When arbitrators can override the parties’ agreement

Party autonomy originally meant simply that the parties can choose what law will apply to their contract. In modern commercial arbitration, however, this concept has been extended to cover a broad range of areas where the parties can agree what may and may not be done in the arbitration.

This can sometimes lead to conflict between the parties’ wishes and the powers of the arbitral tribunal, particularly when the tribunal recognises that it must act in a broader public interest. Such conflict has been highlighted in the recent judgment of the Singapore International Commercial Court in Lao Holdings NV v The Government of the Lao People’s Democratic Republic [2021] SGHC(I) 10.

The facts: the revival of the arbitration

This case has a long and complicated history. The original project concerned the investment by Lao Holdings NV and its wholly-owned subsidiary Sanum Investments Limited (the “Investors”) in the gambling industry in Laos, specifically in various casinos and spot clubs around the country.

They partnered with a Laotian conglomerate, ST Group Co Ltd (“ST Group”), and its related companies. The project started in 2007 but by late 2011 the Investors had fallen out with their Laotian partners and started an arbitration against them at the Singapore International Arbitration Centre.

Additionally, the Investors complained about the actions of officials of the Government of Laos. They alleged that those officials had embarked on a series of arbitrary and discriminatory actions designed to enrich the officials and the ST Group at the Investors’ expense.

In 2012, the Investors started two investment treaty arbitrations against the Government of Laos, one under the Laos-Netherlands Bilateral Investment Treaty and the other under the Laos-PRC Bilateral Investment Treaty (the “BIT arbitrations”). Although the BIT arbitrations were not consolidated, the hearings ran in parallel, the arbitrations were both seated in Singapore and some of the same arbitrators were on both tribunals (as a result these tribunals were commonly described as making up one tribunal). There was also going to be one combined hearing for both cases, which was due to start on 17 June 2014. However, on 15 June 2014, the parties agreed a settlement deed (the “Settlement Deed”) under which the BIT arbitrations were suspended.

The Settlement Deed provided that the BIT arbitrations could be revived if there was a material breach by the Government of Laos of certain parts of the Settlement Deed. If the arbitrations were revived, the Settlement Deed specified that neither side would “be permitted to add any new claims or evidence to the arbitration nor seek any additional reliefs already sought in the proceedings.”

In 2016, the Investors applied to the arbitral tribunal for a revival of the BIT arbitrations on the grounds that there had been a material breach of the settlement by the Government of Laos. The tribunal accepted that application and restarted the arbitration in 2017. The Government then applied in 2018 to file evidence which had only come to light after the Settlement Deed had been executed, and which appeared to show bribery and corruption on the part of the Investors.  The Investors objected to this because, they said, this was a new claim by the Government, and new evidence, both of which were contrary to the terms of the Settlement Deed.

The arbitral tribunal rejected the Investors’ submission and admitted the evidence, and then issued awards which concluded that, on the balance of probabilities, the Investors had been involved in making bribes to government officials and to witnesses. As a result the tribunal rejected the Investors’ claims. The Investors applied to the Singapore courts to set aside the awards on the basis that the corruption allegations fell outside the reference to arbitration, and the new evidence could not have been filed, by virtue of the Settlement Deed.

The judgment of the Singapore International Commercial Court

The judges in the Singapore International Commercial Court dealt with the first challenge to the award relatively briefly. The Government of Laos from the start of the BIT arbitrations had alleged corruption, bribery, illegality and bad faith on the part of the Investors. Consequently, the arguments that the Government advanced in 2018 based on the evidence that had come to light were not new claims but were further allegations that fell within the scope of the claims that had already been submitted. They also concluded that the Investors had waived their right to challenge the awards on this ground because they had not raised a jurisdiction objection when the new evidence had been filed.

The ruling on the second challenge is more interesting. Under the UNCITRAL Model Law on arbitration, which is incorporated into Singapore law, an arbitration award can be set aside if the arbitral procedure was not in accordance with the agreement of the parties. There was no dispute here that the parties had agreed in the Settlement Deed that there should be no new evidence in the arbitration, and no dispute that the evidence filed by the Government in 2018 had not been on the record in the arbitration prior to the Settlement Deed. Nonetheless, the court ruled that the awards should not be set aside, for the following reasons:

1. The Settlement Deed was governed by New York law and, since under Singapore law a ruling about a foreign law is a finding of fact, the decision by the arbitral tribunal about the Settlement Deed was a decision about the facts of the case and could not be set aside by the courts.
2. Properly understood in context, the Settlement Deed did not exclude all new evidence because it was entered into before the arbitration hearing and the parties would have contemplated new evidence coming out via cross-examination of witnesses. Further, the arbitral tribunal has the power under the Bilateral Investment Treaties to determine the arbitral procedure, and the parties by their agreement could not amend the Treaties. The arbitral tribunal was therefore entitled to conclude that it could admit fresh evidence, exceptionally, if there were compelling circumstances to do so.
3. Arbitral tribunals, and particularly arbitral tribunals dealing with investor-State disputes, have a duty to consider corruption. They have a proactive role in this respect and cannot simply ignore evidence of corruption; and no agreement between the parties can prevent the tribunal from admitting that evidence, otherwise parties could agree to preclude evidence of corruption and tribunals might make awards supporting or enforcing that corruption.
4. On the facts of this case, it is unlikely that the decision of the tribunal would have been different if the new evidence had not been admitted, meaning that the Investors had not suffered any prejudice even if the tribunal had wrongly admitted the new evidence.

Comment

This judgment is most striking for the court’s conclusion that arbitrators have a proactive duty (at least under Singapore law) to consider evidence of corruption; and this duty overrides any agreement between the parties to limit the scope of the tribunal’s mandate. In this respect, arbitrators no longer serve the parties that appointed them, but the greater public good.

This is the price, one might say, for the support to arbitration that is offered by court systems across the world: in return for enforcement of arbitration awards, arbitrators must at times assume the role and responsibilities of national court judges and investigate any corruption that might have been brought to light.