27 February 2020
ST Group Co Ltd & Ors v Sanum Investments Limited  SGCA 65
The Singapore Court of Appeal in ST Group Co Ltd & Ors v Sanum Investments Limited denied leave to a claimant to enforce an arbitral award made in an arbitral seat not chosen by the parties. Notably, the court held that it is not necessary for a party who is resisting enforcement of any award arising out of a wrongly seated arbitration to demonstrate actual prejudice resulting from the wrong seat.
The initial dispute involved Sanum Investments Limited (“Sanum”) as claimant on one hand, and ST Group Co, Ltd (“ST Group”), ST Vegas Co, Ltd (“ST Vegas”), ST Vegas Enterprise Ltd (“STV Enterprise”) and a Mr Sithat Xaysoulivoung (“Mr Sithat”) (collectively “Lao Parties”) as respondents on the other hand.
Sometime in 2007, Sanum entered into a joint venture arrangement with ST Group, ST Vegas and Mr Sithat (“Parties”) via a Master Agreement. The Master Agreement contained a dispute resolution clause that provided for the following dispute resolution process:
- Amicable negotiation in the event a dispute arises.
- If the dispute cannot be settled by mediation, the Parties may submit such dispute to the “Resolution of Economic Dispute Organization” or Courts of the Lao PDR according to the provision and law of Lao PDR.
- If one of the Parties is dissatisfied with the results of the above procedure, the Parties shall mediate and, if necessary, “arbitrate such dispute using an internationally recognized mediation/arbitration company in Macau, SAR PRC”.
The Master Agreement stated that Sanum was to take over “Thanaleng Slot Club” on 11 October 2011 (“Turnover Date”). The Master Agreement envisaged that there would be separate “sub-agreements corresponding to the details of each Joint Venture”.
Subsequently, Sanum entered into one such sub-agreement with STV Enterprise (“Participation Agreement”) in relation to two other slot clubs. The dispute resolution clause in the Participation Agreement provided a structure similar to that of the Master Agreement, save that the final step provided for the dispute to be arbitrated “using an internationally recognized mediation/arbitration at the Singapore International Arbitration Centre (SIAC), Singapore and the rules of SIAC shall be applied”. The Participation Agreement also provided that the tribunal was to consist of three arbitrators.
Subsequently, Sanum entered into three further agreements (“Thanaleng Agreements”):
- An agreement with ST Vegas for the temporary provision of slot machines to Thanaleng Slot Club (“Temporary Thanaleng Participation Agreement”);
- An agreement with ST Group for the expansion of Thanaleng Slot Club; and
- An agreement with ST Group and ST Vegas for the further expansion of Thanaleng Slot Club.
The dispute and proceedings taken
Subsequently, a dispute arose where Sanum alleged that the Lao Parties failed to hand over Thanaleng Slot Club on the Turnover Date, and considered this failure a breach of contract.
The parties underwent negotiations and, subsequently, arbitral proceedings at the Organisation of Economic Dispute Resolution (“OEDR”), a Lao dispute resolution centre. The OEDR dismissed Sanum’s claims. While OEDR proceedings were underway, ST Group and its affiliated companies declared that they considered all agreements between the parties relating to Thanaleng Slot Club to be terminated and demanded that Sanum immediately remove its machines from the slot club.
ST Vegas subsequently commenced proceedings against Sanum in the Vientiane People’s Court seeking a declaration that the Temporary Thanaleng Participation Agreement had been validly terminated. Sanum filed a defence and counterclaim naming ST Vegas, ST Group and Mr Sithat as defendants. The Vientiane People’s Court granted ST Vegas’ application, observing that the provisions in the Master Agreement had “no effect” on the provisions of the Temporary Thanaleng Participation Agreement, and dismissed the counterclaim. On appeal to the People’s Court of Appeal, the decision of the lower court was affirmed.
Dissatisfied with the outcome, Sanum filed a request for mediation with the Singapore International Mediation Centre (SIMC) to which the Lao Parties refused to participate in. Sanum then commenced arbitration proceedings under the rules of the Singapore International Arbitration Centre (“SIAC”). The Lao Parties objected to the SIAC arbitration. SIAC took note of the objections and informed parties that it was satisfied that a valid arbitration under the SIAC Rules existed. The Lao Parties did not participate any further in the arbitration. The arbitration proceeded under a three-member tribunal on the basis that it was what parties had agreed to in the Participation Agreement.
The Tribunal ruled in favour of Sanum and awarded Sanum damages amounting to US$200,000,000, with costs and interest (“Award”).
After the Award was issued, Sanum obtained leave of court to enforce the Award in Singapore, resulting in a series of applications culminating in the appeals before the Court of Appeal. Sanum appealed against the lower court’s decision to deny leave to enforce the Award against STV Enterprise while ST Group, ST Vegas and Mr Sithat appealed against the lower court’s decision to allow Sanum to enforce the Award against them.
The Court of Appeal ruled in favour of the Lao Parties and denied leave to Sanum to enforce the Award against the Lao Parties. The court found that the dispute arose under the Master Agreement only, and since STV Enterprise was not a party to that agreement, dismissed Sanum’s appeal.
In allowing the Lao Parties’ appeal, the Court of Appeal made the following key rulings:
- The agreed arbitration seat was Macau: As the dispute arose under the Master Agreement only, the Court of Appeal found that the arbitration seat as agreed between parties was Macau. The court found that the most natural interpretation of the ambiguous phrase “arbitrate such dispute using an internationally recognized … arbitration company in Macau, SAR PRC” meant that parties “shall arbitrate such dispute, using an internationally recognised arbitration company, in Macau”.
- Error in choice of Tribunal seat in itself reason to refuse recognition of Award: The Court of Appeal found that, 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 an award had not been obtained in accordance with the parties’ arbitration agreement. Further, a party resisting the enforcement of such an award need not demonstrate actual prejudice arising from the wrong seat. As such, leave was refused to Sanum to enforce the Award against ST Group, Mr Sithat and ST Vegas. The court observed that 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. The choice of seat results in significant legal consequences, such as provisions regarding judicial power to (i) appoint and remove arbitrators, (ii) consider jurisdictional issues, (iii) assist in evidence-taking, and (iv) set aside arbitral awards. The choice of seat also relates to the conduct of an international arbitration and the validity and finality of the award resulting from the proceedings. Further, the choice of seat in and of itself represents a choice of forum for remedies.
- The court declined to determine the effect of parties’ agreement to a one-seat panel: The Court of Appeal agreed with the High Court that as the dispute arose only under the Master Agreement and did not involve the Participation Agreement, the usual default one-member panel applied. The court declined to make a determination on the effect of the wrong appointment of the three-member tribunal as it was difficult to disentangle the effect of the wrong composition from the adverse impact of the wrong seat choice.
The court also declined to determine the appeal based on whether the arbitration clause was valid under Lao law as the Lao Parties had failed to discharge their burden of proof.
Accordingly, the Court of Appeal disallowed Sanum from enforcing the Award against any of the Lao Parties.
The Singapore Court of Appeal’s decision underscores the importance of clearly identifying the arbitral seat in an underlying dispute resolution clause and also at the commencement of any arbitration so as to avoid costly and protracted litigation on this issue.