Case Summaries

Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited

SUPREME COURT OF SINGAPORE

9 May 2019

Case summary

Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited
[2019] SGCA 33
Civil Appeal No 240 of 2017

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Decision of the Court of Appeal (delivered by Judge of Appeal Judith Prakash):

Outcome: CoA allows appeal and sets aside an arbitral award.

Pertinent and significant points of the judgment:

The appeal was allowed on the basis that a defendant who chooses not to participate in the arbitration proceedings is still entitled to apply to set aside the arbitral award on the ground that the arbitral tribunal had no jurisdiction even if the defendant had failed to utilise the mechanism for challenging a preliminary decision on jurisdiction by the arbitral tribunal provided by Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) and s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”).

 

1          This was an appeal against the decision of the lower court dismissing the Appellant’s application to set aside an arbitral award. The Court of Appeal allowed the appeal, and set aside the arbitral award.

Background to the appeal

2          The Appellant was a Sri Lankan company specialising in providing security and risk management services. These services included the issuing of arms, ammunition and manpower to merchant vessels sailing in pirate-infested waters. The Respondent, another Sri Lankan company, was in the business of providing maritime security services to vessels at risk of piracy.

3          Prior to March 2011, acting under the auspices of the Ministry of Defence and Urban Development of the Republic of Sri Lanka (“MOD”), the parties agreed to form a private-public partnership to carry out certain projects. They entered into a Master Agreement that incorporated six separate agreements, pursuant to which they undertook various projects including one called the Galle Floating Armoury Project. The Master Agreement included a dispute resolution clause that provided for disputes to be settled by arbitration in Singapore in accordance with the rules of the Singapore International Arbitration Centre (“SIAC”).

Facts

3          As a result of the 2015 Sri Lankan presidential elections, the then directors of the Appellant, who had been appointed by the previous government, resigned from its board on or about 28 January 2015. A new board of directors was appointed by the new government on or about 7 April 2015. The new government launched investigations into alleged instances of bribery, corruption and abuse of power that had occurred during the previous regime. The investigations also looked into the dealings between the parties: [7].

4          On or about 21 January 2015, a vessel named “MV Mahanuwara” was detained by the Sri Lankan Police Navy while it was docked at Galle Port, Sri Lanka, in connection with investigations that were being carried out into the legitimacy of the Galle Floating Armoury Project. The MV Mahanuwara was chartered and operated by the Respondent at the material time. The Respondent took the position that there was no illegality in the operation of the Galle Floating Armoury Project. Thus, by a letter dated 20 February 2015, the Respondent requested the Appellant to obtain a “Letter of Clearance” from the MOD and/or the government of Sri Lanka clearing the name of the Respondent, and stating that the business carried out by the Respondent under the public-private partnership with the Appellant was legitimate and carried out under the authority of the government through the MOD. The Respondent also asked the Appellant to obtain an appropriate media release from the government confirming the legitimacy of the business activities carried out by the Respondent and of the public-private partnership between the parties. The Appellant did not do so: [8].

5          The Respondent then commenced arbitration proceedings against the Appellant on the basis that the Appellant had breached cl 3.1 of the Master Agreement by failing to provide utmost assistance to the Respondent. The Notice of Arbitration was sent to the Appellant, but the Appellant failed to respond, even after extensions of time were granted. The SIAC nominated an arbitrator on behalf of the Appellant since it also failed to nominate an arbitrator: [9][16].

6          Subsequently, the Appellant wrote to the SIAC to inform it that the parties had agreed to withdraw the arbitration on the basis of a Memorandum of Understanding (“MOU”) between them. The Respondent challenged this a few days after, arguing that it was not in a position to withdraw the arbitration because there were indications that the Appellant was not ensuring the continuity of the Master Agreement. The arbitral tribunal issued an Interim Order in which it held that the Appellant’s failure to ensure the continuity of the Master Agreement went to the root of the MOU, so the dispute in the arbitration was still alive. Thus, the arbitral tribunal proceeded with the arbitration and gave an arbitral award in favour of the Respondent. The Appellant did not participate in the arbitration: [20][28].

Decision on appeal

7          The Respondent argued that the Appellant’s failure to utilise the mechanism in Art 16(3) of the Model Law to challenge the jurisdiction of the arbitral tribunal precluded it from setting aside the arbitral award. Article 16(3) states that where an arbitral tribunal rules “as a preliminary question that it has jurisdiction”, any party may request, within 30 days after having received notice of the tribunal’s ruling, the seat court to decide the matter. The Respondent averred that the preclusive effect of the article applied to the Appellant, despite the Appellant’s non-participation in the arbitration: [42] and [43].

8          Article 16(3) has been engaged on the facts. By its letter to SIAC on the MOU, the Appellant stated that the arbitral tribunal no longer had any mandate. This was equivalent to objecting to the Tribunal’s continued jurisdiction over the matter and saying that there was no longer any dispute which the Tribunal could deal with. The “plea” or objection to jurisdiction which Art 16(3) refers to does not need to be in any specific form or worded in any specific manner. The Interim Order was a ruling on jurisdiction as a preliminary issue, because the arbitral tribunal asserted its jurisdiction to deal with the matter in the arbitration: [57][58].

9          The preclusive effect of Art 16(3) does not extend to a respondent who stays away from the arbitration proceedings and has not contributed to any wastage of costs or the incurring of any additional costs that could have been prevented by a timely application under Art 16(3). Such a party does not owe the other party any duty to participate especially when such participation may be inconsistent with his position that he is not subject to the jurisdiction of the tribunal. When a justifiably non-participating party is confronted with an award, he would be entitled to avail himself of all remedies that the law gives him: [77].

10        Under the MOU the Respondent was obliged to pay the Appellant and terminate the arbitration and the Appellant in turn was obliged to terminate the law suit it had commenced claiming damages from the Respondent. The MOU was operative immediately. There was no evidence that the Appellant itself had done anything to repudiate the MOU. Even if it had breached the MOU, such breach would give rise to a separate claim against it but would not revive the settled dispute. Once the dispute was settled there was nothing before the arbitral tribunal for it to rule on. Thus, the arbitral award contained decisions on matters that were beyond the scope of the submission to arbitration and must be set aside pursuant to Art 34(2)(a)(iii) of the Model Law: [90], [91], [95] and [96].

11        The Appellant’s contention that the making of the arbitral award was induced or affected by fraud or corruption was rejected, as there was no evidence to support it. The Appellant’s contention that the arbitral award was against Singapore public policy because the agreements between the parties were illegally procured by bribery was also rejected: [98]–[100].

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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