RAKNA ARAKSHAKA LANKA LTD V AVANT GARDE MARITIME SERVICES PTE LTD [2019] SGCA 33
In the recent Court of Appeal decision of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services Pte Ltd [2019] SGCA 33 (“RALL v AGMS”), the Court of Appeal set aside an arbitral award even though respondent did not appeal against the tribunal’s ruling on jurisdiction within the time limits prescribed by Art 16(3) Model Law.
Background. The respondent, Avant Garde Maritime Services (Private) Limited (“AGMS”), and the appellant, Rakna Arakshaka Lanka Ltd (“RALL”), had entered into a Master Agreement to carry out certain maritime security related projects thorugh a private-public partnership.
The governing law of the agreement was Sri Lankan law, but disputes were to be settled by arbitration in Singapore in accordance with the SIAC rules.
Brief procedural history. AGMS commenced arbitration against RALL for breaching a clause under the Master Agreement to provide utmost assistance to AGMS.
RALL did not respond to the Notice of Arbitration, even after it had sought and been granted a 3 month extension of time to respond to the Notice of Arbitration from the SIAC.
AGMS thereafter submitted its Statement of Claim, and RALL requested a further extension of 3 months.
Subsequently, RALL sent a letter to the SIAC to “lay by” the arbitration proceedings as it concerned matters beyond the scope of submission to arbitration, and that the arbitration was in conflict with the public policy of Sri Lanka.
As the parties held discussions to resolve the matter, the arbitration continued and the Tribunal was constituted by the SIAC.
On 12 November 2015, RALL wrote to the SIAC stating that a settlement had been reached with AGMS by a memorandum of understanding (the “MOU”) dated 20 October 2015 and AGMS had agreed to withdraw the proceedings.
However, 3 days later, AGMS wrote to the Tribunal that, in light of certain developments, there was no settlement, and that AGMS was not in a position to withdraw the arbitration.
Thereafter, the Tribunal conducted the preliminary meeting, and issued an Interim Order that the dispute was still alive and the arbitration ought to proceed.
RALL did not attend or participate in any way, nor responded to the Tribunal’s directions.
The arbitration proceeded, and final award (the “Award”) was issued against RALL to pay US$5 million.
RALL had not attended the hearing nor made written submissions. RALL did nothing other than to make enquiries to the SIAC about the progress of the arbitration.
Jurisdictional challenge. RALL sought to set aside the Award on the ground that, inter alia, the Tribunal had no jurisdiction as the MOU terminated the reference to arbitration.
RALL failed in the High Court, as the Court held that RALL’s failure to challenge the tribunal’s ruling on jurisdiction precluded RALL from raising the jurisdictional challenge in the setting aside proceeding, even though RALL stayed away from the proceedings.
Further, the High Court held that there was no compelling case that all disputes had been settled and that the mandate to continue the arbitration had ended.
In addition, the High Court also found that as the MOU imposed an obligation on AGMS to withdraw its claim, the arbitral proceedings remained live until AGMS took the step.
The High Court also held that RALL was in breach of its agreement to arbitrate disputes, as it had, inter alia, failed to comply with Rule 25.3 of the SIAC Rules.
November 2015 letter constituted objection to Tribunal’s jurisdiction. On appeal, the Court of Appeal held that RALL’s November 2015 letter constituted an objection to the Tribunal’s jurisdiction even though it was not a formal plea. While “… The course taken may have been unorthodox but it was no less a challenge to the Tribunal’s jurisdiction and the Tribunal treated it as such by looking into the issue and asking for submissions, and eventually issuing the Order.” ([57] RALL v AGMS).
The Court of Appeal also affirmed the finding that the Tribunal’s Interim Order was a preliminary ruling on jurisdiction under Article 16(3) of the Model Law, as the Tribunal was fully aware that RALL had lodged an objection and the Tribunal had asserted its jurisdiction to deal with the matter ([58] – [59] RALL v AGMS).
Article 16 of the Model Law. Article 16 of the Model Law and Section 10 of the International Arbitration Act provides that if the arbitral tribunal makes a ruling on its jurisdiction, a party may apply to the High Court within 30 days of receiving notice of the ruling to decide the matter. We set out Art. 16(2) and 16(3) of the Model Law below for ease of reference:
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the delay justified.
(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this Article either as a preliminary question 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 court specified in Article 6 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
However, these provisions do not spell out the consequence of non-compliance with the time limits stated therein.
Objective of Art 16. The Court of Appeal recognized that the objective of Art 16 of the Model Law was to require jurisdictional challenges to be brought out early in the arbitral proceedings, so as to avoid wastage of resources and to minimise delay to the proceedings ([72] RALL v AGMS).
Respondent not obliged to participate. The Court of Appeal then held that the law does not compel a respondent to take part in arbitral proceedings. As stated at [73] RALL v AGMS, “… [i]f the respondent believes that the arbitration tribunal has no jurisdiction… he is perfectly entitled to sit by and do nothing…”
While cautioning that this may be a “risky course of action”, the Court of Appeal held that such a course of action “is one that lies within the prerogative of every respondent”.
Valid objection should not be disregarded due to Art 16(3). The Court of Appeal then held that at [74] RALL v AGMS that “[i]n the absence of a clear duty on the respondent to participate in the arbitration proceedings imposed either by the Model Law or the [International Arbitration Act] 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 the arbitration was wrongly undertaken”.
The Court of Appeal referred to the Astro Nusantara case as 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 the 8th respondents in the case.”
At [75] RALL v AGMS, the Court of Appeal also explained that while the objective of Art 16(3) is to avoid wastage of resources, this objection “has little weight when it is applied to a situation in which there is no arbitration agreement to begin with or the arbitration proceedings are in some way contrary to the agreement… the claimant who insists on proceeding in such circumstances must take the risk of wasted costs …”
In doing so, the Court of Appeal was careful to distinguish the position of a non-participating respondent, versus a respondent who failed in its jurisdiction objection, and then participates in the arbitration. This is because in the latter case, the respondent “would have contributed to the wasted costs and it is just to say to such a respondent that he cannot then bring a setting aside application outside the time limit prescribed in Art 16(3) though he can continue to resist enforcement.”
The Court of Appeal thus concluded at [77] RALL v AGMS that the preclusive effect of Art 16(3) therefore does not extend to “a respondent who stays away from the arbitration proceedings and has not contributed to any wastage of costs of the incurring of any additional costs that could have been prevented by a timely application under Art 16(3).”
Non-participation by RALL. But did RALL participate in the arbitration by (a) asking for extensions of time, (b) informing the SIAC that the arbitration fell outside the scope of submission to arbitration and were in conflict with the public policy of Sri Lanka and requested for a stay, (c) wrote to the SIAC informing that the Parties had reached a settlement, and (d) wrote twice to the SIAC in 2016 regarding the arbitration and asking for a copy of the submissions made by AGMS?
The Court of Appeal held at [79] RALL v AGMS that the actions of RALL could be divided into those before the MOU was concluded, and those after.
For those actions before the MOU was concluded, the Court of Appeal held at [79] RALL v AGMS that “it was not necessary to reach a conclusion on this question because the entry into the MOU created a fundamental change in the position.” For the actions after, the Court of Appeal held at [79] RALL v AGMS that “… 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. …”
Effect of settlement. The issue then turned on whether there was a settlement, for as held at [84] RALL v AGMS, “[w]hilst the Tribunal might originally have had jurisdiction… if the effect of the MOU was to settle that dispute… 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 …”
The Court of Appeal set aside the award as it was satisfied that the MOU between RALL and AGMS had the effect of an immediate settlement, and the obligation to withdraw was an administrative action rather than a legal requirement for ending the dispute ([92] RALL v AGMS). In addition, the Court of Appeal also stated at [95] RALL v AGMS that “even if RALL had breached the MOU, such a breach would give rise to a separate claim against RALL but would not revive the settled dispute.”
As such, the Court of Appeal concluded at [96] that “… on and from the date of the MOU, the mandate given to the Tribunal to decide the dispute between the parties had ended... 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.”
Significance. This case is important as it clarifies the remedies available to a respondent who had not challenged the tribunal’s ruling on jurisdiction.
RALL v AGMS makes clear that the respondent is not precluded from raising the jurisdictional objection in setting aside the award despite Art 16(3) Model Law, insofar as the respondent had not participated in the proceedings.
In this regard, respondents must take note of the important distinction between participating in the proceedings, and being kept informed of the proceedings. In addition, respondents would do well to take note of the Court of Appeal’s caution that non-participation in arbitral proceedings can be a risky course of action. We urge respondents to seek advice (including legal advice) to apprise themselves of their rights and obligations before deciding which course of action to adopt.
Tags: Arbitration; Setting Aside; Art 16(3) Model Law; Jurisdiction; Non-participating respondent
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