The Singapore Court of Appeal (“SGCA“) recently ruled in ST Group Co Ltd and
others v Sanum Investments Limited and another appeal [2019] SGCA 65 that
once an arbitration is incorrectly seated (i.e. in a seat not chosen by the parties),
in the absence of a waiver by the parties, any subsequent award would not be
recognised and enforced by the court.
This judgment shows that the Singapore courts will unequivocally uphold the
principles of party autonomy and free choice that are fundamental to arbitration
agreements. Such an approach benefits commercial parties by providing certainty
to their agreements – but only if the agreements are clear beyond any doubt.
Background Facts
Sanum Investments Limited (“Sanum“) was a company incorporated in Macau and
carrying on business in the gaming industry. ST Group Co, Ltd (“ST Group“), ST
Vegas Co, Ltd (“ST Vegas“), ST Vegas Enterprise Ltd (“STV Enterprise“) were
all associated companies incorporated in Laos, while Mr Sithat Xaysoulivong (“Mr
Sithat“) was the main individual behind all these Laotian companies. The Laotian
companies and Mr Sithat (the “Lao Parties“) were similarly involved in the gaming
industry.
On 30 May 2007, Sanum entered into a joint venture arrangement with members
of the Lao Parties (the “Master Agreement“). This Master Agreement included a
complex multi-tier dispute resolution clause, which provided, inter alia, for
arbitration in Macau. The Master Agreement also envisaged that there would be
“sub-agreements” entered into between the Lao Parties and Sanum, one of which
was entered into between STV Enterprise and Sanum on 6 August 2007 (the
“Participation Agreement“). This Participation Agreement included an equally
complex multi-tier dispute resolution clause, which provided, inter alia, for
arbitration in Singapore under the Singapore International Arbitration Centre
(“SIAC“) rules.
A dispute subsequently arose over a term in the Master Agreement. The parties
then began their nearly decade-long battle, going through negotiation, arbitration
in Laos, litigation before the Laotian Supreme Court, attempted mediation in
Singapore, arbitration in Singapore and finally litigation before the SGCA.
The SIAC arbitration and SGCA proceedings
After Sanum commenced arbitration proceedings under the SIAC rules, the Lao
Parties formally objected to the arbitration and did not participate any further. The
SIAC-appointed Tribunal ruled that it had jurisdiction over the dispute since the
Participation Agreement “amplifie[d] and supplement[ed]” the dispute resolution
procedure in the Master Agreement. Despite not having been pleaded by Sanum,
the Tribunal also ruled that the arbitration was seated in Singapore. The Tribunal
proceeded to award Sanum damages of US$200m for breach of contract, as well
as further sums for legal expenses, costs and interest (the “Award“).
The present cross appeal was brought when both parties were dissatisfied with the
Singapore High Court’s decision to partly affirm an Assistant Registrar’s grant of
leave for the enforcement of the Award against some members of the Lao Parties.
The overall question for the SGCA was therefore whether to enforce the Award.
Court of Appeal’s decision
The SGCA ruled in favour of the Lao Parties, finding that the Master Agreement
was the only relevant agreement giving rise to the dispute and therefore that the
dispute resolution clause in the Master Agreement was the only one applicable.
The SGCA interpreted the complex clause to mean that the parties only chose
Macau as the arbitral seat, and therefore ruled that the SIAC arbitration was
incorrectly seated. Since the Lao Parties objected to the SIAC arbitration and had
not participated any further, they had not waived the use of the wrong seat. As a
result, the SGCA held that the Award could not be enforced in order to uphold the
parties’ autonomy in choosing Macau as the only arbitral seat for the Master
Agreement.
The key points of law from the ruling are as follows:
- A party who objects to the tribunal’s jurisdiction but does not participate in
the arbitration proceedings at all can still rely on that objection in setting
aside or enforcement proceedings taken after the final arbitral award has
been issued. - Once an arbitration is incorrectly seated, any award that ensues should not
be recognised and enforced by other jurisdictions because such award had
not been obtained in accordance with the parties’ arbitration agreement. - It is not necessary for a party who is resisting enforcement of an award arising out of an incorrectly seated arbitration to demonstrate actual prejudice arising from the wrong seat. It is sufficient that had the arbitration been correctly seated a different supervisory court would have been available to the parties for recourse.
Implications of this ruling
This ruling is a clear signal from the Singapore courts that awards rendered from
incorrectly seated arbitrations will not be recognized nor enforced. This ensures
that parties’ deliberate choices made through commercial negotiations will be
upheld when disputes subsequently eventuate between parties.
This case is also a good reminder that the choice of seat is a particularly crucial
element in an arbitration agreement. The parties’ choice will have significant legal
consequences because the law of the seat governs a number of important issues
such as:
- The procedural law of the arbitration proceedings;
- The supervisory powers that the courts have over the arbitration proceedings;
- The grounds under which the arbitral award may be set aside; and
- The enforceability of the award overseas (i.e. under the New York Convention).
Parties ought to ensure that dispute resolution clauses are meticulously and
unambiguously crafted. Poorly defined terms, such as an unclear choice of seat or
complex multi-tier dispute resolution clauses, can be subject to judicial
interpretation. In this case, in addition to the choice of seat issue, the validity of the
dispute resolution clause itself as an arbitration agreement was also challenged.
Such uncertainties could pose unnecessary, substantial legal and financial risk for
parties.
Conclusion
This ruling follows a trend in the commercial world towards more precise
negotiation and careful attention towards the drafting of dispute resolution clauses.
As transactions become larger, more frequent and complex, parties should pay
more attention to the real possibility of disputes arising and ensure that their
dispute resolution clauses comprehensively address the parties’ intentions and
commercial interests.
