24 April, 2018
Key Points
a) In Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited [2018] SGHC 78 (“Rakna Arakshaka”), the Singapore High Court held that where a tribunal had ruled on its own jurisdiction as a preliminary question, the party wishing to challenge the tribunal's jurisdiction had to bring that issue to the supervisory court within 30 days of receipt of notice of the tribunal's ruling, pursuant to Article 16(3) of the UNCITRAL Model Law ("Model Law"), read with section 10(3) of the International Arbitration Act ("IAA"). The failure to do so would preclude such party from raising the same jurisdictional objection in setting aside proceedings pursuant to Article 34(2)(a)(iii) of the Model Law.
b) However, such a party is not precluded from raising the same jurisdictional challenge when it exercises its passive remedy of resisting enforcement of the award. In other words, under Singapore law, while a party that wishes to challenge the tribunal's decision on its own jurisdiction has a choice of electing between the active remedy under Art 16(3) of the Model Law and the passive remedy of resisting enforcement, such a party does not have a choice of electing between the active remedy under Art 16(3) of the Model Law and the active remedy of setting aside the award under Art 34(2)(iii) of the Model Law.
c) This is the first time that the Singapore High Court had the opportunity to decide on this significant issue – it is significant because a party may unwittingly lose its right to challenge jurisdiction given the permissive language in Article 16(3) of the Model Law. While the decision is being appealed to the Singapore Court of Appeal, it nevertheless presents an interesting development in Singapore's arbitration jurisprudence and serves to caution parties in arbitration to adhere to the 30-day period in Article 16(3) of the Model Law if applicable. This issue has previously been considered and discussed by the co-author in a separate publication titled "Choice of Active Remedies Under the UNCITRAL Model Law – When "May" Means May", (2017) 28(1) THE AMERICAN REVIEW OF INTERNATIONAL ARBITRATION 159.
Decision
a) In Rakna Arakshaka, the plaintiff applied to set aside a final award on three grounds:
(i) the final award deals with a dispute not falling within the terms of submissions to arbitration as a Memorandum of Understanding ("MOU") had terminated the reference to arbitration, resulting in lack of jurisdiction on the part of the tribunal (the "Jurisdiction Issue");
(ii) the plaintiff was not given proper notice of the arbitral proceedings or was otherwise unable to present its case because certain pieces of correspondence and documents were not copied to it, giving rise to a breach of natural justice in the making of the award by which its rights had been prejudiced (the "Natural Justice Issue"); and
(iii) the making of the final award was induced or affected by fraud or corruption as the underlying contract in the arbitral proceedings was procured by bribes (the "Public Policy Issue").
b) Jurisdiction Issue
The Singapore High Court held that section 10(3) of the IAA and Article 16(3) of the Model Law required the plaintiff to raise its jurisdictional objection to the Singapore High Court within 30 days of having received notice of the Tribunal's ruling on its own jurisdiction as a preliminary question. The failure to do so precluded the plaintiff from raising its jurisdictional objection in setting aside proceedings. In fact, the Singapore High Court went further to state that it would be an abuse of process to allow a party who had raised a jurisdictional challenge but chose not to participate in most part of the arbitration, to wait till the opposing party goes through the entire arbitral process, obtains an award, only to be met by a setting aside application at the seat when it could have done so within the 30-day period under Article 16(3) of the Model Law.
Further and in any event, the Singapore High Court held that the MOU did not in fact terminate the Tribunal's mandate.
c) Natural Justice Issue
The plaintiff claimed that it had suffered prejudice as a result of a breach of natural justice because it was not given a copy of the notes of evidence of the substantive hearing. This is despite the fact of the plaintiff's "near-total disengagement from the arbitral proceedings". The Singapore High Court therefore held that on the facts of the case, having chosen to absent itself from the arbitral proceedings, the plaintiff could not say that it was unable to present its case or that there was a breach of natural justice.
d) Public Policy Issue
The Singapore High Court also rejected the plaintiff's reliance on this ground. First, the plaintiff claimed that the underlying contract was procured by and was a means of furthering bribery and corruption in Sri Lanka, and an arbitral award enforcing the terms of such a contract would be in conflict with the public policy of Singapore and should be set aside under Art 34(2)(b)(ii) of the Model Law read with section 24 of the IAA. The Singapore High Court highlighted that section 24(a) of the IAA contemplates a situation where the award itself, rather than the contract between the parties, is tainted or induced by fraud or corruption. However, it also opined that if the convictions of the chairpersons of the parties on charges of corruption are eventually secured, the plaintiff may be able to invoke public policy under section 31(4)(b) as a ground to resist the enforcement of the award. Sections 24(a) and 31(4)(b) of the IAA deal with different situations – section 24(a) provides that the Singapore High Court may set aside an award if the making of the award was induced or affected by fraud or corruption, while section 31(4)(b) provides that the Singapore High Court may refuse to enforce a foreign award if such enforcement would be contrary to the public policy of Singapore.
Second, the plaintiff claimed that the underlying contract requires the performance of an act which is illegal by the law of the place of performance (i.e. Sri Lanka) and therefore an arbitral award enforcing the terms of such a contract would be in conflict with the public policy of Singapore and should be set aside under Art 34(2)(b)(ii) of the Model Law read with section 24 of the IAA. The Singapore High Court held that as this issue was considered by the Tribunal, the Tribunal's finding of fact that there was no illegality was binding on the parties and could not be reopened by a supervisory court.
What this means for you
a) The Singapore High Court's decision on the Natural Justice Issue and the Public Policy Issue is based on the established line of authorities of the Singapore Courts. The Singapore Courts would not easily set aside an award given its judicial policy of minimal curial intervention. As the Court of Appeal in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 cautioned at [98], "[a]s a matter of both principle and policy, the courts will seek to support rather than frustrate or subvert the arbitration process…Arid, hollow, technical or procedural objections that do not prejudice any party should never be countenanced. It is only where the alleged breach of natural justice has surpassed the boundaries of legitimate expectation and propriety, culminating in actual prejudice to a party, that a remedy can or should be made available."
b) The interesting development to note is the Singapore High Court's decision on the Jurisdiction Issue. Notwithstanding the permissive language of Article 16(3) of the Model Law, which states that "[i]f the tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days … the court … to decide the matter" [emphasis added], in light of the Singapore High Court's decision, parties in arbitration would need to ensure that they adhere to the 30-day period in Article 16(3) of the Model Law if applicable. In fact, the Singapore High Court opined that it would be an abuse of process to allow a party such as the plaintiff, who raised a jurisdictional challenge but chose not to participate in most part of the arbitration, to wait to challenge the tribunal’s jurisdiction in a setting aside application, in blatant disregard of Art 16(3) of the Model Law.
For further information, please contact:
Leng Sun Chan SC, Principal, Baker McKenzie
lengsun.chan@bakermckenzie.com
