May 25, 2017 - survey of modern Commonwealth authority, the. High Court Judge ... disputes to arbitration (ie an asymmet
CASE UPDATE 25 May 2017
COURT OF APPEAL CONSIDERS ASYMMETRIC ARBITRATION AGREEMENT Wilson Taylor Asia Pacific Pte Ltd v DynaJet Pte Ltd [2017] SGCA 32
SUMMARY This case concerns an application by the Defendant for a stay of court proceedings under section 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), on the basis of an arbitration agreement which provided only the Plaintiff with the right to elect whether to refer disputes between the parties to arbitration.
BACKGROUND The Plaintiff had engaged the Defendant to perform certain underwater installation services. One of the terms of the contract between the parties was a dispute-resolution clause (“Clause”) which provided, amongst other things, that: “[a]ny claim or dispute or breach of terms of the Contract shall be settled amicably between [the parties] by mutual consultation. If no amicable settlement is reached through discussions, at the election of [the Plaintiff], the dispute may be referred to and personally settled by means of arbitration proceedings, which will be conducted under English Law; and held in Singapore” (emphasis added). A dispute subsequently arose under the contract (“Dispute”). The parties attempted, but failed, to reach a negotiated settlement. The Plaintiff then commenced proceedings in the High Court against the Defendant. The Defendant applied for the action to be stayed in favour of arbitration (“Stay
Application”) on the ground that the Dispute is governed by a valid arbitration agreement as set out in the Clause. The Plaintiff resisted the Stay Application, contending that for there to be an arbitration agreement, the agreement must (a) subject parties to a present and immediate obligation to arbitrate; and (b) give all parties to the agreement the right to refer disputes to arbitration. Since the Clause only allowed the Plaintiff to refer disputes to arbitration, and there was no immediate, present obligation to arbitrate because the Plaintiff had not exercised its right to elect to arbitrate the Dispute, there was no valid arbitration agreement. The Stay Application was dismissed by the assistant registrar. On appeal, after an extensive survey of modern Commonwealth authority, the High Court Judge (“Judge”) held that a dispute resolution agreement conferring one party with the exclusive right to elect whether to arbitrate a future dispute was nevertheless an arbitration agreement. The Judge also found that as a result of the Plaintiff electing to litigate the Dispute, the possibility that the Plaintiff could subsequently choose to have the Dispute referred to arbitration instead was foreclosed. Accordingly, the arbitration agreement in the Clause had become “incapable of being performed” within the meaning of section 6(2) of the IAA.
COURT OF APPEAL’S DECISION On appeal, the Court of Appeal (“CA”) applied the following three-step framework established in its previous decision, Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”), for determining if a stay should be granted under section 6 of the IAA: (a)
whether there is a valid arbitration agreement between the parties to the court proceedings;
(b)
whether the dispute in the court proceedings (or any part thereof) falls within the scope of the arbitration agreement; and
(c)
whether the arbitration agreement is null and void, inoperative, or incapable of being performed.
(A)
THE ARBITRATION AGREEMENT IN THE CLAUSE IS VALID AND ENFORCEABLE Applying the Tomolugen framework, the CA held that the Clause constituted a valid arbitration agreement. In its view, given “the weight of modern Commonwealth authority”, it was “immaterial” that under the Clause: (a)
only the Plaintiff was entitled to compel the Defendant to arbitrate a dispute; and
(b)
arbitration of a future dispute was entirely optional, in that there was no “immediate obligation [on the parties] to arbitrate their disputes”.
(B)
THE DECLARATORY RELIEF
arbitrate may never be exercised by the party with the right to elect. The dispute resolution clause will still be regarded as (a) an arbitration agreement; and (b) an agreement that is valid for the purposes of section 6(1) of the IAA. It bears mentioning that while asymmetrical arbitration agreements governed by Singapore law are valid and enforceable, there are jurisdictions which do not regard such asymmetrical arbitration agreements as valid. Accordingly, parties who wish to include asymmetrical arbitration agreements into their contracts should expressly provide that the arbitration agreement is governed by the law of a jurisdiction such as Singapore which enforces asymmetric arbitration agreements.
(B) Turning to the second requirement, ie whether the Dispute fell within the scope of the Clause, the CA held that because the Plaintiff “alone had the option to choose whether any disputes arising in connection with the contract, whether initiated by [the Plaintiff or the Defendant], were to be resolved either by arbitration or by litigation”, once the Plaintiff chose to refer the Dispute to the court, the Dispute fell outside the scope of the Clause. Put another way, the Dispute “could have fallen within the scope of the Clause only if [the Plaintiff] had so elected”. Given its conclusion that the Dispute did not fall within the scope of the Clause, the CA held that there was no need to consider the third requirement, ie whether the Clause was null and void, inoperative or incapable of being performed.
COMMENT
EXPANDING THE SCOPE OF THE ARBITRATION AGREEMENT ANALYSIS Second, in determining whether “a matter” in the court proceedings is the subject of a valid arbitration under section 6(1) of the IAA, it no longer suffices to simply consider whether the particular nature of the dispute in the court proceedings is one which is covered by the arbitration agreement. The court will now also consider whether the parties are “under a present obligation to arbitrate” that particular dispute. In this regard, the principle to be applied is that if on a true construction of the arbitration agreement, there is no immediate, present obligation on the plaintiff to the court proceedings to arbitrate the dispute before the court because, for example, the only party with the right to trigger arbitration has not exercised that right, that dispute would not be a matter which falls within the scope of the arbitration agreement.
The CA’s decision is significant for three reasons.
(A)
THERE CAN BE A VALID
ARBITRATION AGREEMENT WITHOUT AN IMMEDIATE, PRESENT OBLIGATION TO ARBITRATE
First, a dispute resolution clause which gives only one party a right to elect whether to refer future disputes to arbitration (ie an asymmetric right) is nonetheless a valid arbitration agreement. It does not matter that (a) the dispute resolution clause does not impose on parties an immediate, present obligation to arbitrate; or (b) the obligation to
In other words, a “matter” is within the scope of the arbitration agreement for the purposes of section 6(1) of the IAA only when (a) the parties involved in the dispute before the court are subject to an immediate, present obligation to arbitrate that dispute; and (b) the dispute is of such a nature which parties had contemplated would be resolved by arbitration pursuant to the arbitration agreement. This aspect of the CA’s decision aligns Singapore law with the position under English law which is reflected in Law Debenture Trust Corporation plc v 2
Elektrim Finance BV and others [2005] EWHC 1412 (see [48]). One situation which is not resolved by the CA’s decision is a dispute over the validity and interpretation of the asymmetric arbitration agreement, and/or the propriety of the exercise of the right of election. Applying the settled principle that disputes over the validity and interpretation of an arbitration agreement are generally left to the competence of the arbitral tribunal to determine, it would be at least arguable that a similar dispute in relation to an asymmetric arbitration agreement is within the scope of the arbitration agreement, and reserved for the tribunal’s determination. Put another way, when the validity and/or exercise of the right to elect whether to refer a dispute to arbitration is itself contested, the party which has elected to refer the underlying dispute to litigation over arbitration should not be allowed to pull itself up by its bootstraps and resist a stay application by reference to the fact that it has chosen to litigate and not arbitrate the dispute.
(C)
If you have any questions or comments on this article, please contact:
Benedict Teo Director, Dispute Resolution T : +65 6531 2499 E:
[email protected] Nicholas Poon Senior Associate, Dispute Resolution T: +65 6531 2493 E:
[email protected]
IMPLICATION ON BURDEN OF PROOF
Lastly, there is a practical and evidential difference between the CA and the High Court’s approaches, even though both produce the same outcome, ie a stay of court proceedings will not be ordered. Where the issue is characterised as one of the scope of the arbitration agreement, the burden is on the party applying for the stay to show that the dispute falls within the scope of the arbitration agreement. However, where the issue is framed as whether the arbitration agreement is incapable of being performed, the burden of proving this falls on the party resisting the stay. ________________________________________ The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances. Copyright in this publication is owned by Drew & Napier LLC. This publication may not be reproduced or transmitted in any form or by any means, in whole or in part, without prior written approval.
Drew & Napier LLC 10 Collyer Quay #10-01 Ocean Financial Centre Singapore 049315 www.drewnapier.com T : +65 6535 0733 T : +65 9726 0573 (After Hours) F : +65 6535 4906 3
