Singapore High Court Upholds Enforcement of Arbitral Award

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The recent decision indicates that the court is more in line with Singapore’s pro-arbitration approach, and that it would reject the enforcement of international arbitral awards only in exceptional circumstances.

Introduction

The Singapore High Court in Sanum Investments Limited v ST Group Co., Ltd and Others [2018] SGHC 141 determined on 18 June 2018 an application for the refusal of the enforcement of an arbitral award on the basis of jurisdictional and procedural irregularities in the arbitration. Despite affirming the presence of procedural irregularities, the court dismissed the application (as defined below) on the basis that the applicants (as defined below) failed to show evidence of prejudice arising from the procedural irregularities.

Background

The award in this case was published on 22 August 2016, in which $200 million in damages was to be paid to Sanum by ST Group Co., Ltd, Mr. Sithat Xaysoulivong, ST Vegas Co., Ltd, and S.T. Vegas Enterprise (the Applicants).

Sanum applied to the Singapore High Court on 23 November 2016 to obtain judgment in respect of the award.

The Applicants responded by challenging the enforcement of the award pursuant to Article 36(1) of the UNCITRAL Model Law, citing the following jurisdictional and procedural objections:

  1. the award was made pursuant to an arbitration agreement to which not all the disputants were party to, and the award dealt with a dispute not contemplated by or falling within the scope of the submission to arbitration (the Jurisdictional Objections)
  2. the composition of the tribunal and the seat of the arbitration were not in accordance with the agreement of the parties (the Procedural Objections).

(collectively known as the Application)

The Decision

(i) The Jurisdictional Objections

The court noted that the tribunal relied on the Master Agreement and the Participation Agreement between Sanum and ST Vegas Enterprise to determine its jurisdiction. The court held that this was incorrect as the underlying dispute arose out of the Master Agreement only. As only ST Group, Mr. Sithat, and ST Vegas Co were parties to the Master Agreement, they were bound by the arbitration agreement contained within and were proper parties to the arbitration. It follows that the award was binding on them. Conversely, as ST Vegas was not a party to the arbitration agreement and it was not a party to the arbitration, the award did not bind ST Vegas.

(ii) The Procedural Objections

Having determined that the arbitration agreement was contained in the Master Agreement and not the Participation Agreement, the court found that the seat of the arbitration was Macau, not Singapore. The court also determined that the tribunal should comprise a panel of one arbitrator instead of three.

Notwithstanding, the court dismissed the Application because the Applicants did not meet their burden of demonstrating the seriousness of the breach (i.e., the consequences of having an incorrectly seated arbitration or incorrect number of arbitrators on the arbitral procedure).

The court cited Gary Born, International Commercial Arbitration (Kluwer Law International, 2nd Ed, 2014):

Article V(1)(d) also requires a serious violation of a significant procedural term of the parties’ arbitration agreement in order to justify non-recognition of an award. It is not a basis for denying recognition of an award that there was a minor or incidental violation of the parties’ agreement or the breach of an incidental or unimportant term of that agreement…

[i]t is generally necessary for an award-debtor seeking non-recognition under Article (V(1)(d)’s first prong to show that violation of the parties’ agreed arbitral procedures materially affected the party’s rights. It is not enough merely to demonstrate that the arbitral procedures failed to comply with the provisions of the parties’ agreement, including material provisions of that agreement; in addition, the noncompliance must have had a meaningful effect on the arbitration process that produced the award in question…

With regard to the incorrect number of arbitrators, the court cited AQZ v ARA [2015] 2 SLR 972, which held as follows:

Even if the Supplier is correct in its submission that the arbitration should not have been conducted before a sole arbitrator, the Supplier has not discharged its burden of explaining materiality or the seriousness of the breach. Nor has it demonstrated that is suffered any prejudice as a result of the arbitral procedure adopted. While prejudice is not a legal requirement for an award to be set aside pursuant to Art 34(2)(a)(iv), it is a relevant factor that the supervisory court considers in deciding whether the breach in question is serious and thus whether to exercise its discretionary power to set aside the award for the breach.

Observations

Foreign users of international arbitration proceedings can take comfort that the court would allow the refusal of enforcement of an international arbitral award only in exceptional circumstances where severe prejudice arising from procedural irregularity can be demonstrated by the aggrieved party. The sensible and practical reasoning affirms the pro-arbitration approach embraced by the Singapore courts from an enforcement perspective. The pro-arbitration approach is aligned with Singapore’s objective to be the preferred seat and forum for resolving international disputes which has paid off. According to the latest Queen Mary University of London International Arbitration Survey released on 9 May, Singapore was ranked as the most preferred seat for arbitration in Asia and the Singapore International Arbitration Centre as the most preferred arbitral institution in Asia.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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