SIArb Newsletters

By Charis Wang, Fullerton Law Chambers LLC

Facts:

1. The appellant, the buyer, and the first respondent, the seller, entered into a Takeout Agreement for the sale of industrial gases within the People’s Republic of China (the “PRC”). The parties, together with the second respondent, entered into an addendum to the Takeout Agreement providing that from the effective date, the rights and obligations of the first respondent under the Takeout Agreement be fully assigned to the second respondent.
2. The laws of the PRC governed the Takeout Agreement, and in the event that negotiations fail when a dispute arose, parties agreed that the dispute shall be submitted to “the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules.” (“arbitration agreement”).
3. The appellant failed to make the necessary payments, and the respondents filed a Notice of Arbitration at the SIAC. The appellant challenged the tribunal’s jurisdiction, taking the position that Shanghai was the seat of the arbitration and PRC law was the proper law of the arbitration agreement. If the appellant was correct, the arbitration agreement could possibly be invalid for two reasons: (a) PRC law did not permit a foreign arbitral institution, such as SIAC, to administer PRC-seated arbitration; and (b) the dispute in question was a purely domestic dispute, and PRC law did not permit a foreign arbitral institution to administer the dispute. The respondents contended that the proper law of the arbitration agreement was Singapore law instead.
4. The majority of the tribunal ruled that it did have jurisdiction, finding that proper law of the arbitration agreement should be a law that would not expose the arbitration agreement to the risk of being invalid and illegal. The majority therefore took the view that the seat of the arbitration was Singapore, and the proper law of the arbitration agreement was Singapore law.
5. The appellant challenged the tribunal’s decision on jurisdiction in the High Court of Singapore under section 10(3) of the International Arbitration Act (“IAA”). The High Court dismissed the jurisdictional challenge, applying, inter alia, the three-stage framework set out in BCY v BCZ [2017] 3 SLR 357 (“BCY”) which was agreed by parties to be the framework when determining the proper law of an arbitration agreement. The High Court Judge refused to consider pre-contractual negotiations as evidence.
6. The High Court considered the first and second stages of the BCY framework, and held that there was no express choice of the proper law made, and the implied choice of the PRC law, being the governing law of the substantive contract, was displaced by the law of the seat which was determined to be Singapore based on the express incorporation of the SIAC Rules. The displacement was appropriate because the arbitration agreement would be invalid if PRC law was its proper law.
7. The appellant then appealed to the Singapore Court of Appeal (the “CA”).

Decision

8. The CA agreed with the High Court Judge that there was no express choice made by the parties. However, the CA disagreed with the High Court Judge that the reference to Shanghai was the venue and not the seat. To the CA, the phrase “arbitration in Shanghai” naturally meant that that Shanghai was the seat of the arbitration, and this was fortified by a line of authorities.
9. While the CA was prepared to accept that the natural meaning could be displaced by contrary indicia, the CA rejected the respondents’ arguments that: (i) pre-contractual negotiations purportedly showed that parties intended for the arbitration to be seated in a neutral forum; and (ii) PRC law would potentially invalidate the arbitration agreement.
10. With regard to the pre-contractual negotiations, the CA found that the evidence was neither reasonably available nor did it relate to a clear and obvious context to be admitted.
11. With regard to the effects of PRC law on the arbitration agreement, the CA found that to advance this argument the respondents would have to show that parties were aware that the choice of the proper law could have an impact upon the validity of the arbitration agreement. However, the evidence did not suggest that this consideration operated in the parties’ minds.
12. The CA therefore allowed the appeal but only to the extent that Shanghai was the seat of the arbitration, and not Singapore. Since the Singapore courts would not have supervisory jurisdiction over the arbitration, the CA did not form any view as to the jurisdiction of the tribunal. The CA also added that the declaration over the seat was consistent with the jurisdictional inquiry application brought under section 10 of the IAA.
13. The CA made the concluding remark that the parties’ manifest intention to arbitrate is not to be given effect at all costs. If the arbitration agreement is unworkable as a result of applying a process of construction of giving effect to the natural meaning of the words used, and there are no sufficient contrary indicia to displace that meaning, the parties must live with the consequences of their decision.