LawFlash

Singapore Court Rules on Right to Challenge Arbitral Awards on Jurisdictional Grounds

June 11, 2019

On 9 May 2019, the Singapore Court of Appeal in Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd [2019] SGCA 33 considered whether a respondent who failed to appeal to the Singapore courts in accordance with Article 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) could subsequently challenge a final award on jurisdictional grounds.

Article 16(3) of the Model Law provides that a party dissatisfied with the tribunal’s ruling on its jurisdiction as a preliminary issue may, within 30 days, file an appeal with the local court. This is mirrored by Section 10 of the Singapore International Arbitration Act.

Reversing a decision of the High Court, the Court of Appeal held that while Article 16(3) of the Model Law was designed to have preclusive effect, the specific facts of the case warranted an exception to be made.

Background

On 8 April 2015, Avant Garde Maritime Services (Pte) Ltd (AGMC) commenced SIAC arbitration proceedings seated in Singapore against Rakna Arakshaka Lanka Ltd (RALL) relating to disputes arising out of a master agreement.

On 20 October 2015, the parties entered into a settlement agreement memorialized in a memorandum of understanding (MOU). It was agreed that AGMS would withdraw the arbitration proceedings against RALL upon the fulfillment of certain conditions.

Three days after RALL requested the tribunal to discontinue the arbitration proceedings, AGMC informed the tribunal that certain events had transpired which breached the MOU resulting in no settlement. AGMC submitted that as a consequence, the arbitration remained afoot. RALL did not comply with the tribunal’s directions to respond to AGMC’s submissions. Subsequently, the tribunal issued an interim order (Interim Order) directing the arbitration to proceed.

Aside from making enquiries with the SIAC regarding the process of the arbitration, RALL did not participate in the arbitration.

On 29 November 2016, the tribunal published the final award finding in favour of AGMC.

High Court Decision

On 27 February 2017, RALL commenced proceedings in the Singapore High Court to set aside the final award.

In dismissing RALL’s setting aside application, the judge held that the tribunal’s interim order was a ruling on the tribunal’s own jurisdiction as a preliminary issue. As such, RALL had to challenge the interim order within 30 days upon receiving notice of it.

The judge held that a party’s failure to challenge a tribunal’s ruling on jurisdiction as a preliminary issue precluded that party from launching a jurisdictional challenge in subsequent setting aside proceedings in the seat court following the publication of the final award – even in circumstances where that party had declined to participate in the arbitration.

Court of Appeal Decision

On appeal, the Court of Appeal reversed the decision of the High Court and set aside the final award.

While the Court of Appeal agreed with the High Court that the interim order was a preliminary ruling on jurisdiction and subject to Article 16(3) of the Model Law, which was designed to have preclusive effect, the Court of Appeal held that the facts of the case warranted an exception to the preclusive effect of Article 16(3) of the Model Law.

The Court of Appeal held that a respondent who failed to challenge a tribunal’s preliminary ruling on jurisdiction under Article 16(3) of the Model law should not be denied the right to raise jurisdictional objections in setting aside the final award in circumstances where the respondent did not participate in the underlying arbitration proceedings. As RALL had only written to the SIAC requesting for updates on the arbitration proceedings and did not actively participate in them, the Court of Appeal held that RALL was entitled to apply to set aside the final award.

The Court of Appeal also determined that RALL was not in breach of the MOU. The MOU was therefore a valid settlement agreement which rendered the final award outside the scope of the arbitration, thus forming valid grounds for setting aside under Article 34(2)(a)(iii) of the Model Law.

Observations

The Court of Appeal’s ruling clarifies that a respondent is not precluded from objecting to the tribunal’s jurisdiction in setting aside the final award in circumstances where (i) it did not challenge the tribunal’s ruling on jurisdiction as a preliminary issue in accordance with Article 16(3) of the Model Law; and (ii) had ceased to participate in the arbitration.

Nevertheless, nonparticipation in the arbitral proceedings can be a risky course of action for the following reasons:

First, aside from having to satisfy the court in substance as to why the final award should be set aside, a respondent’s entitlement to rely on the exception to the preclusive effect of Article 16(3) of the Model Law depends heavily on the precise facts of the case and conduct of the respondent. Different courts may interpret these facts differently.

Second, unless and until the final award is set aside by the seat court, the final award remains valid and enforceable. The respondent continues to labour under the specter of time and expenses that stand to be incurred in defending enforcement proceedings instituted in multiple jurisdictions at the liberty of the claimant.

It follows that a party dissatisfied with a tribunal’s ruling on its jurisdiction as a preliminary issue should consider carefully from a practical and strategic perspective whether a challenge should be made in accordance with Article 16(3) of the Model Law as opposed to raising those objections later in setting aside proceedings.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the author, Stephen Cheong, a director of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated ‎with Morgan, Lewis & Bockius LLP. As an added resource, our firm has released the second edition of An Introductory Guide to Arbitration in Asia addressing questions global businesses should consider in connection with international arbitration in 14 key Asian jurisdictions.