E-briefing: Singapore Court of Appeal Refuses to Enforce a USD 200 Million Arbitral Award on the Ground of Wrong Seat of Arbitration
Why this is important
In ST Group Co Ltd and others v Sanum Investments Limited and another  SGCA 65, the Singapore Court of Appeal (“SGCA”) refused to enforce an SIAC arbitration award of over USD 200 million, on the ground that the selection of the seat of arbitration was incorrect. This is a serious blow to the prevailing party in this case, who had been involved in multiple proceedings over the same dispute since 2012, and a cautionary tale for other parties in pending or anticipated proceedings.
In this decision, the SGCA made two unequivocal pronouncements:
- An arbitration award pursuant to an arbitration that is wrongly seated should not be recognised and enforced; and
- Actual prejudice does not need to be shown by the party resisting enforcement of the wrongly-seated award.
The contracts between the parties
Sanum Investments Limited (“Sanum”) was a company which carried on business in the gaming industry. On 30 May 2007, it entered into a Master Agreement with ST Group Co. Ltd, ST Vegas, and one Mr Sithat (collectively, the “Lao Parties”) to enter into a joint venture arrangement for the conduct of their gaming businesses.
The dispute resolution clause under the Master Agreement was a multi-tiered clause which provided for: (i) negotiation; (ii) submission to the “Resolution of Economic Dispute Organization or Courts of the Lao PDR”; (iii) if any of the parties was unsatisfied with the results, mediation; and, (iv) if necessary, arbitration “using an internationally recognized mediation/arbitration company in Macau, SAR PRC.”
The Master Agreement envisaged that there would be separate sub-agreements corresponding to the details of each joint venture between the parties. Accordingly, on 6 August 2007, Sanum entered into one such sub-agreement with STV Enterprise, the Participation Agreement. The dispute resolution clause under the Participation Agreement was likewise a multi-tiered clause, with arbitration as the last stage “using an internationally recognized mediation/arbitration at the Singapore International Arbitration Centre (SIAC). Singapore and the rules of SIAC shall be applied.” The clause further provided for a three-member tribunal.
In March 2012, Sanum instituted proceedings before the Organisation of Economic Dispute Resolution against ST Group and ST Vegas, for the alleged failure to turn over Thanaleng Slot Club in a timely manner, a venture in which Sanum had invested heavily. Sanum was unsuccessful in these proceedings. Later in the same year, ST Vegas successfully litigated before the Lao courts for a declaration that one of the sub-agreements with Sanum was validly terminated. In July 2015, Sanum filed for mediation with the Singapore International Mediation Centre, which was later terminated for non-participation by the Lao Parties.
In September 2015, Sanum commenced the subject SIAC arbitration, seeking damages suffered for alleged breaches of various agreements, against the Lao Parties. The Lao Parties objected to the arbitration, and did not participate further in the arbitration after SIAC informed the parties that it was satisfied that a valid arbitration under the SIAC Rules existed.
The SIAC Award and Enforcement proceedings
Relying on the Participation Agreement, SIAC appointed a three-member tribunal. In 2016, the Tribunal rendered its Award, finding that: (i) it had jurisdiction over the claims made by Sanum against the Lao Parties as they were signatories to the Master Agreement or the Participation Agreement; (ii) the Participation Agreement “amplifie[d] and supplemente[d] the dispute resolution procedure set out in the Master Agreement”; (iii) Singapore should be the seat of arbitration; and, on the merits, that (iv) Sanum was entitled to USD 200 million for breach of contract, as well as further sums for legal expenses and costs of arbitration.
In September 2016, Sanum obtained leave of court to enforce the Award in Singapore (“Leave Order”). This was later challenged by the Lao Parties on several grounds. The Singapore High Court affirmed the Leave Order in respect of all the parties except one (which it found was not a party to the Master Agreement). Parties then appealed to the SGCA.
The SGCA Ruling
In brief, the SGCA ruled that the dispute arose out of the alleged breach of obligations of the Master Agreement, and had nothing to do with the Participation Agreement. As such, the critical issue was whether the arbitration that took place was in accordance with the dispute resolution clause of the Master Agreement. In this regard, the SGCA interpreted the said clause as providing for a seat of arbitration in Macau, not Singapore. Further, the arbitral tribunal should have consisted of a sole arbitrator (the default under the SIAC Rules in view of the silence of the Master Agreement on the number of arbitrators) instead of three arbitrators (under the Participation Agreement).
Correspondingly, the SGCA turned to the question of the effect of these mistakes of the seat and composition of the Tribunal on the recognition and enforcement of the Award, and whether the Lao Parties had to show that they suffered prejudice as a result of these errors.
The SGCA held that:
- Once an arbitration is wrongly seated, in the absence of waiver of the wrong seat, 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. As this disposed of the appeal, the SGCA did not rule anymore on the effect of the wrong composition of the Tribunal.
- It is not necessary for a party resisting enforcement of an award arising out of a wrongly 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, had court recourse been necessary, both in relation to issues arising in the course of the proceedings and to issues arising in relation to the final award.
Significance of the seat of arbitration
As stated by the court, the choice of an arbitral seat is one of the most important matters for parties to consider when negotiating an arbitration agreement, because the choice of seat carries with it the national law under whose auspices the arbitration shall be conducted. The arbitral seat is the legal or juridical home of the arbitration and, therefore, the choice results in significant legal consequences. The law of the seat is also vital in governing issues relating to the conduct of an international arbitration, and the validity and finality of the award resulting from the proceedings. Even if the choice was between two Model Law jurisdictions, it is still significant to seat an arbitration correctly, as different national courts approach arbitration-related applications in different ways. Thus, bearing in mind the legal consequences of differing choices of seat, and that party autonomy is of central importance to the legitimacy and binding nature of an arbitral award, when the parties do make a choice as to the seat, the courts must give the same full force and effect. Hence, the award arising out of a wrongly-seated arbitration cannot be recognised.
What this means for parties: The need for A Clear, Well-Drafted Clause
The SGCA’s decision underscores the importance for parties to draft clear, enforceable and unambiguous dispute resolution clauses in their contracts. As can be seen in this case, it is crucial for parties to clearly identify the seat of arbitration, first, in the dispute resolution clauses in their contracts, and, second, at the onset of any arbitration. Not doing so – and risking an unenforceable award – could potentially cost a party hundreds of millions of dollars.
Here, the SGCA undertook an extensive contractual interpretation exercise in order to determine the proper meaning of the dispute resolution clause, not only in terms of the seat, but also as to the proper arbitral institution which would administer the arbitration. It likewise had to contend with the issue of whether the multi-tiered clause in the Master Agreement, which provided for successive litigation and arbitration procedures, was valid under Lao law.
A clear, well-drafted dispute resolution clause could have avoided the need for such extensive contractual interpretation and can save the parties considerable time and costs in litigating this point and making submissions on this issue. Whenever possible, parties should consult legal counsel early in order to manage any potential risks involved in their contractual relations.
This case, and the previous SGCA case of BNA v BNB  SGHC 142 (as discussed by us here) further highlights the need for parties to seriously consider the principles that the court will take into consideration when determining the seat of arbitration, particularly in a multi-party, multi-contract situation where the intention of the parties is unclear. Of particular relevance are, for example, the English court cases of Braes of Doune Wind Farm v Alfred McAlpine  EWHC 426 (TCC) where parties expressly stated that the seat of the arbitration is in Glasgow, Scotland, but the court determined that parties had intended England to be the seat; and the case of Naviera Amazonica Peruana SA v Compania International de Seguros de Peru  1 Lloyd’s Rep 116 where the seat of an arbitration located in Peru but subject to the lex arbitri of England was determined to be in England.
A copy of the CA decision is available here.
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