Note: In 2008, Shanghai Electric, one of the first large-scale Chinese companies to enter the Indian contracting market, undertook a coal-fired power station supply and service contract worth US$1.311 billion. Unexpectedly, this seemingly safe power station project has been entangled in payment disputes for 16 years. The arbitration went from the Singapore International Arbitration Center (SIAC) to the Singapore International Commercial Court (SICC), and then to the Court of Appeal. It spanned the epidemic and multiple rounds of judicial reviews. It was not settled until December 2024. The Court of Appeal made a final judgment and confirmed that Shanghai Electric won the case.
This is not only a huge "debt collection lawsuit", but also a vivid cross-border legal textbook:
Core question one: If the party fails to raise any objection to jurisdiction at the beginning, does that mean it has automatically given up?
Core question two: Does a letter of guarantee signed by a vice president constitute an "apparent agency" and will the company pay the bill?
This article will lead everyone to review this protracted dispute battle from arbitration to court.
Author: Liu Meng NUS JD
1. Case background: US$1.3 billion power station project
Parties to this case:
- Reliance Infrastructure Limited (RINFRA): Indian registered company
- Reliance Infra Projects (UK) Limited (Reliance UK): with RINFRA There is a related relationship and it is a wholly-owned subsidiary of RIPIL, a subsidiary of RINFRA in which 10% is held.
3. Shanghai Electric Group Co., Ltd. (Shanghai Electric): registered company in China
4. Rajesh Agrawal: Assistant Vice President, RINFRA at that time
Case background:
The dispute in this case arose from the large-scale power plant construction project in Shashank Village, India (the "Shashank Project").
1. Pre-contract
On June 24, 2008, Reliance UK signed a contract with the Indian company Sasan Power Ltd (Sasan Power), and Reliance UK will be responsible for purchasing the necessary equipment and services for the Sasan project.
2. Supply Contract
On June 26, 2008, Reliance UK signed a supply contract with Shanghai Electric, with Shanghai Electric providing the equipment and services required for the project. The contract was signed by Mr Agrawal on behalf of Reliance UK and was specifically authorized to do so. The contract did not contain any parent company guarantee clause.
3. Letter of guarantee
On June 26, 2008, RINFRA issued a letter of guarantee to Shanghai Electric guaranteeing Reliance UK's obligations under the supply contract. Article 10 of the letter of guarantee stipulates that disputes between the parties shall be submitted to the Singapore International Arbitration Center (SIAC) for arbitration, and the place of arbitration shall be Singapore. The letter of guarantee was purportedly signed by Mr. Agrawal on behalf of RINFRA.
2. The first battle: SIAC arbitration
In December 2019, Shanghai Electric applied for arbitration to SIAC on the grounds of non-payment and breach of contract in the supply contract, and requested to pursue the liability of RINFRA as the guarantor in accordance with the arbitration clause in the letter of guarantee.
In the arbitration, RINFRA argued that the Letter of Guarantee was invalid on the basis that the Company was never aware of the document and that Mr Agrawal had no authority to sign on its behalf. However, RINFRA never claimed that the signature was forged or that the arbitral tribunal lacked jurisdiction. In its opening statement in September 2021, RINFRA made it clear that it did not allege that the letter of guarantee was forged, nor did it provide Mr. Agrawal’s testimony or a handwriting expert’s report to support the claim of forgery.
The Tribunal accordingly found that the issue of forgery was not an issue and that the real issue was whether Mr Agrawal had the authority to represent RINFRA. The arbitral tribunal finally ruled that it had apparent agency rights and that the letter of guarantee was binding on RINFRA. It also ruled that Shanghai Electric won the case and RINFRA was required to bear corresponding liability for compensation.
3. The second battle: Singapore International Commercial Court (SICC)
In May 2023, RINFRA applied to the Singapore International Commercial Court (SICC) to annul the arbitration award, relying mainly on new evidence that had not been presented in the arbitration before, namely: Mr. Agrawal's testimony (that he had never signed the letter of guarantee) and the report of a handwriting expert (that the initials and signatures on the letter of guarantee were forged).
The SICC focused the dispute on two points: (a) whether RINFRA had waived its right to raise jurisdictional objections based on forgery or lack of authority; and (b) if not, whether it had proven that the letter of guarantee was forged or that Mr. Agrawal had no authority to enter into the arbitration agreement.
Regarding the issue of waiver, the SICC invoked Article 16(2) of the Model Law, emphasizing that parties must raise jurisdictional objections when filing their defence. The court found that RINFRA had made it clear during the arbitration process that it would not rely on the “forgery” defense and had never requested the arbitral tribunal to rule that it had no authority to arbitrate the dispute between the parties. Instead, it only claimed that the letter of guarantee was invalid. Thus, RINFRA has waived such jurisdictional objection, which cannot be reversed later.
Regarding the issue of forgery, the SICC noted that handwriting experts had conflicting opinions and that RINFRA had failed to meet its burden of proof.
On the issue of apparent agency, the SICC determined that Mr. Agrawal had constituted an apparent agent and that his signing of the letter of guarantee and arbitration agreement was binding on RINFRA. The court cited the principle in the British case of Freeman & Lockyer [1964] 2 QB 480, that is, when the principal makes an apparent representation to a third party that it has agency rights by allowing or acquiescing to the agent to conduct business in its name, the agent is deemed to have apparent agency rights and can enter into contracts with third parties on behalf of the principal within the usual scope of business.
Finally, on January 31, 2024, SICC rejected RINFRA’s application to annul the arbitration award and ordered RINFRA to bear Shanghai Electric’s litigation costs.
4. The Final Battle: Singapore Court of Appeal
RINFRA argued on appeal that SICC erred in finding that it had waived its jurisdictional objection. However, the Court of Appeal held that the SICC was correct in finding that RINFRA had indeed waived the relevant objections and therefore could no longer request to set aside the arbitral award on this ground.
5. Two major focuses: jurisdictional waiver and apparent agency
Looking back on this tortuous dispute resolution process, we can find that the core of the case focuses on two aspects:
- First, whether RINFRA has lost its right to raise jurisdictional objections again in the revocation proceedings because it waived the claim that the arbitration agreement was invalid during the arbitration;
- The second issue is whether the letter of guarantee is valid, that is, whether Mr. Agrawal has apparent agency power, which would make RINFRA legally responsible for signing the letter of guarantee and the arbitration agreement.
1. Whether to waive jurisdictional objections
Substantial issue: Whether RINFRA has waived its right to subsequently raise jurisdictional objections in annulment proceedings as a result of its statements and conduct in the proceedings before the arbitral tribunal.
Court analysis: Article 16(2) of the Model Law requires a party to raise an objection to jurisdiction when filing its defence, otherwise it will be deemed to have been waived, unless the delay is justified. The court held that RINFRA did not reserve its position even though it knew there were doubts about the letter of guarantee, but instead explicitly gave up the forgery defense. This was a conscious tactical choice, and therefore it cannot be reversed afterwards. At the same time, RINFRA has been requesting only “to declare the letter of guarantee invalid and unenforceable.” This type of request is essentially a substantive defense rather than a jurisdictional objection.
Conclusion: RINFRA has waived jurisdictional objections based on forgery or lack of authority in revocation proceedings.
2. Effectiveness of letter of guarantee (whether there is an apparent agent)
Apparent agency refers to a system in which the counterparty has reason to believe that the actor has agency rights and conducts legal acts with him, although the actor does not actually have agency rights. At this time, in order to protect the safety of the transaction, the law stipulates that the legal consequences of the act shall be borne by the agent. To put it simply, it is a situation where it looks like there is agency, but in fact there is not, but the agent is responsible for it.
Substantial issue: Whether Mr. Agrawal had apparent authority to bind RINFRA to the letter of guarantee signed by him.
Court analysis: The court applied English law (Freeman & Lockyer case) and held that RINFRA had always allowed Agrawal to participate in power plant project negotiations on its behalf and had signed other documents containing arbitration clauses, which was enough to make the SEC reasonably believe that it had the right to sign the guarantee letter.
Conclusion: The letter of guarantee is a valid document, Mr. Agrawal has apparent representation and the arbitration agreement is binding on RINFRA.
6. Practical Enlightenment: Two compulsory courses for Chinese-funded enterprises in cross-border disputes
1. Raise jurisdictional objections in a timely manner to avoid abandonment
During arbitration proceedings, Chinese companies should attach great importance to raising jurisdictional objections in a timely manner. Under Article 16(2) of the Model Law, a party must raise the defense that the arbitral tribunal does not have jurisdiction when filing its defence, otherwise it will be deemed to have been waived. The RINFRA case demonstrates that if parties suspect that there is a problem with the contractual documents that may affect jurisdictional issues, this should be clearly raised before the arbitration commences. If the relevant claims are explicitly waived during the arbitration process, or if the substantive defense is continued without distinguishing between "substantive defenses" and "jurisdictional objections," the award may no longer be challenged on this basis during the revocation proceedings in the future. Therefore, when Chinese companies face disputes, even if the evidence is insufficient, they should promptly raise and retain jurisdictional objections to prevent the loss of remedies.
2. Strengthen internal authorization management and prevent apparent agency risks
At the same time, Chinese companies also need to strengthen internal authorization management to prevent apparent agency risks. In cross-border transactions, even if company personnel do not have actual signing authority, the company still needs to bear liability if their actions are sufficient to cause the other party to reasonably believe that they have authority. In the RINFRA case, the court determined that a senior executive had apparent agency power precisely because he had consistently allowed him to participate in negotiations and sign documents on behalf of the company, making the letter of guarantee valid for the company. In order to avoid similar risks, companies should clarify the boundaries of internal authorization, announce the scope of authorization to the outside world, and control the external signing behavior of middle-level or project leaders. At the same time, they should keep complete records of negotiations and signings to prevent them from passively assuming undue responsibilities in future arbitrations or litigations.
Conclusion
This arbitration, which spanned sixteen years, started with a letter of guarantee and ended with a final victory. It not only recovered a huge amount of money for Shanghai Electric, but also sounded the alarm for all Chinese-funded enterprises moving towards the “One Belt, One Road”:
Cross-border transactions are not just numbers and contracts, but also a grasp of systems and rules. For Chinese companies going global, every dispute is the most realistic legal lesson.
In the next article, we will continue to share typical cases of the “One Belt, One Road” and provide readers with practical cases of cross-border compliance and dispute resolution.
This article is general information and not legal advice. Specific matters require assessment by appropriately qualified professionals.