United States: BNA v BNB: Singapore High Court Upholds Tribunal's Jurisdiction By Interpreting Agreement For "Arbitration In Shanghai" To Provide For A Singapore Seat

On July 1, 2019, the Singapore High Court handed down its anonymized decision in BNA v BNB 2019 SGHC 142 ("BNA"). The case involved an application under section 10(3) of Singapore's International Arbitration Act ("IAA") requesting that the High Court decide whether an arbitral tribunal had jurisdiction to adjudicate the parties' dispute. In a decision that may have implications for similarly-drafted arbitration agreements, the High Court interpreted an express provision for "arbitration in Shanghai" to be an agreement to Singapore-seated arbitration with hearings in Shanghai, thereby upholding the validity of the arbitration clause and the jurisdiction of the tribunal. We summarize and discuss the High Court's decision below.

Background

The dispute arose out of a "Takeout Agreement" entered into between the plaintiff in the court proceedings (respondent in the arbitration) and two defendants (claimants in the arbitration) and governed by the laws of the People's Republic of China ("PRC"). Article 14.2 of the Takeout Agreement was the parties' arbitration agreement, and provided for SIAC arbitration "in Shanghai." Although not stated, it appears very likely from the decision that the parties were all PRC legal entities.

The defendants commenced arbitration against the plaintiff and a three-person tribunal was constituted. The plaintiff challenged the tribunal's jurisdiction, arguing that the arbitration agreement: (i) was invalid as a matter of PRC law because PRC law does not permit foreign arbitral institutions to administer PRC-seated arbitrations1 and (ii) may also fail the "foreign-elements test."2 The tribunal heard the challenge as a preliminary question. The majority held that the seat of arbitration was Singapore and that Singapore law governed the arbitration agreement. The majority thus ruled that it had jurisdiction to resolve the dispute, with Teresa Cheng, SC dissenting. Ms. Cheng took the view that: (i) the proper law of the parties' arbitration agreement is PRC law; (ii) the parties' dispute is classified under PRC law as a domestic dispute; and (iii) PRC law prohibits a foreign arbitral institution from administering the arbitration of a domestic dispute. 

The plaintiff applied to the High Court under section 10(3) of the IAA, which permits parties to apply to the High Court to decide jurisdictional matters where a tribunal rules, as a preliminary question, that it has jurisdiction.

Applicable Principles Identified by the High Court

The Proper Law of the Arbitration Agreement: Critical to the High Court's decision was its determination of the proper law of the parties' arbitration agreement. The High Court explained that the Singapore courts had adopted the three-stage approach formulated by the English Court of Appeal in Sulamérica Cia Nacional de Seguros SA v Enesa Engelharia SA 2013 1 WLR 102 ("Sulamérica"), notably by the Singapore High Court in BCY v BCZ 2017 3 SLR 357 ("BCY"). The Sulamérica approach asks three questions:

  • Have the parties made an express choice of law?
  • If the parties have not made an express choice of law, have the parties made an implied choice of law?
  • If the parties have not made an express or implied choice of law, with what system of law does their arbitration agreement have its "closest and most real connection"?

The Principles for Construing Arbitration Agreements:  The High Court endorsed the approach to interpreting arbitration agreements set down by the Singapore Court of Appeal in Insigma Technology Co Ltd v Alstom Technology 2009 3 SLR(R) 936. The High Court identified the following principles for construing arbitration agreements:

  • Principles for construing arbitration agreements are the same as those for construing any other commercial agreement.
  • Courts should, as far as possible, construe an arbitration agreement so as to give effect to a clear intention evinced by parties to settle their disputes by arbitration. This principle gives rise to two subsidiary principles:
    • Courts should not construe arbitration agreements restrictively or strictly; and
    • Courts should prefer a commercially logical and sensible construction over a commercially illogical one.
  • A defect in an arbitration agreement does not automatically render it void ab initio, unless the defect is so fundamental as to negate the parties' agreement to arbitration.

The High Court emphasized that the objective of interpreting arbitration agreements is to prioritize party autonomy, rather than to insist on a clause's validity with "the nakedly instrumental objective of ensuring that the arbitration agreement is effective" (as the High Court put it at 48). The High Court found that the purpose of contractual interpretation of arbitration agreements is not "to divert the parties to arbitration come what may, without addressing directly the intentions of the parties" (BNA at 53).

The Doctrine of Separability: The High Court addressed the doctrine of separability, which is a tool of arbitration law that treats an arbitration agreement as distinct from the substantive contract containing it. In England, the application of the doctrine is limited to circumstances where the validity of the substantive contract is in question. Thus, the doctrine serves as a legal fiction created to preserve the parties' chosen mode of dispute resolution, even where the substantive contract is invalid, e.g., due to fraud, misrepresentation, incapacity, or some other defect in the formation of the contract. A natural consequence of the doctrine is that the governing law of the arbitration agreement is not necessarily always the same as the governing law of the substantive contract.

In BNA, the High Court found that the application of the doctrine of separability was not restricted in Singapore to circumstances in which the substantive contract is invalid. As such, the High Court held, the doctrine of separability could be used to save an arbitration agreement even where the purported defect was inherent to the arbitration agreement itself.

The High Court's Decision

The Seat of Arbitration: The High Court interpreted Article 14.2 to refer to two geographical locations: Shanghai and Singapore. It formed this view because Rule 18.1 of the SIAC Rules (2013) provides that Singapore shall be the seat of arbitration absent contrary agreement. The High Court held that by agreeing to use the SIAC Rules (2013), the parties had selected Singapore as the seat of arbitration. Because it was not possible to have two seats of arbitration, the High Court interpreted the agreement to "arbitration in Shanghai" to refer to the venue of arbitration (i.e., where hearings would take place). The High Court further emphasized that because Shanghai was not a law district, the reference to Shanghai was more naturally construed as a reference to venue than seat. The High Court thus found that the parties had selected Singapore as the seat and Shanghai as the venue.

The Governing Law of the Arbitration Agreement: The High Court found that there was no express choice of law because the choice of law clause (selecting PRC law) was separate from the arbitration agreement in Article 14.2. Adopting the approach in Sulamérica and BCY, the High Court found that the parties had impliedly selected PRC law as the governing law of the arbitration agreement by their selection of PRC law to govern the substantive contract. However, the High Court found that this implied choice was displaced by the fact that selection of PRC law to govern the arbitration agreement might render the agreement invalid under PRC law. As such, the High Court found that the law of Singapore—as the seat of arbitration—was the parties' implied choice of law governing the arbitration agreement.

Consequently, the High Court found that the arbitration agreement in Article 14.2 of the Takeout Agreement—being governed by Singapore law—was valid, and dismissed the plaintiff's application.

Commentary

The logic behind the High Court's application of Rule 18.1 of the SIAC Rules (2013) to determine the seat in BNA is strained and threatens to have unintended consequences for future cases. The High Court appeared to treat Rule 18.1 as providing for a presumption that Singapore would be the seat of arbitration absent specific use of the word "seat," and was unconvinced that the wording of Article 14.2 ("arbitration in Shanghai") sufficed to rebut this presumption. In future arbitrations governed by the SIAC Rules (2013),3 the decision in BNA will invite jurisdictional arguments that the parties chose Singapore as the seat of arbitration where parties have failed (as is common) to use the specific word "seat" when selecting an alternative location. 

The High Court's suggestion that the reference to "Shanghai" alone indicated an intention to specify venue does not sit well with commercial realities: as arbitration practitioners know well, it is not uncommon for parties to specify a major city as their seat without reference to the relevant state or territory (e.g., referring to "London" as opposed to "England"). Nothing conclusive can be gleaned from the fact that the parties in BNA referred to Shanghai instead of the PRC. The High Court's reasoning will invite jurisdictional arguments in future cases that a reference to a city (as opposed to a state or territory) does not constitute an agreement on seat.   

Also problematic is the suggestion that the interpretation of an arbitration agreement can be dynamic. The High Court in BNA suggested that if the PRC had changed its laws after the execution of the Takeout Agreement to allow foreign arbitral institutions to administer PRC seated arbitrations, the arbitration would have proceeded on the basis that it was seated in the PRC with PRC law governing the arbitration agreement. This appears to be contrary to basic principles of contract law (i.e., that the court must assess the parties' intention at the time of contracting) and is fraught with uncertainty.

Given that Singapore prides itself on being a pro-arbitration jurisdiction, the High Court's inclination to find a means to affirm the tribunal's jurisdiction is understandable. However, in doing so, the High Court has tied itself in knots and relegated the parties' intentions to a secondary consideration.  Its interpretation of Singapore as the seat of arbitration and Singapore law as governing the arbitration agreement simply does not sit well with the plain language of the Takeout Agreement, which shows clear choices of Shanghai as the place of arbitration and PRC law as the governing substantive law.  This dissonance raises the specter of a successful challenge to enforcement outside Singapore under Article V(1)(a) of the New York Convention on the ground that the arbitration agreement is not valid under the law to which the parties have subjected it or under Article V(1)(d) on the ground that the arbitration procedure did not comport with the parties' agreement. 

In order to promote efficient and effective dispute resolution, it is important that tribunals and courts engage in even-handed assessments of challenges to the validity of arbitration clauses, rather than diverting parties to arbitration come what may. International commercial arbitration does not operate within a closed domestic system: respondents disputing jurisdiction will typically have a second bite of the apple at the time of enforcement. The PRC courts have in the past proven skeptical of the creative pro-arbitration reasoning sometimes adopted in Singapore awards. Arbitration practitioners will remember well the PRC courts' refusals of enforcement in Alstom Technology Ltd. v. Insigma Technology Co. Ltd.4 and  Noble Resources International Pte. Ltd v. Shanghai Good Credit International Trade Co., Ltd.5 due to concerns over perceived non-compliance with the parties' arbitration agreement.

The High Court has granted the plaintiff leave to appeal against its decision in BNA to the Singapore Court of Appeal. If appealed, it will be interesting to see how Singapore's apex court balances Singapore's pro-arbitration policy against the need for effective dispute resolution.

Footnotes

1 Article 10 of the PRC Arbitration Law requires that the establishment of all arbitral commissions be registered with a local judicial administrative department.

2 In fact, there is no express provision under PRC law prohibiting submission of domestic disputes to arbitration administered by non-Chinese arbitral institutions. However, Chinese courts have interpreted Article 271 of the PRC Civil Procedure Law and Article 128 of the PRC Contract Law (which permit submission of foreign-related disputes to foreign arbitral institutions) to prohibit submission of domestic disputes to arbitration administered by foreign arbitral institutions. See, e.g., Reply of the PRC Supreme People's Court for the Instructions Requested by the Beijing Higher People's Court re Beijing Chaoyang Sports and Leisure Company's Request for Recognition and Enforcement of a Korean Commercial Arbitration Board Award (2013) Min Si Ta Zi No. 64.

3 In contrast to Rule 18.1 of the SIAC Rules (2013), the 2016 edition of the SIAC Rules do not make Singapore the default seat. As such, the High Court's reasoning will not apply to arbitrations administered under the SIAC Rules (2016).

4 Reply of the PRC Supreme People's Court on the Request for Recognition and Enforcement of a Foreign Arbitral Award for the Applicant Alstom Technology Ltd. and the Respondent Insigma Technology Co. Ltd. (2012) Min Si Ta Zi No.54.

5 Noble Resources International Pte. Ltd v. Shanghai Good Credit International Trade Co., Ltd. (2016) Hu 01 Xie Wai Ren No. 1.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
 
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions