Singapore court overturns $308m arbitration award to sanctioned Russian company
Singapore’s Court of Appeal has ruled that an arbitration tribunal breached ‘natural justice’ by adopting reasoning with no connection to either party’s case, setting aside critical portions of a $307.8 million award that had been granted to US-sanctioned Russian firm Power Machines in its dispute with Vietnam’s state oil company.
The court ruled on 10 October that the arbitration tribunal had ‘adopted a chain of reasoning that did not have any nexus to either of the parties’ cases, and had not given the parties the opportunity to be heard on the approach that it eventually took in coming to its determination’.
The case centered on a 2013 contract between Power Machines and Vietnam Oil and Gas Group PVN for a thermal power plant project in Vietnam that collapsed after the Russian manufacturing conglomerate was placed on a US sanctions list in January 2018 by the Office of Foreign Assets Control (‘OFAC’).
The sanctions prohibited US companies from doing business with Power Machines, causing many subcontractors to suspend work on the power plant over fears of violating the restrictions.
Power Machines issued two separate termination notices to PVN in early 2019, the first asserting that the sanctions constituted force majeure under the contract, and the second citing non-payment.
PVN challenged both termination notices, arguing the first constituted wrongful termination because the sanctions did not amount to force majeure, and that the second notice was invalid because the contract had already been terminated by the first notice. The dispute proceeded to arbitration under the Singapore International Arbitration Centre rules.
In November 2023, the arbitration tribunal ruled largely in favor of Power Machines, finding that the Russian company had failed to establish that the US sanctions constituted force majeure, meaning the first termination notice was issued without valid basis. The tribunal further reasoned that, despite the first notice being invalid, the second notice must have been intended to replace or supersede the first, thereby effecting a valid termination of the contract under Vietnamese law. On this basis, the tribunal concluded the second notice validly terminated the contract on 22 February 2019. It awarded Power Machines over $307.8 million in damages.
The Court of Appeal found this reasoning fatally flawed. Chief Justice Sundaresh Menon, delivering the judgment, noted that neither party had advanced the argument that the second notice could override or supersede the first notice. More critically, Power Machines had consistently maintained throughout the arbitration that it did not intend to withdraw the first notice by issuing the second.
The High Court had initially found grounds to set aside parts of the award but ordered the matter remitted to the same tribunal for reconsideration. The Court of Appeal reversed this decision, ruling remission was inappropriate given the severity of the breach.
The appellate court expressed concern about potential prejudgment if the matter were sent back to the tribunal that had already decided the issue without proper basis. ‘Given the significance and materiality of the breach by the Tribunal, we consider that remission was not an appropriate course in this case,’ Chief Justice Menon wrote.
The Court of Appeal reversed the High Court’s remission order and set aside the $307.8 million award along with other portions of the final award that flowed from the tribunal’s flawed reasoning.
