Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited
Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited
Court of Appeal of the Republic of Singapore  SGCA 33, 9 May 2019
Decision of the Court of Appeal (delivered by Judge of Appeal Judith Prakash)
Arul Andre Ravindran Saravanapavan and Renaro Daniel Ezra Bunyamin instructed by Arul Chew & Partners for the Appellant
Sarbjit Singh Chopra and Ho May Kim instructed by Selvam LLC for the Respondent
PARTY DID NOT PARTICIPATE IN ARBITRATION PROCEEDINGS AGAINST IT: SETTLEMENT AGREEMENT (MEMORANDUM OF UNDERSTANDING) SIGNED BY BOTH PARTIES: TRIBUNAL PROCEEDED WITH ARBITRATION DESPITE MOU: FINAL AWARD AGAINST PARTY: WHETHER NON-PARTICIPATING PARTY ENTITLED TO SET ASIDE ARBITRAL AWARD ON THE GROUNDS THAT TRIBUNAL HAD NO JURISDICTION
This was an appeal by Rakna Arakshaka Lanka Ltd (“RALL”) against the decision of the High Court of Singapore dismissing RALL’s application to set aside an arbitral award. The Singapore Court of Appeal decided that a party who chose not to participate in the arbitration proceedings and did not avail itself of recourse to court pursuant to Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) and s10(3) of the International Arbitration Act (the “IAA”) was still entitled, under certain circumstances which were fulfilled in this case, to apply to set aside the arbitral award on the grounds that the arbitral tribunal had no jurisdiction.
Case Note contributed by Sri Azali BB (Human Resource Management & Business Law), Paralegal at Penningtons Manches Cooper LLP Singapore
Rakna Arakshaka Lanka Ltd was a Sri Lankan company, owned by the Government of Sri Lanka, which specialized in providing security and risk management services to merchant vessels at risk of piracy. Avant Garde Maritime Services (Private) Limited (“AGMS”) was another Sri Lankan company providing maritime security services to vessels sailing in pirate- infested waters. The two had agreed to form a private-public partnership and had entered into a Master agreement that incorporated six separate agreements, pursuant to which they undertook several projects, including one called the Galle Floating Armoury Project, which led to the present dispute. The Master Agreement provided for disputes to be settled by arbitration in Singapore in accordance with the rules of the Singapore International Arbitration Act (SIAC).
In January 2015, a vessel named “MV Mahanuwara” which was chartered and operated by AGMS was detained by the Sri Lankan authorities, in connection with investigations that were being carried out into the potential illegality of the Galle Floating Armoury Project operations. AGMS requested RALL to clear AGMS’s name; this required RALL to obtain a “Letter of Clearance” from the Sri Lankan authorities, stating that the business activities under their private-public partnership were legitimate. RALL did not accede to that request. AGMS then proceeded to commence arbitration proceedings against RALL on the basis that RALL had breached Clause 3.1 of the Master Agreement by failing to provide utmost assistance to AGMS. The Notice of Arbitration was sent to RALL; however, RALL did not respond even after extensions of time had been granted.
In August 2015, RALL’s attorney sent a letter to SIAC stating that the arbitration proceedings involved a dispute falling outside the scope of submission to arbitration and were in conflict with the public policy of the Republic of Sri Lanka. RALL requested SIAC to “lay by” the Arbitration proceedings until the matter could be discussed with AGMS. RALL’s attorney sent a letter of demand on behalf of RALL to AGMS claiming compensation for the loss of reputation caused by the institution of the SIAC proceedings and another letter inviting AGMS to discuss the dispute. Thereafter, several discussions were held in an attempt to resolve the matter. In the meantime, the arbitration was still ongoing.
The Memorandum of Understanding
On 12 November 2015, RALL’s attorney wrote to the SIAC to inform it that, by way of a settlement agreement, AGMS had agreed to withdraw the matter and thus requesting the Tribunal to terminate the arbitration proceedings. The settlement agreement was encapsulated in a Memorandum of Understanding (“MOU”) dated 20 October 2015, signed by both parties. However, a few days later, AGMS informed the Tribunal that, in light of recent developments and indications that RALL was not ensuring the continuity of the Master Agreement, it was not in a position to withdraw the arbitration. The Tribunal issued an Interim Order in which it held that RALL’s failure to ensure the continuity of the Master Agreement went to the root of the MOU and hence that they would proceed with the arbitration. RALL did not respond to the directions of the Tribunal and did not participate in the arbitration. A final award (“the Award”) was then issued in favour of AGMS.
The High Court Proceedings
RALL commenced proceedings in the High Court of Singapore to set aside the Award. The Judge dismissed RALL’s application, noting that a party’s failure to challenge a Tribunal’s ruling on jurisdiction as a preliminary issue had a preclusive effect, in that such party could not bring a jurisdictional challenge in subsequent proceedings in the courts of the jurisdictional seat of the arbitration (in this case, Singapore) to set the Award aside. The Judge also decided that the preclusive effect of Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law) - see footnote No.1 - and s10(3) of the International Arbitration Act (the “IAA”) - see footnote No.2 - applied equally to a party that had not participated in the arbitral proceedings. The Judge was of the view that even if RALL was not precluded from bringing its jurisdictional challenge, the Tribunal’s mandate was not put to an end by virtue of the MOU. RALL proceeded to appeal to the Court of Appeal.
Decision of the Court of Appeal
The Court of Appeal found that the letter to SIAC sent by RALL on the MOU was an objection to the Tribunal’s continued jurisdiction over the matter. The conclusion of the MOU had made it clear that the settlement had resolved the dispute which had been submitted to arbitration. Hence, there was no longer a dispute to be arbitrated. The Court concluded that the preclusive effect of Art 16(3) did not apply to a party who chose not to participate in an arbitration (because it had valid objection to the jurisdiction of the tribunal) and had not contributed to any wastage of costs or the incurring of any additional costs that could have been prevented by a timely application under Art 16(3).
RALL did not owe AGMS a duty to participate in the arbitration proceedings as RALL was not subject to the jurisdiction of the Tribunal. The Court of Appeal noted that RALL had written to SIAC on a few occasions to enquire as to the status of the arbitration; however, these queries did not amount to participation. A party that – justifiably - did not participate in arbitration proceedings was entitled to avail itself of all remedies given by the law in the event it were confronted with an award. Furthermore, the Award contained decisions on matters that were “beyond the scope of the submission to arbitration” under Art 34(2)(a)(iii) of the Model Law. The Court therefore set aside the Award on that basis.
This case establishes that a party which did not participate in an arbitration is entitled to raise a jurisdictional objection to set aside an arbitral award even though it failed to utilise the mechanism provided under Art 16(3) of the Model Law to appeal to the High Court against the Tribunal’s decision on its jurisdiction. However, it is important to note that the party will only be able to defend the arbitration claims on substantive grounds if it is correct in its belief that a tribunal lacks jurisdiction. Otherwise, it would then be left with a valid award against it.
Fn.1 Art 16(3) of the Model Law reads:
“(3) The arbitral tribunal may rule on a plea [that it does not have jurisdiction] either as a preliminary issue or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request within thirty days after having received notice of that ruling, the [Singapore High Court] to decide the matter, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.
Fn.2 S.10(3) of the International Arbitration Act reads:
(3) If the arbitral tribunal rules —
(a) on a plea as a preliminary question that it has jurisdiction; or
(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,
any party may, within 30 days after having received notice of that ruling, apply to the General Division of the High Court to decide the matter.