Singapore - Boycotting An Arbitration: Is It An Option?.

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Asia Pacific Legal Updates

 

11 July, 2019

 

Singapore - Boycotting An Arbitration: Is It An Option?.

 

Singapore Court of Appeal provides guidance for non-participating respondents wishing to challenge jurisdiction 

 

The Singapore Court of Appeal in Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd [2019] SGCA 33 (“Rakna”) has recently ruled that a respondent to arbitration proceedings who objects to the arbitral tribunal’s jurisdiction, is not required to bring a jurisdictional challenge at an early stage or participate in the arbitration. The respondent is entitled to sit out of the proceedings, and subsequently seek to set aside the arbitral award on the basis of the Tribunal’s lack of jurisdiction. 

 

This update forms the second part of our writeup on Choice of Remedies in International Arbitration. Our first writeup, “Choice of Remedies in International Arbitration”, covered the High Court decision in Rakna and the seminal decisions of the Singapore Court of Appeal and Hong Kong Court of Final Appeal in the litigation between PT First Media TBK and Astro Nusantara International BV (“Astro v Lippo”).

 

Introduction 

 

You have been served with a Notice of Arbitration, but you do not accept that the Tribunal has jurisdiction (for example, because there is no arbitration agreement between you and the Claimant, or the matter in dispute falls outside the scope of the arbitration agreement). To avoid incurring costs, you choose not to participate in the arbitration. The Claimant later obtains a preliminary ruling from the Tribunal that it does in fact have jurisdiction, but you do not apply to court to challenge the preliminary ruling. Eventually, the Tribunal issues its award on the merits in the Claimant’s favour (and in your absence). Can you apply to the supervisory court to set aside the award, on the basis of the Tribunal’s lack of jurisdiction? 

 

Yes, you can – according to the Court of Appeal of Singapore in its recent decision in Rakna. In certain circumstances, a non-participating party in arbitration who had failed to challenge the Tribunal’s preliminary ruling on jurisdiction within the stipulated time (30 days), would not lose its right to apply to set aside the award on jurisdictional grounds. In so ruling, the Court of Appeal has overturned the April 2018 decision of the High Court that a non-participating party would be precluded from doing so. 

 

 Key facts of case in Rakna 

 

SIAC arbitration between a Sri Lankan government agency (Claimant in the arbitration) and a Sri Lankan marine security contractor (Respondent in the arbitration) concerning contracts governed by Sri Lankan law. 

 

The Respondent effectively did not participate in the arbitration, save to write to the Tribunal suggesting that the Tribunal had no jurisdiction to hear the arbitration. 

 

When the Tribunal issued a preliminary ruling deciding that it had jurisdiction, the Respondent did not challenge the decision in Court in accordance with the mechanism and timelines provided by the Singapore International Arbitration Act (“IAA”). 

 

After the Tribunal issued a final award in the Claimant’s favour, the Respondent then applied to the Singapore Courts to set aside the award on the basis that the Tribunal had no jurisdiction. 

 

The High Court held that the Respondent was precluded from seeking to set aside the award on the basis of lack of jurisdiction, since the Respondent had failed to bring a challenge at the outset. 

 

Key findings by the Court of Appeal 

 

The Court of Appeal agreed with the High Court that the Art 16 mechanism and the 30-day timeline were intended to prevent wastage of time and costs, by encouraging the Respondent to resolve any jurisdictional objection as soon as possible instead of waiting until the final award had been rendered ([50]).

 

Generally, a Respondent who does not make its Jurisdictional Plea and Art 16 Challenge within the stipulated timelines would be precluded from bringing the challenge later on (except to resist enforcement of the award – see our client update on Choice of Remedies in International Arbitration). 

 

The Jurisdictional Plea need not be made in any particular form. In this case, the Court of Appeal regarded the Respondent’s letter to the Tribunal stating that the parties had reached a settlement and no longer needed to proceed with the arbitration, as “equivalent to objecting to the Tribunal’s continued jurisdiction”, and was thus sufficient to constitute a valid Jurisdictional Plea ([56]). 

 

The general rule that a party who fails to raise a Jurisdictional Plea and/or bring an Art 16 Challenge cannot later seek to set aside the final award on jurisdictional grounds, would not apply to a Respondent who did not participate in the arbitration at all (a “Non-Participating Respondent”). The Court’s reasoning was informed by the following factors: 

 

The Non-Participating Respondent has no duty to participate in the arbitration which it believes was wrongly commenced (for example, because its position is that there was no arbitration agreement to begin with at all). Such a party should not be compelled to expend costs to substantively resist the arbitration proceedings, including by bringing a jurisdictional challenge ([75]). 

 

The Non-Participating Respondent would not have contributed to the wastage of costs – its absence in the proceedings would reduce the time required for evidence-taking and submissions.

 

The situation is distinct from a party who participated in the substantive arbitration under protest but who failed to bring a timely Art 16 Challenge) ([75]-[76]). Conversely, a Claimant who chooses to pursue the arbitration in the face of the Respondent’s non-participation, does so at his own risk and cost. 

 

The Court did not determine the issue of whether a Non-Participating party who fails to raise a Jurisdictional Plea at all (as opposed to one who raises an unsuccessful Jurisdictional Plea but then does not bring an Art 16 Challenge), would be precluded from raising jurisdictional objections to set aside the award – in Rakna, the Respondent had raised a Jurisdictional Plea. The Court of Appeal indicated, obiter, that such a Non-Participating Party should not be so precluded. 

 

Given the Court’s focus on the rationale for Article 16 being the avoidance of wasted time and costs in the arbitration, it would seem logical that a Respondent who does not participate at all and raises no jurisdictional plea has caused no greater costs for the Claimant than one who makes such a plea. It might be fairer for the Claimant to know whether there is a risk of a later jurisdictional challenge, but the position is not much better if an informal Jurisdictional Plea has been entered and then not pursued. The possibility that a Respondent could deliberately store up its challenge to jurisdiction for the post-award phase does not appear to be consistent with the policy of the Model Law and suggests that Rakna might begin to erode the balance struck by the Model Law and the IAA. 

 

Whether a party can be regarded as a “Non-Participating Respondent” depends on the facts of each case. 

 

The following guidance can be discerned from Rakna [79]): 

 

Conduct in the arbitration    /   Participation? 

 

Filing formal pleadings in the arbitration (Response to Notice of Arbitration, Statement of Defence)  / Y

Making a Jurisdictional Plea  / N 

Filing witness statements / Y 

Participating in hearings  / Y 

Attending hearings but not participating / ?

Administrative / routine correspondence with the administrators of the Arbitration (e.g. SIAC)  / N

Queries to the SIAC or Tribunal about the status or progress of the arbitration  / N

 

It is a key part of the Tribunal’s role to ensure that they issue an enforceable award. For this reason, Tribunals will often raise maters of jurisdiction with the parties for submission and consideration. A Respondent who takes no part in the arbitration other than to communicate its objection to the jurisdiction of the Tribunal leaves the Tribunal in a difficult position with regard to issuing a proper ruling, which would trigger the Article 16 requirements. In matters in which we have been involved, the correspondence has been quite informal, disclosing little by way of legal argument and appearing to be more for the purpose of distracting the proceedings by collateral attack than presenting a legitimate basis for termination of the proceedings. On some occasions the letter of objection is accompanied by the commencement (or conclusion) of proceedings in a foreign court to annul the arbitration agreement. Following Rakna it is clearer that such objections can and should be ruled upon as Jurisdictional Pleas (whether upon receipt or with the merits of the claim). Whilst such rulings, even if not appealed, might not preclude a later challenge, the Tribunal’s consideration, with the benefit of the Claimant’s argument, might be of assistance to a later Court or serve to highlight for both Parties the merits (or lack thereof) of the grounds for objection.

 

Notwithstanding the Court of Appeal’s ruling, Respondents who wish to challenge jurisdiction should err on the side of caution and express their jurisdictional objections in as clear and express terms as possible and as soon as possible (usually within the Statement of Defence). 

 

A Respondent who wishes to challenge the Tribunal’s jurisdiction should raise a Jurisdictional Plea no later than the submission of its Statement of Defence – as mentioned above, it is unclear whether the failure to do so would cost the Respondent the opportunity to challenge jurisdiction at the setting aside stage. The making of a Jurisdictional Plea would generally not amount to participation in the arbitration for the purpose of determining whether the Respondent is a “Non-Participating Respondent”. 

 

If the Respondent makes a Jurisdictional Plea and the Tribunal issues a preliminary ruling that it has jurisdiction, the Respondent must decide whether to (a) bring an Art 16 Challenge and, if unsuccessful, boycott the arbitration; (b) bring an Art 16 Challenge and, if unsuccessful, participate in the arbitration under protest; or (c) bring no Art 16 challenge and boycott the arbitration. The decision should be taken carefully and with legal advice, as the option chosen will impact on whether the Respondent would lose the opportunity to bring a future jurisdictional challenge. Note however that under all the options, it remains open for the Respondent to resist enforcement of any final award in Singapore on grounds of lack of jurisdiction. 

 

 

Which option to choose would depend on considerations such as the strength of the Respondent’s jurisdictional objections, cost considerations, and the need for certainty: 

 

Certainty: The benefit of bringing an Art 16 Challenge at the outset is that if the challenge is successful, the arbitration would be terminated forthwith. Conversely, if the Respondent does not bring an Art 16 Challenge, the arbitration will normally proceed to final award, and there is a risk that the final award will be adverse to the Respondent. The Respondent must be prepared to contend with the continued arbitration proceedings hanging over its head, the cost of keeping track of such proceedings, and compliance with regulatory or shareholder reporting requirements in relation to such proceedings. 

 

Cost: It is open to a Respondent who wishes to avoid incurring the costs of participating in the arbitration and who objects to the Tribunal’s jurisdiction, to raise a Jurisdictional Plea and then boycott the arbitration entirely. The only costs incurred would be the cost of determining whether to bring the Jurisdictional Plea, making the Plea, and then lightly monitoring the proceedings. The Respondent will still have to incur the costs of bringing its jurisdictional challenge against the final award after it is rendered, but the advantage of such a deferred challenge is that the Respondent can bring a single application to set aside the award on multiple grounds apart from lack of jurisdiction. 

 

Which option to choose would depend on considerations such as the strength of the Respondent’s jurisdictional objections, cost considerations, and the need for certainty: 

 

Certainty: The benefit of bringing an Art 16 Challenge at the outset is that if the challenge is successful, the arbitration would be terminated forthwith. Conversely, if the Respondent does not bring an Art 16 Challenge, the arbitration will normally proceed to final award, and there is a risk that the final award will be adverse to the Respondent. The Respondent must be prepared to contend with the continued arbitration proceedings hanging over its head, the cost of keeping track of such proceedings, and compliance with regulatory or shareholder reporting requirements in relation to such proceedings. 

 

Cost: It is open to a Respondent who wishes to avoid incurring the costs of participating in the arbitration and who objects to the Tribunal’s jurisdiction, to raise a Jurisdictional Plea and then boycott the arbitration entirely. The only costs incurred would be the cost of determining whether to bring the Jurisdictional Plea, making the Plea, and then lightly monitoring the proceedings. The Respondent will still have to incur the costs of bringing its jurisdictional challenge against the final award after it is rendered, but the advantage of such a deferred challenge is that the Respondent can bring a single application to set aside the award on multiple grounds apart from lack of jurisdiction. 

 

A Claimant who commences arbitration should be alive to the risk of the Respondent simply choosing not to participate, and then seeking to set aside or resist enforcement of the final award on grounds of lack of jurisdiction. Claimants in such a position can take advantage of the Respondent’s absence to expedite the proceedings – indeed the Court in Rakna noted that a Claimant facing a Non-Participating Respondent would generally enjoy costs savings due to the lack of opposition. 

 

Claimants should also ensure that even a Non-Participating Respondent is kept updated of the process of the proceedings, to minimize the opportunity for the Respondent to later challenge the award on grounds of breach of natural justice or lack of opportunity to present its case. 

 

The Claimant should also be astute to any statements or conduct on the Respondent’s part which might give rise to a wavier or estoppel, i.e., conduct which unequivocally shows that the Respondent intends to give up its right to challenge the Tribunal’s jurisdiction. Some examples include making arguments on the merits without any reservation of the position on the Tribunal’s jurisdiction, or express statements accepting the binding nature of the final award2.

 

How does a party challenge jurisdiction? 

 

For Singapore-seated arbitration, the procedure is governed by section 10 of the IAA, which gives effect to Art 16 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). 

 

The challenging party must raise its plea that the Tribunal does not have jurisdiction not later than when it submits its Statement of Defence (“Jurisdictional Plea”). 

 

The Tribunal can rule on the Jurisdictional Plea as a preliminary question, or together with the merits in the final arbitral award. 

If the Tribunal rules on Jurisdictional Plea as a preliminary question, either party can apply to the Singapore Courts to challenge the decision (“Art 16 Challenge”), but it must do so within 30 days of receipt of the preliminary ruling. 

 

If the Tribunal rules on the Jurisdictional Plea as part of the final award, the Respondent can challenge the jurisdictional ruling together with the final award within 3 months from the date of the award1, or raise jurisdictional objections in the course of resisting an enforcement of the final award. 

 

 

For further information, please contact:

 

Melvin Sng , Partner, Linklaters

melvin.sng@linklaters.com 

 

1 IAA s 24(3) read with Art 34(3) of the Model Law

2 As mentioned at [200]-[217] of PT First Media TBK v Astro Nusantara International BV and others and another appeal [2013] SGCA 57