In the case of AQZ v ARA , the Singapore High Court has provided useful guidance and clarification on a number of procedural issues relating to jurisdictional challenges which will be of interest to arbitration practitioners both in Singapore and worldwide. The decision provides clarity in relation to the following points:
- Where parties have agreed to arbitration under a particular set of institutional rules without any caveat, they agree to submit to all the provisions contained in those rules, even if some of them conflict with other aspects of their agreement, or certain aspects of the procedure fall within the discretion of an arbitrator or the institution. If parties do not wish to agree to future changes in rules, they should specify which particular the version of the rules they want to apply. Further, if, in the context of the SIAC rules, parties want to have their dispute heard by three arbitrators if the Expedited Procedure is invoked, they should make explicit provision for this in their arbitration clause.
- In a jurisdictional challenge, although the Court will undertake a “de novo” hearing of an arbitral tribunal’s decision on jurisdiction, this does not mean that oral evidence and cross-examination will be appropriate in every application, even where there are substantial disputes of fact. This pragmatism is welcome, particularly for those on the receiving end of jurisdictional challenges, as the Court’s willingness to rely on material from the arbitration could save significant time and costs in defending such challenges.
- In Model Law jurisdictions, once an award on the merits has been handed down, a party who seeks to set it aside on jurisdictional grounds must do so under Article 34 of the Model Law. Article 16(3) of the Model Law is a separate process that only applies to decisions on preliminary questions. If a party wishes to be able to challenge a tribunal’s ruling on jurisdiction shortly after it is handed down, it must ask for that ruling to be given as a preliminary question which does not also deal with the substantive issues in dispute.
The dispute arose out of two contracts for the supply of Indonesian coal. The Buyer issued SIAC arbitration proceedings against the Supplier for breach of contract and applied to the SIAC for arbitration to be conducted under the expedited procedure pursuant to rule 5 of the 2010 SIAC Rules (the “Expedited Procedure“). This rule provides for the procedure to be referred to a sole arbitrator and concluded within six months from the date that the tribunal is constituted (and is in substance identical to the equivalent provision in the 2013 SIAC Rules).
The Supplier challenged the existence of an arbitration agreement and also objected to the Expedited Procedure, proceeding with the arbitration under protest.
The arbitrator ordered a preliminary hearing to resolve issues of jurisdiction and the merits, and issued an award accepting jurisdiction and finding that the Supplier was liable to the Buyer for breach of contract (the “Award“).
The Supplier then initiated proceedings before the Singapore Court to have the Award reversed or set aside, basing its challenge on two grounds. Under:
- Article 10(3) of the Singapore International Arbitration Act (the “IAA“) and Article 16(3) of the Model Law (which is incorporated into Singapore law through the IAA), which entitle parties to challenge preliminary decisions on jurisdiction and
- Article 34(2)(a)(i) of the Model Law, on the basis that there was no valid arbitration agreement (the “Jurisdictional Challenge“); and Article 34(2)(a)(iv) of the Model Law, which states that an arbitral award may be set aside by the Court if “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties“. The Supplier argued that the Expedited Procedure before a sole arbitrator was not in accordance with the parties’ agreement to appoint three arbitrators (“Challenge of Expedited Arbitration“).
Before dealing with the substantive Jurisdictional Challenge however, the judge first had to deal with two further preliminary issues which were raised by the parties. Firstly, the Supplier argued that before deciding applications to set aside awards on jurisdictional grounds, the Court was required to carry out a “de novo” hearing of the matter. In other words, the Court had to conduct a complete retrial and/or re-hearing of the question, including hearing oral evidence from the parties’ witnesses. Secondly, the Buyer argued that as a matter of law, relief under s10(3) of the IAA and/or Art 16(3) of the Model Law was not available when an award dealt with the merits of a dispute alongside the question of jurisdiction.
De Novo hearing?
Ultimately, there was no need for the judge to rule on this issue, as the Supplier decided to withdraw its submission during the hearing, content for the Court to proceed on the affidavit evidence alone. However, the judge proceeded to give her brief views on the issue in order to offer guidance for future cases.
The judge considered the Singapore rules of Court and previous English and Singapore case law, including the cases of Dallah Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan  UKSC 46 and Azov Shipping Co v. Baltic Shipping Co (No 1)  1 Lloyd’s Rep 68 (“Azov“). In her view, a “de novo” re-hearing of evidence was not the default rule and the Singapore rules of Court contemplated that the matter would usually be resolved by affidavit evidence. Departing from Azov, she held that the mere existence of factual disputes would not be enough to allow oral evidence. The judge also noted that in most cases, the Court would have written or recorded transcripts of the proceedings and would not be in a worse position than the arbitral tribunal to make findings of fact and/or law without re-hearing the evidence.
Availability of Jurisdictional Challenge following merits award
The judge concluded after a review of the drafting history of the Model Law that the drafters did not intend an award that deals with the merits of the dispute to be subject to challenge under Article 16(3) of the Model Law. Given that the Award dealt with the merits of the dispute as well as jurisdiction, a challenge to this Award under Article 16(3) was not available. Likewise, given that the Award was not a preliminary ruling on jurisdiction, the Supplier was not entitled to relief under s10 of the IAA either.
Challenge of Expedited Arbitration
The Supplier made two arguments in support of its challenge that the procedure had not followed the agreement of the parties. First, it argued that the arbitration was erroneously conducted under the Expedited Procedure contained in rule 5 of the SIAC Rules 2010, which were not applicable as the 2007 version of the SIAC rules existed at the time the contract was entered into. Second, where the arbitration was conducted before a sole arbitrator, this was not in accordance with the parties’ express agreement to appoint three arbitrators, particularly as the 2007 SIAC rules did not contain provision for the Expedited Procedure.
The judge found that although the arbitration clause did not specify which version of the SIAC rules would apply to the dispute, there was a presumption that where there is a reference to rules which mainly contain procedural provisions, the clause refers to the rules that are applicable at the date of the commencement of the arbitration, rather than at the date of the contract. The rationale for this was that procedural provisions can easily become out of date and therefore incapable of implementation. On this basis, the SIAC Rules 2010 were the applicable rules.
In relation to the second argument, the judge began from the starting position that the contract must be interpreted purposively. A commercially sensible approach would be to recognise that the SIAC President has the discretion to both appoint a sole arbitrator and order the Expedited Procedure, and express assent is not necessary in order for the Expedited Procedure provision to override the parties’ agreement for arbitration before three arbitrators. Indeed, if the Expedited Procedure in the 2010 Rules was not intended to apply to agreements entered into before the rules came into force, the 2010 Rules could have explicitly said so, just as the ICC’s new emergency arbitrator provisions expressly state that they do not apply to agreements entered into before the new ICC rules came into force. In making his decision as to whether to allow the Expedited Procedure, the SIAC President could take into account the fact that the contract was signed before the Expedited Procedure provision came into force.
Finally, the judge considered that the Supplier had not discharged its burden of explaining the materiality or seriousness of the breach. Nor had it demonstrated that it had suffered any prejudice as a result of the procedure that was adopted, which was a relevant factor for the Court in deciding whether to exercise its discretion to set aside an award.