Singapore: Arbitration At Your Option: So Long As You Have Agreed To It

A case study of Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32

Introduction

The recent Singapore Court of Appeal judgment in Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd discusses the legal implications of an arbitration agreement of an asymmetrical nature. Such an arbitration agreement is one which confers a unilateral right (i.e. a right which is enjoyed by only one party to the arbitration agreement but not by the other) on one party to elect whether to arbitrate a future dispute.

Due to the unilateral right conferred on one party, it can be said that the arbitration agreement lacks mutuality between the parties. Also, given that one party has the choice of whether to submit the dispute to arbitration or litigation, there is also an element of optionality introduced into the arbitration agreement. However, these two factors did not prevent the court from finding that arbitration agreements of an asymmetrical nature are valid and enforceable.

Background

The dispute arose out of a contract in which Wilson Taylor Asia Pacific Pte Ltd (WTAP) engaged Dyna-Jet Pte Ltd (Dyna-Jet) to install underwater anodes. Among the terms of their contract (the Contract), there was a dispute resolution agreement (the Clause) which gave only Dyna-Jet the right to elect to arbitrate a dispute arising in connection with the contract. The Clause is reproduced in full:

"Dyna-Jet [which is the Respondent] and the Client [which is the Appellant] agree to cooperate in good faith to resolve any disputes arising in connection with the interpretation, implementation and operation of the Contract. Disputes relating to services performed under the Contract shall be noted to Dyna-Jet within three (3) days of the issue arising, thereafter the period for raising such dispute shall expire.

Any 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 Dyna-Jet, 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."  

A dispute (the Dispute) subsequently arose under the Contract. The parties had attempted, but failed to reach a negotiated settlement. Dyna-Jet then commenced court proceedings in the Singapore High Court against WTAP. In doing so, Dyna-Jet had in effect elected not to refer the dispute to arbitration. WTAP then applied to the High Court for the court proceedings to be stayed in favour of arbitration under section 6 of the Investment Arbitration Act (Cap 143A) (IAA).

Issue

The main issue in this case was whether the court proceedings should be stayed in favour of arbitration. In determining whether a stay of court proceedings should be granted, the three requirements set out in the landmark case of Tomolugen Holdings Ltd and another v Silica Investors Ltd and another appeals [2016] 1 SLR 373 is instructive. These three requirements are:

  1. there has to be a valid arbitration agreement between the parties;
  2. the dispute in the court proceedings falls within the scope of the arbitration agreement; and
  3. the arbitration agreement is not null and void, inoperative or incapable of being performed.

Validity of asymmetrical arbitration clauses

On the first requirement of there being a valid arbitration agreement between the parties, the Court of Appeal agreed with Justice Vinodh Coomaraswamy's decision in the High Court that there was indeed a valid arbitration agreement.

In the High Court, Justice Coomaraswamy found that an arbitration clause of an asymmetrical nature was nevertheless a valid arbitration agreement within the meaning of section 2A of the IAA. The key element that must be present in a dispute resolution agreement was that parties must manifest a mutual intent to have resort to arbitration. This would mean that both parties envisage that they could, in certain circumstances operating in the future, come under an obligation to arbitrate a dispute. If mutual intent was present, it would suffice to characterise the dispute resolution agreement as an arbitration agreement. The lack of mutuality, as well as the optionality of an arbitration clause would not render the arbitration clause invalid. This point was positively affirmed by the Court of Appeal. The interpretation adopted by Justice Coomaraswamy would also be consistent with section 2A of the IAA in that section 2A of the IAA does not require an arbitration agreement to refer all future disputes to arbitration or to do so unconditionally. Instead, section 2A of the IAA accommodates within its definition arbitration agreements which deal with "certain disputes" only.

Having found that the Clause in question was a valid arbitration agreement, Justice Coomaraswamy then found that the effect of Dyna-Jet electing to refer the Dispute to litigation was to foreclose any possibility that Dyna-Jet could subsequently choose to refer the Dispute to arbitration. As such, the arbitration agreement between WTAP and Dyna-jet was thus regarded as "incapable of being performed" within the meaning of section 6(2) of the IAA. Consequentially, the High Court refused to grant a stay of court proceedings in favour of arbitration.

Whether the dispute falls within the arbitration agreement

However, the Court of Appeal disagreed with Justice Coomaraswamy on the second requirement as to whether the Dispute fell within the arbitration agreement. In the High Court, Justice Coomaraswamy was of the view that if there was a valid arbitration agreement, then it would be undisputed that the subject matter of the current action would be a dispute that falls under the arbitration agreement. On this point, the Court of Appeal was of the view that Justice Coomaraswamy was "led into error by the common but mistaken position that parties took on this point".

As a preliminary point, the Court of Appeal stressed that the onus lies on the applicant to persuade the court of his preferred interpretation of the arbitration clause as this is part of his wider burden to establish that the dispute fell within the scope of the arbitration agreement. The Court of Appeal subsequently found that upon construction of the phrase "at the election of Dyna-Jet", the Clause gave Dyna-Jet alone the option to choose whether any disputes arising in connection with the Contract, whether initiated by WTAP or Dyna-Jet, were to be resolved by arbitration or by litigation. Since Dyna-Jet had chosen to refer the Dispute to litigation, it thus follows that the Dispute never fell within the scope of the Clause. The Dispute could have fallen within the scope of the Clause only if Dyna-Jet had elected to refer the Dispute to arbitration.  

The Court of Appeal drew a distinction between cases cited by counsels for WTAP, in which the clauses therein conferred upon the party a choice to commence proceedings, or not. In these cases, only one party would have had an interest in challenging the decision in question, which would have been made by its counterparty. The party receiving the counterparty's decision did not per se have a right to choose between arbitration and litigation (as was the case in the current appeal). Instead, the relevant contracts gave the party the choice between referring a dispute to arbitration and accepting that it was bound by the counterparty's decision on the dispute. In other words, the arbitration clause in these cases merely provided the mechanics for challenging the counterparty's decision, but did not provide a substantive right as to whether one party could refer a dispute to arbitration or litigation. In the latter circumstances, the option of choosing to refer the dispute to arbitration or litigation would be tantamount to an interpretation as to whether the dispute would be one that falls within the arbitration agreement or not. While the element of optionality did not have the effect of rendering an arbitration agreement invalid, it would have the effect of rendering the dispute to be one which falls outside the arbitration agreement.  

The Court of Appeal also observed that in seeking a stay of court proceedings in favour of arbitration, WTAP was invoking a right that was vested in Dyna-Jet alone, to have the matter referred to arbitration. This was something that WTAP was not entitled to do, since the Clause did not confer upon WTAP such a right. If on the other hand, WTAP was the one who commenced court proceedings against Dyna-Jet, Dyna-Jet could have invoked its option under the Clause to stay the court proceedings and have the matter referred to arbitration. The converse did not hold true in view of the express language of the Clause.

Ultimately, the Court of Appeal found that on a prima facie standard of review, the Dispute could not possibly be said to fall within the scope of the arbitration agreement. The third requirement on whether the Clause was rendered "incapable of being performed" was thus moot.   

Conclusion

The Court of Appeal's judgment confirms that arbitration clauses of an asymmetrical nature can be upheld and enforced. At the end of the day, the Court's role is to look at the agreement of the parties.  If parties have agreed to a clause which allows either party to elect whether to proceed with arbitration, such an agreement ought be upheld.

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