Singapore Court of Appeal Rules That the Law of the Arbitration Agreement Determines Arbitrability at the Pre-Award Stage

In Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1, the Singapore Court of Appeal (“SGCA”) held that the law governing the arbitration agreement governs arbitrability at the pre-award stage, and provided some guidance regarding the application of the three-stage test laid down in BCY v BCZ [2017] 3 SLR 357 for determining the law of the arbitration agreement where the parties have not made an express choice of law. This decision highlights that parties should pay careful attention to the drafting of arbitration clauses and expressly specify a governing law for their arbitration agreement to avoid protracted disputes regarding the proper law of the arbitration agreement and/or unintended consequences on the scope of the arbitration agreement.

Background

Instead of having their disputes decided by national courts, parties can enter into an arbitration agreement to submit disputes between them to arbitration. Arbitration agreements, and their existence and validity, however, are treated as separate from the underlying agreements in which they are contained. While parties often give careful thought to the governing law of their substantive agreements, they rarely specify the law governing their arbitration agreement. This often gives rise to protracted disputes on the proper law of the arbitration agreement, especially in circumstances where the substantive governing law is different from the law of the seat of arbitration.

In addition to a valid arbitration agreement, for an arbitration to proceed, the dispute referred to arbitration must also be arbitrable, that is, the type of dispute must not have been reserved to be resolved exclusively by domestic courts. There is broad consensus internationally, grounded in the UNCITRAL Model Law on International Commercial Arbitration (the “Model Law”) that, at the post-award stage, the law of the forum, which is usually the law of the seat of an arbitration, governs arbitrability. The Model Law does not address, however, the law governing arbitrability at the pre-award stage. Presumably in order to avoid the anomalous result that the same court may come to different conclusions on arbitrability depending on the stage of the arbitration, courts in both Model Law and non-Model Law jurisdictions (including England, the United States and France) have held that the law of the forum also governs issues of arbitrability at the pre-award stage. In Anupam v Westbridge, the SGCA had the opportunity to consider the question of which law should govern arbitrability at the pre-award stage. Diverging from the position taken by the abovementioned national courts, the SGCA held that the law governing the arbitration agreement governs arbitrability at the pre-award stage.

Facts of the Case

The underlying dispute arose between shareholders of a company that provided online and offline matrimonial services (the “Company”). The Appellant was a co-founder of the Company, and the Respondent was a private equity fund that had been an investor in the Company since 2006. The parties’ relationship soured in 2017 when the Respondent sought to exit from the Company. This led to the Appellant accusing the Respondent of minority oppression and filing a petition before the National Company Law Tribunal in India (the “NCLT Proceedings”).

The Respondent reacted to the NCLT Proceedings by applying to the Singapore courts for, initially, an urgent ex parte interim anti-suit injunction, and, eventually, a permanent anti-suit injunction against the Appellant. The Respondent’s primary basis for seeking the anti-suit injunction was that the Appellant’s commencement of the NCLT proceedings breached the arbitration agreement in the parties’ Indian law-governed Shareholder Agreement (the “SHA”). The arbitration agreement provided that “dispute[s] relating to the management of the Company or relating to any of the matters set out in [the SHA]” “shall” be referred to Singapore-seated arbitration.

The Appellant resisted the injunction on the basis that Indian law, which, on the Appellant’s case, governed the arbitration agreement, should determine arbitrability at the pre-award stage, and under Indian law, the Appellant argued, minority oppression disputes were non-arbitrable.

The SGCA’s Decision

The Singapore High Court (the “SGHC”) granted the Respondent’s application for a permanent anti-suit injunction. The SGHC ruled that the law that governed the issue of arbitrability at the pre-award stage was the law of the seat, i.e., Singapore law. Therefore, the disputes in question were arbitrable and fell within the scope of the arbitration agreement and the Respondent was entitled to an anti-suit injunction.

The SGCA upheld the anti-suit injunction granted by the SGHC, albeit on different grounds. Contrary to the SGHC’s ruling, the SGCA held that the law of the arbitration agreement should apply to determine arbitrability at the pre-award stage. Nevertheless, after applying the BCY v BCZ test to determine the proper law of the arbitration agreement, the SGCA found Singapore law to be the law of the arbitration agreement, and hence concurred with the SGHC that the dispute was arbitrable and upheld the permanent anti-suit injunction.

The Law That Determines Arbitrability at the Pre-Award Stage

The SGCA ruled that arbitrability should, at the first instance, be determined by the law of the arbitration agreement. The SGCA reasoned that because the arbitration agreement is the “fount” of the tribunal’s jurisdiction, and the law of the arbitration agreement, which deals with matters such as the validity of the arbitration agreement, is “anterior to the actual conduct of the arbitration,” it must be the law that determines exactly what the parties have agreed to arbitrate.

The SGCA recognized that its decision diverged from the position taken by other national courts, which typically apply the law of the forum to determine arbitrability at the pre-award stage. The SGCA also recognized that because the law of the seat applies to determine arbitrability at the post-award stage, its decision that the law of the arbitration agreement governs the issue of arbitrability at the pre-award stage might create the anomaly that the same court might come to different conclusions on arbitrability depending on the stage of the arbitration. However, the SGCA explained that such anomalous results would not arise because Singapore public policy poses an additional obstacle to arbitrability at the pre-award stage by virtue of Section 11(1) of the Singapore International Arbitration Act (the “SIAA”), which provides that “[a]ny dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless it is contrary to public policy to do so.” Therefore, even if a dispute is arbitrable under the law of the arbitration agreement, if Singapore law (i.e., the law of the seat) considers that dispute to be non-arbitrable, the arbitration would still not be able to proceed at the pre-award stage.

The Law That Governs the Arbitration Agreement

Having determined that the law of the arbitration agreement should govern issues of arbitrability at the pre-award stage, the SGCA then had to determine what the proper law of the arbitration agreement was. The SGCA determined the law of the arbitration agreement by applying the three-stage test laid down in BCY v BCZ:

a. Stage 1: Whether parties expressly chose the proper law of the arbitration agreement.

b. Stage 2: In the absence of an express choice, whether parties made an implied choice of the proper law to govern the arbitration agreement, with the starting point for determining the implied choice of law being the law of the contract.

c. Stage 3: If neither an express choice nor an implied choice can be discerned, which is the system of law with which the arbitration agreement has its closest and most real connection.

The SGCA first ruled that the parties did not expressly choose the law governing the arbitration agreement.

The SGCA then held that the parties did not make an implied choice of law for the arbitration agreement either. The SGCA found that the usual implication that the parties intended for the law of the main contract to govern the arbitration agreement was negated in this case by the fact that applying Indian law to govern the arbitration agreement would frustrate the parties’ intention to arbitrate their disputes. The SGCA distinguished BNA v BNB [2020] 1 SLR 456, a case in which the SGCA held that the parties impliedly chose PRC law as the law of the arbitration agreement even though the arbitration agreement might be invalid under PRC law, on the basis that the parties in the present dispute had a much stronger desire to arbitrate all their disputes, as evidenced by the parties’ specific reference to disputes “relating to the management of the Company” in the arbitration agreement, and by their deliberate choice of Singapore-seated arbitration for disputes relating to the management of an Indian company.

Proceeding to the third stage, the SGCA found that Singapore law, as the law of the seat, had the most real and substantial connection with the arbitration agreement, and was therefore the law of the arbitration agreement.

Takeaways

The SGCA’s decision in Anupam v Westbridge is a further case in a long line of cases in which the Singapore courts have grappled with thorny questions of arbitration theory in careful detail and made a significant contribution to the development and expansion of arbitration jurisprudence. The SGCA approached the question from first principles instead of following the trodden path of finding that the law of the forum should govern issues of arbitrability at the pre-award stage for consistency with how the issue is decided at the post-award stage.  Its reasoning that because the law of the arbitration agreement is anterior to the conduct of an arbitration, the law of the arbitration agreement must be the yardstick by which arbitrability is assessed has a logical underpinning. The judgment sets out a clear framework for the arbitrability analysis at the pre-award stage and shows that the Singapore courts are not afraid to depart from the position taken by other national courts of leading arbitration seats on the same issue.

When drafting an arbitration agreement, especially one providing for Singapore-seated arbitration, parties should therefore give due consideration to how both the law of the arbitration agreement and the law of the seat will impact the arbitrability of potential disputes arising out of a contract. For Singapore-seated arbitrations, at least as of now, either set of laws can render a dispute non-arbitrable. Where it is unclear or unlikely under the law governing the substantive contract that certain types of disputes (such as minority oppression disputes) are arbitrable, parties should choose a more arbitration-friendly law (e.g., Singapore law) that is different from the one of the main contract to govern the arbitration agreement so as to ensure that such disputes fall within the scope of the arbitration agreement. In the unlikely event that the issue is not arbitrable under Singapore law but arbitrable under the law of the agreement, the decision is likely to have little practical impact – that is because Singapore public policy will still prevent the arbitration from proceeding at the pre-arbitration stage by virtue of Section 11(1) of the SIAA.

This decision also serves as yet another cautionary tale on the importance of specifying the law of the arbitration agreement. Failing to do so may result in protracted litigation on the proper law of the arbitration agreement and/or in a supervisory court applying a law that the parties did not contemplate to the arbitration agreement. An express choice of law can eliminate the risks.