By Wynne Tay - MPillay
The Singapore Court of Appeal in this case allowed an appeal against the High Court's decision which refused to set aside an award (the "Award") issued in an arbitration administered under the auspices of the Singapore International Arbitration Centre ("SIAC").
In coming to its decision, the Court of Appeal discussed and set out important principles governing, amongst others:-
- the operation of Article 16 of the UNCITRAL Model Law on International Commercial Arbitration (the "Model Law") and section 10 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”) to a case where a respondent has failed to participate in the arbitration proceedings; and
- challenges brought under s 24(a) of the IAA and Art 34(2)(b)(ii) of the Model Law on the basis that the making of the Award was induced or affected by fraud or corruption and the Award is in conflict with the public policy of Singapore.
These issues will be discussed in more detail below.
Background facts
The appellant ("RALL") is a Sri Lankan company owned by the Government of Sri Lanka and specialises in providing security and risk management services. The respondent ("AGMS"), which is also a Sri Lankan company, is in the business of providing maritime security services to vessels at risk of piracy. The parties formed a private-public partnership to carry out certain projects between March 2011 and October 2013 for which they entered into six separate agreements. These six agreements were subsequently incorporated into a master agreement dated 27 January 2014 (the "Master Agreement").
The Master Agreement provided for Sri Lankan law to be the governing law and for the disputes to be settled by arbitration in Singapore in accordance with the rules of SIAC.
Disputes arose between the parties and AGMS commenced arbitration proceedings against RALL for breach of the Master Agreement. The Notice of Arbitration dated 8 April 2015 (the "NOA") was sent to RALL but RALL did not file any response by the deadline.
RALL then wrote to SIAC seeking a three-month extension of time to respond to the NOA. The extension was granted but RALL still failed to file a response. The proceedings thereafter proceeded without RALL's participation until RALL wrote to SIAC again to seek a further extension of time but this was not granted.
Afterwards, RALL wrote to SIAC stating that the dispute between the parties was beyond the scope of submission to arbitration and that the arbitration proceeding was in conflict with Sri Lankan public policy. The parties then engaged in discussions in an attempt to resolve the dispute while the arbitration continued.
On 12 November 2015, RALL's attorney wrote to SIAC stating that AGMS agreed to withdraw the proceedings under a memorandum of understanding dated 20 October 2015 (the "MOU"). However, three days later, AGMS wrote to the Tribunal saying that there was no longer any settlement and asked the Tribunal to grant an interim injunction to prevent RALL from terminating the Master Agreement.
The Tribunal heard the application without any participation from RALL. The Tribunal eventually concluded that the arbitration ought to proceed but it did not grant the interim injunction (the "Order").
The arbitration then proceeded without RALL's participation although RALL wrote to SIAC twice enquiring about the status of the arbitration. The Tribunal eventually rendered a final award in favour of AGMS (the "Award").
RALL commenced proceedings to set aside the Award in the High Court on the following grounds:
- the Tribunal had no jurisdiction to hear the dispute as the MOU had terminated the reference to arbitration (the "jurisdictional challenge");
- RALL was not given proper notice of the arbitral proceedings or was unable to present its case; and
- the Award was in conflict with the public policy of Singapore or it was induced or affected by fraud or corruption because the Master Agreement was procured by bribes given by AGMS's chairman to RALL's then chairman (the "public policy challenge").
The High Court dismissed the application . This decision was covered in the June 2018 edition of the SIArb Newsletter.
RALL appealed the High Court's decision on the jurisdictional challenge and public policy challenge.
Jurisdictional challenge
The High Court held that RALL was precluded under s 10(3) of the IAA and Art 16(3) of the Model Law from applying to set aside the Award on the basis of a jurisdictional objection as RALL failed to challenge the Order within 30 days of receiving notice of the ruling that was set out in the Order.
In the appeal, RALL contended that it was not so precluded as the Tribunal did not rule on its jurisdiction and merely directed the parties to continue with the proceedings in the Order. Even if the preclusion was engaged in the present case, RALL took the position that it did not apply to a non-participating party to an arbitration, like itself.
The Court of Appeal first observed that it was not necessary for RALL to file a formal objection on the jurisdiction of the Tribunal in order to engage Art 16(3) of the Model Law because the tribunal may on its own volition raise and decide issues of jurisdiction without waiting for a formal objection: see [56].
On the facts, the Court of Appeal found that RALL's letter of 12 November 2015 was essentially stating that the Tribunal had no mandate because there had been a settlement agreement and it was therefore "an unorthodox challenge to the jurisdiction or mandate of the Tribunal". Consequently, Art 16(3) of the Model Law was engaged: see [57].
The Court of Appeal further found that the Tribunal was fully aware of RALL's jurisdictional objection set out in the 12 November letter. Consequently, by holding that the MOU had not been implemented and that the arbitration should proceed, the Tribunal "clearly asserted its jurisdiction to deal with the matter". The Order was therefore a ruling on jurisdiction which fell within Art 16(3) of the Model Law: see [59].
The Court of Appeal then went on to hold that Art 16(3) of the Model Law and s 10 of the IAA do not preclude a non-participating respondent in an arbitration with a valid objection to the tribunal's jurisdiction from raising that objection as a ground to set aside such tribunal's award: see [75].
In this regard, the Court of Appeal observed that such non-participating respondents could not be held responsible for wastage of resources where the claimant chooses to continue with the proceedings because the respondent would be "exercising his undoubted right to be undisturbed by the arbitration". Therefore, the claimant takes the risk of wasted costs in such a situation: see [76].
Further, it was noted that to find a preclusive effect of Art 16(3) of the Model Law against a non-participating party would mean "putting an 'innocent' respondent to the additional cost of having to defend against enforcement of the award in, potentially, many jurisdictions as he would not have been able to procure the setting aside of the award by the supervisory court". Therefore, a justifiably non-participating party should be entitled to avail himself of all remedies the law gives him when faced with an award: see [77].
On the facts, the Court of Appeal found that RALL was a non-participating party having taken a clear stand from the point of entry into the MOU that the arbitration should be stopped because the settlement had resolved the dispute. The subsequent letters from RALL to SIAC were merely to inform SIAC of the facts and to ask for information on what was going on, all of which RALL was perfectly entitled to do even if it did not want to participate in the proceedings: see [79].
The Court of Appeal also found that the effect of the MOU was to settle the dispute between the parties. There was thus no longer a dispute before the Tribunal to be decided on. Consequently, the Award had to be set aside for containing decisions on matters outside the scope of submission to arbitration within the meaning of Art 34(2)(a)(iii) of the Model Law: see [92].
Public policy challenge
Having decided in favour of RALL on the jurisdictional challenge, the Court of Appeal was strictly speaking not required to deal with the public policy challenge but nonetheless still made some observations in this regard.
The Court of Appeal agreed with the High Court in rejecting the argument that the Award was induced or affected by fraud or corruption as RALL's allegations of fraud or corruption related to the underlying contract and not the Award itself: see [98].
On the contention that the Award was against Singapore public policy, the Court of Appeal held that RALL had to first establish the Master Agreement and the other agreements were illegal under their governing law. This was an issue for the Tribunal to decide and the Tribunal did not find any sign of illegality or that the agreements were contrary to public policy. Therefore, the parties are bound by the Tribunal's binding. Further, the parties had affirmed the agreements by the MOU so RALL was not entitled to now declare the agreements to be illegal and unenforceable: see [100-101].