Be on time to preserve your right to Active Remedies – the Singapore High Court considers a party’s duty to apply promptly when challenging the jurisdiction of an arbitral tribunal

In Rakna Arakshaka Lanka Ltd (“RALL“) v Avant Garde Maritime Services (Private) Limited (“AGMS“) [2018] SGHC 78, the Singapore High Court dismissed an application to set aside an award on jurisdiction, on the basis that the applicant had failed to challenge the tribunal’s preliminary ruling on jurisdiction within the deadline stipulated under section 10(3) of the International Arbitration Act (“IAA“) and Article 16(3) of the UNCITRAL Model Law. The decision provides guidance on the distinction between active and passive remedies in the context of applicable deadlines when seeking to set aside an award on grounds of jurisdiction, and resisting enforcement on the same basis.

Background

The underlying dispute arose between two Sri Lanka incorporated companies under an umbrella Master Agreement (the “Agreement”) concerning various maritime security-related projects.

RALL, as a state affiliated company, was required to procure authorizations and approvals necessary for AGMS to operate these projects in Sri Lanka. Following a regime change in Sri Lanka and the subsequent detention of one of the vessels operated by AGMS under Agreement, AGMS commenced arbitral proceedings on the basis that RALL had breached the Agreement. The Agreement provided for disputes to be referred to arbitration in Singapore under the rules of the Singapore International Arbitration Centre (“SIAC“).

RALL did not participate in the arbitration despite having what the court described as “ample opportunity” to do so. It did however write a series of letters to the SIAC; these included:

  1. a letter of 21 August 2015 alleging the disputes were beyond the scope of the arbitration agreement and the arbitration conflicted with Sri Lankan public policy. The Tribunal considered that this letter did not constitute a proper objection to the Tribunal’s jurisdiction; and
  2. a letter of 12 November 2015, informing the SIAC that settlement had been achieved and that it was no longer necessary to proceed with the arbitration. A preliminary hearing was convened after this position was challenged by AGMS, in which RALL chose not to participate. The Tribunal found that the dispute was still alive.

The arbitration therefore proceeded, and a final award (“Award“) was rendered in favour of AGMS in November 2016.

RALL’s setting-aside application

In February 2017, RALL filed an application to set aside the Award on the following grounds:-

  1. that the Award dealt with matters beyond the scope of the tribunal’s jurisdiction and so should be set aside (the “Jurisdiction Ground“);
  2. that the Award was made in breach of the rules of natural justice because certain correspondence was not copied to RALL (“Natural Justice Ground“); and
  3. that the Award should be set aside for breach of public policy because the umbrella agreement out of which the dispute arose had been procured and furthered by bribery and corruption (“Public Policy Ground“).

The Singapore High Court (the Court) dismissed RALL’s application on each of these grounds and upheld the Award. On the Natural Justice Ground, the Court found that having elected not to participate in the arbitration, any prejudice that it suffered was of its own doing, and RALL could not fulfil any of the requirements of Article 34(2)(a)(ii) of the Model Law or section 24 of the IAA to make its case. On the Public Policy Ground, the Court noted that the allegations of fraud and corruption related to the underlying agreement rather than the award, and (perhaps more importantly) that these allegations had not been made out in a court of law. As to RALL’s further argument that the umbrella agreement required RALL to perform an illegal act, this had been considered and dismissed by the Tribunal. The Tribunal’s finding of fact was therefore binding on the parties and could not be reopened by the supervisory court.

This note focuses on the Court’s approach to the Jurisdiction Ground, in particular its treatment of an application made out of time to set aside a tribunal’s decision on jurisdiction.

The Court’s decision on the Jurisdiction Ground

At the outset, the Court held that the operative provisions were section 10(3) of the IAA and Article 16(3) of the Model Law, given the tribunal had ruled on its jurisdiction as a preliminary issue. Article 34(3), which deals with challenge of final awards and which was the provision under which RALL had brought the application, was therefore not relevant.

This has important implications. In particular, a party is required to challenge a tribunal’s preliminary ruling on jurisdiction within 30 days pursuant to section 10(3) of the IAA and Article 16(3) of the Model Law, but where the issue of jurisdiction is dealt with in the final award, Article 34(3) permits a party to apply to set aside that ruling with 3 months of that party receiving the award.

The Court then went on to consider the purpose and operation of Article 16(3) of the Model Law (and by extension, section 10(3) of the IAA), in particular whether Article 16(3) remains binding on a party that had not participated in the arbitration process, or had walked out of the process at an early stage. It held that Article 16(3) continued to bind an absent party. The Court agreed that Article 16(3) of the Model Law “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…“. Therefore, where a tribunal has determined jurisdiction as a preliminary issue, “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“.

Having said that, the Court emphasized that even though a party that had applied out of the time prescribed under section 10(3) of the IAA and Article 16(3) of the Model Law may have lost its right to set aside a preliminary ruling on jurisdiction, it would not have lost its passive remedy of resisting enforcement, whether in another jurisdiction or as a domestic international award at the seat.

Comment

The decision confirms on the one hand that the Singapore courts will construe, and hold parties to, the deadlines set out in the IAA and the Model Law strictly. On the other, it also reaffirms Singapore’s commitment to the choice of remedies doctrine, which was endorsed by the Court of Appeal in the landmark decision of PT First Media TBK v Astro Nusantara International BV and ors [2014] 1 SLR 372. In the latter decision, the court, having carried out a detailed examination of the negotiating history of the Model Law, concluded that article 16(3) constituted “neither an exception to the ‘choice of remedies’ policy of the Model Law, nor a ‘one-shot remedy“. PT First Media considered a party’s right to pursue either an active remedy by challenging the preliminary award on jurisdiction, or a passive remedy by challenging enforcement.

In the present case the court held that, while the applicant in that case had lost its active right to challenge preliminary award on jurisdiction under the timescales applicable by Article 16(3), this did not prevent it from exercising its passive remedy to resist enforcement of the underlying awards.

The two decisions together therefore provide practical guidance on the steps that parties involved in international arbitrations seated in Singapore looking to challenge an award on the basis of excess jurisdiction may wish to take depending on tactical considerations, including cost, efficiency and timing. The key takeaways may be summarized as follows.

  • A plea that the Tribunal does not have jurisdiction should be raised not later than in the Statement of Defence, or in a Statement of Defence to a counterclaim. The Tribunal may then rule on a challenge to jurisdiction either as a preliminary question or in an Award on the merits.
  • If the Tribunal decides to deal with the issue of jurisdiction as a preliminary question, a dissatisfied party must appeal to the supervisory court within the 30 days stipulated in Article 16(3) of the Model Law. Failing to do so will mean that the party will not be able to set aside any subsequent and final award on the same jurisdictional objections.
  • Alternatively, a party that disagrees with the Tribunal’s positive finding on jurisdiction may simply choose to disengage from the arbitration process. This will mean giving up on its right to an ‘active remedy’, such that the dissenting party will be precluded from thereafter applying to set aside the final award on the basis that the Tribunal’s jurisdiction had been exceeded. It will however continue to be able to exercise its passive remedy to challenge enforcement of the award on this basis, in the event a final award is rendered against it, and enforcement of that award is sought by the successful party against it in Singapore.

It is understood that the decision is presently on appeal.

 

For further information, please contact Alastair Henderson, Managing Partner-SE Asia, Emmanuel Chua, Senior Associate or your usual Herbert Smith Freehills contact.

Alastair Henderson
Alastair Henderson
Managing Partner, South East Asia
Email | Profile
+65 6868 8058
Emmanuel Chua
Emmanuel Chua
Senior Associate
Email | Profile
+65 6868 8027

 


Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.

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