The Singapore Law Gazette

Purpose over Process – Empowering the SIAC-SIMC Arb-Med-Arb Protocol

A friendly response to Paul Tan and Kevin Tan.

The Propositions

My friends Paul Tan and Kevin Tan have urged it be made clear that jurisdictional challenges may be made after an arbitration has been stayed and referred to mediation under the Singapore International Arbitration Centre (SIAC) – Singapore International Mediation Centre (SIMC) Arb-Med-Arb protocol.¹ See Kinks in the SIAC-SIMC Arb-Med-Arb Protocol (Singapore Law Gazette, January 2018). I write to urge the opposite clarification. It is understandable that the question of the appropriate time to make a jurisdiction challenge would arise in busy arbitration practices but my view is that the challenges should be dealt with only if settlement was not reached in the mediation.

Support for the need for clarification comes also from the uncertainty as to what is meant by a stay of arbitral proceedings. In litigation, a stay usually prevents the parties from taking “a step in the proceedings” without leave of the court, with there being fine gradations of what is and is not a “step” for that purpose. Whether the approach of litigation would be applied to arbitration and whether mounting a jurisdictional challenge would amount to a precluded “step” is arguable. For example, for an act to be a “step” in litigation it usually must be in furtherance of the action by advancing the hearing of the matter rather than smothering the action,² See Carona Holdings Pte Ltd and others v Go Go Delicacy Pte Ltd [2008] 4 SLR(R) 460 at [93]. and fine distinctions have developed as to what is and is not a step.

Messrs Tan also suggested clarification that a stay of an arbitration does not prevent applications for interim relief in the arbitration. I agree clarification is desirable and note that, interestingly, it would be on an application for interim relief that the hibernating bear of jurisdiction might be awoken.

Jurisdictional Challenges

The protocol provides that an arbitration will be stayed when the respondent files its response and the tribunal is constituted. After staying the proceedings, the tribunal informs the Registrar of SIAC that the dispute can be submitted to SIMC for mediation. If the mediation is successful, the arbitration is awoken and the settlement agreement rendered as an award in the arbitration. If the mediation is unsuccessful, the arbitration is awoken and continues.

Paul and Kevin argued that time and expenses in the mediation would be saved if the tribunal was able to decide jurisdictional challenges before reference to mediation, and that as a matter of contract the respondent in particular should not be forced into the mediation when it genuinely disputes the jurisdiction of the tribunal.

My reasons for differing are four – dispute resolution systems should resolve disputes, not prolong them; there is no saving in time and expenses overall because the jurisdictional challenge cannot determine the dispute; as an expression of party autonomy, the parties have agreed for mediation after the response; and arguably the tribunal has no jurisdiction to decide its jurisdiction under the protocol.

Resolving Disputes

The purpose of dispute resolution systems is to resolve disputes. While it may be in the short term interests of some respondents (and occasionally claimants) to prolong resolution, a system should not be used or usable for that purpose. A dispute resolution mechanism would lose its credibility if it was used to delay the very purpose it was designed to achieve. The institutions promoting or administering the abused mechanism would also lose a little of their standing if one of their processes becomes known as being susceptible to manipulation.

This was particularly so if the system was designed and promoted for the early, informal disposal of disputes. If the parties’ desire for speed and informality expressed at the time of contracting was subverted by lawyers being legalistic, parties would eventually not incorporate that system into their contracts and would find alternatives. We have seen this occur to an extent with arbitration itself. A system designed for less formal, rapid, inexpensive “justice” was being deserted by a solid section of corporate counsel because of perceptions that it operates contrary to its design.

It is also in the long term interests of commerce that differences be resolved and money not bled into billabongs where it neither produces profits nor is available for profit generation. In relation to direct costs, “litigation imposes significant indirect costs, such as increased borrowing cost, waste of time and resources as well as [organisational] stress and deterioration of business relationships, which is commonly priced at a multiple of direct costs reaching trillions of dollars a year globally”.³ See “How Can We Avoid Costly Disputes?” (World Economic Forum Report, November 2017) <http://www3.weforum.org/docs/How_Can_We_Avoid_Costly_Disputes_report_2017.pdf> (last accessed 6 June 2018).

Put bluntly, the purpose of the protocol would be defeated by allowing jurisdictional arguments to be heard and determined before mediation.

Of course, merely referring a dispute to mediation does not mean that it would be resolved, and it could be the case that early mediations do not produce settlements for various reasons – high emotions, beliefs in cases, costs not hurting, insufficient information and so on. This is not a reason to delay the mediation for jurisdiction challenges. In my lexicon, there is no such thing as a failed mediation. Even where settlement was not reached, mediation was very useful in getting the protagonists to face each other, drawing some of the poison that has developed between them, learning more of the other’s case and attitude, learning more of your own case, and having to present your case to an independent person and seeing their reaction. Approaches to disputes are invariably refined after mediation by responding to what was learnt during the mediation.

No Savings

This is best demonstrated by examining what occurs in each situation if challenges to jurisdiction occur before mediation. If a challenge is successful, the arbitration would be terminated and the claimant must commence litigation. Mediation may or may not be part of the interlocutory procedures in that Court and the parties may either be referred to mediation, be left to raise it themselves, or prosecute to trial.

If a challenge is unsuccessful, the mediation would go ahead as originally intended by the protocol and by the parties including it in their agreement.

Where then the savings? It is highly unlikely that either party’s loss of the jurisdictional challenge would resolve the dispute. The challenge would almost certainly not be based on the merits of the dispute but on whether the dispute falls within the arbitration agreement or whether any preconditions to arbitration have been met. After the challenge, the protagonists would still either be referred to mediation or be forced to litigate.

To my mind, requiring challenges to jurisdiction to be decided before mediation under the protocol is akin to warring nations putting the peace conference on hold while they fight a small, intense, localised but indeterminate battle elsewhere. Whatever the outcome, they would either have to go to the peace conference or fight the full-scale war.

Particularly is this so given section 10(3) of the International Arbitration Act⁴ Cap 143A, 2002 Rev Ed. requires a disappointed party to challenge a jurisdictional ruling within 30 days. That section provides that, if the arbitral tribunal rules that it has jurisdiction as a preliminary question, or rules at any stage that it has no jurisdiction, any party may apply to the High Court to determine the issue within 30 days after notice of the ruling,. In the recent decision of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Private) Limited, Quentin Loh J held that an application to set aside a final award on the basis of jurisdiction after those 30 days was barred.⁵ [2018] SGHC 78 at [57]–[60]. His Honour said:⁶ Ibid at [59].

Art 16(3) [of the Model Law] states explicitly what is implicit in s 10(3) IAA; viz, the arbitral tribunal has the discretion whether to rule on a plea that it has no jurisdiction either as a preliminary question or as an award on the merits. Both s 10 IAA and Art 16(3) clearly provide that if the arbitral tribunal rules that it has jurisdiction as a preliminary issue then any party may apply, within 30 days after having received notice of that ruling, to the supervisory court at the seat to determine the matter.

If jurisdictional challenges were determined before referral to mediation under the protocol, the mediation would be delayed indefinitely by the party challenging the ruling on jurisdiction being required to mount the challenge within 30 days, followed by potential appeals.

Party Autonomy

The parties have agreed to incorporate the protocol into their arbitration agreement. On its face, it made no provision for any issue to be raised between commencement of the arbitration and the referral to mediation. Although the referral to mediation was made by the tribunal, it does not depend on the tribunal’s jurisdiction in the same way as an interim measure or final determination. I do not understand Paul and Kevin to be saying it does and that it is the reason jurisdiction needs to be determined first.

Party autonomy supports the intended effect to the protocol which has effectively been incorporated into the contract by reference. The parties have expressly agreed to refer their dispute to mediation after the response is filed with nothing further. Arbitration should give effect to that clearly expressed intention by following the protocol.

Commencement of arbitration can be seen as a precondition to mediation, in the same way as multi-tiered dispute resolution clauses have preconditions to the various forms of resolution – notice, negotiation, mediation and arbitration. The commencement of arbitration may be seen in a similar light to a notice requiring mediation (ie, fulfilment of the precondition). It can be seen as no more than the agreed procedure to trigger the mediation process, namely referral by SIAC to SIMC and then SIMC administering the mediation.

As the referral does not depend on the jurisdiction of the tribunal and because the parties are free to agree on the steps to be taken to resolve their disputes, the parties may by agreement under the protocol temporarily remove the dispute from the tribunal’s purview. Unlike litigation, arbitration depends on the consent of the parties, and by adopting the protocol the parties have only consented to the commencement of arbitration before referral to mediation. They have not consented to every aspect of arbitration before mediation.

Jurisdiction

As a natural segue, a tribunal may lack jurisdiction to decide its jurisdiction after a response is filed since its jurisdiction depends on the parties’ consent. Under the protocol, the parties have agreed that the arbitration would be stayed at that point. That is, they have agreed that the arbitrator’s only power is to stay the arbitration pending mediation. This is not a question of kompetenz-kompetenz. It is a question of what the parties have committed to the tribunal by their agreement. It is not a suggestion of the tribunal being functus officio but of being temporarily deprived of jurisdiction.⁷ See Five Oceans Salvage Ltd v Wenzhou Timer Group Company [2011] EWHC 3282.

A counter argument is that the parties intended and agreed the usual legal consequences of an arbitration being stayed, namely that the tribunal retained jurisdiction to deal with matters that were not considered a step in the proceedings. There then would follow the argument as to whether an application to dismiss the arbitration for want of jurisdiction was a step in the proceeding.

Interim Relief During Stay

Tribunals should have power to grant interim relief during a stay if they adopt the approach of the Courts described at the beginning of this article or if it was accepted that the parties impliedly consented to such power (as discussed above). An application for interim relief is intended to preserve the status quo rather than to advance the dispute towards hearing and would not usually be regarded as a “step” precluded by the stay. This is common sense, to enable the parties to have some recourse if urgently required pending trial and to avoid applications to the Court. It should also accord with the intention of the parties that the tribunal would have power to grant interim relief pending mediation.

Question marks, potential arguments and needless applications to the Courts over the preceding paragraph make it desirable to clarify that tribunals have that power despite the stay.

Interestingly, it is at this point that jurisdictional challenges and interim relief collide. If a claimant makes an application for interim relief during a stay pending mediation, the respondent could challenge the overall jurisdiction of the tribunal as its defence to the interim application. It might be difficult for the tribunal to avoid dealing with the jurisdictional challenge unless it was obviously without merit or the interim measure was extremely urgent. A respondent might be able to craft a jurisdictional challenge by prompting an application for interim relief by the claimant and then making its challenge.

Conclusion

I urge for the protocol to be clarified to state that jurisdictional challenges may not be made during a stay pending mediation unless raised bona fide in defence to an application for interim relief, which is permitted during a stay.