In its first landmark judgement of 2023, the Singapore Court of Appeal ("SGCA") was faced with the question of subject matter arbitrability at the pre-award stage where the arbitration proceeding was seated in Singapore. In the case of Anupam Mittal v Westbridge Ventures II Investment Holdings1 ("Mittal v Westbridge"), the SGCA held that to decide the arbitrability of the subject matter of the dispute at the preaward stage, both the law of the arbitration agreement and the law of the seat need to be considered. The case of BCY v. BCZ proved to be an authority, as the SGCA applied the three-stage test laid down here to determine the law applicable to the arbitration agreement.
The finding in Mittal v. Westbridge is a departure by the SGCA from the commonly adopted position of major jurisdictions where the law of the seat only determines arbitrability of the subject matter. SGCA adopted a "composite approach" based on the impact of foreign public policy on the arbitrability of disputes i.e. if a foreign arbitration agreement deems certain disputes to be non-arbitrable, then Singapore courts will not permit parties to arbitrate to promote international comity.
Background of the dispute
Anti-suit injunctions are the most common and key recourse taken by a party when a claim is filed in court instead of initiation of arbitration proceedings pursuant to an arbitration agreement. These applications seek to restrain the counterparty but are heavily contested. When the question of arbitrability of the subject matter of the dispute arises, how should the court proceed? Should the Court consider the issue of arbitrability under the law governing the arbitration agreement or the law of the seat of arbitration?
Mr Mittal ("the Appellant"), an Indian resident and a founder of People Interactive (India) Private Limited ("the Company"). Westbridge Ventures II Investment Holdings ("the Respondent"), a private equity fund incorporated in Mauritius, is an investor pursuant to which it had entered into a Shareholders' Agreement ("SHA").
Clause 20.1 of the SHA stated that the
"SHA and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India".
Further, Clause 20.2 provided that
"all such disputes that have not been satisfactorily resolved under Clause 20.1 above shall be referred to arbitration...and the place of the arbitration shall be Singapore."
The capital table in the Company shows that the Appellant held 30.26% of the shares while the Respondent owned 44.38% i.e. majority of the shares. The SHA stated that if within 5 years from the closing date, an Initial Public Offering is not completed, then the Respondent could redeem its shares and, if necessary, "drag" all shareholders to sell their shares to a third-party. Pursuant to this clause, Westbridge sought to exit the company, but a dispute arose between the parties. As part of the disengagement process, the parties disagreed on several points including; a) the sale of the Company to an alleged competitor; and, b) Westbridge refusing the appointment of the Appellant as the Managing Director of the Company. The Appellant filed a case before the National Company Law Tribunal in India seeking remedies for corporate oppression ("the NCLT Proceedings"). The Respondent filed a permanent anti-suit injunction to restrain the Appellant to proceed with the NCLT proceedings or initiate any proceedings other than an arbitration proceeding according to the terms of the SHA. The Appellant argued that the dispute related to minority shareholder oppression and the same is non-arbitrable under the law governing the arbitration agreement i.e. Indian law. The General Division of the High Court granted the permanent anti-suit injunction as the Appellant breached the arbitration agreement by initiating the NCLT proceedings. The High Court took the stance since under the Singapore laws, disputes involving corporate oppression are arbitrable. The Appellant filed an appeal in the Singapore Court of Appeal against this judgement of the lower court stating that this issue should be decided according to the law governing the arbitration agreement and not the law of the seat.
Singapore Court of Appeal Judgement
The main concern with the SGCA was that there should be a consistent application of law when deciding the arbitrability of the subject matter whether on the pre-award stage or post-award stage. However, public policy plays an important role in determining the issues of arbitrability at every stage. Courts have recognised that even though the core of arbitration is party autonomy and mutual consent, jurisdictions have an interest since enforcement of the award may be sought in the court and the question of arbitrability may be determined differently in different stages and jurisdictions.
SGCA came to a middle ground and espoused a "composite approach" limited to the pre-award context and held while deciding the arbitrability of the award, the court must consider the arbitrability of the subject matter under both a) law of the arbitration agreement and; b) law of the seat of the proceedings. The rationale behind this is two-fold:
First, with the public interest point of view, States have the incentive to bar certain disputes from arbitration. The SGCA differentiated between Sections 11 and 31 of the International Arbitration Act, 1994 ("IAA") to hold that at a pre-award stage, the courts in Singapore may consider the public policy of other countries (and not just Singapore law) to decide if a dispute is arbitrable. Hints of the composite approach also lie in the UNCITRAL Model Law where the determinability of subject matter arbitrability of the pre-award and post-award stage is the same. The drafters did not include any article to that effect and thus drafters of Section 11 of the IAA cannot be constrained by such an intention.
Second, the source of the tribunal's jurisdiction comes from the agreement of the parties. The arbitration agreement determines what disputes the parties have agreed to arbitrate, what powers the tribunal hold while adjudicating the dispute, and, what rules are applicable to the procedure. The law of seat comes into play after the tribunal renders its award. However, at the time of enforceability or setting aside of the award, the court will apply the law of seat to determine the arbitrability of the subject matter. To bridge the gap between these different application, the court found a middle ground.
The court took this approach and proceeded to use the three-stage test laid down in BCY v BCZ2 ("BCY") and Sulamérica Cia Nacional de Seguros SA and others v. Enesa Engelharia SA and others ("Sulamérica") -
Stage 1 - Assessment of whether parties have chosen a law as the law of the arbitration agreement. The SGCA found that Indian law being "in all respects" the governing law of "the SHA and its performance" does not point expressly towards Indian law being the law of the arbitration agreement.
Stage 2 - In case the parties have failed to choose expressly, have they made an implied choice such as choice of law of the contract for determining the arbitrability of the subject matter. In applying this, the SCGA found that if Indian law is applied to determine arbitrability, then the intention of the parties to arbitrate all disputes including management disputes is frustrated considering that such disputes are not arbitrable under the Indian law. The SGCA held that in the instant case, the express choice of the parties to include management disputes was clearly visible.
Stage 3 - Further, if it is assessed that there is no express or implied choice of the parties, then the parameters of closest and most real connection to the arbitration agreement is tested. The SCGA held that the Singapore law has the closest and most real connection to the arbitration agreement and, therefore, it should be the law of the arbitration agreement, since the law of the seat will govern the procedure of the arbitration proceedings.
Mittal v. Westbridge was distinguished from BNA v. BNB3, a case in which SGCA paid attention to the mutual agreement and choice of the parties. In this case, the court held that the parties have the strong desire to cover all their disputes under the arbitration agreement, even the disputes "relating to the management of the company". The parties chose PRC law as the law of the arbitration agreement even though the arbitration agreement might be invalid under PRC law. It was their deliberate choice to pick Singapore-seated arbitration for disputes relating to the management of an Indian Company.
Analysis of the judgement vis-a-vis Indian parties
Despite numerous proceedings before courts and tribunals in the past decade, it is still not common practice for parties to state an express choice of law for their arbitration agreement. Given the extent the matter was pursued in Singapore courts, even the express choice of the parties to include the dispute of the management of the company within the scope of the arbitration agreement.
This decision travels outside of the precedent set in the national courts since they just apply the law of the seat at every stage to determine the arbitrability of the dispute referred to arbitration. SGCA along with this pro-arbitration approach issued a reminder to contracting parties that it "lies in the hands of the parties themselves and their legal advisors" to carefully negotiate and craft their arbitration agreement, so as to mitigate any issues from arising to frustrate the parties' desire to settle some or all of their disputes by arbitration. The contracting parties cannot leave it to the jurisdiction they choose to maintain the position of being arbitration friendly even though there is always a chance of challenge to the award and unenforceability in a foreign jurisdiction. This possibility was recognised by the court in Mittal v. Westbridge and it sought to render a decision stating that a cross-border dispute resolution process will always have such a risk and to avoid this the parties should develop a strategy for enforcement of the award when negotiating a dispute resolution mechanism.
The UK courts dealt with this issue in the case of Enka Insaat Ve Sanayi AS v. OOO "Insurance Company Chubb" & Ors.4, but a conclusive precedent was not set by the court. In this matter, the court held that the third test of the Sulamérica test would not be applicable if the law of the seat invalidates the arbitration agreement. The court left this exception open since the same was not in issue in the UK court.
Mittal v. Westbridge does not impact any domestic arbitration but has significant impact on Indian parties with agreement to arbitrate their dispute with Singapore as the seat.
In light of the Supreme Court judgement in PASL Wind Solutions Pvt Ltd v GE Power Conversion India Pvt Ltd.5, disputes involving Indian parties can be resolved through foreign arbitrations and hence, any arbitration where Indian parties choose the seat to be Singapore will have to face the consequence of their choice.
In the case of Reliance Industries v Union of India6, the court held that the substantive law of the contract is of prime importance to determine the issue of arbitrability rather than the law of the seat or of the arbitration agreement. Specifically, the court stated as below:
"76.4. The conclusion of the High Court that in the event, the award is sought to be enforced outside India, it would leave the Indian party remediless is without any basis as the parties have consensually provided that the arbitration agreement will be governed by the English law. Therefore, the remedy against the award will have to be sought in England, where the juridical seat is located. However, we accept the submission of the appellant that since the substantive law governing the contract is Indian law, even the courts in England, in case the arbitrability is challenged, will have to decide the issue by applying Indian law viz. the principle of public policy, etc. as it prevails in Indian law."
Further in the cases of Sumitomo Heavy Industries Ltd. v. ONGC Ltd. & Ors.7, and Government of India v Vedanta Limited8, the court took a different stance and held that the arbitrability of the subject matter would be decided by the law of the arbitration agreement.
"Where the law governing the conduct of the reference is different from the law governing the underlying arbitration agreement, the court looks to the arbitration agreement to see if the dispute is arbitrable, then to the curial law to see how the reference should be conducted."
Therefore, the dialogue on this issue in India is still open and the law is not settled. There are about three options with the Indian court to take a stance; a) it can affirm the decision in the Reliance Industries case; b) apply the law of the seat to determine arbitrability; c) apply the law of the lex fori to determine arbitrability; or d) follow the newly minted "composite approach" as decided by the SGCA. In light of Mittal v Westbridge, Indian parties deciding on a Singapore seat should exercise caution while crafting an arbitration agreement. To begin, parties should specifically declare the applicable law to the arbitration agreement to avoid confusion about what a court may decide. Second, parties should ensure that any expected issues are arbitrable under both the law relevant to the arbitration agreement and the law of the seat. his would certainly save time and costs arising from applications and / or satellite litigation dealing with arbitrability of claims and which forum might be the appropriate forum to deal with the dispute between the parties.
In light of Mittal v Westbridge, Indian parties agreeing on a Singapore seat should carefully consider two elements while negotiating an arbitration clause. One, parties should expressly stipulate the law applicable to the arbitration agreement to avoid uncertainty over what a tribunal / court might determine it to be. Two, parties should ensure that anticipated disputes that could arise are of a subject matter that is arbitrable both under the law applicable to the arbitration agreement and the law of the seat. This would certainly save time and costs arising from applications and / or satellite litigation dealing with arbitrability of claims and which forum might be the appropriate forum to deal with the dispute between the parties.
When contracting parties choose the law which will govern the arbitration agreement, the idea is to be choose a "pro-arbitration" jurisdiction since the choice of arbitration shows that the parties are inclined to resolve their dispute outside of the litigation system. The judgement of the Singapore Court of Appeal opens new doors as it takes a "composite approach" and deviates from the view taken by national courts before. The application of law of seat at the pre-award stage to determine arbitrability was put to a test and what remains to be seen is whether the other major arbitration hubs such as the United Kingdom, Hong Kong, Geneva and Paris also adopt a similar approach or whether a dichotomy will prevail. The significance is that the law of the arbitration agreement has grown in importance as it not only governs general issues of validity of the arbitration agreement, but also arbitrability of the dispute.
1(2023) SGCA 1.
2(2016) SGHC 249.
3 (2019) SGCA 84
4 (2020) UK SC 38.
5 (2021) 7 SCC 1.
6 (2014) 7 SCC 603.
7 (1998) 1 SCC 305.
8 2020 SCC OnLine SC 765.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.