Sanctions, Impossibility, and the Limits of Curial Review: The Singapore High Court Upholds a Tribunal's Termination Order in the Face of International Sanctions
In DRL v DRK [2026] SGHC 32, the Singapore High Court dismissed an application to set aside an award issued by a tribunal (the ‘Tribunal’) constituted under the Arbitration Rules (6th Edition, 1 August 2016) (‘SIAC Rules’) of the Singapore International Arbitration Centre (‘SIAC’). The award contained an order terminating the arbitration under Article 32(2)(c) of the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’), on the basis that international sanctions imposed on the applicant had rendered the continuation of proceedings impossible. The decision provides important guidance on the scope of Article 32(2)(c) of the Model Law, confirming that the provision requires an objective and binary assessment of impossibility, and that a tribunal has no discretion to weigh the prejudice to either party once impossibility is established.
Facts
The applicant commenced an arbitration against the respondent in May 2020, claiming a nine-figure contractual debt (the ‘Debt’) under a contract governed by English law (the ‘Contract’). The Contract contained an arbitration agreement requiring the parties to resolve all disputes by arbitration in Singapore under the SIAC Rules. The respondent denied the Debt and brought a counterclaim for breach of the Contract.
Between February and June 2022, several countries imposed international sanctions (the ‘Sanctions’) on the applicant. The applicant accepted that the Sanctions had the following continuing effects on the applicant: (a) the applicant’s assets touching the financial systems of the United States of America (‘US’) and Singapore were frozen; (b) US persons were prohibited from dealing with the applicant; (c) providers of secure messaging services for financial transactions, including SWIFT, were prohibited from providing their services to the applicant; and (d) it had become impossible for the applicant to make or receive international payments. As a result, the applicant was unable to pay deposits to the SIAC, transfer fees to its lawyers, or pay any sums that might be ordered under an award.
Key procedural developments
In April 2022, the applicant sought and secured a two-month stay of the arbitration to address issues arising from the Sanctions. Upon expiry of the stay in June 2022, and upon the Tribunal’s queries to the parties of how they intended to proceed, in July 2022, the respondent applied for an order that the applicant furnish security for the respondent’s costs in the sum of S$3.2 million.
On 6 September 2023, the Tribunal ordered the applicant, by 4 October 2023: (a) to furnish security for costs in the sum of S$1.3 million; (b) to state unequivocally whether it intended to proceed with the arbitration; and (c) if so, to set out how it intended to deal with the effect of the Sanctions. The order also granted the respondent permission to apply for termination under Article 32(2)(c) of the Model Law if the applicant failed to comply.
The applicant failed to comply with the 4 October 2023 order. Instead, it applied for an indefinite stay of the arbitration, although it accepted that any stay could be limited to six months, i.e. until April 2024 (the ‘Stay Application’), contending inter alia that it required time to find a third-party funder or assignee for its claim. The respondent reacted by applying in November 2023 for an order terminating the arbitration under Article 32(2)(c) of the Model Law (the ‘Termination Application’).
The Tribunal’s Decision
On 27 September 2024, the Tribunal dismissed the Stay Application and indicated that it was “minded” to allow the Termination Application. The tribunal found that a further six-month stay would serve no useful purpose: the applicant’s position had not improved since the Stay Application, the Sanctions had not been lifted, and the applicant had failed to find a third-party funder or assignee.
The tribunal gave four main reasons for being minded to terminate the arbitration. First, the tribunal was duty-bound to make a termination order if it finds as a fact that the continuation of the proceedings had become impossible within the meaning of Article 32(2)(c) of the Model Law. Second, the tribunal was obliged to terminate under Article 32(2)(c) of the Model Law, even though doing so could cause significant prejudice to a claimant. Third, the prejudice to the applicant that arose before April 2024 from having to incur the time and cost of recommencing arbitration against the respondent on the same claim and the prejudice that arose after April 2024 from the expiry of the limitation period were not relevant considerations under Article 32(2)(c) of the Model Law. Lastly, the evidence established impossibility: the applicant had failed to pay deposits, failed to furnish security, failed to find a third-party funder or assignee, and there was no sign that the Sanctions would be lifted or cancelled in the near future.
In March 2025, the Tribunal issued the award, formally terminating the arbitration. Notably, by this time the limitation period for the applicant’s claim had expired, meaning the applicant could no longer commence a fresh arbitration on the same claim.
The High Court’s Decision
The applicant applied to the High Court to set aside the award on two grounds: breach of natural justice under section 24(b) of the International Arbitration Act 1994, and inability to present its case under Article 34(2)(a)(ii) of the Model Law.
At the outset, the court characterised the application as “in substance nothing more than a disguised appeal” against the Tribunal’s finding of fact that it was impossible to continue the arbitration within the meaning of Article 32(2)(c) of the Model Law. The court held that the applicant’s arguments were “in fact directed at the merits of the termination order and at the consequences of its results rather than at the process that the Tribunal followed in making the termination order”.
The court also made an important doctrinal observation on the scope of the tribunal’s natural justice obligations. When one party applies for a termination order under Article 32(2)(c) of the Model Law, the tribunal’s duty to afford natural justice “detaches from the tribunal’s determination of the parties’ dispute on the merits and attaches to the tribunal’s determination of whether the high threshold of impossibility within the meaning of Art 32(2)(c) is satisfied”. It is only if the termination application is dismissed that these duties reattach to a determination of the dispute on the merits.
The applicant’s case rested on three core submissions. Firstly, the applicant submitted that it had a fundamental right to a determination on the merits of its claim. Vinodh Coomaraswamy J accepted that parties to an arbitration generally have a right to have the tribunal determine their dispute on the merits, but held that this right is not “absolute and unqualified”. The right was subject to the mandatory provisions of the lex arbitri, and embedded in the lex arbitri is an “irreducible core of mandatory and non-derogable principles of procedural fairness”, including the right to a fair hearing. The very existence of Article 32(2)(c) of the Model Law is an “implicit qualification” of Article 24(1) of the Model Law, which provides for a hearing on the merits upon a party’s request. This means that a hearing on the merits of a dispute is not within the “irreducible core” if the lex arbitri incorporates Article 32 of the Model Law. Further, a finding of impossibility under Article 32(2)(c) of the Model Law does not merely empower a tribunal to terminate an arbitration without a determination on merits; it obliges the tribunal to do so. This is the effect of the word “shall” in the chapeau of Article 32(2) of the Model Law, a “deliberate choice” confirmed by the travaux preparatoires for Article 32(2) of the Model Law.
Crucially, the judge held that Article 32(2)(c) of the Model Law “turns on – and only on – an objective finding of fact by a tribunal as to the existence of impossibility”. If a tribunal makes that finding, Article 32(2)(c) of the Model Law expressly mandates a termination order, regardless of the degree of the prejudice to either party and regardless of the degree to which either party, if any, caused the impossibility. No discretion whatsoever is conferred on the tribunal under Article 32(2)(c) of the Model Law. This is in contrast to the termination of an arbitration under Article 32(2)(a) of the Model Law, which occurs upon the claimant withdrawing its claim. Article 32(2)(a) of the Model Law expressly confers a discretion on the tribunal and permits it to consider a respondent’s “legitimate interest” in obtaining a final settlement of the dispute.
The judge further observed that the apparent unfairness to claimants is more apparent than real, as “a claimant has the carriage of an arbitration”, and “therefore has a duty to progress that arbitration to an award on the merits, and to do so expeditiously”. In this case, the applicant had 29 months from its first request for a stay in April 2022 until the Tribunal’s decision in September 2024 to find a third-party funder or assignee, yet there was no evidence that the applicant made any such efforts.
The court also rejected the applicant’s suggestion that its right under Article 18 of the Model Law to “be given a full opportunity of presenting its case” obliged the Tribunal to determine its claim on the merits. The court rejected this as a “wholly strained reading” of the Tribunal’s obligation under Article 18 of the Model Law. Article 18 of the Model Law requires only that a tribunal treat the parties with equality and give each party a reasonable and fair opportunity of presenting its case. If the claimant was treated equally and afforded a fair opportunity to present its case on whether the tribunal ought to make a termination order, there is no cause for complaint.
Secondly, the applicant submitted that the Tribunal was obliged to apply its mind to the essential issues and arguments raised by the parties. The judge accepted this in principle, but held that after an arbitration has been terminated, “the tribunal cannot, by definition, continue to be under any duty to apply its mind to the essential issues and arguments raised by the parties on the merits of their dispute”. The Tribunal had fully discharged its duty to afford the applicant natural justice when it arrived at its determination that it was in fact impossible to continue the arbitration within the meaning of Article 32(2)(c) of the Model Law in September 2024 and when it eventually terminated the arbitration in March 2025.
Thirdly, the applicant also submitted that it had a “right to fair and equal treatment” and an expectation that the Tribunal would “not act unreasonably or capriciously”. However, the court held that the applicant had failed to meet the very high threshold set by China Machine New Energy Corp v Jaguar Energy Guatemala LLC [2020] 1 SLR 695, i.e. that the tribunal conducted the arbitration in in a manner “so far removed from what could reasonably be expected of the arbitral process that it must be rectified”.
To the applicant’s specific complaint that the Tribunal had failed to account for delays caused by the respondent and the Tribunal itself from the commencement of the arbitration in May 2020 until the first of the Sanctions was imposed in February 2022, the judge found that as a matter of fact, even without the alleged delays, it was “highly unlikely” that any award would have been issued before the first of the Sanctions was imposed in February 2022. As a matter of law, the question of the cause of the impossibility is “entirely immaterial” to the inquiry on an application under Article 32(2)(c) of the Model Law, which concerns only whether impossibility exists as an objective and binary state.
The court accordingly upheld the Tribunal’s decision and dismissed the application to set it aside.
Comments
This case affirms the tribunal’s mandatory power to terminate arbitral proceedings under Article 32(2)(c) of the Model Law. The judgment establishes in unambiguous terms that the impossibility inquiry is a purely factual one: it admits no balancing of interests, no assessment of prejudice, and no inquiry into causation. Once a tribunal reaches the factual conclusion that it is impossible for the arbitration to continue, termination follows as a matter of mandate, even if the consequence is the permanent extinguishment of the claimant’s cause of action. The court’s characterisation of the application as a “disguised appeal” reinforces the narrow grounds on which an arbitral award may be challenged under the International Arbitration Act 1994 and the Model Law, consistent with Singapore’s well-established pro-arbitration policy.
The court’s analysis of the “detachment” of natural justice duties provides important clarity for tribunals faced with termination applications. The court held that the tribunal’s obligation to afford natural justice reattaches to the termination inquiry — rather than remaining tethered to the merits. The practical implication is that a tribunal need not continue to grapple with the substantive merits of a dispute once it has concluded that continuation is impossible; its obligation is to ensure procedural fairness in determining the termination application itself.
For parties involved in cross-border arbitration, the decision underscores the vulnerability that arises when sanctions or restrictions disrupt a party’s ability to participate in proceedings. Given the increasing prevalence of international sanctions regimes, parties and their counsel should consider at the outset of any cross-border arbitration whether sanctions risk exists, and should build contingency planning into their case management strategy accordingly. It would be prudent for any party facing such restrictions to explore all available avenues, like third-party funding arrangements, at the earliest possible stage.
* The author thanks practice trainee, Jolene Tan, for her assistance in preparing this article.
