In this post, PANAGIOTIS CHALKIAS reports on the recent decision of the Singapore High Court in PT Pukuafu Indah vs. Newmont indonesia Ltd., where the court clarified the policy underlying the International Arbitration Act of Singapore.
The Singapore High Court was recently seized with an application to set aside an interim order granted by an arbitral tribunal in an arbitration governed by the SIAC Rules. While the International Arbitration Act of Singapore (IAA) was recently amended, the provisions of the IAA’s 2002 version cited by the High Court remain the same.
This judgment touches upon two highly interesting and challenging topics of international commercial arbitration. On the hand, the High Court deals with the question of whether an arbitral interim order can be considered as an award and therefore be open to setting aside proceedings. On the other hand and most importantly, the High Court goes on to explain the policy considerations of the IAA that courts in Singapore should take into account before they rule on setting aside applications.
The plaintiffs in this case were a company incorporated in Indonesia, PT Pukuafu Indah (“PTPI”), and six of its shareholders. On the defendants’ side were Newmont Indonesia Limited (“NIL”) and the US company NVL Limited (“NVL”), which was related to NIL and was a creditor to PTPI. NIL and PTPI were apparently shareholders of an Indonesian company PT Newmont Nusa Tenggara, which operates a copper and gold mine in Indonesia.
The contractual framework of this case involved a Release Agreement dated 26 November 2009, a loan agreement between NVL and PTPI dated 25 November and a co-ordination agreement dated 25 November 2009. The dispute mainly revolved around the Release Agreement, whereby they plaintiffs were bound to discontinue two suits that had been commenced in the Indonesian courts in October 2009. The plaintiffs not only did not abide by this contractual engagement but they also decided to initiate three more suits before the South Jakarta District Court in January, March and July 2010.
As a reaction to these lawsuits, the defendants commenced SIAC proceedings in August 2010 seeking declaratory and other relief for alleged contractual breaches by the plaintiffs. The defendants, now claimants in the arbitral proceedings, applied successfully for an interim order pursuant to article 26.1 of the SIAC Rules (4th Edition, July 2010), restraining the plaintiffs, now acting as respondents, from continuing all proceedings pending in the Indonesian courts or from commencing fresh proceedings relating to the dispute (anti-suit injunction). The hearing for this application took place in the absence of the respondents and the arbitral tribunal issued its interim order in favour of the claimants on 15 October 2010.
Subsequently, the Singapore High Court granted leave to enforce the arbitral order on March 2011 (on the basis of section 12(6) of the IAA) after PTPI and its shareholders failed to appear at the enforcement hearing. It was only on 6 May 2011 that PTPI and its shareholders (plaintiffs) filed an application to set aside the order of October 2010 before the High Court.
The High Court’s analysis does not come as a surprise as it endeavoured to look at the substance of the interim order rather than “the label given by the tribunal.” After determining that the interim order was in effect an anti-suit injunction, the High Court highlighted its interim effect. The purpose of the interim order was to “maintain the status quo” until the hearing on the merits. The order’s own content, which indicated that the injunction was granted “until further order by this Tribunal” and provided that “costs of the application for interim relief be reserved to the Final Award”, was a significant proof of its interim nature. The High Court added that it would do “great service” to the parties if the arbitral tribunal were to cite under which provision of the IAA they were issuing this order. This is because section 2 of the IAA defines the term “award” and specifically excludes the procedural orders and directions made under section 12(1) (interim injunctions are included in this list). Regardless of this omission, the High Court held that it had no jurisdiction to consider the setting aside application, as the interim order was not an award.
Taking into account that the interim and procedural nature of the tribunal’s order was established, the High Court’s judgment could have ended there. Interestingly enough, the High Court decided to make some clarifications on the policy of the IAA with respect to judicial enforcement and challenge of interlocutory orders. The High Court explained the reason behind the inception of section 12(6) of the IAA, which provides a “sui generis enforcement mechanism” to arbitral interim orders. This judicial assistance mechanism allows the conversion of arbitral interim orders into court orders so that the first ones are not mere paper decisions. It is therefore the judge’s decision that will be enforced. However, other jurisdictions have opted for the immediate enforcement mechanism through which courts can apply the same enforcement and annulment principles as if the arbitral interim orders were final awards.
The Singapore High Court saw this tension between these two mechanisms as a tension between independence and interventionism. And it clearly stated that the IAA’s overarching aim is to guarantee an independent and efficient arbitration process. As far as orders on procedural matters are concerned, the supervisory powers of the courts of the arbitral seat should be respectful of the arbitral tribunal’s procedural integrity. The High Court rightly pointed out that by limiting challenges only to awards that decide the substantive merits of the case, the risk of delay and of tactical attempts to obstruct the arbitration process is reduced. Opening the door to setting aside applications would defy the urgent purpose of an interim measure – whether this last one deals with procedural or substantive issues. The priority for recourse against such decisions should be given to the arbitral tribunals instead of the courts. On the other hand, the rights of the opposing parties can still be defended at the enforcement stage where it is possible to raise objections to the grant of the court’s leave for the enforcement of the interim order.
This judgment is a great example of how domestic courts should exercise their supervisory powers with respect to pending international arbitration proceedings. It also shows that the problem of enforceability of arbitral interim measures can be overcome with the help of sophisticated arbitration statutes and knowledgeable courts.