Singapore Court sets aside $ 5 m arbitration claim by Avant Garde against Rakna Lanka

By S.S. Selvanayagam

In a landmark judgment, the Court of Appeal of Singapore (which is the highest appellate Court in Singapore) allowed an appeal made by Rakna Arakshaka Lanka Ltd. (RALL) to set aside an arbitral award given by an Arbitral Tribunal of the Singapore International Arbitration Centre (SIAC) for a sum of $5 million in favour of Avant Garde Maritime Services Ltd. (AGMS), a company owned by businessman Nissanka Senadipathi.

This results in the culmination of a protracted legal battle contested between the two Sri Lankan companies in the Singaporean courts for several years.

The claim of AGMS arose from an incident which occurred in January 2015.  In January 2015, a vessel named ‘MV Mahanuwara’ was detained by the Police/Navy while it was docked at the Galle harbour, in connection with investigations that were being carried out into the legitimacy of the Galle Floating Armoury Project.

The MV Mahanuwara was chartered and operated by AGMS at that time. Thereafter by a letter dated 20 February 2015, AGMS requested RALL to obtain a ‘Letter of Clearance’ from the MOD and or the GOSL, clearing the name of AGMS, and stating that the business carried out by AGMS under the public-private partnership with RALL was legitimate and carried out under the authority of the Government through the MOD.

AGMS also asked RALL to obtain an appropriate media release from the Government confirming the legitimacy of the business activities carried out by AGMS and of the public-private partnership between AGMS and RALL. There was no response from RALL.

In April 2015, AGMS commenced arbitration proceedings in Singapore against RALL on the basis that RALL had breached clause 3.1 of the Master Agreement by failing to provide utmost assistance to AGMS.

In the Notice of Arbitration, AGMS claimed $20 million. At this stage, RALL did not participate at the arbitral proceedings and the SIAC proceeded to appoint Justice Chan Sek Keong, a former Attorney General and Chief Justice of Singapore, as an arbitrator on RALL’s behalf.

Thereafter in October 2015, RALL and AGMS signed a Memorandum of Understanding (MOU).

The MOU provided for AGMS to pay certain sums to RALL, for RALL to waive part of one of its claims against AGMS, and for AGMS to withdraw the arbitration proceedings instituted against RALL.

RALL informed of such fact to the SIAC Tribunal. However, AGMS took the view that there was no settlement and the arbitration remained afoot. By an order dated 19 December 2015, the SIAC tribunal by majority decision inter alia held that the arbitration can continue. The SIAC appointed arbitrator Chan Sek Keong, dissented and held that the arbitration proceedings should be terminated.

The final hearing of the arbitration was held in June 2016. AGMS was represented at the hearing by Kuvera De Zoysa PC, Nishan Premathiratne and Ameer Maharoof. RALL was unrepresented.

The arbitral tribunal delivered its final award by majority decision on 29 November 2016 where RALL was ordered to pay AGMS $5 million with interest at 5.98% for the breach and SGD 424,891.01 for the costs of the arbitral proceedings. Justice Chan Sek Keong again dissented to the said award and inter alia held that AGMS’ claim should be dismissed.

In early 2017, the Board of Directors of RALL were removed by President Maithripala Sirisena and a new Board headed by senior SLAS officer Nalaka Kaluwewa was appointed by the President.

RALL applied to the High Court of Singapore to set aside the award. In the said case, RALL principally took up the position that said award has been made by the arbitral tribunal without having the jurisdiction to do so and that the said award was contrary to public policy. The High Court of Singapore delivered judgment dismissing RALL’s application and affirming the SIAC arbitral award.

Thereafter RALL preferred an Appeal to the Court of Appeal of Singapore against the said arbitral award and the Judgment of the High Court of Singapore.

The case was argued on 30 January before a bench of the Court of Appeal of Singapore comprising of Sunderesh Menon, the Chief Justice of Singapore and Judges of Appeal Judith Prakash and Steven Chong. The Judgement (written by Judith Prakash JA and affirmed by the other judges) was delivered on 10 May.

By its Judgment, the Court of Appeal of Singapore allowed the Appeal of RALL and set aside the Judgment of the High Court of Singapore and the award of the SIAC Arbitral Tribunal.

Court also awarded costs totalling to SGD 80,000 to RALL. The following were among the main findings of the Court of Appeal of Singapore:

It was not necessary for RALL to file a formal objection or plea as regards the lack of jurisdiction of the Arbitral Tribunal. RALL did object to the Tribunal’s jurisdiction in its letter to SIAC dated 12 November 2015.

The Interim Order of 19 December 2015 is a preliminary ruling on jurisdiction neither the Model Law on Arbitration nor section of the International Arbitration Act of Singapore should prevent a respondent who chooses not to participate in an arbitration because he has a valid objection to the jurisdiction of the Tribunal from raising that objection as a ground to set aside the Tribunal’s award.

Under the MOU, the parties agreed to withdraw the submission to arbitration. As such the Award that arose out of a continuation of arbitration proceedings that no longer dealt with a valid submission, contained “decisions on matters beyond the scope of submission to arbitration”.

The MOU was operative immediately upon its execution and the parties’ intention was to affect an immediate settlement (Para 92). The MOU resolved the dispute between the parties. Once the dispute was resolved, there was no longer a dispute which could be arbitrated.

The acts complained of by AGMS did not affect the validity of the MOU.

RALL is a separate legal entity from the Government of Sri Lanka which acts independently from RALL and is not controlled by RALL. Actions taken by the Government of Sri Lanka or its agencies cannot be attributed to RALL.

On and from the date of the MOU, the Tribunal’s mandate to decide the arbitration had ended and their decision to continue was in error. The award contained decisions on matters that were beyond the scope of submission to arbitration and must be set aside.

RALL was represented by Andre Arul of Arul Chew and Partners assisted by Sri Lankan Counsel Chandaka Jayasundere PC and Pulasthi Rupasinha. AGMS was represented by Sarbjit Singh of Selvam LLC assisted by Sri Lankan Counsel Kuvera De Zoysa PC and Ameer Maharoof.