This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.
In Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd  SGCA 33 (“Rakna Arakshaka”), the Court of Appeal confirmed that a respondent that declines to participate in arbitration proceedings on jurisdictional grounds does not lose its right to raise jurisdictional challenges in setting aside proceedings before the supervisory court.
Avant Garde Maritime Services (Pte) Ltd (“AGMS”) and Rakna Arakshaka Lanka (“RALL”) agreed to carry out certain projects under a master agreement (“Master Agreement”) that provided for the settlement of disputes by arbitration in Singapore under rules of the Singapore International Arbitration Centre (“SIAC”). AGMS subsequently filed a notice of arbitration (“NOA”) against RALL for breaching its obligations under the Master Agreement.
RALL initially sought a series of extensions from the SIAC to respond to the NOA, but with no response forthcoming, the SIAC proceeded to appoint a tribunal to sit on the arbitration. RALL then sent the SIAC a letter stating that the parties had settled the dispute under a memorandum of understanding (“MOU”), that the claimant had agreed to withdraw the matter, and that the arbitration was no longer necessary.
A few days later, however, AGMS wrote to the arbitral tribunal (the “Tribunal”) that, in light of certain events that transpired, it was “not in a position to withdraw” the arbitration. It therefore asked the Tribunal to continue with the arbitration as well as for an interim injunction to prevent RALL from terminating the Master Agreement. RALL did not respond to AGMS’ assertions.
A majority of the Tribunal issued an interim order stating that RALL had failed to ensure the continuity of the Master Agreement, which went to the root of the MOU, and that the dispute that was the subject of the arbitration was still alive. The Tribunal then concluded that the arbitration ought to proceed, but declined to grant the interim injunction sought by AGMS (the “Interim Order”).
The Tribunal thereafter proceeded with the arbitration, and while RALL made enquiries of the SIAC on the progress of the arbitration, it did not appeal against the Interim Order or participate in the proceedings. A majority of the Tribunal eventually issued a final award in AGMS’ favour, prompting RALL to file an application in the Singapore High Court to set aside the award on, amongst other things, jurisdictional grounds.
The High Court’s Decision
The High Court dismissed RALL’s application to set aside the award, taking the view that:
- RALL’s letter to the SIAC that a settlement of the dispute had been reached under the MOU and the arbitration was no longer necessary was effectively an assertion that the Tribunal no longer had any jurisdiction to hear the parties’ dispute under the Master Agreement.
- Similarly, the Interim Order that the arbitration should continue amounted to a ruling on jurisdiction as a preliminary issue pursuant to section 10(2) of the International Arbitration Act (“IAA”) / Article 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”).
- This meant that RALL should have challenged the Interim Order pursuant to s. 10(3) IAA / Art. 16(3) Model Law via an appeal to the High Court within 30 days of receiving the Interim Order.
- RALL’s failure to challenge the Tribunal’s ruling on jurisdiction precluded it from bringing a jurisdictional challenge in subsequent setting aside proceedings. This remained the case even though RALL had not participated at all in the arbitration.
Court of Appeal’s Decision
The Court of Appeal agreed with the High Court that the Interim Order engaged s. 10(3) IAA / Art. 16(3) Model Law. However, the Court of Appeal disagreed that it precluded RALL from raising a jurisdictional challenge at the setting aside stage:
- The official commentaries indicated that Art. 16(3) Model Law was drafted to avoid a waste of resources and prevent parties from delaying arbitral proceedings by bringing challenges before the court.
- However, neither policy consideration applied if a respondent with a jurisdictional objection decides to sit out of the arbitration:
- If a respondent takes the view that an arbitration agreement is invalid or that the proceedings are contrary to the agreement, it may choose to exercise its right to be undisturbed by the arbitration. A claimant that chooses to continue with proceedings in such circumstances must take the risk of wasted costs.
- A respondent that does not participate in an arbitration does not unduly delay proceedings. Conversely, the absence of its participation reduces the time required for evidence-taking and submissions, and if the non-participating party seeks to set aside the award, it is subject to the same time constraints that apply to a participating respondent.
- The position is different if the respondent fails in its jurisdictional objection, but continues to participate in the arbitration without appealing under s. 10(3) IAA / Art. 16(3) Model Law. In doing so, the respondent contributes to wasted costs and potentially delays the arbitration and is rightly precluded from raising any jurisdictional objections at the setting aside stage.
- RALL’s decision to sit out of the arbitration completely therefore did not preclude it from raising its jurisdictional challenges at the setting aside stage, even though it did not appeal to the High Court against the Interim Order under s. 10(3) IAA / Art. 16(3) Model Law.
Having found that RALL had the right to raise a jurisdictional objection to set aside the award, the Court of Appeal further concluded that the objection was valid:
- When the parties entered into the MOU, the effect was to immediately resolve the dispute between the parties. This meant that there was no longer a dispute which could be arbitrated upon. AGMS’ obligation to withdraw the arbitration proceedings under the MOU was an administrative action rather than a legal requirement for the substantive end to the dispute.
- Since there was no longer any dispute before the Tribunal to arbitrate, the Tribunal did not have the jurisdiction to continue with the arbitration and its award had to be set aside.
The importance of the Rakna Arakshaka decision is that it clarifies the relationship between three key judicial routes to challenge an arbitral tribunal’s decision, that is:
- an appeal against a preliminary jurisdiction order (s. 10(3) IAA / Art. 16(3) Model Law);
- a setting aside application (s. 24 IAA / Art. 34 Model Law); and
- resisting the enforcement of the final award (s. 31 IAA / Art. 36 Model Law).
- In Astro Nusantara International BV v PT Ayunda Prima Mitra  1 SLR 636), the Court of Appeal held that a party who decides against the “active remedy” of challenging a tribunal’s jurisdiction order under s. 10(3) IAA / Art. 16(3) Model Law may continue to rely on the "passive remedy" of resisting enforcement of the final award on jurisdictional grounds (s. 31 IAA / Art. 36 Model Law).
- The Rakna Arakshaka decision now confirms that a party that does not participate in an arbitration, and therefore does not challenge a tribunal’s jurisdiction order under s. 10(3) IAA / Art. 16(3) Model Law may raise jurisdictional objections at the setting aside stage (s. 24 IAA / Art. 34 Model Law) as well. In other words, the failure to utilise one active remedy does not necessarily negate the use of another.
- It is important to note, however, that if RALL had failed in its jurisdictional objection and nonetheless continued to participate in the arbitration without appealing under s. 10(3) IAA / Art. 16(3) Model Law, it would have contributed to wasted costs and potentially delayed the arbitration and would therefore be precluded from raising any jurisdictional objections at the setting aside stage.
That said, arguably the safest and most efficient way to put an arbitration to end on jurisdictional grounds is for the objecting party to raise its objections at the outset, and then to immediately appeal to the court under s. 10(3) IAA / Art. 16(3) Model Law if the tribunal dismisses the objection:
- If the court finds for the objecting party, then the arbitration immediately comes to an end – which is faster than waiting for the final award and the commencement of setting aside proceedings.
- If the court finds that the tribunal does in fact have jurisdiction, then the objecting party still has the chance to participate in the merits stage of the arbitration. If the objecting party loses its setting aside application, it cannot go back and submit to the tribunal on the merits of its case, but must live with the final award issued by the tribunal.