The case involved two companies, AJT and AJU. In August 2006, AJT, a company incorporated under the laws of the British Virgin Islands, initiated arbitration against AJU, a company incorporated under the laws of Thailand. The seat of the arbitration was Singapore. The arbitration was subject to the rules of the Singapore International Arbitration Centre (SIAC), and was governed by the International Arbitration Act (IAA). The IAA gives the UNCITRAL Model Law the force of law in Singapore.

After the arbitration commenced, AJU lodged a fraud complaint against AJT to the authorities in Thailand. The allegations related to documents that had allegedly been forged by AJT in order to mislead AJU. The Thai police commenced investigations. Whilst the investigations were ongoing, the parties negotiated a settlement of their dispute and entered into a concluding agreement. The concluding agreement provided for AJT to terminate the arbitration when it had received evidence of AJU’s withdrawal of the criminal proceedings and AJU had paid AJT the sum of US$470,000.

Clause 5.3(i) of the concluding agreement provided that each party should “…take all such steps as are necessary or desirable to simultaneously and irrevocably terminate, withdraw and discontinue all actions, claims and counterclaims as applicable to the respective Parties in the Proceedings and in any other form of legal or other action...”

Shortly after concluding the agreement, AJU withdrew its complaint to the Thai Police, confirming it no longer wished to proceed with any action against AJT. The Thai prosecutor subsequently issued a cessation order stating, “The prosecutor has issued a cessation order not to prosecute … because the injured person has withdrawn its complaint…”

After AJU had withdrawn the complaint and paid the sum of US$470,000, AJT refused to terminate the arbitration, arguing the concluding agreement had no legal effect on the grounds of duress, undue influence and illegality. Following AJT’s refusal, AJU made an application to the arbitral tribunal to terminate the arbitration.

The arbitral tribunal held the concluding agreement was valid and enforceable. AJT therefore applied to the Singapore High Court to have the arbitral tribunal’s award set aside.

Decision

The High Court found the award was in conflict with public policy and the arbitral tribunal had decided erroneously on the issue of the illegality of the concluding agreement. The award was therefore set aside under Article 34(2)(b)(ii) of the UNCITRAL Model Law.

The High Court accepted the appropriate test for a breach of public policy in Singapore is the narrow test that the award would “shock the conscience”, be clearly “injurious to the public good” or contravene “fundamental notions and principles of justice”. In applying this test the High Court found the concluding agreement sought to prevent and stifle the prosecution of a non-compoundable offence in Thailand (one which the complainant may not settle) and that the agreement therefore sought to undermine the administration of justice in Thailand.

Comment

This judgment clearly shows us that the Singapore courts will, in appropriate cases, whilst balancing the “finality” of an arbitral award with the administration of justice, set aside an arbitral award where it considers the parties have abused the use of arbitration.

Singapore is a popular forum for international arbitration. It has a highly competent and independent judiciary and SIAC, which was established in 1991, offers a very efficient and reliable dispute resolution service.

Singapore is a common law jurisdiction. The basis of Singapore’s legislation on international and commercial arbitration is the UNCITRAL Model Law. It is a party to the 1958 New York Convention on the enforcement of arbitration awards. Arbitration awards made in Singapore are enforceable in over 140 countries across the globe.

Benefits to arbitration in Singapore include the fact that there is no restriction on law firms advising on international arbitration conducted in Singapore.