Choice of Arbitral Seat is Not a Game of Musical Chairs: Singapore Court of Appeal Rules Against Enforcement of Award Granted by Wrongly-Seated Arbitration

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Why This Decision is Important

In ST Group Co Ltd v Sanum Investments Limited [1], the Singapore Court of Appeal ruled that in the absence of waiver of the wrong seat, an arbitral award granted by a wrongly-seated arbitration will not be recognized or enforced by the Singapore courts – even where no actual prejudice results. The Court of Appeal’s decision affirms party autonomy in choice of arbitral seat and recognizes that party autonomy is central to the legitimacy and binding nature of an arbitral award. This decision should provide parties with certainty in their arbitration agreements, specifically their choice of the seat of the arbitration, going forward.

Background

The claimant in the Singapore-seated arbitration proceedings was Sanum Investments Limited (“Sanum”), a company incorporated in Macau and carrying on the business in the gaming industry. The respondents were a group of associated Laotian gaming companies and one Laotian citizen, comprised of STV Vegas Enterprise Ltd (“ST Enterprise”), ST Group Co, Ltd (“ST Group”), ST Vegas Co, Ltd (“ST Vegas”) and Mr. Sithat (collectively, the “Lao Parties”).

In 2007, Sanum and ST Group, ST Vegas and Mr. Sithat entered into a joint venture arrangement under which Sanum would come to hold 60% of the joint venture’s present and future gaming businesses. Pursuant to this arrangement, on May 30, 2007, the parties entered a Master Agreement, which contained a dispute resolution clause that provided for mediation and dispute resolution before: (1) the Organization of Economic Dispute Resolution (“OEDR”) or (2) the Courts of the Lao People’s Democratic Republic (“Lao PDR”) and, should such proceedings prove unsatisfactory, then (3) further “mediation and arbitration using an internationally recognized mediation/arbitration company in Macau”.[2]

The Master Agreement also contemplated the execution of separate sub-agreements for each particular joint-venture. One such sub-agreement was the Participation Agreement. The Participation Agreement also contained a dispute resolution clause: “Parties shall… arbitrate such dispute using an internationally recognized mediation/arbitration at the Singapore International Arbitration Centre (SIAC), Singapore and the rules of SIAC shall be applied”.

Despite the parties entering into various other sub-agreements relating to the sale of gaming sites, none of those sub-agreements contained a dispute resolution clause. 

After finalizing the agreements, a dispute arose in relation to the alleged failure of the ST Group and related parties to hand over the control of one of the gaming sites as provided for in the Master Agreement and operationalized through the sub-agreements.

The Lao PDR Court Proceedings

In March 2012, Sanum initiated proceedings against the Lao Parties before the OEDR, which were dismissed on May 21, 2012.

Subsequently, in June 2012, the Lao Parties commenced court proceedings against Sanum, seeking a declaration that the various sub-agreements had been validly terminated by the Lao Parties. On July 26, 2012 the Vientiane People’s Court found in favour of the Lao Parties, holding that the provisions of the Master Agreement had “no effect” on the provisions of the sub-agreements, and that the sub-agreements had expired. The decision was affirmed on appeal to the People’s Court of Appeal and on further appeal to the People’s Supreme Court.

Sanum alleged that “egregous procedural infractions” throughout the course of the Lao PDR Court proceedings had completely denied Sanum of their right to be heard, and commenced proceedings in Singapore.[3]

The SIAC Arbitration

On July 20, 2015, Sanum filed a request for mediation in Singapore, naming all of the Lao Parties. The Lao Parties refused to participate, and the proceedings were terminated.

On September 23, 2015, Sanum commenced arbitration proceedings against the Lao Parties under the SIAC rules, seeking damages for breaches of the various agreements. The Lao Parties objected to the SIAC arbitration on the basis that Sanum’s “unilateral proposal”
for an arbitration was not in conformity with the Master Agreement or any sub-agreements, and highlighting that under the Master Agreement, the parties were required to arbitrate in Macau.[4] The Lao Parties refused to participate further in the arbitration proceedings.

After determining it had prima facie jurisdiction, the Tribunal held that because the Participation Agreement modified and amended the dispute resolution clause in the Master Agreement, the correct seat of arbitration was Singapore. The Tribunal went on to find that the Lao Parties had breached the agreements, awarding damages of $200 million for breach of contract plus costs and amounts for interest (the “Award”).

The High Court Decision

On September 7, 2016, Sanum successfully obtained leave from the High Court of Singapore to enforce the Award in Singapore (the “Leave Order”).

In response, the Lao Parties filed an application for refusal of enforcement of the Award (the “Application”), submitting (in part) that the Award should not be enforced because the seat of the arbitration was not in accordance with the parties’ agreement. Sanum argued that the dispute resolution clauses in the Master Agreement and Participation Agreement must be read alongside each other and, properly interpreted, the parties had agreed to Singapore as the seat of arbitration. Sanum also argued that, in any event, prejudice was required for the Court to refuse enforcement of the Award.

The Application was heard by the High Court of Singapore.[5] The High Court Judge found the dispute arose solely under the Master Agreement, and therefore the seat of arbitration should have been Macau. However, because the Lao Parties had failed to demonstrate prejudice resulting from the wrongly-seated arbitration, the Court confirmed the Leave Order as against the Lao Parties.[6]

The Court of Appeal Sets Aside the Trial Decision

The Lao Parties appealed the High Court’s decision affirming the Leave Order as against the Lao Parties. 

The Singapore Court of Appeal found that the dispute arose under the Master Agreement and that the dispute resolution clause contained therein, properly interpreted to best accord with the parties’ intentions, named the seat of arbitration as Macau.

The Court of Appeal ultimately declined to enforce the Award as against any of the Lao Parties on the basis that, that in the absence of waiver of the wrong seat, an award granted by a wrongly-seated arbitration should not be recognized and enforced by other jurisdictions because the award was not obtained in accordance with the parties’ freely chosen arbitration agreement.[7]

The Court reasoned that “arbitral proceedings derive their force and binding character from the parties’ freely chosen agreement” and that “party autonomy is of central importance to the legitimacy and binding nature of an arbitral award”.[8] In light of the principle of party autonomy and given that the choice of seat is one of the most important matters for parties to consider in negotiating an arbitration agreement,[9] the Court held that “where parties do make such a choice [of seat] as part of their arbitration agreement, the court must give the same full effect”.[10]

In this case, the Court found that the Lao Parties had not waived their right to object to errors in the seat. The Court referred to their 2019 decision in Rakna Arakshaka Lanka Ltd v. Avant Garde Maritime Services (Pte) Ltd [11] (which we analyzed in a previous blog post here), which confirmed that a party objecting to the jurisdiction of the tribunal but refusing to participate in the arbitration proceedings would be able to rely on that objection in setting aside proceedings after the issue of the final award.[12]

The Court of Appeal further held that it is not necessary for the party resisting enforcement of an award 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 in relation to issues arising in relation to the proceedings or award.[13]

Final Thoughts

The decision is notable for its affirmation of the principles of free choice and party autonomy. Commercial parties should find comfort in this decision, which recognizes parties’ need for certainty in their arbitration agreements. 

[1] [2019] SGCA 65 Civil Appeals No 113 and 114 of 2018 [“Sanum Investments”].

[2] Note that the Singapore Court of Appeal declined to pass judgment on the validity of this ambiguous dispute resolution clause.

[3] See Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] SGCA 57 for the Singapore Court of Appeal’s decision in related proceedings, brought by Sanum against the Lao PDR government.

[4]Sanum Investments at para 21.

[5] See the High Court’s decision at Sanum Investments Limited v ST Group Co, Ltd. [2018] SGHC 141.

[6] The Court found that because one of the Lao Parties (STV Enterprise) was not a party to the Master Agreement, the Award would not be enforced as against it. 

[7]Sanum Investments at para 102.

[8]Ibid.

[9]Sanum Investments at para 96.

[10]Sanum Investments at para 102.

[11] [2019] SGCA 33.

[12]Sanum Investments at para 92.

[13]Sanum Investments at para 103.

arbitration international arbitration commercial arbitration

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