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11 Jul 2018

No harm, no foul: Singapore High Court reaffirms need to prove prejudice to refuse enforcement of award

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Introduction

In Sanum Investments Limited v ST Group Co, Ltd [2018] SGHC 141, the Singapore High Court reaffirmed that proving prejudice is an essential element when resisting an application for enforcement of an arbitral award. Demonstrating irregularities in the arbitral procedure alone will not suffice, even where the arbitration was found by the court to have been conducted in the wrong seat.

The dispute

The Applicant, Sanum Investments Limited (“Sanum”), and the Respondents, ST Group Co., Ltd (“ST Group”), Mr Sithat Xaysoulivong (“Mr. Sithat”), ST Vegas Co., Ltd. (“ST Vegas Co”), and S.T. Vegas Enterprise Ltd. (“ST Vegas Enterprise”) (collectively, the “Respondents”) entered into a joint venture arrangement for the development of gaming enterprises in the gaming industry in Laos (the “Master Agreement”).

The Master Agreement envisaged three joint ventures to be created to hold and develop certain properties, one of which was the Thanaleng Slot Club. The parties agreed that this club would be turned over to Sanum upon the termination of certain then-existing contracts with the third party owners of slot machines.

Further to the Master Agreement, a number of other agreements were entered into, including:

  1. Between Sanum and ST Vegas Enterprise, a Participation Agreement (“Participation Agreement”) providing that the joint venture for two other slot clubs was to carry on for 50 years; and
  2. Between Sanum and ST Vegas Co, three agreements in 2008 and 2010 on revenue sharing and the expansion of the Thanaleng Slot Club. These three agreements are referred to as the “Thanaleng Documents”.

On 11 April 2012, Sanum was informed that the contracts with the third party slot machine owners had expired. On 12 April 2012, however, ST Vegas Co shut down the Thanaleng Slot Club and refused to allow Sanum access to it. Sanum commenced SIAC arbitration proceedings for damages suffered by reason of the Respondents’ breaches of the Master Agreement and the Participation Agreement. The tribunal appointed to hear the disputes determined that the seat of arbitration was Singapore, and found all the Respondents liable to Sanum under the Master Agreement and the Participation Agreement.

Sanum sought to enforce the tribunal’s award pursuant to section 19 of the International Arbitration Act. The Respondents resisted the application on two broad grounds. The first ground was jurisdictional; they contended that the dispute properly arose out of the Thanaleng Documents, which did not contain an arbitration agreement. The Respondents also asserted that Mr. Sithat, ST Vegas Co and ST Vegas Enterprise were not proper parties to the arbitration. The second ground was procedural; the Respondents argued that the seat of the arbitration and the institution that administered the arbitration (the Singapore International Arbitration Centre – “SIAC”) were not in accordance with the agreement of the parties.

Jurisdictional and procedural grounds dismissed

The Court found that the underlying dispute concerned the failure to “turn over” the Thanaleng Slot Club, an obligation that was contained in the Master Agreement. As the other agreements did not contain any such obligation, the arbitration arose out of the Master Agreement alone. The Court found that the tribunal had incorrectly founded its jurisdiction based on the arbitration agreements in both the Master Agreement and the Participation Agreement.

The Court also rejected the submission that neither Mr. Sithat nor ST Vegas Co were parties to the Master Agreement. Both were defined under the phrase “2nd Party” in the Master Agreement. Mr. Sithat had also signed the Master Agreement in his personal capacity and had received payment of monies under the Master Agreement. As ST Vegas Co owned the rights to the Thanaleng Slot Club, it was a necessary entity that had to be a party to the Master Agreement in order for it to have effect. Furthermore, Mr. Sithat and ST Vegas Co were both involved in certain pre-arbitration steps stipulated as escalation provisions in the arbitration agreement. The Court did, however, find that ST Vegas Enterprise was not a party to the arbitration since it was not a party to the Master Agreement.

As to the Respondent’s objection that the tribunal incorrectly determined the seat of arbitration, the Court agreed that on its proper construction the arbitration agreement identified the seat to be Macau and not Singapore. However, the Court also held that while the parties’ choice of seat is important, such choice is less critical where the disgruntled party is not seeking to set aside the award but is resisting enforcement. This was because enforcement proceedings could be brought in any jurisdiction, whereas only the court of the seat can set aside an award. In seeking to resist enforcement, the Court held that a party had to demonstrate how the law of the incorrect seat impacted the arbitral procedure adopted. The mere assertion that the tribunal conducted the arbitration in the incorrect seat would not be sufficient for the Court to refuse enforcement.

The Court also held the parties adhered to the requirement in arbitration agreement to “use an internationally recognized arbitration company chosen by the party that was dissatisfied with the pre-arbitration process”. The Court found that the SIAC was such a company.

Ultimately, the Court rejected the Respondents’ submissions that enforcement of the award be refused. The Respondents did not demonstrate how the procedural irregularities identified by the Court had affected the arbitral procedure adopted or how they had caused prejudice.

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Stephenson Harwood (Singapore) Alliance is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with Virtus Law LLP where necessary.

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