Singapore High Court: Active and Passive remedies for setting aside a preliminary award on jurisdiction based on Art. 16(3) & Art. 34(2)(a)(iii) of MAL and Section 10(3) of IAA

In Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2018] SGHC 78, the Plaintiff filed an application to set aside an award pursuant to Art 34(2)(a)(iii) of the Model Law (MAL) rendered by the arbitral tribunal. It is important to mention that these proceedings were neither enforcement proceedings brought by Award creditor nor they were the defence proceedings brought by the award debtor against enforcement proceedings. The High Court held that under Section 10(3) Singapore International Arbitration Act (IAA), if the arbitral tribunal rules that it has jurisdiction as a preliminary question or issue (or at any stage of the arbitral proceedings that it has no jurisdiction), any party may, within 30 days after having received notice of that ruling, apply to the High Court to determine the matter. The Plaintiff in the instant case, in filing an application to set aside the Final Award for lack of jurisdiction was therefore found outside the time limit set down in Section 10(3). The Court further held that where the arbitral tribunal decides the question of jurisdiction as a preliminary issue, the applicable provision is Art 16(3) of MAL and Section 10(3) IAA not Art. 34(3) of MAL. Where the arbitral tribunal chooses to decide on jurisdiction in its award on the merits, then Art 34(3) gives the dissatisfied party an opportunity to set aside that ruling, and any other decisions or ruling made on the merits, within 3 months of that party receiving the award. The court also observed that Art 16(3) of MAL was intended as an early avenue for parties to promptly and finally resolve jurisdictional disputes so as to save costs and time, and it would defeat these purposes to allow a party to reserve jurisdictional challenges to the award on the merits. The court cited the the Report of the Working Group on the Work of its Seventh Session (A/CN 9/246, 6 March 1984) and held that a failure to raise a plea on jurisdiction within the 30-day limit should have a preclusive effect on subsequent setting aside proceedings at the seat.

But this does not mean that all doors are closed for a party to challenge the jurisdiction post 30 days. The court held that such party does not lose its passive remedy of resisting enforcement whether in another jurisdiction or as a domestic international award at the seat. The court relied on the Singapore Court of Appeal case of PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372, on active and passive remedies open to a party under the IAA and Model Law. In that case the Court of Appeal inter alia held that Parties who elect not to challenge the tribunal’s preliminary ruling on its jurisdiction are precluded from raising such a ground to initiate setting aside proceedings under Art 34 of MAL. The court further held that where a party has stayed away from the arbitral proceedings altogether or has walked out at some early stage, eg, before filing its statement of defence, then Art 16’s time limit is not binding on it. Allowing jurisdictional objections of such a party would be an abuse of process of the court. The court also held that the MOU entered into between the parties does not terminate the arbitral tribunal’s mandate.

Applicable Legal Provisions

Article 34(2)(a)(iii) & 34(3) of MAL

Article 34 – Application for setting aside as exclusive recourse against arbitral award

2. An arbitral award may be set aside by the court specified in article 6 only if:]

(a) the party making the application furnishes proof that:

(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;

3. An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received that award or, if a request had been made under article 33, from the date on which that request had been disposed of by the arbitral tribunal.

Section 10(3) of IAA

Appeal on ruling of jurisdiction

(3) If the arbitral tribunal rules —

(a) on a plea as a preliminary question that it has jurisdiction; or

(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,

any party may, within 30 days after having received notice of that ruling, apply to the High Court to decide the matter.

Article 16(2) & (3) of MAL

Article 16 – Competence of arbitral tribunal to rule on its jurisdiction

2. A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.

3. The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

Factual Matrix

A Sri Lankan government company, RALL which is into the business of providing comprehensive security services and the issuing of arms, ammunition and related manpower for such security services entered into many maritime security-related projects with another Sri Lankan company AGMS specialising in the provision of maritime security services to vessels transiting waters with high risk of piracy. Out of five other projects, one project involved the establishment of a floating armoury on the vessel operated by AGMS off the coast of Galle in Sri Lanka.

All projects were governed by a Master Agreement and as per this Agreement RALL were supposed to provide its “utmost assistance” to AGMS in respect of the various projects entered into. The Master Agreement was governed by the laws of Sri Lanka and, the dispute resolution clause, states that “any dispute, difference or question, which has risen in connection with or in relation to the agreement shall” be referred to arbitration in Singapore under the rules of the Singapore International Arbitration Centre (SIAC).

Later, the vessel was detained by the Sri Lankan Police. AGMS demanded that RALL, pursuant to the Master Agreement, should obtain a Letter of Clearance from the Ministry of Defense Sri Lanka (MOD). RALL replied that it was unable to respond to AGMS’s requests as the board of directors had resigned and had yet to be replaced.

AGMS commenced arbitral proceedings against RALL. RALL did not respond to the Arbitration Notice and did not participate in the arbitration. Later, RALL requested SIAC for an extension of 3 months to respond to the Notice of Arbitration. Meanwhile, AGMS SIAC to appoint an arbitrator on behalf of RALL as it had failed to do so pursuant to the mandatory time limit of 14 days under the SIAC Rules. SIAC granted RALL an extension of 3 weeks and asked to nominate a co-arbitrator. SIAC appointed a co-arbitrator in the absence of any nomination made by RALL under Rule 8.2 of the SIAC Rules. AGMS also appointed its arbitrator. RALL wrote to the SIAC requesting another three-month extension. This was strongly objected to by AGMS as RALL had not filed its Response to the Notice of Arbitration and had not paid their share of the fees. Once again, the SIAC granted an extension stating RALL to respond, failing which the SIAC would proceed with the next steps in the arbitration. Due to lack of response from RALL, SIAC commenced arbitration proceedings.

RALL asserted, without any explanation or substantiation, that the arbitration involved a dispute “contemplated by falling or contains facts on matters beyond the scope of submission to arbitration” and that the arbitral proceedings were in “conflict with the Public Policy of the Republic of Sri Lanka”. The arbitral tribunal unanimously considered that this vaguely-worded letter did not constitute a proper objection to the Tribunal’s jurisdiction which was affirmed by High Court of Singapore as well.

Meanwhile the parties entered into negotiations in an effort to resolve the matter. This resulted in a MOU which, inter alia, provided that AGMS would withdraw its claim against RALL in the SIAC arbitral proceedings. RALL unilaterally informed the SIAC that it had “reached settlement” with AGMS and that it was “no longer required to proceed” with the arbitration.

Following this letter, AGMS sent a letter to the arbitral tribunal, stating that in light of certain events that had recently transpired, it appeared that there was no longer any settlement and there was in fact an imminent threat that RALL would terminate the Master Agreement. AGMS therefore sought a preliminary hearing on an urgent basis.

AGMS’s requests were copied to RALL, but RALL did not give any response and did not participate in the preliminary hearing. After the hearing, the arbitral tribunal issued directions. RALL was directed to inform the tribunal of its position in relation to AGMS’s two applications, and both parties were requested to tender written submissions thereon. AGMS tendered its written submissions but RALL did not do so. Having considered AGMS’s applications, the Tribunal issued an Interim Order, holding by a majority that RALL had failed to ensure continuity of the Master Agreement, which went to the root of the MOU, and therefore the dispute was still alive. The Tribunal determined to proceed with the arbitration and gave directions but expressly stated that RALL was free to make objections in the procedurally proper manner in the course of the arbitration. The Tribunal unanimously declined to grant AGMS’s application for an interim injunction.

AGMS filed written submissions and a witness statement. RALL did not file any submissions, witness statements or pleadings. The Tribunal fixed the date of substantive hearing. AGMS requested that the substantive hearing be postponed RALL was absent and unrepresented in the hearing and failed to submit post-hearing written submissions or costs submissions. AGMS filed its post-hearing written submissions. The majority issued a Final Award dated in AGMS’s favour. RALL commenced proceedings in Singapore High Court to set aside the award.

Contentions of parties

RALL contended that the Final Award deals with a dispute not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration under Art 34(2)(a)(iii) of the Model Law. Further, it was contended that RALL was not given proper notice of the arbitral proceedings, or was otherwise unable to present its case pursuant to Art 34(2)(a)(ii) of the Model Law because certain pieces of correspondence and documents were not copied to it which amounts to breach of the rules of natural justice in the making of the award by which its rights had been prejudiced under s 24(b) of the Singapore International Arbitration Act (IAA). Thirdly, it was contended that the making of the award was induced or affected by fraud or corruption within the meaning of s 24(a) of the IAA or the award was in conflict with the public policy of Singapore under Art 34(2)(b)(ii) of the Model Law.

AGSM contended that it was far too late in the day for RALL to mount a jurisdictional challenge, having failed to do so at the preliminary hearing. Secondly, even if RALL could take objection, the MOU did not terminate the Tribunal’s jurisdiction to hear the matter. Thirdly, the MOU had been rescinded for misrepresentation. Further it contended that there was no breach of natural justice or public policy.

Conclusion

On jurisdiction

  • The mandate of the Tribunal has not terminated with signing of MOU.
  • Art 16(3) states explicitly what is implicit in s 10(3) IAA; viz, the arbitral tribunal has the discretion whether to rule on a plea that it has no jurisdiction either as a preliminary question or as an award on the merits. Both Section 10 IAA and Art 16(3) clearly provide that if the arbitral tribunal rules that it has jurisdiction as a preliminary issue then any party may apply, within 30 days after having received notice of that ruling, to the supervisory court at the seat to determine the matter.
  • As the Tribunal decided the question of jurisdiction as a preliminary issue, the applicable provision is Art 16(3) and Section 10(3) IAA.
  • Where the arbitral tribunal chooses to decide on jurisdiction in its award on the merits (which is not the case here), then Art 34(3) gives the dissatisfied party an opportunity to set aside that ruling, and any other decisions or ruling made on the merits, within 3 months of that party receiving the award.
  • Where the arbitral tribunal chooses to decide jurisdiction as a preliminary question or issue, then all the considerations of finality, certainty, practicality, cost, preventing dilatory tactics and settling the position at an early stage at the seat militate against allowing a respondent to reserve its objections to the last minute and indulge in tactics which result in immense delays and cost.
  • A party which stays away from the arbitration, did not file a response, did not nominate an arbitrator, refused to pay any fees, did not file a statement of defence and then raised a jurisdictional challenge by way of a terse letter and absented itself from the preliminary meeting, refused to file any submissions in support of its stand and allowed the arbitration to proceed without participation should not be entitled to take up a challenge to jurisdiction at the seat which is in blatant disregard of Art 16 and the policy reasons behind the 30-day time limit. Allowing such objections would amount to an abuse of process. It allows a party to wait till the opposing party goes through the whole arbitral process, obtains an award, only to be met by a setting aside application at the seat on the ground of a lack of jurisdiction.

On breach of natural justice

  • It was held that RALL chose not to participate in the arbitration despite being given due notice of each stage and having ample opportunity to do so. RALL cannot fulfil any of the requirements of Art 34(2)(a)(ii) or Sectin 24 of the IAA to make out its case.

On breach of public policy due to fraud and corruption

  • The Court held that these allegations do not fall within Section 24(a) of the IAA, which contemplates a situation where the award itself (rather than the contract between the parties) is tainted or induced by fraud or corruption.
  • Until the officers who are being complained of taking or giving bribe have been convicted and their avenues for appeal exhausted, there is no basis for the Singapore High Court to find that the award would perpetuate or enable corruption or bribery in Sri Lanka. Therefore, it was held that the allegations of corruption and bribery on the evidence before the court are only allegations.

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