The Singapore Court of Appeal (“SGCA“) recently ruled in ST Group Co Ltd and others v Sanum Investments Limited and another appeal  SGCA 65 that once an arbitration is incorrectly seated (i.e. in a seat not chosen by the parties), in the absence of a waiver by the parties, any subsequent award would not be recognised and enforced by the court.
This judgment shows that the Singapore courts will unequivocally uphold the principles of party autonomy and free choice that are fundamental to arbitration agreements. Such an approach benefits commercial parties by providing certainty to their agreements – but only if the agreements are clear beyond any doubt.
Sanum Investments Limited (“Sanum“) was a company incorporated in Macau and carrying on business in the gaming industry. ST Group Co, Ltd (“ST Group“), ST Vegas Co, Ltd (“ST Vegas“), ST Vegas Enterprise Ltd (“STV Enterprise“) were all associated companies incorporated in Laos, while Mr Sithat Xaysoulivong (“Mr Sithat“) was the main individual behind all these Laotian companies. The Laotian companies and Mr Sithat (the “Lao Parties“) were similarly involved in the gaming industry.
On 30 May 2007, Sanum entered into a joint venture arrangement with members of the Lao Parties (the “Master Agreement“). This Master Agreement included a complex multi-tier dispute resolution clause, which provided, inter alia, for arbitration in Macau. The Master Agreement also envisaged that there would be “sub-agreements” entered into between the Lao Parties and Sanum, one of which was entered into between STV Enterprise and Sanum on 6 August 2007 (the “Participation Agreement“). This Participation Agreement included an equally complex multi-tier dispute resolution clause, which provided, inter alia, for arbitration in Singapore under the Singapore International Arbitration Centre (“SIAC“) rules.
A dispute subsequently arose over a term in the Master Agreement. The parties then began their nearly decade-long battle, going through negotiation, arbitration in Laos, litigation before the Laotian Supreme Court, attempted mediation in Singapore, arbitration in Singapore and finally litigation before the SGCA.
The SIAC arbitration and SGCA proceedings
After Sanum commenced arbitration proceedings under the SIAC rules, the Lao Parties formally objected to the arbitration and did not participate any further. The SIAC-appointed Tribunal ruled that it had jurisdiction over the dispute since the Participation Agreement “amplifie[d] and supplement[ed]” the dispute resolution procedure in the Master Agreement. Despite not having been pleaded by Sanum, the Tribunal also ruled that the arbitration was seated in Singapore. The Tribunal proceeded to award Sanum damages of US$200m for breach of contract, as well as further sums for legal expenses, costs and interest (the “Award“).
The present cross appeal was brought when both parties were dissatisfied with the Singapore High Court’s decision to partly affirm an Assistant Registrar’s grant of leave for the enforcement of the Award against some members of the Lao Parties. The overall question for the SGCA was therefore whether to enforce the Award.
Court of Appeal’s decision
The SGCA ruled in favour of the Lao Parties, finding that the Master Agreement was the only relevant agreement giving rise to the dispute and therefore that the dispute resolution clause in the Master Agreement was the only one applicable. The SGCA interpreted the complex clause to mean that the parties only chose Macau as the arbitral seat, and therefore ruled that the SIAC arbitration was incorrectly seated. Since the Lao Parties objected to the SIAC arbitration and had not participated any further, they had not waived the use of the wrong seat. As a result, the SGCA held that the Award could not be enforced in order to uphold the parties’ autonomy in choosing Macau as the only arbitral seat for the Master Agreement.
The key points of law from the ruling are as follows:
- A party who objects to the tribunal’s jurisdiction but does not participate in the arbitration proceedings at all can still rely on that objection in setting aside or enforcement proceedings taken after the final arbitral award has been issued.
- Once an arbitration is incorrectly seated, 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.
- It is not necessary for a party who is resisting enforcement of an award arising out of an incorrectly 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 for recourse.
Implications of this ruling
This ruling is a clear signal from the Singapore courts that awards rendered from incorrectly seated arbitrations will not be recognized nor enforced. This ensures that parties’ deliberate choices made through commercial negotiations will be upheld when disputes subsequently eventuate between parties.
This case is also a good reminder that the choice of seat is a particularly crucial element in an arbitration agreement. The parties’ choice will have significant legal consequences because the law of the seat governs a number of important issues such as:
- The procedural law of the arbitration proceedings;
- The supervisory powers that the courts have over the arbitration proceedings;
- The grounds under which the arbitral award may be set aside; and
- The enforceability of the award overseas (i.e. under the New York Convention).
Parties ought to ensure that dispute resolution clauses are meticulously and unambiguously crafted. Poorly defined terms, such as an unclear choice of seat or complex multi-tier dispute resolution clauses, can be subject to judicial interpretation. In this case, in addition to the choice of seat issue, the validity of the dispute resolution clause itself as an arbitration agreement was also challenged. Such uncertainties could pose unnecessary, substantial legal and financial risk for parties.
This ruling follows a trend in the commercial world towards more precise negotiation and careful attention towards the drafting of dispute resolution clauses. As transactions become larger, more frequent and complex, parties should pay more attention to the real possibility of disputes arising and ensure that their dispute resolution clauses comprehensively address the parties’ intentions and commercial interests.