Court of Appeal · Decided 9 May 2019

Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd

[2019] SGCA 33Case no. Civil Appeal No 240 of 2017

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International Arbitration Act 1994

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Introduction
[1] Article 16 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) provides a route for early resolution of disputes over the jurisdiction of an arbitral tribunal. Such disputes are generally raised by the respondent in the arbitration proceedings and the arbitral tribunal may deal with the issue on a preliminary basis before it goes on to consider the merits of the claim. If it does so and finds that it has jurisdiction then, under Art 16(3), the respondent has thirty days to appeal against that ruling to the supervisory court. The question that we face in this appeal is whether a respondent who fails to participate in the arbitration proceedings and therefore does not avail itself of the appeal route provided by Art 16 can, nevertheless, raise the jurisdictional objection before the supervisory court in setting-aside proceedings after the issue of the final award.
Facts
The parties
[2] The appellant, Rakna Arakshaka Lanka Ltd (“RALL”), is a Sri Lankan company specialising in providing security and risk management services. These services include the issuing of arms, ammunition and manpower to merchant vessels sailing in pirate-infested waters. Although incorporated as a limited liability company under the relevant Sri Lankan legislation, RALL has at all material times been owned by the Government of Sri Lanka. RALL has emphasised in this appeal that, nevertheless, it and the Government of Sri Lanka are two wholly different legal entities.
[3] The chairman of RALL was, for some years, one Mr WPP Fernando. The current chairman of the company is one Mr KMGSN Kaluwewe.
[4] The respondent, Avant Garde Maritime Services (Private) Limited (“AGMS”), another Sri Lankan company, is in the business of providing maritime security services to vessels at risk of piracy. One Mr YHPNY Senadhipathi is the chairman and sole shareholder of AGMS.
Background to the dispute
[5] The factual background is largely undisputed. Prior to March 2011, acting under the auspices of the Ministry of Defence and Urban Development of the Republic of Sri Lanka (“MOD”), the parties agreed to form a private-public partnership to carry out certain projects. Consequently, between March 2011 and October 2013, they entered into six separate agreements, pursuant to which they undertook various projects including one called the Galle Floating Armoury Project.
[6] To facilitate the projects, the six agreements were subsequently incorporated into a master agreement dated 27 January 2014 (“the Master Agreement”). The Master Agreement includes the following governing law and dispute resolution clause which provides for the governing law to be Sri Lankan law but for disputes to be settled by arbitration in Singapore in accordance with the rules of the Singapore International Arbitration Centre (“SIAC”):
[7] About a year later, at the Sri Lankan presidential elections held on 8 January 2015, the incumbent president was defeated. On or about 28 January 2015, the then directors of RALL, who had been appointed by the previous government, resigned from its board. A new board of directors was appointed by the new government on or about 7 April 2015. The new government then launched investigations into alleged instances of bribery, corruption and abuse of power that had occurred during the previous regime. The investigations also looked into the dealings between AGMS and RALL.
[8] On or about 21 January 2015, a vessel named “MV Mahanuwara” was detained by the Sri Lankan Police Navy while it was docked at Galle Port, Sri Lanka, in connection with investigations that were being carried out into the legitimacy of the Galle Floating Armoury Project. The MV Mahanuwara was chartered and operated by AGMS at the material time. AGMS took the position that there was no illegality in the operation of the Galle Floating Armoury Project given that it was operated with the complete knowledge and approval of the MOD. Thus, by a letter dated 20 February 2015, AGMS requested RALL to obtain a “Letter of Clearance” from the MOD and/or the government of Sri Lanka clearing the name of AGMS, and stating that the business carried out by AGMS under the public-private partnership with RALL was legitimate and carried out under the authority of the government through the MOD. AGMS also asked RALL to obtain an appropriate media release from the government confirming the legitimacy of the business activities carried out by AGMS and of the public-private partnership between AGMS and RALL. RALL replied to AGMS that its board had yet to be reconstituted.
The arbitration proceedings
[9] AGMS then commenced arbitration proceedings against RALL on the basis that RALL had breached cl 3.1 of the Master Agreement by failing to provide utmost assistance to AGMS. Clause 3.1 states that RALL “agrees that it shall continue to provide its utmost assistance to AGMS as provided thus far through the MOD viz a viz the said Authorizations and Approvals necessary, to operate and manage all functions in respect of the aforesaid projects set out in Clause 1 above and any future projects entered into by the Public Private Partnership until the expiration of [the Master Agreement] without giving permission for any other local or foreign party to handle any function of the ongoing projects”.
[10] In the Notice of Arbitration dated 8 April 2015 (“the NOA”), AGMS claimed US$20 million in liquidated damages pursuant to cl 4.2 of the Master Agreement. It also nominated its arbitrator.
[11] The NOA was sent to RALL on or about 10 April 2015. On 14 April 2015, the SIAC sent both parties a letter acknowledging the receipt of the NOA and requesting that RALL send a response within 14 days from the date of receipt of the notice. RALL did not file any response.
[12] Further correspondence on administrative matters between AGMS and the SIAC then took place. AGMS forwarded the correspondence to RALL on 28 April 2015 at the request of the SIAC.
[13] On 13 May 2015, RALL wrote to the SIAC seeking a three-month extension of time to respond to the NOA, on the basis that the new board of RALL had been appointed only recently so it needed time to study the case and to secure any approval required for any international fund transfers. AGMS objected strongly to RALL being granted an extension of time. On 25 May 2015, however, the SIAC granted RALL an extension of time to 9 June 2015 to respond to the NOA and to nominate a co-arbitrator.
[16] On 21 August 2015, the SIAC sent the parties copies of the letters of appointment of the two arbitrators. Thereafter, acting on the nomination of the two arbitrators, the SIAC appointed the presiding arbitrator in the reference.
[17] Also on 21 August 2015, RALL’s attorney sent a letter to the SIAC stating the dispute between the parties “contemplated by falling [sic] or contain[ed] facts on matters beyond the scope of submission to arbitration”, and that the arbitration proceeding was in “conflict with the Public Policy of the Republic of Sri Lanka”. The attorney requested the SIAC to “please lay by the Arbitration proceedings until this matter to be discussed with [AGMS]”.
[19] In the interim, on or about 6 October 2015, a vessel named MV Avant Garde was detained outside the port limits of Galle Harbour by the Sri Lankan Navy. At the time of this detention, AGMS was operating a floating armoury on board the vessel. After finding weapons on the MV Avant Garde, the government of Sri Lanka launched criminal investigations. AGMS claimed that the detention was unlawful because the MOD had granted approval on 23 September 2015 for the MV Avant Garde to transport RALL’s weapons, ammunition and equipment from the Red Sea to Galle.
The memorandum of understanding
[20] On 12 November 2015, RALL’s attorney wrote to the SIAC, copying AGMS, stating that AGMS had “already agreed to withdraw the … matter”, and thus requesting the Tribunal to “lay by the proceedings of the Arbitration”. He informed the SIAC that a “copy of the agreement signed by the Claimant and Respondent [would] be sent by Registered post … shortly”. The attorney also forwarded a letter from RALL which stated, inter alia:
[21] The settlement is encapsulated in a memorandum of understanding (“MOU”) dated 20 October 2015 signed by the parties. The pertinent clauses of the MOU are set out at [87] and [88] below. Basically, the MOU provided for AGMS to pay certain sums to RALL, for RALL to waive part of one of its claims against AGMS and for each party to withdraw the arbitration/legal proceedings it had commenced against the other.
[22] Some three days later however, on 15 November 2015, AGMS sent a letter to the Tribunal, stating that in the light of certain events that had recently transpired, it was “not in a position to withdraw” the arbitration. It requested the Tribunal to make an “award granting an interim injunction preventing [RALL] from terminating the [Master Agreement]”. AGMS took the view that in the light of the developments detailed in its letter, there was no settlement and the arbitration remained afoot.
[25] The third arbitrator issued a dissenting opinion in relation to jurisdiction (the “Dissent”). He took the position that the settlement under the MOU remained in place. Therefore, AGMS’s obligation to withdraw its claim in the arbitration subsisted. The Dissent stated that the “effect of AGMS’s agreement to withdraw its claim in this Arbitration [was] that there [was] no longer any dispute before the Tribunal to arbitrate”; thus, the “Tribunal should declare that the dispute ha[d] been settled”.
The final award and the dissenting opinion
[26] The Tribunal then proceeded with the arbitration. On 16 February 2016 and 27 April 2016, RALL made enquiries of the SIAC regarding the progress of the arbitration but did nothing else.
[29] The minority arbitrator took the view, inter alia, that RALL did not breach cl 3.1 of the Master Agreement because the assistance requested by AGMS fell outside the scope of the clause.
[30] RALL commenced proceedings in the High Court of Singapore to set aside the Award on 27 February 2017. In the ensuing portions of this judgement, unless otherwise indicated, references to Articles should be read as references to Articles of the Model Law and references to sections should be read as references to sections of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”) which was enacted to implement the Model Law in Singapore.
The proceedings below
[31] In the High Court, RALL contended that:
(a) The Award should be set aside pursuant to Art 34(2)(a)(iii) because it 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 (“the jurisdictional challenge”). The core of RALL’s argument was that the MOU had terminated the reference to arbitration.
(b) The Award should be set aside pursuant to Art 34(2)(a)(ii) because RALL was not given proper notice of the arbitral proceedings or was unable to present its case, in that certain pieces of correspondence and documents were not copied to it. In particular, the notes of evidence of the substantive hearing on 21 June 2016 were not sent to it. RALL argued that this also breached the rules of natural justice in the making of the Award under s 24(b).
(c) The Award should be set aside pursuant to Art 34(2)(b)(ii) as being in conflict with the public policy of Singapore, or under s 24(a) because it was induced or affected by fraud or corruption (“the public policy challenge”). RALL’s main argument was that the Master Agreement was procured by bribes given by AGMS’ chairman, Mr Senadhipathi, to RALL’s then chairman, Mr Fernando.
[33] Even if RALL was not precluded from bringing its jurisdictional challenge, the Judge agreed with the Tribunal that its mandate was not terminated by virtue of the MOU. There was ample evidence before the Tribunal that RALL had failed to maintain the continuity of the Master Agreement. Based on the contents of the MOU, there was no compelling case on a balance of probabilities that all disputes between the parties had been settled and that the mandate to continue with the arbitration had ended. Moreover, cl 5 of the MOU imposed an obligation on AGMS to withdraw its claim in the arbitration, meaning that until AGMS took the step of withdrawing, the arbitral proceedings remained live (GD at [42], [46] and [51]). The Judge further found that RALL was in breach of its agreement to arbitrate disputes or differences or questions that had arisen in connection with or in relation to the Master Agreement. RALL had only written to the SIAC stating that the dispute had been settled and arbitration should not be proceeded with, and had not responded to AGMS’s objection. After taking this unorthodox challenge to jurisdiction, RALL failed to comply with Rule 25.3 of the SIAC Rules, which stipulates that a plea of no jurisdiction has to be raised promptly after the Tribunal has indicated its intention to decide on the matter alleged to be beyond the scope of its jurisdiction (GD at [56]).
[34] The Judge also dismissed RALL’s challenge on the ground of breach of natural justice. RALL was copied on all important developments during the arbitration and RALL was not prejudiced in any way by not being copied in on other correspondence. Moreover, RALL chose not to participate in the arbitration despite being given due notice of each stage and ample opportunity to do so.
[35] With regard to the public policy challenge, the Judge held that the alleged bribery and corruption that caused RALL to enter into the Master Agreement did not fall within s 24(a), which contemplates a situation where the award itself, rather than the contract between the parties, is tainted or induced by fraud or corruption (GD at [87]). As for the ground of challenge under Art 34(2)(b)(ii), the basis for RALL’s allegation of bribery and corruption was the pending trials of the former chairmen of RALL and AGMS. The Judge held that until they were convicted and their avenues for appeal exhausted, there was no basis on which he could hold that the Award would perpetuate or enable corruption or bribery in Sri Lanka (GD at [89]). The Judge decided not to adjourn the setting aside proceedings until the determination of the criminal proceedings because it was unclear when they would be concluded. On the issue whether cl 3.1 of the Master Agreement required the performance of an illegal act, the Judge held that the Tribunal had considered the issue and found that the Master Agreement clearly showed no sign of illegality. This was a finding of fact that could not be reopened by the supervisory court. Moreover, given that RALL had affirmed the Master Agreement and was still engaged with AGMS in the joint ventures on the maintenance of armouries in the Indian Ocean, it could not argue that the Master Agreement was illegal (GD at [92] and [94]).
The appeal
[36] RALL appealed against the Judge’s decision on the jurisdictional ground and on the public policy ground. It did not appeal against the Judge’s holdings in relation to its challenge on the ground of breach of natural justice (see [35] above).
[37] On the jurisdictional challenge pursuant to Art 34(2)(a)(iii), RALL argues that it is not precluded from raising the challenge in the setting aside stage.
(c) Third, RALL argues that even if preclusion applies, it does not apply to a party that has not participated in the arbitral proceedings, and RALL is such a party.
[38] RALL submits that the existence of a tribunal’s jurisdiction is a matter that is subject to de novo review by the court. In this regard, it avers that the mandate of the Tribunal ended with the MOU, because the MOU contains the parties’ agreement that the arbitration was to be put to an end. Reiterating the Dissent, RALL argues that cl 5 of the MOU stipulated that AGMS was obliged to formally withdraw the arbitration, and the MOU was not repudiated or terminated at any time. There is no evidence that RALL failed to maintain the continuity of the Master Agreement – the Master Agreement and the agreements therein, as listed in the MOU, still continue to run.
[39] On the substantive merits of the Award, RALL submits that it did not breach of cl 3.1 of the Master Agreement and agrees fully with the reasons given by the dissenting arbitrator.
[41] RALL further argues that the Award should be set aside pursuant to Art 34(2)(b)(ii), because it is the public policy of Singapore not to recognise or enforce contracts and awards premised on contracts obtained through bribery or corruption.
[44] AGMS advances the view that, in any event, the Tribunal’s jurisdiction was not terminated automatically by the MOU. The MOU does not state that the dispute between the parties was fully and finally settled – the agreement in the MOU was only for AGMS to withdraw the arbitration. AGMS agrees with the Judge that since AGMS did not withdraw the arbitration, the Tribunal’s jurisdiction continued. Whether there was a breach of the MOU by AGMS is a separate matter to be determined under the MOU in a separate forum. The Tribunal also found that RALL had failed to maintain the continuity of the MOU, so the MOU did not terminate the Tribunal’s jurisdiction.
[45] On the public policy ground of challenge under s 24(a) of the IAA raised by RALL, AGMS submits that RALL had not substantiated its allegation that the making of the Award was induced by fraud. On RALL’s claim under Art 34(2)(b)(ii) of the Model Law, AGMS argues that the indictments of Mr Senadhipathi and Mr Fernando are insufficient to support RALL’s claim. AGMS also points out that the parties continue to work together under the Master Agreement, and the Master Agreement was reaffirmed by the parties in the MOU. It also argues that the Master Agreement did not require that bribery or corruption be carried out, and it is not the public policy of Singapore to set aside an arbitral award on the basis that the underlying contract was procured by bribery or corruption. AGMS agrees with the Judge that following AJU v AJT [2011] 4 SLR 739 (“AJU v AJT”) the court is bound by the Tribunal’s finding of fact that the Master Agreement showed no sign of illegality.
[46] On the basis of the matters raised by the parties, the issues we have to decide are:
(a) Whether the Award should be set aside on the basis of the jurisdictional challenge. This involves the following sub-issues:
(ii) If so, whether the aforesaid provisions apply to a party that did not participate in the arbitration so that RALL, having failed to utilise the court supervisory mechanism in those provisions, is precluded from bringing a challenge to the Tribunal’s jurisdiction in the setting aside proceeding;
(iii) Which limb of Art 34(2) applies to an application to set aside an award on the basis of lack of jurisdiction; and
(iv) If RALL is not precluded from bringing the jurisdiction ground of challenge, whether the Tribunal had jurisdiction (which involves a consideration of the effect of the MOU); and
(b) Whether the Award should be set aside on the ground of public policy pursuant to s 24(a) or Art 34(2)(b)(ii).
The jurisdictional challenge
The applicable legal framework
[47] Before we begin the discussion on the jurisdictional challenge, we reproduce the material portions of Art 16 and s 10 as a reference point.
[48] First, Art 16 of the Model Law provides:
[51] There was a great deal of debate among the drafters about whether non-utilisation of the procedure provided for jurisdictional challenges should have a preclusive effect on the ability of the challenging party to raise the challenge again at a later stage, for example, by way of an application to set aside an award. The Article itself does not state what the effect of non-compliance would be, but the Working Group in Report of the Working Group on International Contract Practices on the work of its Seventh Session (A/CN.9/246, 6 March 1984) at para 51 made an observation to the effect that a party who failed to raise the plea at the appropriate time provided by Art 16(2) should be precluded from raising such objection later. It is clear that the drafters intended Art 16(2) to have a preclusive effect and, in all likelihood, intended the same effect for Art 16(3). Texts on the Model Law like Gary Born, International Commercial Arbitration vol 2 (Kluwer Law International, 2nd Ed, 2014) (“International Commercial Arbitration”) at p 1104 (which was cited by the Judge at [61] of the GD), have propounded the view that a party must challenge the tribunal’s jurisdictional ruling within the prescribed 30 days and if it does not then it will not be permitted to do so in a setting aside application under Art 34. The question that arises, since the drafters did not make that point equally clear, is whether the preclusive effect operates in all circumstances.
[52] By s 10, the Singapore legislature provided the avenue of court recourse for a party to an arbitration who is dissatisfied with a preliminary ruling of the tribunal as to jurisdiction. Going further than Art 16, s 10(3) provides this recourse when the arbitral tribunal has ruled that it has no jurisdiction as well as when it has found that it has jurisdiction. In contrast, Art 16 provides for court recourse only in the latter situation.
[53] This Court has held that the preclusive effect of Art 16 does not extend to completely bar a party from relying on a tribunal’s lack of jurisdiction even though that party has not availed itself of court recourse pursuant to s 10(3). In Astro Nusantara, this Court, acting as an enforcement court, considered the position of a party who had brought a jurisdictional challenge to the tribunal and failed but had not thereafter utilised the recourse to the court provided by s 10(3). This Court held that such party was nevertheless not precluded from raising the contention that the tribunal had no jurisdiction as a defence to enforcement of the eventual award which the tribunal had made against it.
[54] The Astro Nusantara decision indicates one exception to the preclusive effect of Art 16. The issue before us is whether the present situation, in which a party that did not participate in the arbitration is asking the supervisory court to exercise its powers under Art 34 to set aside a final award because the tribunal had no jurisdiction, can constitute another such exception. As an aside, we refer to such a party as a “non-participating party” rather than use the somewhat pejorative term “boycotting party”. This is because it is not correct to stigmatise a party before determining whether its object to jurisdiction is well founded.
[55] Before we can get to the issue of whether the preclusive effect of Art 16 can be bypassed, there is a preliminary point to consider. This is whether Art 16(3) has been engaged at all in the present circumstances. The introductory words of Art 16(3) are that “the arbitral tribunal may rule on a plea referred to in paragraph (2)” and it is only if it does so as a preliminary ruling that immediate court recourse becomes available. The plea referred to in Art 16(2) is a plea of no jurisdiction that is raised by the defendant in the arbitration either with or prior to his submission of the statement of defence. The Judge held that RALL did not plead in the form stipulated by Art 16(2) (GD at [58]). Whilst the parties did not submit on this, we consider it necessary to examine the point because if the interpretation the Judge gave Art 16 is correct, the application of Art 16(3) would be irrelevant.
Character of the Order
Preclusive effect of Art 16(3)
[60] We now come to the analysis of the effect of Art 16(3). For convenience, we reiterate the question that we are considering, that is: whether a defendant to arbitration proceedings, who declines to participate in those proceedings because he takes the view that they have been wrongly started or continued due to a lack of jurisdiction, is entitled to stand by while the claimant proceeds with the arbitration without losing his right to challenge the jurisdiction of the tribunal in setting aside proceedings before the supervisory court?
[61] To answer this question, we turn first to the Analytical Commentary as it reveals the views of the drafters of the Model Law. In relation to Art 16(2) and the effect of a failure to raise a plea of no jurisdiction within the specified time-limit, it states (at p 39):
[62] Then the Analytical Commentary goes on to give the views of the Secretariat itself as to the preclusive effect of such failure:
[63] The second part of the paragraph (emphasised in italics above) goes further than the Working Group did and reflects the Secretariat’s view that a party who has not participated in the arbitration at all may still object to jurisdiction at the setting aside stage. The Secretariat therefore recognised that a different regime should apply to a non-participating party. At the time of this commentary, the 30-day time period for application to court was not included in the draft version of Art 16(3) which was probably why the Secretariat was also able at that time to say that a party that had raised the plea in time without success could also bring up the matter again in a setting aside application. In any case, the submission that the time limit in Art 16(2) would not have a preclusive effect on a non-participating party must, logically, apply also to non-observance of the time limit in Art 16(3) by such a party.
[64] AGMS, on the other hand, submits that the language of the provisions leads to the opposite view. It points out that neither s 10 nor Art 16 states expressly that the parties have to be involved in the proceedings before s 10(3) or Art 16(3) applies. This is in contrast to Art 4 of the Model Law relating to waiver which states expressly that it applies where a party “proceeds with the arbitration”. AGMS says that the lack of express language to the contrary in the cited provisions must mean that they apply to all parties who have contractually accepted arbitration as the proper form of dispute resolution whether or not they eventually deign to take part in ensuing arbitration proceedings.
[65] The Singapore courts, other than the court below, have not commented on this precise issue. The leading case on Art 16(3) is this Court’s decision in Astro Nusantara. In that case, the Court dealt with the relationship between the passive remedy of resisting enforcement on jurisdictional grounds and the active remedy of challenging jurisdiction before the court as provided by Art 16(3). It concluded that even if a party did not avail itself at the relevant time of the active remedy under Art 16(3), it would not be precluded from using lack of jurisdiction as a ground to resist enforcement of a final award. The Court left open the question of the relationship between the active remedy of setting aside under Art 34 and the active remedy of appeal under Art 16(3), but was of the view that preclusion would apply in that context. This observation was, however, obiter.
[66] In the case of Tan Poh Leng, Selvam J expressed the view that the avenue of challenge under Art 16(3) was merely an option available to the parties by virtue of the phrasing “may request”. He stated that Art 16(3) did not bar a challenge by a party to set aside an award on the ground of jurisdiction. This statement was, however, also obiter since on the facts of that case, the arbitral tribunal did not rule on its jurisdiction as a preliminary question so Art 16(3) was not engaged.
[67] It is also pertinent that the Judge who heard the Astro Nusantara case at first instance (Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others [2013] 1 SLR 636) expressed a different opinion on the effect of Art 16(3). She said at [133]:
[68] This permissive interpretation of Art 16(3) as only one remedy available to the parties, which does not preclude them from challenging the arbitral tribunal’s jurisdictional decision at a later stage, has also been explained by this Court in Astro Nusantara. Along the lines of Tan Poh Leng, this Court stated (at [119]) that the words “may request” pointed to Art 16(3) providing parties with an additional option rather than confining them to a particular course of action. However, no great weight is placed on the wording of the provision. In any event, the Court clarified (at [130]) that in setting aside proceedings it would be “surprised” if a party retained the right to bring an application to set aside the final award on the merits under Art 34 on the jurisdictional ground it could have relied on to base a challenge under Art 16(3). With reference to the present case, that clarification is obiter in two ways: first, in that this Court was not there dealing with an Art 34 challenge; and secondly, in that it was not dealing with the situation of a party who had not participated in the arbitration at all.
[69] In relation to academic commentary, there is an interesting article by Nata Ghibradze, (“Preclusion of Remedies under Article 16(3) of the UNICTRAL Model Law” 27 Pace International Law Review 345 (2015)) which undertook a wide-ranging review of the travaux, literature, and case law relevant to Art 16(3) and its meaning. Ghibradze pointed out that although the remedy provided under Art 16(3) was deemed as an innovative and sensible compromise purportedly directed towards faster resolution of jurisdictional issues and obtaining legal certainty, “in effect the Model Law has provoked ambiguity by being silent on the consequences of failure to use this remedy” (at p 349). The article discussed Astro Nusantara and agreed with its conclusion that the overall, analysis of the travaux demonstrated the will of the drafters to allow parties to have an alternative “system of defences”. But, she commented, this policy only concerned the choice between setting aside and enforcement proceedings without any indication of its extension to Art 16(3). Ghibradze’s review of German, Canadian and Australian decisions and a range of academic articles led her to observe that many courts and the greater part of the legal scholarship support the preclusive effect of Art 16(3). She noted too that the decision in Astro Nusantara had been criticised as working against finality and certainty. Her tentative conclusion was that the Art 16(3) challenge seems to represent a “one shot remedy” (at p 394).
[70] It should be noted that Gary Born, in International Commercial Arbitration, at p 1106, opines that the only exception to the requirement that a party must challenge the arbitrator’s positive jurisdictional ruling under Art 16(3), “is where a party does not participate at all in the arbitral proceedings; in this instance, the Singaporean court would permit a challenge to a final arbitral award under Article 34 of the Model Law”. Robert Merkin and Johanna Hjalmarsson, authors of Singapore Arbitration Legislation Annotated (Informa, 2nd Ed, 2016) at pp 148–149, as cited by the Judge at [70] of the GD, similarly take the view that a party “may simply refuse to have anything to do with the arbitration, in which case he has the right to await the award itself and then challenge it under Model Law, Art 34”.
[71] One thing is clear from Ghibradze’s article and that is that the position on the preclusive effect of Art 16(3) is unsettled and has been left by the drafters to the individual national courts to decide in accordance with their own jurisprudence. While substantial time has been spent debating the intentions of the drafters and the language and the views of academics and jurists, much of this has been on the basis of imagined situations. The benefit of the judicial approach is that it takes place in a specific factual matrix and the decision made, while it may be applicable in other circumstances, must first of all pass the test of being appropriate and fair in all the circumstances of the case including the basic principles and precepts of arbitration law which parties would be deemed to be familiar with at the time they chose arbitration as their method of dispute resolution.
[72] We are asked to decide what the effect of non-compliance with Art 16(3) on a non-participating party is. As we have mentioned earlier, the reason for the adoption of Art 16(3) was to effect a compromise between the policy consideration of avoiding wastage of resources (the wastage that results from the setting aside of an arbitral award for lack of jurisdiction after the entire arbitration has been completed), and the policy consideration of preventing parties from trying to delay arbitral proceedings by bringing challenges before the court. Art 16 requires parties to an arbitration to bring out their challenges to jurisdiction at an early point of the proceedings. But this requirement pre-supposes that parties are before the arbitral tribunal and that a party to an arbitration agreement who is served with a notice of arbitration by a counterparty has no option but to participate in the ensuing proceedings.
[73] The established rule is that a party to a contract which contains an arbitration clause is legally obliged to resolve disputes arising under that contract by arbitration. This principle is enshrined in the IAA via s 6 which directs the court to stay any court proceedings that have been instituted in breach of an agreement to arbitrate. While a claimant in this situation is obliged to arbitrate however, there is no such duty on the respondent. The law does not compel a respondent against whom arbitration proceedings have been started to take part in those proceedings and defend his position. If the respondent believes that the arbitration tribunal has no jurisdiction, for one reason or another, he is perfectly entitled to sit by and do nothing in the belief that either the proceedings will not result in a final award against him or that if an award is made, he will have valid grounds to resist enforcement. Such a respondent may therefore let the opportunity to challenge the tribunal’s jurisdiction afforded to him by Art 16 go unutilised. This might be a risky course of action to pursue but it is one that lies within the prerogative of every respondent. If the respondent is mistaken in his belief, then the arbitration which proceeds without his participation will end in an award which will be enforceable against him and no challenge to jurisdiction that he seeks to mount thereafter will be successful. If in fact he does not have a valid objection, then even if Art 16(3) does not have preclusive effect, whatever he does would not affect the ultimate result or the justice of the case.
[74] On the other hand, if the respondent is found to have a valid objection to the tribunal’s jurisdiction, should that objection be disregarded because of Art 16(3)? In the absence of a clear duty on the respondent to participate in the arbitration proceedings imposed either by the Model Law or the IAA we find it difficult to conclude that a non-participating respondent should be bound by the award no matter the validity of his reasons for believing that the arbitration was wrongly undertaken. The Astro Nusantara case is a prime example of a situation in which it would have caused injustice to enforce the award granted by the tribunal against the 6th to 8th respondents in the case. This is because those respondents were never parties to the subscription and shareholders’ contract that the dispute arose out of, much less to the arbitration agreement in that contract. In our view, neither Art 16(3) nor s 10 should be construed so as to prevent a respondent who chooses not to participate in an arbitration because he has a valid objection to the jurisdiction of the tribunal from raising that objection as a ground to set aside such tribunal’s award.
[76] The second objection is that circumscribing the preclusive effect of Art 16(3) would allow parties to keep quiet about jurisdiction during the arbitral proceedings only to raise a jurisdictional challenge after the issue of the final award. In our view, this objection does not apply at all to a party who does not participate in the arbitration proceedings. The proceedings will proceed in the normal manner in accordance with the directions of the tribunal and, we dare say, that the absence of a participating respondent will mean that the time required for evidence-taking and submissions will be much reduced. After the issue of the award, if the non-participating party seeks to set it aside, he will be subject to the same time constraints as a participating respondent would have been.
[78] Having come to the above conclusion, we must now determine whether RALL would qualify as a “non-participating” respondent and would thus fall outside Art 16(3). As can be seen from the recital of the facts between [13] and [26] above, while RALL did not file any formal pleadings in the arbitration, it did carry on some correspondence with the SIAC. It twice asked for an extension of three months to respond to the commencement of the arbitration by AGMS. Further, it wrote a letter to the SIAC on 21 August 2015 stating that the arbitration involved a dispute falling outside the scope of submission to arbitration and that the proceedings were in conflict with the public policy of Sri Lanka and requested a stay of the proceedings. Then, on 12 November 2015, RALL wrote to the SIAC informing it that the parties had reached a settlement and stating that the arbitration need not be proceeded with. In 2016, RALL wrote twice to the SIAC regarding the arbitration and asking for a copy of the submissions made by AGMS.
[79] In our view, the actions of RALL can be divided into two categories: those taken before the MOU was concluded and those taken after that date. While RALL did not do very much before the MOU was concluded, it may be possible to say that by asking for extensions of time to respond to the commencement of the arbitration proceedings, RALL was participating in the arbitration. In our view, however, it is not necessary to reach a conclusion on this question because the entry into the MOU created a fundamental change in the position. From then on, RALL took a clear stand that the arbitration should be stopped because the settlement had resolved the dispute which had been submitted to arbitration. The letters that RALL wrote thereafter were to inform the SIAC of the facts and for information to apprise itself of the actions taken by the Tribunal and AGMS. In our view, a party in RALL’s situation would be perfectly entitled to ask for information on what was going on even though it did not want to participate in the arbitration proceedings. Such queries cannot be regarded as participation. Thus, if RALL is correct and the execution of the MOU meant the dispute before the Tribunal had been resolved, from then on the Tribunal acted without jurisdiction and RALL did not participate in the ensuing proceedings at all.
Setting aside under Art 34 on the ground of lack of jurisdiction
[80] Article 34 of the Model Law prescribes the grounds on which a dissatisfied respondent may apply to a court to set aside an arbitral award against him. It is clear from the title of the article “Application for setting aside as exclusive recourse against arbitral award” that the intention of the drafters was that no court challenge to the award would be permitted if the party making the application is unable to satisfy one of the grounds set out in Art 34(2). The IAA by s 24, added two additional grounds.
[81] In this appeal, RALL says that it has satisfied Art 34(2)(a)(iii). The Judge did not need to consider which of the limbs of Art 34(2)(a)(iii) applied to the present situation since he held that RALL was precluded from applying to set aside the Award on the basis that it had not utilised the appeal procedure provided by Art 16(3) and s 10(3).
[82] RALL says that the Award should be set aside because in the language of Art 34(2)(a)(iii) it dealt “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”. This was based on the premise that the parties unambiguously and unequivocally agreed in writing to no longer proceed with the arbitration after the arbitration proceedings commenced.
[83] The first limb of Art 34(2)(a)(iii) which RALL has cited is: “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration”. In our view, this limb does not apply. This is because cl 8 of the Master Agreement states, inter alia:
There was no doubt that the dispute which AGMS submitted to arbitration arose out of the Master Agreement. Before us, RALL did not contend otherwise though it had made such an objection initially to the SIAC (see [17] above).
[84] Whilst the Tribunal might originally have had jurisdiction over the dispute submitted by AGMS, if the effect of the MOU was to settle that dispute between the parties, that meant that there was no longer a dispute before the Tribunal to be decided on. Further, under the MOU as read by RALL, the parties have agreed to withdraw the submission to arbitration. Thus, the Award, resulting as it did from the Tribunal’s continuation of arbitration proceedings that no longer dealt with a valid submission, would have contained “decisions on matters beyond the scope of the submission to arbitration” within the meaning of the second limb in Art 34(2)(a)(iii). Any decision on a dispute which an arbitral tribunal makes after the parties have agreed to withdraw the submission must, by definition, be outside the scope of the submission.
Was there a valid and subsisting settlement?
[85] The Judge held that the MOU did not terminate the Tribunal’s mandate (GD at [51] and [73]). RALL has cited the case of Chimimport plc v G D’Alesio SAS [1994] CLC 459 (“Chimimport”) in support of its argument that the agreement to arbitrate the dispute must have been mutually withdrawn by the entry into the MOU. In Chimimport, it was held that an arbitration in London had been terminated by a settlement agreement and the arbitrator had no jurisdiction to continue to act. The Judge, however, was not persuaded to apply Chimimport because he considered that there were material differences between the wording of the relevant clause in Chimimport and cl 5 of the MOU. He said (GD at [45]–[46]):
[86] We disagree with this portion of the Judge’s analysis. We take a different view of the effect of the MOU. To explain this, a short review of the MOU may be helpful.
[87] The MOU starts with a description of the parties, RALL being referred to as the “First Party” and AGMS being referred to as the “Second Party”. It then proceeds to state as follows:
That portion is followed by a listing of those projects including the Galle Floating Armoury Project. The MOU then goes on:
[88] Seven terms and conditions, numbered from 01 to 07, follow. The first three conditions provide for AGMS to pay certain sums of money to RALL and for RALL to waive payment of a sum in excess of Sri Lankan Rupees 255 million and the fourth provides for the instalment payment of certain specified arrears by AGMS to RALL. The sixth and seventh conditions also deal with payment matters. The fifth condition, however, relates to the arbitration proceedings. It states:
[89] From the above, it can be seen that the effect of the MOU as expressed in the clause immediately before the recitation of the terms and conditions was as follows:
[90] In our view, the words “whilst the aforesaid agreements are still in force” do not, as AGMS contends, signify that there was a separate obligation on RALL to keep the agreements alive. That would make no sense as there was already a declaration in the opening words that the “the aforesaid parties are bound by their respective agreements to operate the aforementioned projects …”. Hence, the clause read as a whole records the validity and subsistence of the prior agreements, and then goes on in effect to say that whereas those agreements were and remained valid, they would be affected by the terms of the MOU only to the extent of the transactions provided therein. Consistent with this, the MOU only provided for obligations on AGMS to pay and terminate the arbitration and for RALL in turn to terminate the law suit it had commenced claiming damages from AGMS.
[91] We are further of the opinion that the MOU was operative immediately upon its execution. There is nothing in it that indicates its effectiveness was to be postponed to a later date. Indeed, where there is a timetable for the performance of individual obligations, the MOU sets the same out quite plainly. While conditions 01 and 02 do not specify the dates on which AGMS has to pay the sums mentioned therein to RALL, the natural inference from such omission is that the amounts were payable forthwith. This inference is fortified by the specific time limits provided for in other conditions, like conditions 03 and 04. Condition 05 dealing with the withdrawal of the arbitration proceedings and termination of RALL’s court action uses the words “shall withdraw” without specifying a time period and thus indicates a mandatory and immediate action.
[92] We are satisfied that the intention of the parties when entering into the MOU was to effect an immediate settlement. The MOU resolved the dispute between the parties. Once the dispute was resolved, ipso facto there was no longer a dispute which could be arbitrated on. The obligation to withdraw the arbitration proceedings therefore was in the nature of an administrative action rather than a legal requirement for the substantive end to the dispute. We do not agree in this regard that there was a difference between the effect of cl 5 of the MOU and that of cl 5 of the settlement agreement in the Chimimport case. The Judge’s view that the language in the Chimimport case clause, to wit “[by] signing this agreement the parties settle their differences, cease the [arbitration] case in London”, effected a direct and automatic termination of the arbitration proceedings there, is unimpeachable. However, the fact that here, as the Judge put it, the effect of condition 05 was “only to oblige AGMS to withdraw its claim in the arbitration” (GD at [46]), in our judgment, does not make a difference to the effect of the MOU overall. The result of the MOU is in legal terms exactly the same as that of the settlement agreement in Chimimport.
[93] It is significant that AGMS does not deny that the MOU effected a settlement. As early as 14 November 2015, in submissions that it made to the Tribunal, it forwarded a copy of the MOU to the Tribunal and referred to that as “the Settlement Agreement reached between [AGMS] and [RALL] dated 20th October 2015”. Its focus in those submissions was to assert the alleged breach of the MOU by actions of the Sri Lankan government as reported in the media and to contend that as a result of the circumstances that had developed “now there seemingly is no Settlement between [AGMS] and [RALL]”. AGMS explained that accordingly it was not in a position to withdraw the arbitration as per the MOU and was “compelled” to proceed with its claim.
[95] We agree entirely with the reasoning of the minority arbitrator. We should add that we accept RALL’s contention that it is a legally separate entity from the government of Sri Lanka which acts independently from RALL and is not controlled by RALL. Accordingly, actions taken by the Sri Lankan government or any of its agencies cannot be attributed to RALL. As was pointed out by the minority arbitrator, there was no evidence before the Tribunal that RALL itself had done anything to repudiate the MOU. In our view, however, even if RALL had breached the MOU, such breach would give rise to a separate claim against RALL but would not revive the settled dispute. This Court has endorsed the principle that a settlement agreement which has been entered into for good consideration has three effects. First, it puts an end to the proceedings which would thereby be spent and exhausted. Secondly, it precludes the parties from taking any further steps in the action, except where they have provided in the settlement agreement for liberty to apply in the same action for the purpose of enforcing the agreed terms (a provision that the MOU does not contain). Thirdly, it supersedes the original cause of action altogether (see Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others [2017] 2 SLR 12 at [152]).
Conclusion on the jurisdictional challenge
[96] For the reasons given above, we conclude that on and from the date of the MOU, the mandate given to the Tribunal to decide the dispute between the parties had ended. With respect, the decision of the Tribunal to continue with the arbitration was in error. Accordingly, the Award contains decisions on matters that were beyond the scope of the submission to arbitration and must be set aside on this basis.
The public policy challenge
[97] Strictly speaking, as we have held in favour of RALL in relation to the jurisdictional challenge, we need not deal with the challenges brought under s 24(a) and Art 34(2)(b)(ii) on the basis that the making of the Award was induced or affected by fraud or corruption (s 24(a)) and the Award is in conflict with the public policy of Singapore (Art 34(2)(b)(ii)). For completeness, however, and as the issue was dealt with at length by the parties, we will make a few observations.

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Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd

Laws this judgment relies on

Grounds of decision

Introduction

Facts

The parties

Background to the dispute

The arbitration proceedings

The memorandum of understanding

The final award and the dissenting opinion

The proceedings below

The appeal

The jurisdictional challenge

The applicable legal framework

Character of the Order

Preclusive effect of Art 16(3)

Setting aside under Art 34 on the ground of lack of jurisdiction

Was there a valid and subsisting settlement?

Conclusion on the jurisdictional challenge

The public policy challenge