Singapore CA Confirms the Importance of the Seat of Arbitration

In Sanum Investments Limited v ST Group Co Ltd & Ors [2019] SGCA 65, the Singapore Court of Appeal dealt with a dispute concerning various agreements in relation to gaming operations in Laos. Sanum, a company incorporated in Macau obtained an arbitration award in its favour against various Laos companies, and subsequently obtained leave to enforce the same in Singapore.

The judgment should be referred to for the findings in relation to the various agreements entered into by the parties and the arguments advanced; the focus of this post is on Court of Appeal’s judgment in relation to the importance of the seat of arbitration.

The Tribunal

In its Award, the Tribunal ruled that it was satisfied that Singapore should be the seat of arbitration. This was based on its analysis of two agreements, the Master Agreement and the Participation Agreement, the former providing for an arbitration conducted by an internationally recognised arbitration company located in Macau, the latter containing an arbitration agreement which provided for arbitration in Singapore at the SIAC. In the Tribunal’s view, the Participation Agreement “amplifie[d] and supplement[ed] the dispute resolution procedure set out in the Master Agreement”, and since the Participation Agreement specifically provided for arbitration at SIAC in Singapore and for the application of the rules of the SIAC, the Tribunal was satisfied that Singapore should be the seat of arbitration.

The High Court

Before the High Court:

  • the Lao Parties’ primary position was that there was no arbitration agreement at all and, in the alternative, they highlighted that if the Master Agreement (rather than the participation agreement) applied to the dispute, the relevant arbitration agreement required an arbitration conducted by an internationally recognised arbitration company located in Macau. As such, the refusal of enforcement of an award would be immediate if an arbitration were incorrectly seated.
  • Sanum argued that the Master Agreement should be read alongside the Participation Agreement, alternatively, that the Participation Agreement varied or clarified the Master Agreement such that, properly interpreted, the parties had agreed to Singapore as the seat of arbitration.

The High Court found that the dispute arose solely under the Master Agreement not the Participation Agreement (or the other agreements entered into), holding that on a proper construction of the Master Agreement, the seat of arbitration should have been Macau.

The Court of Appeal

The Court of Appeal agreed with the High Court, stating [@84):

“Neither Singapore nor the SIAC are mentioned in [the arbitration agreement]. There is no connection at all between the Master Agreement and Singapore. If the Master Agreement is read on its own without reference to the Participation Agreement, the only geographical location mentioned is Macau and in an arbitration clause when the word “arbitration” is juxtaposed with the words “in [place name]”, the natural interpretation is that the place so-named is to be the seat of the arbitration rather than simply a venue.”

The CA referred to the High Court’s decision where the judge had described the wrong choice of seat and wrong composition of the tribunal as “procedural irregularities” and considered that the Lao Parties had “done little to demonstrate the manner in which these procedural irregularities have affected the arbitral procedure adopted”. As prejudice had not been shown, the High Court considered that it ought to exercise its residual discretion in favour of enforcing the Award. The Judge noted the argument by the Lao Parties that the correct seating of an arbitration is vital and that there are authorities that held that refusal of enforcement of an award is immediate if the arbitration had been incorrectly seated. In the view of the High Court, however, the importance of the seat was diminished where the court was asked to enforce an award rather than to set it aside.

The CA took a different view to the High Court in relation to the importance of the seat, framing the relevant question as follows [@93]:

“…whether the errors in choice of seat and composition of the Tribunal in themselves provide a reason for the court to refuse recognition of the Award or whether in addition the Lao Parties have to show that they suffered prejudice as a result of these errors.”

The Court of Appeal affirmed that the general principle was that lack of prejudice was not relevant to a jurisdictional challenge but would be relevant to a procedural challenge (a proposition that was not disputed by the parties). The CA stated [@94]:

“The differing treatment of procedural and jurisdictional challenges is justified because of the need to avoid misusing the applicable procedural provisions as “a basis for denying recognition of an award [on the ground] that there was a minor or incidental violation of the parties’ agreement or the breach of an incidental or unimportant term of the agreement” (see Sanum HC at [112]). Implicit in this proposition, extracted from Gary Born, International Commercial Arbitration (Kluwer Law International, 2nd Ed, 2014), is the acknowledgment that not every term of an arbitration clause is so fundamental to the clause that a breach would automatically render an arbitral award issued pursuant to the clause invalid. This underlying principle is consistent with the pro-enforcement bias inherent in the New York Convention. It is also analogous to the concept of repudiation in general contract law: just as not every breach of contract would entitle an innocent party to terminate a contract, not every breach of an arbitration clause would result in completely foreclosing arbitration.”

In relation to the importance of the seat of arbitration, the CA stated [@96]:

“The choice of an arbitral seat is one of the most important matters for parties to consider when negotiating an arbitration agreement because the choice of seat carries with it the national law under whose auspices the arbitration shall be conducted. Arbitration is built on autonomy and free choice. Thus, as it must, the Model Law recognises the autonomy of the parties in relation to the seat. It provides specifically by Art 20(1) that parties are “free to agree on the place of arbitration”. Additionally, Art 31(3) provides that the award is to state “its date and the place of arbitration as determined in accordance with Article 20(1)” which means the Award must state what the seat was. While the parties can, of course, whether deliberately or neglectfully, omit to specify a seat such a course has been described as unwise…”

Further [@98]:

“In addition to the external relationship with national courts, the law of the seat is also vital in governing significant issues relating to the conduct of an international arbitration and the validity and finality of the award resulting from the proceedings. The choice of the seat in and of itself represents a choice of forum for remedies. In PT Garuda Indonesia v Birgen Air [2002] 1 SLR(R) 401, this Court recognised that a Singapore court only has the power to set aside an arbitration award if that arbitration was seated in Singapore. As a collorary, in Hilton International Manage (Maldives) Pvt Ltd v Sun Travels & Tours Pvt Ltd [2018] SGHC 56, Belinda Ang Saw Ean J held that an agreement to arbitrate gives rise to a negative obligation not to set aside or otherwise actively attack an arbitral award in jurisdictions other than the seat of the arbitration.”

The CA emphasised the importance of party autonomy and that it was not necessary for a party resisting enforcement of an award arising out of a wrongly seated arbitration to demonstrate actual prejudice arising from the wrong seat. It held that the Lao parties had never waived the choice of Macau as the seat of arbitration, thereby refusing leave to Sanum to enforce the Award. The CA stated [@102-103]:

“Arbitration proceedings derive their force and binding character from the parties’ freely chosen agreement. It may be a statement we have made before, but it bears repeating that party autonomy is of central importance to the legitimacy and binding nature of an arbitral award. Bearing this in mind and the legal consequences of differing choices of seat, when the parties do make such a choice as part of their arbitration agreement, the court must give the same full effect. In our view, therefore, once an arbitration is wrongly seated, in the absence of waiver of the wrong seat, 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. Therefore, the award would not be the result of the arbitration that the parties had bargained for.”

“We have concluded that it is not necessary for a party who is resisting enforcement of an award arising out of a wrongly 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, had court recourse been necessary, both in relation to issues arising in the course of the proceedings and to issues arising in relation to the final award. The availability and the suitability of the procedures and remedies administered by the court of the “wrong” seat would be irrelevant. The Lao Parties submitted that because the arbitration here was wrongly seated, the Tribunal lacked “substantive jurisdiction”. We prefer not to use that term as there is no statutory basis for it in Singapore and it may lead to confusion as questions of jurisdiction generally concern the validity of the arbitration agreement and whether the dispute submitted to arbitration comes within the language of the arbitration clause.”

See also the review of this case by Baker McKenzie.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Hong Kong Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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