Arbitration: Singapore Court of Appeal rules that wrong seat is fatal to award
21 January 2020
The recent decision of the Singapore Court of Appeal in ST Group Co Ltd & 2 Others v Sanum Investments Limited  SGCA 65 concerns, among others, the enforceability of an arbitral award that is made by an arbitral tribunal in the wrong seat of arbitration.
The appeals arose from a challenge made by the appellants against a court order granting leave for the enforcement of an arbitral award. The claimant in the arbitration, Sanum Investments Limited (“Sanum”), a company incorporated in Macau and carrying on business in the gaming industry, had obtained an arbitral award against the Respondents, who were all based in Laos (collectively “Lao Parties”).
The disputes between the parties arose out of an arrangement involving the Thanaleng Slot Club located at the Vientiane Friendship Bridge. Pursuant to a joint venture agreement entered into between Sanum and 1st Appellant in 2007, the Thanaleng Slot Club was to be handed over to Sanum on 11 October 2011 (“Master Agreement”).
The Master Agreement contained a multi-tiered dispute resolution clause which seemed to suggest that parties could go to international arbitration over the dispute, even if they had already obtained a decision of the Supreme Court of Laos over the same dispute. The relevant part of the dispute resolution clause provides that “[i]f one of the Parties is unsatisfied with the results of the above procedure, the Parties shall mediate and, if necessary, arbitrate such dispute using an internationally recognized mediation/arbitration company in Macau, SAR PRC.”
Subsequently, Sanum entered into a sub-agreement with STV Enterprise Limited, an affiliated company of the 1st Appellant, in relation to two other slot clubs run by STV Enterprise (“Participation Agreement”). The Master Agreement had stated that parties should enter into such sub-agreements for the various slot clubs owned by the 1st Appellant and its affiliated entities. The Participation Agreement contained a multi-tiered dispute resolution clause which, among others, provides that “[i]f one of the parties is unsatisfied with the results of the decision or judgment of the above procedure, the Parties shall mediate and, if necessary, 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”.
In August 2011, Sanum received an e-mail from the 1st Appellant disputing the date on which the Thanaleng Slot Club was to be handed over to Sanum. The 1st Appellant instead took the position that the handover date was 12 April 2012 .
Sanum maintained that the position taken by the 1st Appellant was a breach of the Master Agreement. After negotiations for settlement failed, Sanum initiated, first local arbitration proceedings in a Lao dispute resolution centre and subsequently, proceedings in the Lao court. However, all of these proceedings were decided in favour of the Lao Parties.
Sanum then filed a request for mediation in July 2015 with the Singapore International Mediation Centre. However, the Lao Parties refused to participate in the same. Sanum then commenced arbitration proceedings under the rules of the Singapore International Arbitration Centre (“SIAC”). In its notice of arbitration, Sanum took the position that the seat of the arbitration was Macau. The Lao Parties on the other hand objected to the SIAC arbitration. The SIAC noted the objections and informed the parties that it was satisfied that a valid arbitration under the SIAC Rules existed. Thereafter, the Lao Parties ceased to participate in the arbitration which proceeded in their absence.
In the Final Award, the arbitral tribunal ruled that the Participation Agreement amplified and supplemented the dispute resolution procedure set out in the Master Agreement. Consequently, the arbitral tribunal held that -
- It had jurisdiction to hear the claims made by Sanum against the Appellants and STV Enterprise as they were parties to the Master Agreement or the Participation Agreement; and
- Singapore was the seat of arbitration because the Participation Agreement specifically provided for arbitration in Singapore.
The Lao Parties thereafter challenged the attempts by Sanum to obtain leave to enforce the Final Award in Singapore which culminated in the present appeal.
The Court of Appeal’s Decision
The Court of Appeal held at the outset that the dispute only involved a breach of the Master Agreement. This was especially as there was no express mention of the Thanaleng Slot Club in the Participation Agreement. Accordingly, the arbitration was founded only on the dispute resolution clause contained in the Master Agreement. Consequent on this, the Court of Appeal held that the proper interpretation of the dispute resolution clause in the Master Agreement was that Macau, and not Singapore, was the seat of the arbitration. This was the most natural interpretation of the wording in the dispute resolution clause and also accorded with what the parties had intended, as evidenced from the record of the arbitration hearings.
Having determined that the arbitration was wrongly seated, the Court of Appeal held that the Final Award should not be recognised and enforced by other jurisdictions because it had not been obtained in accordance with the parties’ arbitration agreement.
The Court of Appeal stressed that the choice of seat was one of the most important matters for parties to consider when negotiating an arbitration agreement. This choice results in a number of significant legal consequences. The law of the seat governed a number of important matters relating to arbitration, for example, the judicial power to appoint and remove an arbitrator or the validity and finality of the award resulting from the arbitral proceedings. The choice of the seat also represented a choice of forum for remedies. The fact that the erroneously chosen seat and the correct seat were both jurisdictions that applied the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) did not lessen the significance of the choice of seat. This was because in adopting the Model Law, each jurisdiction may augment or reduce the grounds for setting aside in such jurisdiction. Additionally, different national courts approach arbitration-related applications in different ways.
The Court of Appeal went on further to hold that it was not necessary for a party who was resisting enforcement of an award arising out of a wrongly seated arbitration to demonstrate that it had suffered actual prejudice arising from the wrong seat. It was sufficient that had the arbitration been correctly seated a different supervisory court would have been the one to which the parties would have had recourse in case of need. Since the choice made by the parties was to seat the arbitration under the Master Agreement in Macau, the arbitration in Singapore was wrongly seated.
Lastly, the Court of Appeal also held that party who objected to the jurisdiction of the tribunal but did not participate in the arbitration proceedings at all would still be able to rely on that objection in setting aside or enforcement proceedings taken after the issue of the final award
The Court of Appeal therefore allowed the appeal by the Lao Parties.
Although this decision by the Singapore Court of Appeal is not binding on the Malaysian Courts, it is nevertheless an important reminder to the arbitration community in Malaysia that where parties are involved in multiple agreements which relate to the same subject matter or have overlapping facts, the parties should consider standardising the arbitration agreement across the various agreements to avoid the risk of having multiple forums assume jurisdiction to determine the same issues.
While it would undoubtedly appeal to parties to tailor different dispute resolution clauses to each agreement in order to take advantage of the applicable laws, this would be a practicable problem if the arbitral tribunal was to make an erroneous decision on the applicable arbitration agreement.
As an example of the above, an error by the parties in relying on the wrong seat of arbitration or, as in the present case, an error by the arbitral tribunal in determining the seat of the arbitration is fatal to the arbitration proceedings and enforcement of the ensuing award. This would result in an unnecessary waste of time and costs for the parties which could have been easily avoided.
Alert prepared by Nimalan Devaraja, a Partner in the Dispute Resolution Practice of Skrine.