Sanum Investments Limited v ST Group & others [2018] SGHC 141


Summary

Following a dispute arising out of joint ventures to develop gaming enterprises in Lao an arbitration took place under the auspices of the Singapore International Arbitration Centre (SIAC). The Claimant was awarded over USD 200m in damages (the Award). However the Defendants attempted to prevent enforcement of the Award on the basis of both procedural and jurisdictional objections. The High Court of the Republic of Singapore (the Singapore Court) agreed that there had been some procedural irregularities – including the wrong number of arbitrators and the wrong seat - but held that they should not prevent the Award being enforced.

Factual Background

Central to the dispute were two agreements referred to as the "Master Agreement" and the "Participation Agreement".  

The Master Agreement envisaged that there would be three joint ventures created to develop certain properties – two involving casinos, and a third involving the operation of several slot clubs. The dispute arose in relation to one of these slot clubs - the Thanaleng Slot Club located along the Thai-Laos border. Under the Master Agreement, it was envisaged that Sanum Investments Limited (Sanum) would eventually take over the Thanaleng Slot Club. However, when the time came in 2012, ST Vegas Enterprise informed Sanum that it considered all agreements relating to the Thanaleng Slot Club to have been terminated. The club was shut down and Sanum was refused access.  

After initially unsuccessfully seeking relief through Lao Organisation of Economic Dispute Resolution (OEDR) and then the Lao Court System (and up to the People's Supreme Court), Sanum eventually commenced the SIAC arbitration. 

At all material times the defendantas objected to the SIAC Arbitration and did not participate in its proceedings. The SIAC had noted these objections but informed the parties that it was prima facie satisfied that a valid arbitration under the SIAC Rules existed and proceeded on the basis that the parties had agreed to a three-member tribunal. In the absence of the Lao disputants nominating an arbitrator, SIAC appointed all three tribunal members and notified the parties accordingly. 

The Award was rendered on 22 August 2016 in favour of Sanum.

Sanum obtained leave to enforce the Award from the Singapore Court and judgment was entered in terms of the Award in 2016. The defendants: ST Group Co. Ltd, Mr Sithat Zaysoulivong, ST Vegas Co Ltd and ST Vegas Enterprise Ltd (together the Lao disputants) brought an application for the refusal of enforcement of the Award pursuant to Article 36(1) of the UNCITRAL Model Law on International Commercial Arbitration (Model Law)[1] . In essence, the Lao disputants argued that: 

a) the Award was made pursuant to an arbitration agreement (or agreements) to which not all the Lao disputants were a party to; 

b) the Award dealt with a dispute not contemplated by or falling within the scope of the submission to arbitration; and 

c) the composition of the tribunal and the seat of the arbitration were not in accordance with the agreement of the parties. 

The Singapore Court's Decision

Which Agreement?

One of the key points that the Singapore Court had to decide was under which agreement the right to arbitrate had arisen. 

The Tribunal had proceeded on the basis that the underlying dispute arose out of the Master Agreement and the Participation Agreement and in doing so relied on the two dispute resolution clauses found in the respective agreements to found jurisdiction.  However the Lao disputants disagreed with the Tribunal, contending that these agreements had nothing to do with the Thanaleng Slot Club

After carefully considering the voluminous evidence and arguments the Singapore Court held that the underlying dispute arose out of the Master Agreement alone and that there was an agreement to arbitrate at Clause 2(10) of the Master Agreement. 

Which Parties?

While the tribunal had noted in its Award that the named contracting parties of the Master Agreement and the Participation Agreement differed it had proceeded on the basis that all of the Lao disputants had agreed to the SIAC Arbitration and that it had jurisdiction to determine Sanum’s claims against all of the Lao disputants, as they were all signatories to the Master Agreement or the Participation Agreement.  

However given the Singapore Court found that the dispute arose only from the Master Agreement it therefore had to consider who the parties to that Agreement were in order to decide whether the SIAC Arbitration was commenced against the correct parties. It concluded that only ST Group, Mr Sithat and ST Vegas Co were parties to the Master Agreement and not  S.T. Vegas Enterprise .

However the Singapore Court also found that clause 2(10) of the Master Agreement not only set out pre-requisites to the commencement of arbitration but, more importantly by its language, defined and limited the parties who could proceed to the stage of international arbitration. 

Clause 2(10) of the Master Agreement states as follows:

"If any dispute shall arise, the Parties agree to conduct an amicable negotiation. If such dispute cannot be settled by mediation, the Parties may submit such disputes to the Resolution of Economic Dispute Organization or Courts of the Lao PDR according to the provision and law of Lao PDR in accordance with this Agreement. All proceedings of the arbitration shall be conducted in the Lao and English languages.

Before settlement by the arbitrator under the rules of the Resolution of Economic Dispute Organization, the Parties shall use all efforts to assist the dispute resolution in accordance with the laws of Lao PDR.

If one of the Parties is unsatisfied with the results of the above procedure, the Parties shall mediate and, if necessary, arbitrate such disputes using an internationally recognized mediation/arbitration company in Macau, SAR PRC." (emphasis added)

The Court held that:

  • the phrase “[i]f one of the Parties”, read with the words “such disputes” and “results of the above procedure”, lead to the conclusion that the relevant parties of the arbitration should be those who had fulfilled the “above procedure” (ie, the OEDR procedure or Lao court proceedings); and
  • the party who is dissatisfied with the results of the OEDR or Lao court proceedings is entitled to call for international arbitration and the counterparty agrees to abide by this choice and to “arbitrate such dispute”.

The OEDR was commenced by Sanum against ST Group and ST Vegas Co. The Lao court proceedings were commenced by ST Vegas Co against Sanum and in its counterclaim, Sanum named ST Vegas Co, ST Group, Mr Sithat and Xaya Construction Company Ltd as parties. As such, in the context of the dispute, Sanum was only entitled to call for international arbitration against Mr Sithat, ST Group and ST Vegas Co.  The Court found it followed therefore that the SIAC Arbitration and the Award did not bind ST Vegas Enterprise.

The meaning of “an internationally recognized ... arbitration company in Macau”

The Court also had to decide the meaning of the second half of Clause 2(10) "an internationally recognized mediation/arbitration company in Macau, SAR PRC" in order to decide if SIAC and the seat of the arbitration had been correctly chosen. The Court considered a number of different interpretations of this sentence but concluded that the preferable interpretation was that Clause 2(10) identifies the seat of the arbitration to be in Macau and that the parties had agreed to use an internationally recognised arbitration company chosen by the party who is dissatisfied with the result of the stated Lao procedure. The Court held that the wording was sufficiently detailed and precise to arrive at this interpretation without straining the language of the clause and to be enforced as an arbitration agreement 

Accordingly, the Court found that it had been proper to commence the arbitration at the SIAC but the Tribunal was wrong to have held that the seat was Singapore. The correct seat should have been Macau.

Number of Arbitrators

The Court held that as there is no express stipulation in Clause 2(10) as to the number of arbitrators the default would be prescribed by the institutional rules of the parties' chosen institution. Since the SIAC was the chosen institution, the default position under Rule 6.1 of the SIAC Rules 2013 provides for one arbitrator unless it appears to the Registrar, giving due regard to any proposals by the parties, the complexity, the quantum involved or other relevant circumstances of the dispute, that the dispute warrants the appointment of three arbitrators. 

Based on evidence before the Singapore Court it was clear from the letters between the SIAC and the parties that the decision to appoint a three-member tribunal was made pursuant to Clause 19 of the Participation Agreement, as well as another document containing a similar dispute resolution clause. 

Given the Singapore Court found that the underlying dispute did not arise from the Participation Agreement but the Master Agreement instead, the appointment of a three-member tribunal was incorrect. Pursuant to the default position under the SIAC Rules the arbitration should have been heard by one arbitrator only.

Enforcement?

The Lao disputants relied on Article 36(1)(a)(iv) of the Model Law to seek a refusal of enforcement of the Award.[2]  However the Singapore Court found that the Lao disputants failed to demonstrate the manner in which the procedural irregularities had affected the arbitral procedure adopted.

The Singapore Court referred to the discussion of the equivalent of Article 36(1)(a)(iv) in the New York Convention (i.e., Article V(1)(d)) by the "learned author of Gary Born" in International Commercial Arbitration (Kluwer Law International, 2nd Ed, 2014) which indicates that "material prejudice is ordinarily required for non-recognition."

Absent evidence of material prejudice, the Singapore Court found that the Lao disputants had not discharged their burden of demonstrating the seriousness of the breach.  

In relation to the finding that the seat of the arbitration should have been Macau not Singapore the Court agreed that "the parties chosen seat is an important aspect of an arbitration, as the seat indicates the curial court to supervise the conduct of the arbitration". However it was found that the choice of a seat for arbitration was less critical in this case since the application was not to set aside the award but to refuse enforcement "because enforcement can be brought in any jurisdiction whereas only the seat court can set aside an award. Hence, the mere assertion of an incorrectly seated arbitration is not enough. There must be evidence of how the law of the incorrect seat would impact the arbitral procedure that was adopted by the tribunal."  The Singapore Court stressed that the "fact of the matter is that the discretion of the court is found in the words “may be refused” in Article 36(1) of the Model Law."

In conclusion  therefore, while it was held that while there was "force" in the Lao disputants’ procedural objections, the Singapore Court was not minded to refuse enforcement of the Award pursuant to Article 36(1)(a)(iv) of the Model Law.

Commentary

This judgment serves as a good example of how high the bar is when trying to prevent the enforcement of an Arbitration Award. The wrong choice of seat and the election of the wrong number of arbitrators may seem like two significant procedural irregularities however because the defendants were unable to demonstrate that these irregularities had led to the arbitration being material prejudiced or impacted the Singapore Court decided the Award could still be enforced.  

It is possible that if the application had been to set aside the Award (opposed to prevent enforcement) that the decision may have been different.   Parties in similar circumstances who are unhappy with an Award should carefully consider making a timely application to set aside opposed to waiting to try and stop its enforcement.  

Key contacts

Jamie Harrison

Jamie Harrison

Head of Singapore Office, International Arbitration
Partner, Hong Kong (non-resident)

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Daniella Smith

Daniella Smith

Managing Associate, Dispute Resolution
London

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[1] Artcile 36(1) of the Model Law sets out the only grounds on which enforcement of an arbitral award can be refused. 

[2] Article 36(1)(a)(iv) of the Model Law provides that recognition may be refused if   "the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, was not in accordance with the law of the country where the arbitration took place"