]

[20]Transcript 1.

[21]Revised Explanatory Memorandum, International Arbitration Amendment Bill 2010 (Cth) [37]–[40].

[22]Revised Explanatory Memorandum, International Arbitration Amendment Bill 2010 (Cth) [37]–[38].

For their part, the Respondents rely solely on s 8(7)(b) of the Act – and its analogue in art 36(1)(b)(ii) of the Model Law – and contend that enforcement must be refused because it would be contrary to public policy. The general principles applicable to the public policy ground for refusing enforcement are dealt with in full below.[23]
[23]See below [25]–[35].

I turn now to the nature of the Court’s enforcement power, and the judicial approach mandated by the Act.[24] In TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia, French CJ and Gageler J – in the context of finding that s 8 of the Act did not contravene Chapter III of the Constitution – said:[25]

Enforcement of an arbitral award is enforcement of the binding result of the agreement of the parties to submit their dispute to arbitration, not enforcement of any disputed right submitted to arbitration.

In a similar vein, Hayne, Crennan, Kiefel and Bell JJ said:[26]
To conclude that a particular arbitral award is final and conclusive does no more than reflect the consequences of the parties having agreed to submit a dispute of the relevant kind to arbitration.

[24]See generally Clyde E Croft, “The ‘Temptation of Domesticity’ and the Role of the Courts in Australia’s Arbitration Regime” (2015) 89 Australian Law Journal 684.

[25]TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533 at 555 [34].

[26]TCL Air Conditioner (Zhongshan) Co Ltd v Judges of the Federal Court of Australia (2013) 251 CLR 533 at 575 [108].

This means that the role of the courts under the Act is understood to be limited to the enforcement of contractual obligations – that is, holding the parties to their bargain to finally determine disputes using arbitration. The courts’ role does not involve determining substantive disputes between the parties as to fact or law, or otherwise reviewing the decision of an arbitral tribunal. This position was recently reinforced in Sauber Motorsport AG v Giedo van der Garde BV,[27] where the Court of Appeal, adopting the analysis of the Full Federal Court in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd,[28] said:[29]

Courts should not entertain a disguised attack on the factual findings or legal conclusions of an arbitrator “dressed up as a complaint about natural justice”. Errors of fact or law are not legitimate bases for curial intervention. Unfairness in any particular case will depend upon context, and all the circumstances of that case.

[27](2015) 317 ALR 786 (“Sauber”).

[28](2014) 311 ALR 387 at 405 [75] (“TCL”).

[29]Sauber Motorsport AG v Giedo van der Garde BV (2015) 317 ALR 786 at 789 [8] (citations omitted). See also 790 [17]. See also Giedo van der Garde BV v Sauber Motorsport AG (2015) 317 ALR 792.

Importantly, unlike in TCL and Sauber, the Respondents do not claim that the arbitral process or the arbitration hearing were somehow unfair, and they do not allege that there has been a breach of the rules of natural justice.[30] However, as the reasons that follow demonstrate, the policy of minimal curial intervention adopted in these cases and others is directly relevant to all applications made under the Act and the Model Law.[31]
[30]Outline of Submissions of the Respondents (13 November 2015) [3].
[31]See, eg, Cameron Australasia Pty Ltd v AED Oil Ltd [2015] VSC 163, [19]–[23]: applications to enforce and set aside arbitral awards; Esposito Holdings Pty Ltd v UDP Holdings Pty Ltd [2015] VSC 183, [5] quoting ASADA v 34 Players and One Support Person [2014] VSC 635, [63]: applications for the issue of subpoenas to attend before or produce documents to an arbitral tribunal; Robotunits Pty Ltd v Mennel (2015) 297 FLR 300 at 306 [14]: application for a stay of court proceedings and referral to arbitration.

In further consideration of the appropriate judicial approach in such cases, the Full Federal Court said in TCL that:[32]

[I]t is not only appropriate, but essential, to pay due regard to the reasoned decisions of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law. It is of the first importance to attempt to create or maintain, as far as the language employed by Parliament in the [Act] permits, a degree of international harmony and concordance of approach to international commercial arbitration. This is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand.

[32]TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 405 [75].

In light of this statement, it is significant that two of the leading arbitration jurisdictions in the Asia-Pacific region, Singapore and Hong Kong, also adopt a policy of minimal curial intervention in arbitration matters. In Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1),[33] the Hong Kong Court of Appeal, with respect to an application to set aside an award under art 34 of the Model Law – which, the court noted, is not materially distinguishable from refusal to enforce under art 36[34] — said:[35]

The Court’s approach to such application is not controversial. The Court is concerned with “the structural integrity of the arbitration proceedings”. The remedy of setting aside is not an appeal, and the Court will not address itself to the substantive merits of the dispute, or to the correctness or otherwise of the award, whether concerning errors of fact or law.

[33][2012] 4 HKLRD 1.

[34]See below [28].

[35]Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1 at 7 [7] (citations omitted).

In a similar vein, the Chief Justice of Singapore, Menon CJ, delivering the judgment of the Singapore Court of Appeal in AKN v ALC, said:[36]

37A critical foundational principle in arbitration is that the parties choose their adjudicators. Central to this is the notion of party autonomy. Just as the parties enjoy many of the benefits of party autonomy, so too must they accept the consequences of the choices they have made. The courts do not and must not interfere in the merits of an arbitral award and, in the process, bail out parties who have made choices that they might come to regret, or offer them a second chance to canvass the merits of their respective cases. This important proscription is reflected in the policy of minimal curial intervention in arbitral proceedings, a mainstay of the Model Law and the [International Arbitration Act (Singapore, cap 143A, 2002 rev ed)].
38In particular, there is no right of appeal from arbitral awards. That is not to say that the courts can never intervene. However, the grounds for curial intervention are narrowly circumscribed, and generally concern process failures that are unfair and prejudice the parties or instances where the arbitral tribunal has made a decision that is beyond the scope of the arbitration agreement. It follows that, from the courts’ perspective, the parties to an arbitration do not have a right to a “correct” decision from the arbitral tribunal that can be vindicated by the courts. Instead, they only have a right to a decision that is within the ambit of their consent to have their dispute arbitrated, and that is arrived at following a fair process.
39In the light of their limited role in arbitral proceedings, the courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration. …

[36][2015] SGCA 18, [37]–[39] (citations omitted).

In Robotunits Pty Ltd v Mennel, after referring to this statement of principle by Menon CJ, I said:[37]

This is an important illustration of the need for courts to resist the temptation of “domesticity” in approaching matters involving Model Law and/or New York Convention based legislation. In other words, courts must resist the temptation to approach such matters through the prism of principles and doctrines not found in the Model Law or the New York Convention, and which may be peculiar to a particular domestic jurisdiction.

[37](2015) 297 FLR 300 at 306 [14] (citations omitted).

Like all temptation, adopting a domestic approach may be attractive in the short-term, but ultimately has the potential to interfere with broader, longer-term objectives. Chief among these long-term objectives in the present context is the promotion of international uniformity in international commercial arbitration practice referred to in TCL.[38] As will become apparent, this application provides an interesting and somewhat unusual demonstration of the temptation of domesticity because it deals with aspects of the English law of rescission which happen to be common to the law of Australia and Singapore.[39] Before addressing this point in detail however, I first turn to consider the general principles applicable to the public policy ground for refusing enforcement of arbitral awards.
[38]See above [20].
[39]See below [43]–[49].

The public policy ground for refusing enforcement

The public policy ground for refusing enforcement of a foreign award is set out in s 8(7)(b) of the Act, which provides:

(7)In any proceedings in which the enforcement of a foreign award by virtue of this Part is sought, the court may refuse to enforce the award if it finds that:
…
(b)to enforce the award would be contrary to public policy.

Similarly, art 36(1)(b)(ii) of the Model Law provides:

(1)Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only:
…
(b) if the court finds that:
…
(ii) the recognition or enforcement of the award would be contrary to the public policy of this State.

And art V(2)(b) of the New York Convention – the provision upon which both s 8(7)(b) of the Act and art 36(1)(b)(ii) of the Model Law are based – provides:

2.Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:
…
(b)The recognition or enforcement of the award would be contrary to the public policy of that country.

I note for the sake of completeness that the Respondents also made reference to art 34 of the Model Law which provides that an arbitral award may be set aside if it is in conflict with public policy. Article 34 does not apply in the present context because the place of arbitration, or the juridical seat, was not in Australia.[40] However – as the authorities set out below in relation to public policy suggest – the content of this ground for setting aside an award under art 34 is the same as the ground for refusing enforcement under art 36, as is the public policy ground under s 8(7)(b) of the Act, and art V(2)(b) of the New York Convention.[41] As a result, and as a general rule, any reference in the authorities which follow to the content of the public policy ground in the context of an application to set aside under art 34 may be read to apply equally to the present enforcement context.
[40]UNCITRAL Model Law on International Commercial Arbitration (As adopted by the United Nations Commission on International Trade Law on 21 June 1985, and as amended by the United Nations Commission on International Trade Law on 7 July 2006) art 1(2); International Arbitration Act 1974 (Cth) s 16(2).
[41]See Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2) [2012] FCA 1214, [20]–[28]; TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 390 [13]–[14]. See also Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 1) [2012] 4 HKLRD 1 at 7 [7] n 4.

By way of clarification of s 8(7)(b) of the Act, s 8(7A) of the Act provides that:

To avoid doubt and without limiting paragraph (7)(b), the enforcement of a foreign award would be contrary to public policy if:
(a) the making of the award was induced or affected by fraud or corruption; or
(b) a breach of the rules of natural justice occurred in connection with the making of the award.

As I have already noted, the Respondents do not claim that the arbitral process was unfair, nor that the making of the Award was affected by fraud or corruption, nor that there has otherwise been a breach of the rules of natural justice.[42] Instead, the Respondents seek to establish that a purported substantive element of the Award – namely the assertion that it allows for double recovery – enlivens the public policy ground for refusing enforcement. Accordingly, the clarification in s 8(7A) has no practical application to the determination of the present application; however, it does help provide some context as to the kind of circumstances which would render enforcement of an arbitral award contrary to public policy.
[42]Outline of Submissions of the Respondents (13 November 2015) [3].

Much has been written, both in Australia and in other Model Law jurisdictions, about the meaning and scope of “public policy” in this context. The gist of this ground for refusing enforcement is correctly stated by the Respondents in their written submissions – with reference to TCL – as follows:[43]

[P]ublic policy is to be given a “narrow meaning”[44] and “it is limited to the fundamental principles of justice and morality of the state, recognising the international dimension of the context.”[45]

[43]Outline of Submissions of the Respondents (13 November 2015) [4].

[44]TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 406 [77].

[45]TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 406 [76].

Before arriving at these conclusions, the Full Federal Court (Allsop CJ, Middleton and Foster JJ) conducted a comprehensive review of the international jurisprudence in relation to the meaning of the term “public policy” as it is used in the international instruments upon which the Act is based. It is convenient to set this review out as follows – omitting their Honours’ discussion of the extension of public policy to considerations of procedural justice, which are not practically relevant to the present application.[46] I have already referred to some of the passages set out below; however, to the extent that this is the case, I consider it helpful to set them out again in their original context:[47]
[46]For a discussion of the extension of the public policy ground for refusing enforcement to considerations of procedural justice, see: TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 398 [54]–[55], 402–5 [65]–[73].
[47]TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 401–2 [63]–[64], 405–6 [74]–[77] (citations omitted and emphasis added).

[63]The similarity between arts 34(2)(b)(ii) and 36(1)(b)(ii) [of the Model Law] with art V(2)(b) of the New York Convention is immediately striking.
[64]During the negotiation and discussion leading up to the Model Law, the concept of public policy under the New York Convention was well-known. While the subject of public policy in relation to the New York Convention is a large one, three things of relevance may be presently noted. First, the common law term “public policy” was recognised as broadly equivalent to the civilian notion of “ordre public”, though the latter could perhaps be seen to have had or have a wider application, sufficiently wide to include principles of procedural justice. Second, the legislative history of art V(2)(b) of the New York Convention reveals that the phrase was understood to be directed to fundamental principles and was not to be given a broad interpretation that might pick up particular national domestic policy manifestations. Third, care needs to be exercised in the use of the expressions of “international” public policy and “domestic” public policy. Van den Berg states that the legislative history of art V(2)(b) points to “international public policy” being referred to. Yet, of course, the text of art V(2)(b) is “the public policy of that country”. The point being made by van den Berg was that those words do not mandate particular domestic national public policy, rather they denote a concept recognising the international place of the Convention and the need for public policy to be restricted to the state’s most basic, fundamental principles of morality and justice in order that there be the fullest commonality of international approach to the question. This usage of “international” public policy is to be distinguished from some truly international or transnational public policy comprising fundamental shared values or rules of natural law of universal application that is discussed by some authors. In this regard, the comments of Bokhary PJ and Sir Anthony Mason in Hebei Import & Export Corp v Polytek Engineering Co Ltd,[48] set out later, are particularly relevant.
…
[74]… We have already referred to the discussion of the negotiation of the New York Convention and the Model Law in van den Berg and Holtzmann and Neuhaus that assists one to the conclusion that the phrase was understood to be limited to the fundamental principles of justice and morality conformable with, and suited to operation within, the international nature of subject matter—international commercial arbitration, a context very different from the review of public power in administrative law.
[75]This approach to confining the scope of public policy has widespread international judicial support. Contrary to the submission of the appellant, it is not only appropriate, but essential, to pay due regard to the reasoned decisions of other countries where their laws are either based on, or take their content from, international conventions or instruments such as the New York Convention and the Model Law. It is of the first importance to attempt to create or maintain, as far as the language employed by Parliament in the [Act] permits, a degree of international harmony and concordance of approach to international commercial arbitration. This is especially so by reference to the reasoned judgments of common law countries in the region, such as Singapore, Hong Kong and New Zealand. Such is a reflection of the growing recognition of the harmony of what can be seen as the “law of international commerce”. Such an approach accords with the objectives of the [Act] in s 2D and with the interpretive approach referred to in s 17 of the [Act]. It is also an approach required by art 2A of the Model Law, and by the highest authority when dealing with treaties. This approach should not be confined to treaties proper to which there are contracting state parties. Where, as with the Model Law, there has been extensive discussion and negotiation of a model law under the auspices of a United Nations body, such as UNCITRAL, and where the Model Law has been adopted by the General Assembly of the United Nations with recommendation of “due consideration” by member states to advance uniformity of approach, the same appropriate respect for, and, where necessary, sensitivity or deference to, reasoned decisions of other countries, should be shown. This is especially so in the field of international commerce. …
[76]A review of the international jurisprudence leads to the conclusion that the interpretation of public policy in art V of the New York Convention and arts 34 and 36 of the Model Law is as it was understood at the time of the completion of the preparatory work: it is limited to the fundamental principles of justice and morality of the state, recognising the international dimension of the context.
[77]The authorities are not unanimous, though the weight of authority is clearly to give a narrow meaning to public policy in the manner to which we have referred.

[48][1999] 1 HKLRD 665.

Their Honours then went on to quote extensively from the separate judgments of Bokhary PJ and Sir Anthony Mason NPJ in the seminal case of Hebei Import & Export Corp v Polytek Engineering Co Ltd,[49] in which the Court of Final Appeal of Hong Kong considered the nature of the public policy ground for refusing enforcement under the New York Convention.[50] It is useful to set out the following extracts from these judgments. Bokhary PJ said:[51]
[49][1999] 1 HKLRD 665 (“Hebei”).
[50]See TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 406–7 [79].
[51]Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 1 HKLRD 665 at 674–6 (emphasis added).

In my view, there must be compelling reasons before enforcement of a Convention award can be refused on public policy grounds. This is not to say that the reasons must be so extreme that the award falls to be cursed by bell, book and candle. But the reasons must go beyond the minimum which would justify setting aside a domestic judgment or award.
…
When a number of states enter into a treaty to enforce each other’s arbitral awards, it stands to reason that they would do so in the realisation that they, or some of them, will very likely have very different outlooks in regard to internal matters. And they would hardly intend, when entering into the treaty or later when incorporating it into their domestic law, that these differences should be allowed to operate so as to undermine the broad uniformity which must be the obvious aim of such a treaty and the domestic laws incorporating it.
…
In my judgment, the position is as follows. Before a Convention jurisdiction can, in keeping with its being a party to the Convention, refuse enforcement of a Convention award on public policy grounds, the award must be so fundamentally offensive to that jurisdiction’s notions of justice that, despite its being a party to the Convention, it cannot reasonably be expected to overlook the objection.

And Sir Anthony Mason NPJ said:[52]

[T]he object of the Convention was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced. In order to ensure the attainment of that object without excessive intervention on the part of courts of enforcement, the provisions of art V, notably art V(2)(b) relating to public policy, have been given a narrow construction. It has been generally accepted that the expression “contrary to the public policy of that country” in art V(2)(b) means “contrary to the fundamental conceptions of morality and justice” of the forum.

[52]Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 1 HKLRD 665 at 691 (emphasis added and citations omitted).

Moreover, Prakash J, sitting in the High Court of Singapore has said, in the context of considering the public policy ground for refusing enforcement, that—[53]

the principle of comity of nations requires that the awards of foreign arbitration tribunals be given due deference and be enforced unless exceptional circumstances exist.

[53] Re An Arbitration between Hainan Machinery Import and Export Corp and Donald & McArthy Pte Ltd [1995] 3 SLR(R) 354 at 367 [45] (“Hainan”). See also Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd [2006] 3 SLR(R) 174 at 206 [75].

I respectfully adopt these statements in TCL, Hebei and Hainan in their entirety as comprehensive and cogent descriptions of the public policy ground for refusing enforcement under the Act, as informed by the Model Law and the New York Convention.

In light of these general principles then, it is the Respondents’ case that the—[54]

Award does not provide for restitutio in integrum for the Respondents and offends a fundamental, and universal, principle of justice and morality. In the circumstances, this Court cannot exercise a discretion to enforce the … Award and thus must refuse to enforce the … Award pursuant to [s 8(7)(b)] of the [Act] and arts 34 and 36 of the Model Law.

[54]Outline of Submissions of the Respondents (13 November 2015) [25].

I now turn to consider the Respondents’ objection to enforcement.

Would enforcement be contrary to public policy?

The Respondents argue that enforcement would be contrary to public policy because the Award allows the Applicants to have their money back and keep the shares – that is, it is asserted that the Award allows for double recovery.[55] In order to successfully resist enforcement then, the Respondents must establish the following two propositions:

(a) That the Award allows for double recovery; and

(b) That enforcement of an award that allows for double recovery would be contrary to public policy.

[55]Transcript 18.

As discussed below, I am of the view that enforcement of an award which allows for double recovery would likely be contrary to public policy.[56] However, for the reasons that follow, I find that the Respondents have failed to establish that the Award allows for double recovery.[57] Therefore, the Respondents’ argument for resisting enforcement of the Award fails.
[56]See below [99]–[107].
[57]See below [50]–[98].

Overview of submissions

I turn first to consider the parties’ submissions in overview. The Respondents’ argument that the Award allows for double recovery can be summarised as follows:[58]
[58]See Transcript 2–5; Outline of Submissions of the Respondents (13 November 2015).

(a) The Award declares that the Shareholders Agreement and the Share Options Agreement are rescinded.[59] The declaration of rescission concerns completed transactions for the purchase of shares – that is, legal ownership of the shares has passed for valuable consideration.[60]
[59]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [180(a)].
[60]See Transcript 2.

(b) Restitution is at the heart of the doctrine of rescission under the governing law, being the law of England.[61] Fundamentally then, rescission involves the restoration of the parties to their former positions.
[61]See Transcript 3.

(c) The Tribunal made consequential orders for the return of the purchase price.[62] Therefore, the Respondents must return the purchase price.

(d) No consequential orders were made for the return of the shares. Therefore, the Award does not provide for the return of the shares.[63]

(e) Therefore, the Award does not provide for restitution to be effected, and therefore the Award allows for double recovery.[64]

[62]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [180(b)]–[180(c)].

[63]See Outline of Submissions of the Respondents (13 November 2015) [6], [15]–[16].

[64]See Transcript 4; Outline of Submissions of the Respondents (13 November 2015) [6]–[7].

In support of the proposition that enforcement of an arbitral award that allows for double recovery would be contrary to public policy, the Respondents argue that:[65]

(a) It is a universal and fundamental principle of justice and morality that a claimant cannot recover more than has been lost.[66]

(b) Therefore, enforcement of an award that allows for double recovery would be contrary to public policy.[67]

[65]See Transcript 2–5; Outline of Submissions of the Respondents (13 November 2015) [9]–[10], [21]–[22].

[66]See Outline of Submissions of the Respondents (13 November 2015) [7], [21]–[23].

[67]See Outline of Submissions of the Respondents (13 November 2015) [7].

In reply, the Applicants submit that the declaration of rescission in the Award necessarily entails the avoidance of the transactions from the beginning and the restoration of the parties to their previous positions.[68] As discussed in the reasons that follow, the Applicants’ argument in this regard centres on the proposition that consequential orders are not necessary whenever a court or other competent authority – such as an arbitral tribunal – makes a declaration of rescission of a contract for the purchase of shares. In other words, the Applicants argue that it is irrelevant that the Tribunal did not expressly order the Applicants to return the shares because this is inherent in the declaration that the contracts are rescinded. Consequently, the Applicants refute the Respondents’ premise that the Award does not provide for the return of the shares[69] and – as a result – the Applicants refute the Respondents’ conclusions that the Award allows for double recovery,[70] and that enforcement would therefore be contrary to public policy.[71]
[68]See Applicants’ Outline of Submissions in Reply (17 November 2015) [2(a)], [14].
[69]See above [40(c)]–[40(d)]. See Applicants’ Outline of Submissions in Reply (17 November 2015) [14].
[70]See above [40(e)].
[71]See above [41(b)].

The proper approach

At this stage, it is necessary to make the following observations and comments about the proper approach to take to the consideration of the parties’ submissions. As discussed above, the limited role of the courts under the Act does not extend to determining substantive disputes between the parties as to fact or law, or otherwise reviewing the determination of an arbitral tribunal.[72] In the context of this application, this relevantly means that it is impermissible to consider whether the Tribunal correctly applied the doctrine of rescission of contract for fraudulent misrepresentation under the governing law. This point is clearly uncontroversial between the parties.[73]
[72]See above [17]–[24].
[73]Transcript 19–20, 29, 62; Applicants’ Outline of Argument in Support of Application (9 November 2015) [17]; Outline of Submissions of the Respondents (13 November 2015) [3(c)], [16].

It is equally uncontroversial between the parties that, in an enforcement or setting aside application, it is necessary to read and understand the award in question in the context of its governing law.[74] This is necessary in order to determine what effect the award may or may not have. In this instance, this is necessary in order to determine whether enforcement would be contrary to public policy. More specifically, this is necessary in order to ascertain whether the Award allows for double recovery, being the first proposition that the Respondents must establish.
[74]Transcript 20–1. See, eg, Applicants’ Outline of Submissions in Reply (17 November 2015) [14].

Similar logic would apply to other grounds for refusing enforcement under s 8 of the Act. For example, for the purposes of sub-s (5)(d), in order to determine whether an award deals with a difference not contemplated by the submission to arbitration, it would first be necessary to read and understand the award in order to determine what the award “deals with”. This means that – in the context of the governing law – the court must consider both what has been decided and the effect of what has been decided by the arbitral tribunal. This does not, however, involve “second guessing” the tribunal in any way, or considering the merits of the tribunal’s decision in any respect.

As set out above, the Tribunal found that the purchase of the shares was induced by fraudulent misrepresentation and made a declaration that “the Shareholders Agreement and the Share Options Agreement are rescinded.”[75] The governing law of these agreements is the law of England and the Tribunal applied English law.[76] As a result, in order to understand the effect of the Tribunal’s declaration of rescission and to ascertain whether the Award allows for double recovery, it is necessary to examine the doctrine of rescission for fraudulent misrepresentation of a contract for the purchase of shares in English law. As will become apparent, this is an entirely different exercise to considering whether the Tribunal correctly applied that doctrine or not – which is clearly impermissible under the Act.[77]
[75]See above [9].
[76]See above [7].
[77]See below [72]–[73].

An interesting and somewhat unusual additional layer to the question of the proper approach to take here is that the relevant aspects of the governing law of the contract – specifically, , the English law of rescission – happen to align with the domestic law of the enforcement jurisdiction, namely Australia.[78] Moreover, the governing law, English law, is informed by Australian case law with respect to rescission and the converse is also true. The Respondents noted that the relevant aspects of the English law of rescission also happen to align with the domestic law of the seat of the arbitration, namely Singapore. Consequently, the relevant case law applicable in terms of the governing law is in relevant respects something of an amalgam of the case law of England, Australia and Singapore.
[78]Transcript 3, 10, 20.

This means that the same case law is relevant to both of the propositions that the Respondents must establish in order to show that enforcement would be contrary to public policy.[79] The position was described concisely by Senior Counsel for the Respondents as follows:[80]

[I]t so happens that the same authorities explain the nature of what the Award has done … and puts that in a jurisprudential context, but does so by language and employing concepts which fit the quite distinct and other function of the same cases which is to say that to enforce … [the Award] would be contrary to public policy.

[79]See above [38].

[80]Transcript 21.

As a result of this somewhat unusual state of affairs, the references to English and Australian case law in the discussion that follows serve the dual purposes of (i) explaining the effect of the Award, and (ii) contributing to the content of the public policy ground for refusing enforcement. Critically, these references do not involve the application of a domestic, common law doctrine not found in the Model Law or the New York Convention – being the doctrine of rescission – to the question of whether to enforce the Award. Accordingly, these references do not indicate that I have been tempted by “domesticity” or that I have otherwise adopted an approach that is inconsistent with the role of the Court under the Act.

Does the Award allow for double recovery?

As indicated in the preceding reasons, whether the Award allows for double recovery depends upon the meaning and effect of the Tribunal’s declaration that the Shareholders Agreement and the Share Options Agreement “are rescinded.” In Horsler v Zorro, Megarry J said:[81]

[W]hen the word “rescind” is used otherwise than in a contract, and particularly in a formal document such as a writ or order of the court, I think it will usually, at all events, bear its normal meaning, related to restitutio in integrum and so on.

[81][1975] Ch 302 at 311.

Broadly speaking, the parties are in agreement as to the normal, or usual, meaning of the word “rescind” when used in a court order – and, by implication, also when it is used in an arbitral award – and their respective submissions cite many of the same authorities.[82] However, the parties disagree as to the meaning and effect of a declaration of rescission of a contract for the purchase of shares such as the declaration made in the Award. I will begin by canvassing the common ground between the parties.
[82]Outline of Submissions of the Respondents (13 November 2015) [8], [11]–[13]; Applicants’ Outline of Submissions in Reply (17 November 2015) [16].

Rescission is a process of effecting the reversal or unwinding of a transaction ab initio (from the beginning) so as to restore the parties to the status quo ante (former state of affairs).[83] Rescission requires substantial restitutio in integrum (restoration to the original position).[84] In Newbigging v Adam, Bowen LJ described rescission as involving—[85]

a giving back and a taking back on both sides, including the giving back and taking back of the obligations which the contract has created, as well as the giving back and the taking back of the advantages.

[83]Newbigging v Adam (1886) 34 Ch D 582 at 595; Brown v Smitt (1924) 34 CLR 160 at 164, 169; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 470, 477.Translations of Latin expressions are taken from Butterworths Concise Australian Legal Dictionary (LexisNexis Butterworths, 3^rd ed, 2004).

[84]AH McDonald & Co Pty Ltd v Wells (1931) 45 CLR 506 at 512.

[85](1886) 34 Ch D 582 at 595.

To the same effect, in Brown v Smitt, Knox CJ, Gavan Duffy and Starke JJ said of rescission:[86]

The parties being relieved of the contractual obligations, each must give back all that he obtained under the contract.

And Isaacs and Rich JJ said:[87]
Rescission … means restoration of the parties to the situation they respectively occupied immediately before the contract was made.

[86](1924) 34 CLR 160 at 164.

[87]Brown v Smitt (1924) 34 CLR 160 at 169.

Further, in AH McDonald & Co Pty Ltd v Wells, Rich, Starke and Dixon JJ said:[88]

[R]escission requires restitutio in integrum and it cannot be granted unless the parties can be restored substantially to the position which they occupied before the transaction was entered upon. No doubt it is not necessary to restore them precisely, and Courts of equity give relief by way of rescission when by the exercise of their powers they can do practically what is just in the restoration of the parties. But the entire transaction must be rescinded ...

[88](1931) 45 CLR 506 at 512 (citations omitted).

In McDonald v Dennys Lascelles Ltd, Dixon J reinforced the position established in these preceding cases and said:[89]

When a contract is rescinded because of matters which affect its formation, as in the case of fraud, the parties are to be rehabilitated and restored, so far as may be, to the position they occupied before the contract was made.

[89](1933) 48 CLR 457 at 477.

It is at this point that the parties’ positions begin to diverge. The Respondents submit that it is trite law that, in addition to a declaration of rescission, consequential orders were required in order to restore the shares to the Respondents.[90] For their part, the Applicants submit that there was no need for the Award to provide expressly for the re-transfer of the shares to the Respondents because that consequence is inherent in the declaration of rescission in the Award.[91]
[90]Outline of Submissions of the Respondents (13 November 2015) [15].
[91]Applicants’ Outline of Submissions in Reply (17 November 2015) [18].

Both parties rely heavily on a seminal case concerning the effect of a declaration of rescission for fraudulent misrepresentation – Alati v Kruger.[92] That case arose following the sale of a fruit business on leased premises in Brisbane in which the vendor made a fraudulent misrepresentation as to the average weekly takings of the business. The trial judge made a declaration that the contract was lawfully rescinded as well as making certain consequential orders.[93] The High Court dismissed the vendor’s appeal. I note that it was submitted by the Respondents, and does not appear to be disputed by the Applicants, that this case would be regarded as containing a correct statement of the doctrine of rescission in English law.[94]
[92](1955) 94 CLR 216.
[93]Alati v Kruger (1955) 94 CLR 216 at 220–1.
[94]Transcript 16.

The relevant passages of the judgment of Dixon CJ, Webb, Kitto and Taylor JJ begin with a description of the distinction between the common law and equity in relation to rescission:[95]

If the case had to be decided according to the principles of the common law, it might have been argued that at the date when the respondent issued his writ he was not entitled to rescind the purchase, because he was not then in a position to return to the appellant in specie [(in its own particular form and not in an equivalent form)] that which he had received under the contract, in the same plight as that in which he had received it.[96] But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct inquiries as to allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo.[97]

[95]Alati v Kruger (1955) 94 CLR 216 at 223–4.

[96]Clarke v Dickson (1858) 120 ER 463.

[97]Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1278–9; Brown v Smitt (1924) 34 CLR 160 at 165, 169; Spence v Crawford (1939) 3 All ER 271 at 279–80.

Their Honours go on to characterise the function of the court in proceedings in which rescission is claimed:[98]

It is not that equity asserts a power by its decree to avoid a contract which the defrauded party himself has no right to disaffirm, and to revest property the title to which the party cannot. Rescission for misrepresentation is always the act of the party himself.[99] The function of a court in which proceedings for rescission are taken is to adjudicate upon the validity of a purported disaffirmance as an act avoiding the transaction ab initio, and, if it is valid, to give effect to it and make appropriate consequential orders.[100]

[98]Alati v Kruger (1955) 94 CLR 216 at 224 (emphasis added).

[99]Reese River Silver Mining Co v Smith (1869) LR 4 HL 64 at 73.

[100]Abram Steamship Co Ltd v Westville Shipping Co Ltd (1923) AC 773.

Their Honours then elaborate on the difference between the position at common law and in equity and, importantly for present purposes, the effect of valid rescission in equity:[101]

Of course, a rescission which the common law courts would not accept as valid cannot of its own force revest the legal title to property which had passed, but if a court of equity would treat it as effectual the equitable title to such property revests upon the rescission.

[101]Alati v Kruger (1955) 94 CLR 216 at 224 (emphasis added).

Their Honours then proceed to discuss whether restitution was possible on the facts of the case before them, finding – among other things – that:[102]

The title to the term created by the lease had been vested in the [purchaser] by assignment, but that was subject to any right which he had to disaffirm the transaction. The title would revest in equity when he elected to rescind, and he was in a position to make a legal re-assignment with the landlords’ consent.

[102]Alati v Kruger (1955) 94 CLR 216 at 224–5.

Their Honours conclude that:[103]

The case was therefore typical of the class of cases in which a defrauded purchaser is regarded by a court exercising equitable jurisdiction as entitled to rescind the purchase and obtain a decree, on proper terms, declaring and giving effect to the rescission as an avoidance of the transaction from the beginning.

[103]Alati v Kruger (1955) 94 CLR 216 at 225 (emphasis added).

These passages from Alati v Kruger contain the following key principles which help demonstrate the meaning of the declaration of rescission in the Award:

(a) Rescission for misrepresentation is the act of a party, not the court, or other competent authority such as an arbitral tribunal.

(b) The function of the court, or other competent authority, is to:

(i) Adjudicate upon the validity of the party’s action – namely, the purported disaffirmance – as an act avoiding the transaction from the beginning; and

(ii) If the rescission is valid, to give effect to the rescission, and make appropriate consequential orders.

(c) If the rescission is effective in equity, equitable title revests upon the rescission.

In light of these principles, the Respondents submit that the “shares are intangible property and the contract pursuant to which they had been transferred could only have been undone through the making of orders akin to those an equity court would make”.[104] To put it another way, it is submitted that consequential orders for the return of the shares were required in order to effect substantial restitutio in integrum. The Respondents rely on a number of authorities in support of this proposition to which I now turn.
[104]Outline of Submissions of the Respondents (13 November 2015) [15].

During the hearing, particular emphasis was placed on the case of Kramer v McMahon, a decision of Helsham J sitting in the Supreme Court of New South Wales.[105] That case arose out of the sale of a bakery business in which the vendor made fraudulent misrepresentations to the purchasers as to the average trade of the business. Helsham J began by reciting the principles set out above from Alati v Kruger.[106]
[105][1970] 1 NSWR 194.
[106]Kramer v McMahon [1970] 1 NSWR 194 at 205–6. See above [58]–[63].

His Honour then described the way in which rescission operates in three distinct factual situations. First, if up until the time that a defrauded party purports to rescind—[107]

nothing has occurred under the contract in the nature of property passing or rights of third parties intervening then rescission is effected by the act [of the rescinding party], because the parties are still in the same position as they were at the time the contract was entered into; if the rights and obligations of the contract disappear (as they do upon dissolution of the contract) nothing further is necessary.

[107]Kramer v McMahon [1970] 1 NSWR 194 at 206.

Secondly:[108]

If on the other hand some property has passed under the contract from the representor to the representee in the nature of equitable interests or titles then it may be that such interests or titles revest by force of the rescission itself; in such case nothing further is required to complete rescission of the contract.

[108]Kramer v McMahon [1970] 1 NSWR 194 at 206.

As such, in both of these first two situations – and without more – Helsham J is saying that nothing further is required in order for there to be valid rescission because the defrauded party’s act of rescission itself unravels the transaction and puts the parties back in the position they were in before they entered into the contract. However, the position is less clear in Helsham J’s third situation:[109]

[A] third situation arises if there needs to be some additional act of the rescinding party to put the other party back into the situation that he was at the time the contract was entered into, such as a re-conveyance or handing back of the property or as the case may be. In such a case there is no valid rescission unless the status quo ante can be restored, and until it is in fact restored. In equity restoration in specie is not necessary, but substantial restoration is. So that in this third class of case rescission, while being justified, is not complete until restoration has occurred.

[109]Kramer v McMahon [1970] 1 NSWR 194 at 206 (emphasis added).

At the hearing, Senior Counsel for the Respondents quoted this passage and submitted – rather opaquely – “that’s our case”.[110] I take it from Senior Counsel’s submission in this regard that the Respondents consider the circumstances giving rise to the Tribunal’s declaration of rescission fit this third situation outlined by Helsham J. In the case of rescission of a completed contract for the purchase of shares, the “additional act of the rescinding party” would presumably be the re-transfer of legal ownership of the shares. This must be so because – as was made clear in Alati v Kruger – equitable title revests upon rescission.[111] As such, the Respondents appear to rely on this passage in support of the proposition that where shares have been transferred, there can be no valid rescission until the legal ownership of the shares is in fact restored to the vendor.
[110]Transcript 16.
[111](1955) 94 CLR 216 at 224. See also Kramer v McMahon [1970] 1 NSWR 194 at 206.

Helsham J goes on to describe the function of the court in each of the latter two situations to which reference has been made:[112]

[I]f property has passed or the situation of the parties changed then rescission can still be validly effected if the status quo ante is restored, for example by the act of disaffirmance itself or by the subsequent acts of the parties themselves. In either case I think it would be open for a court to declare that there had been a valid rescission without any consequential orders, because the status quo ante, at the time of the suit, has already been regained. But if the status quo ante has not been restored and the defrauded party must approach a court in order to effect actual restitution and thereby discharge his duty of making restitutio in integrum, then it is necessary for the court to be able to make a suitable order for restitution before it can be said that the act of the rescinding party was a valid rescission. In other words, where the rescinding act of a party to the contract does not for one reason or another bring about restitutio in integrum (and it is necessary to have an order of the court to bring this about) then rescission will not be regarded as effective unless the court through its powers can order that which the party was unable by his own power to effect; by the ability of the court to make an order his duty is discharged. Rescission is the act of the party. It is valid if it effects restitutio or if with the aid of the court when sought it effects restitutio; it is not if the aid of the court is necessary but for one reason or another that aid cannot be summoned.

[112]Kramer v McMahon [1970] 1 NSWR 194 at 207.

The Respondents rely on this passage to show that the declaration of rescission in the Award does not require the return of the shares.[113] Although not stated expressly in the Respondents’ submissions, the Respondents’ argument must presumably proceed something like this:
[113]Transcript 17.

(a) The Applicants’ act of rescinding the contract did not bring about restitutio in integrum because legal ownership of the shares was not restored.

(b) As such, it was necessary to have an order of the Tribunal that legal ownership be restored. No such order was made.

(c) Therefore, the declaration of rescission does not require the shares to be returned.

In my view – and as the Applicants’ submissions reveal – there are two possible ways of interpreting this argument. First, it could be used to assert that the Tribunal made a legal error – that is, that the Tribunal should not have made the declaration unless (i) it first satisfied itself that legal ownership had already been restored, or (ii) it made consequential orders that the shares be returned.[114] This path of reasoning, however, is clearly a forbidden path for an enforcement court to tread for the reasons already stated. The consideration of what an arbitral tribunal should or should not have done is to go behind the arbitral award, and effectively to entertain an appeal – in this case, an appeal on a question of law. Indeed, as the Applicants point out:[115]

[T]he very process of reasoning of Helsham J [in KramervMcMahon] is to examine the possibilities concerning restitution and to opine that certain circumstances would make it legally erroneous to grant rescission.

[114]Transcript 42.

[115]Transcript 42.

In the circumstances however – and in light of the Respondents’ clearly stated understanding of the limited role of the Court under the Act[116] - I am not satisfied that this first interpretation is the correct way to take the Respondents’ argument, or that it was intended to be understood in this way.[117] If, however, I am wrong in this view, this first possible interpretation of the Respondents’ argument is rejected for the preceding reasons.
[116]Transcript 19–20, 29, 62; Applicants’ Outline of Argument in Support of Application (9 November 2015) [17]; Outline of Submissions of the Respondents (13 November 2015) [3(c)], [16].
[117]Cf TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 405 [75]; Sauber Motorsport AG v Giedo van der Garde BV (2015) 317 ALR 786 at 790 [17].

The second way of interpreting the Respondents’ argument is that it purports to show that the declaration in the Award does not effect restitutio in integrum as a matter of meaning and effect. According to this line of argument, consequential orders are required to restore the legal ownership of shares where legal ownership has not been restored before the rescinding party approaches the court, or other competent authority, for a declaration of rescission (“the purported rule in Kramer v McMahon” or “the purported rule”).

I turn now to consider this line of argument, which I have described as the purported rule in Kramer v McMahon. In my view, and for the reasons that follow, the Applicants’ submissions in this regard correctly state the law and demonstrate that the Award does not allow for double recovery.[118]
[118]See Transcript 45; Applicants’ Outline of Submissions in Reply (17 November 2015) [15]–[20], [21].

I am of the opinion that – to the extent that Helsham J can be said to be stating the existing doctrine of rescission – the purported rule goes beyond what is established by the authorities.[119] These are the same authorities to which Helsham J himself refers. Rescission is the act of a party, not the court, or other competent authority such as an arbitral tribunal.[120] If rescission is effective in equity, equitable title revests upon the rescission.[121] The Tribunal declared that the Shareholders Agreement and the Share Options Agreement “are rescinded” – that is, that the Applicants validly rescinded them. Therefore, equitable title in the shares has revested in, and is now held by, the Respondents. Restitution in equity has therefore been achieved. To suggest that legal ownership must also pass in order for the declaration of rescission to be effective is to overlook the fact that restitutio in integrum is complete in equity. Indeed, equity looks on that as done which ought to be done.[122]
[119]See Transcript 43.
[120]Alati v Kruger (1955) 94 CLR 216 at 224. See also Kramer v McMahon [1970] 1 NSWR 194 at 206.
[121]Alati v Kruger (1955) 94 CLR 216 at 224. See also Kramer v McMahon [1970] 1 NSWR 194 at 206.
[122]See generally Peter W Young, Clyde E Croft and Megan L Smith, On Equity (Thomson Reuters, 2009) 189–93.

Moreover, to the extent that Helsham J can be said to be adding an element to the doctrine of rescission, the purported rule not only goes beyond the authorities, but his Honour’s comments were, in any event, made in obiter. At this point, it is helpful to recall the relevant facts in Kramer v McMahon. The purchasers took possession of the business, but the contract was never completed. As such, legal ownership of the relevant property never passed. A few months later, the purchasers purported to rescind the contract, and some months after that the purchasers sought a declaration that the contract had been validly rescinded. By this time, the purchasers had vacated the premises and mortgagees for the vendor had taken possession.

Among other issues, Helsham J considered whether restitution was possible at the time the proceedings were commenced, in light of the fact that the mortgagees were now in possession. However, Helsham J concluded that the contract was validly rescinded upon the giving of a notice of rescission and upon the purchasers giving up possession. His Honour did not consider the position to be any different once the mortgagees, rather than the vendor, took possession. As such, his Honour found that the court could at all relevant times—[123]

entertain an action because it could, by way of accounts, effect the only outstanding matter required for restitutio in integrum.

Critically, the case was decided in circumstances where – unlike the present context, and despite his Honour’s comments in relation to other factual situations – legal ownership never passed.

[123]Kramer v McMahon [1970] 1 NSWR 194 at 210.

The Respondents rely on a further four authorities which they submit are consistent with and support the existence of the purported rule[124] - namely: Civil Service Co-operative Society of Victoria Ltd v Blyth;[125] Sons of Gwalia Ltd v Margaretic;[126] National Commercial Bank (Jamaica) Ltd v Hew;[127] and Spence v Crawford.[128] In Sons of Gwalia, Gummow J commented on the availability of rescission of a contract for the transfer of shares in the context of the winding up of the company in which the shares are held:[129]

[I]n Blyth,[130] Isaacs J repeated the fuller explanation by Fry LJ of the attitude of equity which he gave in 1883 as follows:[131]
Now the general principle is that no contract can be rescinded so as to affect rights acquired bona fide by third parties under it. It is true that the creditors and the other shareholders have not acquired direct interests under the contract, but they have acquired an indirect interest. The shareholders have got a co-contributory, the creditors have got another person liable to contribute to the assets of the concern.

Isaacs J also emphasised that, in the case of a contract to take shares, equitable relief was essential and that such a contract was not of a character “that at common law … is rescindable by the act of the party, that is, by mere repudiation … [which] itself works avoidance”.[132]

[124]Outline of Submissions of the Respondents (13 November 2015) [15].

[125](1914) 17 CLR 601 at 613 (“Blyth”).

[126](2007) 231 CLR 160 at 191 [55] (“Sons of Gwalia”).

[127][2003] UKPC 51, [43] (“Hew”).

[128][1939] 3 All ER 271.

[129]Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 at 191 [55].

[130]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

[131]In Re Scottish Petroleum Co (1883) 23 Ch D 413 at 439.

[132]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613. As to the distinction between rescission as understood at common law and as an equitable remedy, see Alati v Kruger (1955) 94 CLR 216 at 223–4.

The Respondents presumably rely on this last sentence and particularly the statement that “equitable relief [is] essential” to show that consequential orders were required in order to restore the shares. On the other hand, the Applicants submit that this passage does no more than address the general principle that “no contract can be rescinded so as to affect rights acquired bona fide by third parties under it.”[133] In reply, the Respondents submit that these statements have an “avowedly more general” application, relating to the nature of the property involved, namely shares in corporations.[134] It is submitted that these statements do not apply only in the context of liquidation or where there has been a third party dealing.[135]
[133]Transcript 44.
[134]Transcript 61.
[135]Transcript 61.

In my opinion, the Respondents’ reliance on Sons of Gwalia and Blyth is ill-conceived and confuses the equitable remedy of rescission with consequential orders which may be appropriate in any given case in order to restore the parties to their previous positions.[136] To begin with, it is instructive to consider, as Isaacs J did in Blyth,[137] what else was said in the 1883 case to which Gummow J refers in Sons of Gwalia. Relevantly, after setting out the general rule that a rescinding party must rescind within a reasonable time of the discovery of fraud, Baggallay LJ in In Re Scottish Petroleum Co said:[138]

And this last-mentioned rule, in its application to contracts to take shares in a company which is subsequently ordered to be wound up, has been modified to this extent, that the contract must be avoided, or that must be done which is recognised as equivalent to avoidance, before the commencement of the winding-up.

[136]See Alati v Kruger (1955) 94 CLR 216 at 224.

[137]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

[138](1883) 23 Ch D 413 at 429. Fry LJ agreed with the reasons of Baggallay LJ before going on to provide the explanation quoted by Gummow J in Sons of Gwalia: In Re Scottish Petroleum Co (1883) 23 Ch D 413 at 438–9. See above [79].

As Isaacs J pointed out in Blyth, where rescission does not occur before winding up, “the Court withholds its assistance.”[139] These statements reveal that what is being referred to is a circumstance which may affect the availability of rescission of a contract to take shares – namely, where rescission does not occur before the winding up of the corporation in which the shares are held. It is in this context that Isaacs J said in Blyth (being the statement to which Gummow J refers in Sons of Gwalia after commenting that equitable relief is essential):[140]

If a contract be such that at common law it is rescindable by the act of the party, that is, by mere repudiation, the doctrine does not apply, because repudiation itself works avoidance, but in the case of a contract to take shares that is not sufficient.

[139]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

[140]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

Further, Gummow J in Sons of Gwalia goes on to make the point that—[141]

in administering an equitable remedy such as that of rescission, it is proper to take into account both the supervening, albeit indirect, interests of the shareholders and creditors referred to by Isaacs J in Blyth,[142] and the changes brought about in the enjoyment of the rights of shareholders and creditors by the administration required by a winding up, even where the claims of creditors will be satisfied.

[141]Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 at 192 [58] (emphasis added).

[142]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

Consequently, Sons of Gwalia and Blyth show that a court may refuse to declare that rescission of a contract to take shares is valid in circumstances where third party interests have intervened, such as in the context of a winding up. However, these cases say nothing about the making of orders consequential to a declaration of rescission. As much is evidenced by Gummow J’s reference to the “equitable remedy … of rescission”,[143] and Isaacs J’s reference to the “Court withhold[ing] its assistance.”[144] Indeed, the remedy, or assistance, being referred to in both instances is the declaration of rescission itself.
[143]Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 at 192 [58].
[144]Civil Service Co-operative Society of Victoria Ltd v Blyth (1914) 17 CLR 601 at 613.

Returning to the present context then, by declaring that the Shareholders Agreement and the Share Options Agreement “are rescinded”, the Tribunal declared that the Applicants’ election to avoid the contracts from the beginning is valid and effective. This means that equitable relief has been granted by the Tribunal – or in the words of Gummow J – the Tribunal has administered the equitable remedy of rescission.[145] For reasons already rehearsed, it is impermissible to “go behind” or question the relief granted by the Tribunal in order to determine whether it was properly granted or not. As such, Sons of Gwalia and Blyth do not support the Respondents’ argument.
[145]Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 at 192 [58].

Next, the Respondents rely on Hew, a case concerning the setting aside of a loan agreement between a bank and its customer.[146] At first instance, Reid J – sitting in the Supreme Court of Judicature of Jamaica – set the loan transaction aside on the ground of undue influence and gave judgment for a fixed amount.[147] The Court of Appeal of Jamaica unanimously dismissed the bank’s appeal before the bank successfully appealed to the Privy Council. After dismissing the trial judge’s finding that the transaction be set aside, Lord Millett (delivering their Lordships’ advice) considered what remedy would have been appropriate had the undue influence claim succeeded.[148] Lord Millett expressed their Lordships’ opinion that—[149]

the orders below could not have stood unaltered. Where a transaction is obtained by undue influence, it must be set aside ab initio; and this requires a mutual accounting with mutual restitution by both parties.

[146]National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51.

[147]National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51, [2].

[148]National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51, [42]–[44].

[149]National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51, [42].

It was in this context that Lord Millett made the following comments upon which the Respondents now rely:[150]

The judge dismissed the Bank's claim and ordered it to repay Mr Hew the amount of all repayments which he had made to the Bank. This would leave Mr Hew unjustly enriched to the extent that he retained the benefit of the drawings he had made on the account. He should have been required to repay these with interest at a rate fixed by the Court.

[150]National Commercial Bank (Jamaica) Ltd v Hew [2003] UKPC 51, [43].

Critically for the purposes of the Respondents’ argument in this application, the trial judge’s orders simply stated:[151]

[T]here will be judgment for the Plaintiff against the first defendant in the sum of $18,882,005.26 with costs to be agreed or taxed.

[151]National Commercial Bank (Jamaica) Ltd v Hew (Unreported, Supreme Court of Judicature of Jamaica, 31 July 2000) 71 < %20Bank%20Jamaica%20Limited%20v%20Stephen%20Hew%20et%20al.pdf>.

No further orders of relevance were made. Accordingly, unlike the Tribunal, the trial judge in Hew did not make a declaration of rescission, nor was rescission sought at trial or in either appeal. As a result, Lord Millett’s comments have no application to the present circumstances and they do not support the Respondents’ argument or, for that matter, the purported rule in Kramer v McMahon.

Finally, the Respondents rely on the case of Spence v Crawford.[152] It is submitted that:[153]

The usual order was made in Spence v Crawford, namely an order that [the] purchaser of the shares was required to execute a transfer of them to the person who had sold them, and if he failed to do so, the court officer was empowered to execute it (the vendor having sought rescission in that case).

[152][1939] 3 All ER 271.

[153]Outline of Submissions of the Respondents (13 November 2015) [15].

Despite the Respondents’ reference to the “usual order” being made, Lord Wright described the facts in Spence v Crawford as “peculiar” in light of the fact that it was the vendor of shares who sought rescission, rather than the more common case of the purchaser rescinding.[154] More importantly, however, the orders made in Spence v Crawford were – unlike the declaration and orders in the Award – made in accordance with a form of order agreed by the parties in the event that it was held that the contract should be rescinded and that there should be restitution.[155] As a result, the fact that express orders for the return of the shares were made in Spence v Crawford does not support the Respondents’ argument that consequential orders were required to return the shares in the present context. Moreover, the orders made in Spence v Crawford provide no support for the purported rule in Kramer v McMahon.
[154][1939] 3 All ER 271 at 289.
[155]Spence v Crawford [1939] 3 All ER 271 at 285, 290.

For the preceding reasons then, I am of the view that none of the authorities referred to in para 15 of the Respondents’ written submissions support the proposition for which they are cited, namely that—[156]

it is trite law that consequential orders were required for the [Tribunal] to restore the shares. The shares are intangible property and the contract pursuant to which they had been transferred could only have been undone through the making of orders akin to those an equity court would make.

[156]Outline of Submissions of the Respondents (13 November 2015) [15] (citations omitted).

The Respondents advance one further contextual argument in support of their submission that the Award allows for double recovery. It is submitted that:[157]

15.… [The Tribunal] obviously thought that orders were necessary to transfer the money, but did not provide for orders to transfer the shares. On a fair reading of the … Award, it may be that they wished to punish Mr Gutnick, given the trenchant criticism and the lack of probative reasoning for the conclusions of fraud, or it may be that the Tribunal thought that in the circumstances the Applicants should keep all the shares, including the purchases not made as a result of any misrepresentation.
16.It matters not, the Applicants do not suggest that they have been ordered to disgorge the shares and positive orders were required for that to occur. One could not infer that the senior practitioners on the Tribunal did not know that an order was necessary for the shares to be transferred, particularly where orders were made to transfer the money, and when one looks at the uncritical manner in which the prayers for final relief were set out at [20] of the … Award. In any event, the reason is irrelevant—this Court cannot look behind the … Award.

[157]Outline of Submissions of the Respondents (13 November 2015) [15]–[16]. See Transcript 14–15.

Thus, the Respondents argue that the express inclusion in the Award of orders for the return of the purchase price is indicative of an intention on the part of the Tribunal that the Applicants would be entitled to repayment and to keep the shares as well. This asserted intention, the Respondents would appear to submit, is consistent with the Applicants’ understanding of the Award, as evidenced by their demands for payment sent on 21 May 2015, which do not refer expressly to the shares.[158]
[158]Transcript 22. Gupta Affidavit [12]–[15], Exhibit MCG-6, Letters from Shook Lin & Bok to Robert Wang & Woo (21 May 2015).

At this point it is useful to recall the relevant awards and orders made by the Tribunal, namely:[159]

a. A declaration that the Shareholders Agreement and the Share Options Agreement are rescinded.
b. An order that [Gutnick] pay to the [Applicants] the sum of US$28,050,000.00 together with interest from 14 July 2008 calculated at the rate of 5.33% per annum until the date of the Award.
c.An order that [Legend] pay to the [Applicants] the sum of US$12,350,000.00 together with interest from 7 August 2008 calculated at the rate of 5.33% per annum until the date of the Award.

[159]Indian Farmers Fertiliser Cooperative Ltd v Gutnick (SIAC Arbitration No. 19 and 72 of 2013, Final Award, 7 May 2015) [180].

As the Respondents correctly point out, what the Tribunal intended or wished to do by making these awards and orders is irrelevant to the determination of the present application. Likewise, it is also irrelevant what the parties understood the Award to mean. The Tribunal has made its award and the Court’s role is limited to reading and understanding the Award in order to determine whether its enforcement would be contrary to public policy.[160]
[160]See above [43]–[46].

Nevertheless, even if what the Tribunal intended or what the parties understood the Award to mean were relevant – which they are not – I would be of the view that the inclusion of orders expressly referring to the purchase price could be explained by the fact that, in the arbitration, the Applicants sought consequential orders for the return of the purchase price with interest.[161] Indeed, if this point were relevant – and for the sake of completeness only – I would accept the Applicants’ submissions that the orders in paras 180(b)–(c) of the Award—[162]

are made in that form because of the need to stipulate a period and a rate of interest. So it’s not just payment. It’s payment with interest with that adjustment being necessary as part of what is involved in rescission.

In any event, for the reasons already stated, it is not only unnecessary, but impermissible for me to decide this point.

[161]Applicants’ Outline of Submissions in Reply (17 November 2015) [18]; Transcript 29, 32, 40.

[162]Transcript 29.

For the preceding reasons then, I am of the view that the Tribunal’s awards and orders do not allow for double recovery as the Respondents contend and, therefore, enforcement would not be contrary to public policy. As the Applicants submit, and as these reasons show, the declaration of rescission in the Award necessarily entails the avoidance of the transactions from the beginning and the restoration of the parties to their previous positions. As a result, the Respondents have failed to establish the first of the two propositions identified above and so enforcement will not be refused.[163]
[163]See above [38].

Would enforcement of an award that allows for double recovery be contrary to public policy?

As I have just indicated, the preceding reasons are sufficient to resolve the issues in the present application because the Award does not allow for double recovery. Nevertheless, it is productive to say something about the second proposition that the Respondents would have had to establish had they shown that the Award allows for double recovery – namely, whether enforcement of an arbitral award that allows for double recovery would be contrary to public policy.[164]
[164]See above [38].

After first acknowledging the restrictive approach taken to the public policy ground for refusing enforcement set out above,[165] the Respondents submitted that:[166]
[165]See above [25]–[35].
[166]Outline of Submissions of the Respondents (13 November 2015) [9]–[10], [21]–[23].

9.As will be demonstrated, the ultimate appellate courts in England, Australia, and Singapore (for completeness, given the proper law, the forum for present purposes, and the seat of the arbitration) have strongly expressed the “universal” and “cardinal” principle that a plaintiff is not to be compensated for more than their loss and the courts will not enforce judgments or awards that provide for double recovery. In his speech in the House of Lords in Spence v Crawford, a case about the rescission of the contract of sale of shares induced by a fraudulent misrepresentation, Lord Wright said:[167]
[167][1939] 3 All ER 271 at 288–9. See also above [90]–[91].
Restoration, however, is essential to the idea of restitution. To take the simplest case, if a plaintiff who has been defrauded seeks to have the contract annulled and his money or property restored to him, it would be inequitable if he did not also restore what he had got under the contract from the defendant. Though the defendant has been fraudulent, he must not be robbed, nor must the plaintiff be unjustly enriched, as he would be if he both got back what he had parted with and kept what he had received in return. The purpose of the relief is not punishment, but compensation.

10.The Applicants seek to enforce … [an award] which provides for Lord Wright’s “simplest case”. The speech of Lord Wright has been endorsed by a unanimous joint judgment of the High Court of Australia[168] and the Singapore Court of Appeal.[169] As can be shortly demonstrated, enforcement of the … Award would be contrary to a universal bedrock principle of justice and morality. Courts in Australia are not in the business of enforcing awards as their own judgments that “rob” a party to them.
…
21.In one sense, it is enough for present purposes to establish that public policy, in an international context, will not permit rescission of a contract without substantial restoration, and that the principle is fundamental to morality and justice. However, as the joint judgment of four members of the High Court in Haines v Bendall recognised by reference to Australian and English authority, the “cardinal concept” and “the one principle that is absolutely firm, and which must control all else” in contract and tort is compensation, with the rule, cognate with the concept, that “a plaintiff cannot recover more than he or she has lost.”[170] In Baxter v Obacelo Pty Ltd,[171] Gummow and Hayne JJ explained how other rules in our legal system are an application of that universal rule. Particular applications may involve, for example, the rules regarding double satisfaction and the unconscientious exercise of legal rights as expressed in cases such as Maguire v Makaronis[172] and in equity’s concern generally with the minimum equity to do justice.[173]
22.When a tribunal is awarding damages for breach of contract it will avoid the application of any policy that is “at odds with the fundamental principle that a plaintiff is entitled to restitutio in integrum.”[174] In other words, whether the question is damages for breach or rescission, a plaintiff elects on the basis that whatever happens, they cannot be compensated beyond being made whole (hence “restoration” and “rehabilitation”)—the one principle that is absolutely firm. It does not matter why the plaintiff makes a particular election … they are only to recover their loss. Rescission, as the High Court in Vadasz[175] reiterated by reference to Lord Wright in Spence v Crawford,[176] is concerned with compensation not punishment.
23.It can be readily appreciated, therefore, that the … Award offends what the High Court has described as the “cardinal concept”. In Michael Wilson & Partners Ltd v Nicholls,[177] Gummow ACJ, Hayne, Crennan and Bell JJ peremptorily dismissed the “spectre” of a plaintiff receiving compensation under a foreign award and a separate local judgment saying that it could not occur as a respondent to the enforcement of such a judgment or award would have an equity to prevent its enforcement. It would involve an unconscientious exercise of legal rights which as Gummow and Hayne JJ described in Baxter v Obacelo Pty Ltd was but one manifestation of the universal rule.[178]

[168]Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 114.

[169]RBC Properties Pte Ltd v Defu Furniture Pte Ltd [2014] SGCA 62, [116].

[170](1991) 172 CLR 60 at 63.

[171](2001) 205 CLR 635.

[172](1997) 188 CLR 449.

[173]See, eg, Giumelli v Giumelli (1999) 196 CLR 101.

[174]Hungerfords v Walker (1989) 171 CLR 125 at 143.

[175]Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102.

[176][1939] 3 All ER 271 at 288–9.

[177](2011) 244 CLR 427 at 455–6 [101].

[178](2001) 205 CLR 635.

The Respondents also cited the Canadian case of Subway Franchise Systems of Canada Ltd v Laich, a decision of Maher J sitting on the Saskatchewan Court of Queen’s Bench, in support of this argument.[179] In that case, a franchisor, Subway Franchise Systems of Canada Ltd (“Subway”), sought enforcement of an arbitral award which terminated a franchise agreement for one of its restaurants and required the franchisee to pay Subway $250 per day for each day that the franchisee continued to use Subway’s trademarks and other intellectual property. After the award was made, the parties continued to operate under the provisions of the original agreement in partnership, even though the award had terminated the original agreement. The franchisee continued to pay royalties to Subway and there was no evidence that Subway had sustained any actual damage or financial loss since the making of the award.
[179](2011) SKQB 249 (“Laich”). Outline of Submissions of the Respondents (13 November 2015) [24]; Transcript 21.

As a consequence, Maher J found that to enforce the award would result in double recovery because the franchisee would be required to pay damages under the award, yet Subway would be allowed to keep the profits earned from the ongoing operation of the restaurant.[180] I note at this point that these factual circumstances are entirely different to those raised in the present application. Unlike the present circumstances, Maher J found that enforcement of the award would result in double recovery, not that the award itself allowed for double recovery at the time it was made.
[180]Subway Franchise Systems of Canada Ltd v Laich (2011) SKQB 249, [39].

Maher J then turned to consider whether enforcing the award and thereby allowing for double recovery would be contrary to public policy under art 36(1)(b)(ii) of the Model Law.[181] After setting out the applicable principles, his Honour quoted the following passage from another Canadian case, Re Lambert, a decision of Cameron J sitting in the Ontario Superior Court of Justice:[182]

It is not consonant with our system of justice and general moral outlook to countenance a double recovery in these circumstances.[183] It would, in my view, bring the administration of justice into disrepute.

[181]Subway Franchise Systems of Canada Ltd v Laich (2011) SKQB 249, [39]–[42].

[182](2001) CarswellOnt 2419, [76].

[183]See Boardwalk Regency Corp v Maalouf (1992) 6 OR (3d) 737.

Maher J concluded and found that enforcement would amount to double recovery and be contrary to public policy.[184] With respect, Maher J does not set out any extended reasoning to arrive at this conclusion, other than to seemingly adopt the view of Cameron J in Re Lambert.[185] As a result – although it was not suggested that Maher J’s decision should in any way bind my decision – the case of Laich does little more than demonstrate the plausibility of the Respondents’ argument.[186]
[184]Subway Franchise Systems of Canada Ltd v Laich (2011) SKQB 249, [42].
[185](2001) CarswellOnt 2419, [76].
[186]Transcript 21.

Nevertheless – if it were necessary for me to decide this point – I would be prepared to accept that, where an arbitral award allows for double recovery, or where enforcement would result in double recovery, fundamental principles of justice and morality may be engaged. I would be inclined to the view that the language used by the highest legal authorities to describe the principle that a claimant cannot recover more than has been lost – such as the language used by the High Court in Haines v Bendall[187] – reveals something about the nature of that principle.[188] Indeed, if expressions such as “cardinal concept” and “the one principle that is absolutely firm and which must control all else” do not help identify a fundamental principle of justice and morality, I would struggle to think of what might.[189] I note, however, that none of this means that enforcement of an arbitral award may be refused on public policy grounds merely because the award offends a legal principle which at some point or another was described in powerful language. Public policy considerations will only be engaged where fundamental principles of justice and morality are raised by the prospect of enforcement.
[187](1991) 172 CLR 60 at 63.
[188]See Transcript 21.
[189]See also Hungerfords v Walker (1989) 171 CLR 125 at 143.

Before concluding this section, it is appropriate to make one final observation about the public policy ground for refusing enforcement. At the hearing, the Respondents submitted that “error happens to be the character of that which offends against public policy.”[190] In my view, this statement is incorrect.
[190]Transcript 64.

In support of this proposition, the Respondents submitted, rhetorically, that enforcement of a legally correct decision by an arbitral tribunal may nevertheless be found to be contrary to public policy. For example, enforcement of an award that was induced or affected by fraud or corruption would be contrary to public policy in accordance with s 8(7A)(a) of the Act.[191] In my opinion, this provision would apply regardless of whether the award in question was legally correct or incorrect. This serves to reinforce the point raised at various stages in the preceding reasons – namely, that it is wholly irrelevant to the public policy ground for refusing enforcement whether the award in question is legally or factually correct or incorrect.[192] Indeed, not only is the legal or factual error of an arbitral tribunal irrelevant to the enforcement process, the Act prohibits courts from considering such matters. Contrary to the Respondents’ submission then, error is not of the character of that which offends public policy. Rather, in the example given, it is the fraud or corruption – or for that matter, the resulting double recovery – which would render enforcement contrary to public policy.[193]
[191]See above [29]–[30].
[192]See, eg, above [96].
[193]See Transcript 63.

Does s 8(7)(b) of the Act confer a discretion?

A further issue that arose in this application – but which for reasons already stated is now unnecessary to decide – is the nature of the court’s power to refuse enforcement under s 8(7)(b) of the Act. Given the emphasis placed upon this point in submissions, it is constructive to say something about this issue.

Specifically, the Applicants argued in the alternative that, even if it were found that enforcement would be contrary to public policy, the Court retains a discretion under s 8(7)(b) to enforce the foreign award.[194] It was submitted that the Court should not exercise its discretion in this instance, principally because the Applicants were prepared to give an undertaking or accept a condition reflecting their obligation to return the shares.[195] The Applicants also pointed to two other circumstances which they suggested might have been relevant to the exercise of any discretion – namely,[196] that the Respondents (a) have not taken any steps to approach the Tribunal under the SIAC Rules, being the rules applicable to the procedure of the arbitration, to request an interpretation of the Award;[197] and (b) did not oppose the Applicants’ successful enforcement application in Singapore, or take any other relevant steps at the arbitral seat.[198]
[194]Applicants’ Outline of Submissions in Reply (17 November 2015) [23].
[195]Applicants’ Outline of Submissions in Reply (17 November 2015) [2(b)], [24]; Second Gupta Affidavit [10].
[196]Applicants’ Outline of Submissions in Reply (17 November 2015) [25]; Transcript 52.
[197]Arbitration Rules of the Singapore International Arbitration Centre (4^th ed, 2010). Rule 29 of the SIAC Rules provides:
29.Correction of Awards and Additional Awards
29.1Within 30 days of receipt of the award, a party may, by written notice to the Registrar and to any other party, request the Tribunal to correct in the award any error in computation, any clerical or typographical error or any error of a similar nature. Any other party may comment on such request within 15 days of its receipt. If the Tribunal considers the request to be justified, it shall make the correction within 30 days of receipt of the request. Any correction, made in the original award or in a separate memorandum, shall constitute part of the award.
29.2The Tribunal may correct any error of the type referred to in Rule 29.1 on its own initiative within 30 days of the date of the award.
29.3Within 30 days of receipt of the award, a party may, by written notice to the Registrar and to any other party, request the Tribunal to make an additional award as to claims presented in the arbitral proceedings but not dealt with in the award. Any other party may comment on such request within 15 days of its receipt. If the Tribunal considers the request to be justified, it shall make the additional award within 45 days of receipt of the request.
29.4Within 30 days of the receipt of the award, a party may, by written notice to the Registrar and to any other party, request that the Tribunal give an interpretation of the award. Any other party may comment on such request within 15 days of its receipt. If the Tribunal considers the request to be justified, it shall give the interpretation in writing within 45 days after the receipt of the request. The interpretation shall form part of the award.
29.5 The Registrar may extend the time limits in this Rule.
29.6 The provisions of Rule 28 shall apply in the same manner with the necessary or appropriate changes in relation to a correction of an award and to any additional award made.
[198]See Dass Affidavit [12], [15], [19].

In response to this alternative argument, the Respondents submitted that s 8(7)(b) of the Act, as a matter of substance, denies the otherwise discretionary nature of that provision once it is found that enforcement would be contrary to public policy.[199] As a result, it was submitted that a court cannot impose a condition on enforcement in order to “fix” a deficiency in an award, where enforcement would otherwise be contrary to public policy.[200] Further, the Respondents submitted that any provision of the SIAC Rules and the fact that the Award has already been enforced in Singapore are simply not relevant considerations in this context.[201]
[199]See Transcript 5.
[200]Transcript 6.
[201]Transcript 26–7, 56–61.

In my view, the power conferred by s 8(7)(b) of the Act is properly characterised as a discretionary power. However, given the nature of the public policy ground for refusing enforcement – in my opinion – this discretion would only fall to be exercised in favour of enforcement in the most exceptional of cases.

In Castel Electronics Pty Ltd v TCL Air Conditioner (Zhongshan) Co Ltd (No 2), Murphy J said:[202]

[I]t is important to keep in mind that arts 34 and 36 provide that a court may set aside an award or refuse enforcement if it finds that the award is in conflict with or contrary to public policy. That is, the powers to set aside an award or to refuse enforcement are discretionary.

[202][2012] FCA 1214, [33] (emphasis in original).

On appeal, the Full Federal Court noted (in relation to the appeal grounds in that case):[203]

The first ground of appeal challenged … [Murphy J’s] conclusion that the word “may” in arts 34 and 36 gave the court a discretion to set aside or not enforce the award if the award is found to be in conflict with, or contrary to, the public policy of Australia. This ground was not pressed in light of the recent decision of the Singapore Court of Appeal in LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd.[204]

[203]TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 at 397 [48]. See also 415 [111]: “It is not profitable to seek to differentiate between the engagement of public policy under … [arts 34 and 36 of the Model Law] and a supposedly separate and a later question whether to exercise the discretion”.

[204][2013] 1 SLR 125.

In the case of Hebei, Sir Anthony Mason NPJ said that the use of the word “may” in art V of the New York Convention—[205]

enables the enforcing court to enforce an award, notwithstanding that … [the public policy] ground might otherwise be established. Whether a court would so act in such a case would depend in very large measure on the particular circumstances. [It] is difficult to imagine that a court would do so, if enforcement were contrary to public policy, but there is no reason why a court could not do so …

[205]Hebei Import & Export Corp v Polytek Engineering Co Ltd [1999] 1 HKLRD 665 at 690.

The discretionary nature of the power under s 8(7)(b) of the Act is described – in my view elegantly and succinctly – by Born in his leading treatise, International Commercial Arbitration. Referring to the position under the New York Convention, Born writes:[206]
[206]Gary B Born, International Commercial Arbitration (Kluwer Law International, 2^nd ed, 2014) 3428 [26.03(B)(6)] (emphasis in original and citations omitted). See generally 3428–33 [26.03(B)(6)].

Nothing in the New York Convention requires a Contracting State ever to deny recognition to an arbitral award. The Convention requires only that Contracting States recognise awards (and arbitration agreements) in specified circumstances. Nothing in art V, nor the basic structure and purpose of the Convention, imposes the opposite obligation not to recognise an award (or arbitration agreement).
Article III of the Convention requires Contracting States to recognise arbitral awards made abroad, subject to procedural requirements no more onerous than those for domestic awards, provided that the minimal proof requirements of art IV are satisfied. Articles V(1) and V(2) then provide exceptions to this affirmative obligation, beginning with the prefatory statement “[r]ecognition and enforcement of the award may be refused” in certain circumstances.
The most significant aspect of this provision is its structure, which is to establish an affirmative obligation to recognise foreign and nondomestic awards, subject to specified exceptions—but not to establish an affirmative obligation to deny recognition. Critically, the art V(1) exceptions are just that: exceptions to an affirmative obligation, and not affirmative obligations in their own right.
Although the matter can be debated, the text of art V supports this structural conclusion. The English language version of art V is unambiguously permissive, providing that Contracting States “may” refuse recognition of an award. As a respected commentator has correctly explained:
The discretionary nature of art V is now well accepted internationally. There is no longer any argument, or any sustainable argument, that would suggest that the word “may” in art V should mean anything other than a discretionary “may” as opposed to a mandatory “shall.”

The Russian and Chinese versions of the Convention are identical in meaning to the English text. The Spanish version of art V also indicates that recognition may be denied, without indicating that it must be.

Born goes on to note that the position is similar under the Model Law and in most other national arbitration legislation.[207] In light of the legislative history of the Act and its express objects of giving effect to the New York Convention and the Model Law, I am of the view that Born’s comments accurately state the position under the Act.[208]
[207]Gary B Born, International Commercial Arbitration (Kluwer Law International, 2^nd ed, 2014) 3431 [26.03(B)(6)].
[208]International Arbitration Act 1974 (Cth) ss 2D(d)–(e).

Born continues—referring now to the way in which the discretion might operate – and argues:[209]

As the ex officio character of art V(2)(b)’s public policy exception suggests … it would be unusual for a court to recognise an award notwithstanding the fact that it violated an applicable public policy. Possible cases where discretionary recognition might be possible include foreign public policies and public policies designed to protect individual parties who, through their conduct (waiver, abuse of rights, bad faith) may not be deserving of such protection.

[209]Gary B Born, International Commercial Arbitration (Kluwer Law International, 2^nd ed, 2014) 3694–5 [26.05(C)(9)(n)] (citations omitted).

In support of the proposition that it would be unusual for the discretion to be exercised, Born refers to the US Restatements, which state:[210]

[O]ut of deference to the [New York] Convention language, the Restatement leaves open the largely theoretical possibility that an award that offends a compelling public policy concern may nevertheless survive a vacatur action or win confirmation, recognition, or enforcement. It seems virtually axiomatic, however, that a court would not choose to confirm, recognise, or enforce an award if doing so would be repugnant to fundamental public policy within the meaning of this Section.

[210]American Law Institute, Restatement (Third) US Law of International Commercial Arbitration (2012) § 4–18 cmt (c).

Again, I am of the view that these statements accurately reflect the position under s 8(7)(b) of the Act. However, if it were necessary for me to decide this point, and if enforcement were contrary to public policy – which, for the preceding reasons, it is not – I would not be satisfied that the discretion to enforce should have been exercised in this case.

The Applicants submitted that the Court could ameliorate the effects of any conflict with public policy by making enforcement conditional upon the return of the shares, and that, therefore, the Court should exercise its discretion to enforce the Award.[211] However, in my view, the imposition of a condition on enforcement – including the acceptance of an undertaking such as that offered by the Applicants[212] – would conflict with the policy of minimal curial intervention mandated by both the Act and the Model Law.[213] Moreover, as the Respondents pointed out, it is difficult to see how a court would be enforcing a foreign award under s 8(2) of the Act in a manner consistent with authority if enforcement were made conditional on some extraneous matter not contemplated by, or not provided for by the arbitral tribunal.[214] This is particularly so in light of the principle that arbitral awards are intended to provide certainty and finality – a principle which underpins the Act, the Model Law, and the New York Convention.[215] Accordingly, the suggestion that a difficulty posed by enforcement, such as a conflict with public policy, might be remedied by imposing a condition on enforcement may be described as an example of the temptation of “domesticity” – a temptation which must be resisted.[216]
[211]Transcript 28.
[212]Second Gupta Affidavit [10].
[213]See above [17]–[24]. Cf Transcript 46–7.
[214]Transcript 6–7, 23–5.
[215]See International Arbitration Act 1974 (Cth) s 39(2)(b)(ii).
[216]See above [23]–[24].

Finally, I am not satisfied that the fact that the Award has already been enforced in Singapore, or that the rules of the arbitration may or may not have allowed for recourse to be had to the Tribunal, would have been relevant discretionary considerations in the circumstances of this case.

Conclusions and orders

For the preceding reasons, the Award does not allow for double recovery and therefore enforcement would not be contrary to public policy. The Applicants’ application to enforce the foreign award is therefore successful.

The parties are to bring in orders to give effect to these reasons. I otherwise reserve the question of costs.

[2015] VSC 724

21 December 2015