Home Insights A cautionary tale for joint venture parties – why arbitration works

A cautionary tale for joint venture parties – why arbitration works

The New South Wales Supreme Court recently determined an application by a joint venture party to set aside an order registering a judgment of the Singapore High Court in New South Wales.

The application was made by Mr Nyunt. Mr Nyunt, a national of Myanmar and citizen and resident of Australia, had entered into a joint venture agreement with First Property Holdings Pte Ltd (First Property), a Singaporean company, in 1998. Mr Nyuent’s brother was also a party. Two further documents were executed in relation to the joint venture: a loan agreement and a convertible debenture. The joint venture involved the development of property projects in Myanmar (intended to occur through a Myanmar incorporated company).

The chronology is complex and spans the period from at least 1998 to the present – over two decades. The dispute involved litigation in Myanmar, followed by litigation in Singapore which led to litigation in the Federal Court of Australia. The litigation in Myanmar was described in the Federal Court judgment as running for ‘many years’; no further details were disclosed.

The proceedings in the High Court of the Republic of Singapore were commenced by First Property against Mr Nyunt to recover a debt under the loan agreement and for breach of fiduciary duty. The breach was said to arise from Mr Nyunt’s treatment of the joint venture assets. Because Mr Nyunt was living in Australia, leave was required from the Singapore High Court to serve proceedings on him outside of Singapore. Leave was granted and Mr Nyunt was personally served. In spite of this, Mr Nyunt did not enter an appearance in Singapore and First Property obtained judgment against him.

The decision by Mr Nyunt and First Property to enter into a joint venture arrangement without the benefit of an arbitration agreement was unwise. Singapore, Myanmar and Australia are New York Convention member States. The New York Convention facilitates the recognition and enforcement of foreign arbitral awards in 159 countries. There are limited grounds on which an award debtor can resist enforcement; the New York Convention does not allow a review on merits.

Unfortunately for both Mr Nyunt and First Property, none of the key joint venture documents contained an arbitration clause. Instead, the documents stipulated the courts of Singapore as the chosen forum on a non-exclusive basis.

The effect of the choice of court clause was to permit the parties to commence proceedings both in Singapore courts and in other courts having jurisdiction. In this case, this included lengthy proceedings in the courts of Myanmar. The choice of court clause also obliged First Property to seek leave to serve the Singapore proceedings before it could prosecute the substantive claims in that court. This step would have been unnecessary if the parties had chosen arbitration.

Proceedings for the recognition and enforcement of foreign arbitral awards is relatively straightforward in Australia under the International Arbitration Act (Cth) 1974 (the IAA). The IAA contains exhaustive grounds available to an award debtor to resist recognition and enforcement. The award creditor must demonstrate to the court that the award was made pursuant to a valid arbitration agreement and produce the award. In most cases, the parties to the award must mirror the parties to the arbitration agreement. If a challenge is made to the jurisdiction of the tribunal who made the award, the court looks only to the arbitration agreement, including its scope and the parties to it. Applications for recognition and enforcement are usually heard promptly by the courts and the hearings are short in duration.

Mr Nyunt’s application to set aside registration was made broadly on five grounds:

  • first, that the Singapore court did not have jurisdiction to hear the claims brought before it;
  • second, that Mr Nyunt did not have sufficient notice of the proceeding to enable him to defend the claims;
  • third, that the judgement was obtained by fraud;
  • fourthly that registration was an abuse of process (so that judgment must be set aside as a breach of public policy); and
  • fifth, that the dispute underlying the judgment had already been finally disposed of in another court before judgment was given in the Singapore court.

Mr Nyunt failed on all grounds.

As to the question of jurisdiction, the fact that the parties had chosen litigation over arbitration obliged the court to embark on a detailed analysis of the joint venture documents (and in particular the choice of court clauses), the history of the dispute, the nature of the claims brought by First Property in the Singapore proceedings and consideration of conflict of laws. Had the parties engaged in arbitration, the question of whether the tribunal had jurisdiction over the dispute leading to the award would have been answered by the terms of the arbitration agreement. Put simply, it is the parties’ agreement which vests jurisdiction in the tribunal. And where the usual phrase in an arbitration agreement is ‘all disputes arising out of or in connection with’ the relevant contract, there is very limited opportunity to argue that a claim related to the agreement does not fall within scope.

On the question of notice, an arbitration clause would also have simplified the analysis, particularly if the arbitration proceedings were administered by an arbitral institution. The reason for this is that the rules of many of the arbitral institutions provide for the institution to give notice of the commencement of the arbitration to the respondent. It is almost impossible for the respondent to claim it did not have notice in these circumstances. Further, once the arbitration proceedings are on foot, all communications can be made by email (for which a read receipt can be requested). There is no need to examine whether judicial leave was granted for service overseas, whether service was properly effected according to that leave and whether the defendant had actual notice of the proceeding.

Both fraud and breach of public policy are available to challenge recognition and enforcement of a foreign arbitral award as well as supporting an application to set aside registration. The jurisprudence in Australia on the question of public policy in the context of the IAA shows that the courts make every effort to ensure that a party relying on the public policy exception does so in a confined manner and, in doing so, does not seek a re-hearing of the merits.

The final ground raised by Mr Nyunt was that the dispute had already been the subject of a final and conclusive judgment in the Myanmar court. The Federal Court held that the ‘matter in dispute’ in the Myanmar proceeding was not the same as the matters in dispute in the Singapore proceeding.

It is clear from the chronology outlined in the judgment (both in relation to the joint venture itself and the litigation that followed), that the issues in dispute between the parties were complicated and the level of cooperation amongst the parties was suboptimal.

However, had the joint venture documents each contained an identical arbitration clause allowing joinder or consolidation, disputes arising out of, or in relation to, the joint venture would all have been resolved by a single tribunal. And the only litigation required in that scenario would have been straightforward proceedings for recognition and enforcement of the foreign arbitral award.

This real life example of protracted and complicated litigation is a lesson for joint venturers of the importance of understanding upfront how disputes might arise, how disputes should be resolved and why arbitration is more than just an option for cross border transactions.

See: First Property Holding Pte Ltd v Nyunt [2019] NSWSC 249



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