Another record-breaking year for the Singapore International Arbitration Centre

On 7 March 2018, the Singapore International Arbitration Centre (“SIAC”) announced the release of its 2017 Annual Report (the “Annual Report”). The Annual Report sets out detailed statistics for yet another record-breaking year for SIAC in terms of both new cases handled by the SIAC as well as the total number of SIAC-administered cases (SIAC’s third year-on-year increase since 2014 and the highest number of new case filings and administered cases in SIAC’s 27-year history).

Key Takeaways

  • New records:
    • Highest number of cases filed: 452 (32% increase from 2016 and a 67% increase from 2015) – SIAC has seen its new case filings increase by more than 5 times over the last decade.
    • Highest number of administered cases: 421 (37% increase from 2016 and a 72.5% increase from 2015).
  • Increasing international reach:
    • 83% of the new cases were international in nature (i.e. where one or both parties were not Singaporean) compared to 80% in 2016.
    • Cases involved parties from 58 jurisdictions (compared to 56 jurisdictions in 2016).
    • Significant increase in the number of parties from Germany (68 in 2017 compared to 5 in 2015), Japan (27 in 2017 compared to 13 in 2016), Switzerland (72 in 2017 compared to 15 in 2016), the United Arab Emirates (“UAE”) (34 in 2017 compared to 13 in 2017) and the United States of America (“USA”) (70 in 2017 compared to 42 in 2016).
    • Top 5 foreign users were India, China, Switzerland, USA and Germany in that order (parties from India and China remained the top 2 foreign users of SIAC respectively with Switzerland (3rd place), Germany (5th place), UAE (7th place) and Japan (joint 9th place) being new entrants in the list of top 10 foreign users).
  • Increasing use of SIAC procedures:
    • All 19 Emergency Arbitrator applications in 2017 were accepted. This is an increase from 6 Emergency Arbitrator applications in 2016 (all of which were accepted).
    • SIAC introduced the Early Dismissal (“ED”) procedure in 2016, making SIAC the first among the world’s major international commercial arbitration centres to adopt such a procedure. In 2017, SIAC received 5 ED applications – 4 applications were allowed to proceed with 1 application pending as of 31 December 2017.
    • Increase in both the number of Expedited Procedure (“EP”) applications (107 in 2017 compared to 70 in 2016) as well as in the percentage of applications accepted (51% acceptance rate in 2017 compared to 40% in 2016).
  • Singapore law remains the governing law of choice:
    • Singapore law continues to be the most popular choice of governing law followed by English law.
    • Increase in Singapore law as the governing law of choice (12% rise from 2016).
    • Slight increase in English law as the governing law of choice (2% increase from 2016).

Continued growth and thought leadership

In August 2017, SIAC announced the opening of its second representative office in India (after its Mumbai representative office, which was established in 2013) in the International Financial Services Centre in Gujarat International Finance Tec-City (GIFT IFSC). The opening of a second SIAC office in India will deepen SIAC’s existing ties with the legal and business communities in India.

SIAC’s commitment to improving the arbitral process for users is further evident in SIAC’s proposal on cross-institution co-operation for the consolidation of international arbitration proceedings.

Our summary and comments on SIAC’s proposal can be accessed here.

With thanks to Lakshanthi Fernando.

* This article may be cited as Pradeep Nair, “Another record-breaking year for the Singapore International Arbitration Centre”  (2 April 2018) (https://singaporeinternationalarbitration.com/2018/04/02/another-record-breaking-year-for-the-singapore-international-arbitration-centre/)

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Costs and Duration: A Comparison of the HKIAC, LCIA, SCC and SIAC Studies

by Wei Ming Tan,  Shriram Jayakumar and Jolyn Khoo*

Introduction

As cross-border contracts involving multi-jurisdictional parties become the norm, more players have entered the arena to offer legal services for parties opting to resolve their disputes by way of international arbitration. The Mumbai Centre for International Arbitration, for instance, was set up as recently as 2016 to cater to India’s growing market and is part of the government’s efforts to promote the country as a regional dispute resolution centre.

Apart from geography, the costs and duration of arbitral proceedings are key factors that determine parties’ choice of arbitral institution. This study compares the recent cost and duration studies conducted by four arbitral institutions to see who comes out trumps.

The HKIAC Study

The Hong Kong International Arbitration Centre (“HKIAC”) recently released an updated report on the costs and duration of cases administered by HKIAC (the “HKIAC Study”). The data set included 62 arbitrations administered under the 2013 HKIAC Administered Arbitration Rules where the final award was issued between 1 November 2013 and 31 December 2017.

Key statistics from the HKIAC Study:

  1. The mean arbitration costs of an HKIAC arbitration is USD 117,045, whereas the median arbitration costs is USD 62,537.
  2. The mean duration of an HKIAC arbitration is 16.2 months, while the median duration is 14.3 months.

HKIAC is unique in offering parties an option of paying the arbitral tribunals’ fees by an hourly rate or by reference to an ad valorem system (i.e. based on the value of the dispute). Interestingly, the HKIAC Study reveals that the costs of arbitration are cheaper under the ad valorem system even though “[t]he vast majority of HKIAC tribunals are paid on an hourly rate basis”.

The LCIA Study

In October 2017, the London Court of International Arbitration (“LCIA”) also updated their report on the costs and duration of cases administered by LCIA (the “LCIA Study”). The data set included 224 arbitrations administered under the LCIA Rules that reached a final award between 1 January 2013 and 31 December 2016.

Notable statistics from the LCIA Study are as follows:

  1. The median arbitration costs of an LCIA arbitration is USD 97,000.
  2. The median duration of an LCIA arbitration is 16 months.

The LCIA Study also compared the median costs of arbitrations commenced under four other arbitral institutions, namely:

  1. the HKIAC;
  2. the International Chamber of Commerce (“ICC”);
  3. the Stockholm Chamber of Commerce (“SCC”); and
  4. the Singapore International Arbitration Centre (“SIAC”).

These statistics were derived from the website costs calculator or costs schedule of the respective arbitral institutions.

Based on these statistics, the LCIA Study concluded that LCIA had the lowest median arbitration costs, with the lowest tribunal fees and administrative charges. SCC had the second lowest arbitration costs, followed by SIAC. HKIAC and ICC were equally expensive, although the HKIAC statistics were based on an estimate of the maximum arbitration costs while the ICC statistics were based on an average.

The LCIA Study noted that while the figures for LCIA arbitrations are derived from actual LCIA arbitrations, the figures for other institutions are estimates which are subject to substantial caveats.

The SCC Study

Previously, the SCC and SIAC had released similar reports. The SCC’s latest report on costs and duration was released in February 2016 (the “SCC Study”). It considered 80 cases administered by the SCC under the 2010 SCC Arbitration Rules where an award had been issued between 2007 and 2014.

Key statistics from the SCC Study include:

  1. The median arbitration costs of an SCC arbitration for sole-arbitrator cases and three-arbitrator cases is EUR 33,096 and EUR 167,021 respectively.
  2. The median duration of an SCC arbitration is 13.5 months.

The SIAC Study

SIAC released its costs and duration study in October 2016 (the “SIAC Study”). It considered 98 cases administered by the SIAC under the 2013 Arbitration Rules of the SIAC, where the award had been issued between 1 April 2013 to 31 July 2016.

Key statistics from the SIAC Study:

  1. The mean arbitration costs of an SIAC arbitration is USD 80,337, whereas the median total costs is USD 29,567.
  2. The mean duration of an SIAC arbitration is 13.8 months, while the median duration is 11.7 months.

Comparing the Cost and Duration Studies of the Arbitral Institutions

The LCIA and SCC Studies did not release mean figures for duration and costs, noting that there were several outliers which skewed the data.

Comparing arbitration costs

Table 1 compares the median arbitration costs for the four arbitral institutions, distinguishing between sole-arbitrator and three-arbitrator cases, with the exception of the HKIAC which does not make this distinction.

Arbitration costs include the tribunal’s fee and the arbitral institution’s registration and administration fees. For ease of cross-institutional comparison, the SCC figures in Table 1 are translated into USD values based on historic exchange rates as of February 2016.*

Table 1: Median Arbitration Costs for Sole and Three Arbitrator Cases
Arbitral Institution Median Arbitration Costs for All Cases Median Arbitration Costs for Sole-Arbitrator Cases Median Arbitration Costs for Three-Arbitrator Cases
HKIAC USD 62,537
LCIA USD 97,000 USD 60,000 USD 200,000
SCC USD 36,037*

(EUR 33,096)

USD 181,864*

(EUR 167,021)

SIAC USD 29,567 USD 27,941 USD 80,230

As evident from Table 1:

  • SIAC remains the most cost-competitive option for both sole-arbitrator and three-arbitrator cases. For three-arbitrator cases in particular, SIAC remains significantly cheaper than LCIA and SCC where the costs extend to six-digit figures.
  • Notably, there is a significant disparity between the estimated cost of an SIAC arbitration from the LCIA Study and the statistics from the SIAC Study.
    • As the statistics from the SIAC Study are based on actual arbitration costs derived from real cases, these statistics may be a more accurate indicator.

Comparing duration of proceedings

Table 2 compares the mean and median duration of arbitrations administered by the four arbitral institutions, with the exception of LCIA and SCC which do not provide mean figures. Duration of arbitration is measured from the commencement of the arbitration to the rendering of the award.

Table 2: Mean and Median Duration
Arbitral Institution Mean Duration (months) Median Duration (months)
HKIAC 16.2 14.3
LCIA 16
SCC 16.2 13.5
SIAC 13.8 11.7

From Table 2:

  • Based on the data, SIAC arbitrations are the most efficient in comparison to the other arbitral institutions.
    • The median duration of an SIAC arbitration is the shortest at 11.7 months.
    • The SCC also has a comparable median duration of 13.5 months.
  • However, the SIAC and SCC Studies were released in 2016, while the HKIAC and LCIA Studies are based on more recent statistics.
    • A possible explanation may be a recent increase in more complex arbitration cases, which require more time to resolve.

Methodology

The arbitral institutions use different systems to compute their arbitration costs. The LCIA uses an hourly rate system. In contrast, the SIAC and SCC adopt the ad valorem system, which fixes the costs of an arbitration on the value of a claim and within limits specified by the institution’s costs scales. As mentioned, HKIAC allows parties the option between paying the fees by an hourly rate or the ad valorem system, although most parties choose the former.

Forecasting Future Changes

While the LCIA and HKIAC arbitral institutional rules remain largely unchanged since the publication of the above studies, the SCC Rules and SIAC Rules have introduced new features with a view to facilitating a more efficient arbitration process. The impact of the new rules would not have been taken into account in the SCC and SIAC studies.

The 2017 SCC Rules only entered into force on 1 January 2017. The default provision on the number of arbitrators was changed from a three-arbitrator tribunal to one that gives the SCC board flexibility to decide on the number of arbitrators based on complexity, value in dispute and other circumstances. Article 39 of the 2017 SCC Rules also allows parties to make requests for the tribunal to decide certain issues of fact or law by way of summary procedure, if the relevant requirements are met.

Similarly, the 6th edition of the SIAC’s Arbitration Rules only came into effect on 1 August 2016. These rules introduced early dismissal rules and enhanced provisions relating to Emergency Arbitrator and Expedited Procedure, which are expected to improve the efficiency of SIAC arbitrations.

As such, the median duration of SIAC and SCC arbitrations, which are already shorter in comparison to LCIA and HKIAC arbitrations, are likely to improve.

Key Takeaways

  • Based on a comparison of the four studies, the costs and duration of arbitral proceedings are ostensibly most attractive when administered by SIAC.
    • Unsurprisingly, in its recently released Annual Report 2017, SIAC announced a new record for the highest number of new case filings and administered cases in 2017, with 452 new cases filed by parties from 58 countries in 6 continents – a 32% increase from the number of cases filed in 2016.
  • While other factors such as the scale of disputes before the respective tribunals may explain this difference, the analysis provides parties with a better idea of the time and expense that are likely to be incurred when using different arbitral institutions.
  • With arbitral rules being amended to reflect evolving commercial realities – as is the case with the SCC and SIAC – the effect such amendments can have on the costs and duration of arbitrations should be closely monitored.

+This article may be cited as Wei Ming Tan, Shriram Jayakumar and Jolyn Khoo, “Costs and Duration: A Comparison of the HKIAC, LCIA, SCC and SIAC Studies” (13 March 2018) (https://singaporeinternationalarbitration.com/2018/03/13/costs-and-duration-a-comparison-of-the-hkiac-lcia-scc-and-siac-studies/)

*This article is part of a joint initiative by CMS Holborn Asia and the Society of International Law (Singapore) based at Singapore Management University (SMU) School of Law.

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SGCA grants Senior Indian Advocate ad hoc admission to argue arbitration-related applications

by Wei Ming Tan, Kartik Singh & Aaron Yoong*

Introduction

In a reversal of the High Court’s 2017 decision, Singapore’s Court of Appeal (“CA”) recently granted unprecedented ad hoc admission for Harish Salve (“Mr Salve”) – a Senior Advocate of the Indian Bar – to be admitted to argue foreign law issues in applications to set aside an ICC arbitral award.

This is the first time the Singapore courts have granted foreign counsel other than Queen’s Counsel admission to argue a case before the local courts.

Background to the appeal

The dispute arose out of a Share Purchase and Subscription Agreement (“Agreement”) between Daiichi Sankyo Company, Limited (“Respondent” or “Daiichi”) and certain shareholders (“Sellers”) of Ranbaxy Laboratories Limited (“Company”).

The Respondent intended to purchase the shareholding of the Sellers for the purpose of gaining a controlling interest in the Company. The Agreement was governed by Indian law and contains an ICC arbitration clause designating Singapore as the seat of the arbitration.

The Respondent commenced arbitration proceedings alleging fraudulent misrepresentation and concealment by the Sellers of on-going investigations by the US regulatory authorities against the Company. In a 2-1 split decision, the SIAC arbitral tribunal decided in favour of the Respondent (“Award”). The Respondent then commenced enforcement proceedings in India and Singapore.

On 18 May 2016, the Respondent was granted leave by the Singapore courts to enforce the Award in Singapore. In response, the Sellers took out two applications to set aside the Award – one by a group of 15 (fifteen) adult and corporate sellers, the other by 5 (five) minor sellers. Collectively, the Sellers made two concurrent applications for Mr Salve to gain ad hoc admission as foreign counsel. Mr Salve had already been appointed by the Sellers as lead counsel to resist the Indian enforcement proceedings.

The Singapore High Court (“HC”) dismissed the applications for Mr Salve’s admission. You can read our blog post on the earlier High Court decision here.

The governing framework

The statutory framework governing ad hoc admission of foreign counsel can be found in section 15(1) of the Legal Profession Act (Cap. 161, 2009 Rev. Ed.) (“the Act”). To be admitted, the foreign counsel must:

  1. be an appointed Queen’s Counsel in the UK or the equivalent in any jurisdiction;
  2. not ordinarily reside in Singapore or Malaysia but intends to come to Singapore for the purpose of appearing in the case; and
  3. possess special qualification or experience for the purposes of the case.

Even if the above requirements (“the mandatory requirements”) are satisfied, the court retains the discretion to refuse admission, pursuant to paragraph 3 of the Legal Profession (Ad Hoc Admissions) Notification 2012 (S 132/2012) (“Notification Matters”). In exercising its discretion, the Notification Matters lists the following for the court’s consideration:

  1. the nature of the factual and legal issues;
  2. the necessity of a foreign senior counsel;
  3. the availability of any Senior Counsel or other advocate and solicitor with appropriate experience; and
  4. whether the court considers the admission of the foreign senior counsel to be reasonable.

The decision of the CA

Mandatory Requirements

It was undisputed that Mr Salve satisfied the requirements stated in s 15(1)(a) and (b) of the Act. The question was whether he had “special qualifications or experience for the purposes of the case” pursuant to s 15(1)(c) of the Act.

In this regard, the CA took great pains to emphasise the importance of framing the legal issues prior to undertaking an analysis. In its view, the framing of the legal issues must strike a level of particularity to avoid being both unduly restrictive or unhelpfully vague, whilst remaining neutral.

Accordingly, the CA re-framed the issues to as follows:

  • What damages should be awarded for fraudulent misrepresentation under Indian law;
  • What constitutes consequential damages under Indian law; and
  • What constitutes the law and public policy of India in relation to the contractual capacity of minors and their liability for contracts made on their behalf?

The CA ultimately found that Mr Salve had the requisite experience to address these issues because:

  1. his curriculum vitae demonstrated deep expertise and experience in the relevant area of law;
  2. in contrast to the HC’s reasoning, it was unnecessary to demonstrate specific experience with the actual issues in consideration;
  3. Mr Salve had adduced further substantiation that corroborated his expertise in commercial and contractual disputes in India; and
  4. being the Solicitor-General of India for three years, he would have had considerable experience in Indian public policy.

Notification Matters

The CA found that the factors listed in the Notification Matters had been satisfied such that it would exercise its discretion in favour of granting Mr Salve ad hoc admission.

This was because:

  • the relevant issues of Indian law and policy were complex and unsettled such that substantial disagreements had arisen both between the arbitral tribunal, and “high calibre” Indian experts relying on numerous legislation and case authorities;
  • an Indian lawyer with substantial experience in the law and policy of the country would naturally be of greater assistance than local counsel; and
  • the court must have the most complete picture in disputes involving challenge to jurisdiction of arbitral tribunal governed by complex foreign law.

The Court’s Decision

Having re-framed the issues, the CA acknowledged the complexity of the Indian law issues and concluded that the court would be more assisted by Indian counsel than local counsel.

Further, given that the governing law of the arbitration was foreign law but the seat was Singapore, admission of foreign counsel would aid the court in having “the most complete picture of foreign law and policy”, especially in relation to the Sellers’ challenge of the tribunal’s jurisdiction.

Key Takeaways

The Court’s paramount objective: In granting Mr Salve ad hoc admission, the CA emphasised that it is paramount that the court has “what the court needs to assist it in achieving a correct and just result in the case before it”. The touchstone for the admission of foreign senior counsel must be on the basis of need, and not desirability or convenience.

To this end, the matters relevant to the court are:

  1. whether foreign law is central to the issue in dispute;
  2. whether the experts on foreign law are diametrically opposed or opposed to a significant degree;
  3. whether there are adequate independent written materials to help the court find its way through the issues of foreign law;
  4. whether the issues of foreign law go towards the jurisdiction of the tribunal; and
  5. whether the court may have to come to a view on foreign law in an uncertain situation.

The SICC regime vs. the domestic regime: Interestingly, the CA appears to subtly endorse the Singapore International Commercial Court (“SICC“) regime for permitting foreign counsel to make submissions on issues of foreign law as opposed to the domestic regime, which provides for foreign law to be proved as an issue of fact.

  • According to the CA, by allowing foreign counsel to make submissions on foreign law, the SICC framework permits these issues to be “presented in a holistic manner by counsel who can apply techniques of legal reasoning in their submissions and analysis”.
  • The CA’s observation is particularly timely given the recent amendments to the Supreme Court of Judicature Act (“SCJA“) clarifying the SICC’s jurisdiction over arbitration-related proceedings. Read our discussion here for more on how the SCJA amendments affect the SICC.

Consistency with Act’s amendment: The admission of Mr Salve was also consistent with the amendment of the Act in 2012, which, according to Law Minister Mr K Shanmugam, was aimed at “giving flexibility to clients” in view of the growth of Singapore’s international arbitration industry and the corresponding increase in arbitration proceedings governed by or involving foreign law.

Alternative solution: A potential alternative to the ad hoc admission of foreign counsel may be to engage such foreign counsel via the Amicus Curiae scheme. This would avail the courts of foreign counsel’s expertise whilst maintaining the court’s trust in the proficiency of local counsel.

Other developments: In other developments to this ongoing legal saga, the Delhi High Court has on 31 January 2018 allowed Daiichi’s application to enforce the ICC Award valued at US$550 million in India. Justice Jayant Nath rejected the objections raised by the Singh brothers that the Award was not in line with Indian law or public policy. The decision may be subject to further appeal to a two-member panel of the Delhi High Court or to India’s Supreme Court.

+This article may be cited as Wei Ming Tan, Kartik Singh and Aaron Yoong, “SGCA grants Senior Indian Advocate ad hoc admission to argue arbitration-related applications” (26 February 2018) (https://singaporeinternationalarbitration.com/2018/02/26/sgca-grants-senior-indian-advocate-ad-hoc-admission-to-appear-before-court/)

*This article is part of a joint initiative by CMS Holborn Asia and the Society of International Law (Singapore) based at Singapore Management University (SMU) School of Law.

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Singapore passes bill for Singapore International Commercial Court to hear arbitration-related matters

By Wei Ming Tan & Kartik Singh*

Introduction

On 9 January 2018, Parliament passed the Supreme Court of Judicature (Amendment) Bill 2017 (the “Amendment”) giving the Singapore International Commercial Court (“SICC”) jurisdiction to hear international commercial arbitration-related court proceedings. The Amendment clarifies that the SICC can hear matters related to, among others, the enforcement or setting aside of arbitral awards that are traditionally referred to the High Court for adjudication.

About the SICC

The SICC was established in 2015 to address the need for a neutral venue for international commercial litigation for parties with little or no connection to Singapore but require a jurisdiction with strong rule of law, well-regarded and experienced judges, and high quality, efficient legal professional services.

The SICC is a division of the High Court and the High Court can on its own motion transfer appropriate cases to the SICC. To-date, 17 international cases governed by issues of foreign law have been transferred from the High Court to the SICC.

Why the Amendment matters

The Amendment crystallises the SICC’s position as an attractive international court and further cements Singapore’s reputation as a premier international dispute resolution hub in Asia.

Parties who deal with cross-border commercial transactions are increasingly choosing international arbitration as their dispute resolution mechanism of choice. With the Amendment, the SICC presents parties with a new and unique adjudication option to resolve their arbitration-related disputes.

The SICC allows foreign counsel to make submissions in offshore cases (i.e. cases with no substantial connection to Singapore) that relate to questions of foreign law. This allows for faster and more cost-efficient proceedings by removing the need for foreign law experts to testify to the content of foreign law.

However, as the Amendment concerns arbitration-related applications under Singapore’s International Arbitration Act (“IAA”), only Singapore-qualified counsel can represent parties who have submitted their cases to the SICC. Senior Minister of State Indranee Rajah has however noted that “the amendments in the bill are part of [an] ongoing endeavour” so this may yet be subject to change in the future. Exceptionally, a Queen’s Counsel or equivalent may apply for ad hoc admission to the Singapore Bar to represent parties in such cases.

Comment / Future implications for the SICC

  • The Amendment confirms the SICC’s jurisdiction to hear IAA-related disputes, giving parties who have opted for Singapore-seated arbitration an added option in dispute resolution mechanism.
  • This is likely to lead to even more cases being transferred from the High Court to the SICC. Along with Singapore’s recent legalisation of third party funding for international arbitration-related proceedings, this will no doubt enhance the SICC’s profile as an international commercial court of choice, particularly for parties in Asia.
  • It remains to be seen whether the Amendment will result in the SICC hearing Singapore-seated investment arbitration matters. In Sanum Investments Ltd v Government of Lao People’s Democratic Republic [2016] SGCA 57, the Court of Appeal found that the IAA covers investment arbitration cases and that Singapore courts are both “competent” and “obliged” to consider relevant treaty law issues. To this end, an investment arbitration matter seated in Singapore, but with a foreign law element, may well be appropriately brought before the SICC’s internationalised bench.
  • The SICC has recently added even more distinguished jurists to its already formidable bench: this includes Lord Neuberger (former President of the UK Supreme Court), Sir Jeremy Cooke (former judge of the English Commercial Court), Robert French (former Chief Justice of the High Court of Australia) and Beverly McLachlin (former Chief Justice of Canada).
  • The SICC’s ability to attract such legal luminaries to join its bench can only bode well for its future development. As it is, the SICC’s first ever judgment was praised as a “masterclass” and the SICC has also been feted as “a key contributor to international construction law jurisprudence”.
  • The speed at which the SICC issues its judgments (usually between 1 – 3 months from the end of the hearing) is another feature that will prove attractive to commercial parties who desire an expeditious resolution to their disputes.

This article may be cited as Wei Ming Tan and Kartik Singh, “Singapore passes bill for Singapore International Commercial Court to hear arbitration-related matters” (22 January 2018) (https://singaporeinternationalarbitration.com/2018/01/22/singapore-passes-bill-for-singapore-international-commercial-court-to-hear-arbitration-related-matters/)

*This article is part of a joint initiative by CMS Holborn Asia and the Society of International Law (Singapore) based at Singapore Management University (SMU) School of Law.

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Towards reducing the complexity, cost and time of arbitral proceedings: SIAC’s proposal on cross-institution consolidation

by Wei Ming Tan and Pradeep Nair

Introduction

On 19 December 2017, the Singapore International Arbitration Centre (“SIAC”) announced its proposal on cross-institution co-operation for the consolidation of international arbitral proceedings (“SIAC’s proposal”). SIAC’s proposal, which is the brainchild of Mr Gary Born, President of the SIAC Court of Arbitration, is detailed in a memorandum accessible here.

Briefly, SIAC’s proposal involves co-operation among various leading international arbitral institutions for the adoption of a joint protocol that would permit the cross-institution consolidation of arbitrations subject to different institutional rules. We discuss the rationale behind SIAC’s proposal and challenges facing its implementation.

SIAC’s proposal

Consolidation provisions are currently found in most leading institutional rules. Such provisions allow for interrelated disputes to be resolved in a single proceeding. However, existing consolidation provisions do not provide a means to consolidate arbitrations that are subject to different institutional rules. Whilst one SIAC arbitration can be consolidated (in the appropriate circumstances) with another SIAC arbitration, this would not be the case if the other arbitration is administered by a different institution.

In its proposal, SIAC seeks to remedy this shortcoming through institutional co-operation, in particular, by proposing the development of a consolidation protocol that arbitral institutions can adopt and incorporate into their arbitration rules for the purpose of administering consolidated arbitrations.

The need for a cross-institution consolidation protocol

Given the increasingly complex nature of contemporary business transactions, SIAC has observed that, in many cases, related contracts in a single project or set of transactions contain agreements to arbitrate under different institutional arbitration rules. As the disputes arising out of these related contracts or transactions cannot be consolidated under existing institutional rules, disputes which are otherwise related are precluded from being heard together. This limitation curtails the ability of arbitration to meet the needs of users seeking an effective and efficient dispute resolution mechanism.

How would the consolidation protocol work?

Any consolidation protocol would need to primarily deal with two (2) matters:

(1) the decision to consolidate; and

(2) the administration of the proceedings and the rules adopted.

I.  The decision to consolidate

While consolidation provisions across arbitral institutions share common features, they have significant differences. Given these differences, SIAC has proposed two (2) options for cross-institution consolidation:

Option 1: Arbitral institutions to adopt a consolidation protocol that sets out a new, standalone mechanism for addressing the timing of consolidation applications, the appropriate decision-maker and the applicable criteria to determine if arbitral proceedings are sufficiently related to warrant cross-institution consolidation. SIAC proposes that a joint committee consisting of members of the Courts or Boards of arbitral institutions to be mandated to decide such applications.

Option 2: Arbitral institutions to adopt a consolidation protocol providing that one institution would determine any cross-institution consolidation based on its own consolidation rules. The consolidation protocol would set out objective criteria to determine which arbitral institution would be authorised to decide a particular cross-institution consolidation application.

While Option 2 has the benefit of simplicity (as it would obviate the need to agree on new consolidation provisions), SIAC posits that Option 1 may be more attractive to arbitral institutions and users as it militates against the substantial discretion conferred on a particular institution if a single institution were to decide.

Assuming that a new, standalone mechanism is devised, SIAC has flagged out various matters that the protocol must address:-

  1. Identifying a decision-maker: SIAC proposes that it would be preferable for the consolidation protocol to vest exclusive decision-making power in a joint committee comprising of one member from each arbitral institution.
  2. Standard for consolidation: SIAC has invited views on mutually acceptable grounds for consolidation under the consolidation protocol. At present, the leading arbitral rules contain different, albeit overlapping, grounds for consolidation. Additionally, SIAC suggests that the arbitral institutions agree on whether parties would be permitted to commence a single proceeding in relation to multiple contracts.
  3. Timing of the application and existing tribunal appointments: Whether consolidation would be allowed in cases where different arbitrators have been appointed in separate proceedings. Agreement is also necessary on whether the parties’ ability to appoint arbitrators for consolidated proceedings should be constrained.
  4. Partial consolidation: Whether partial consolidation of arbitral proceedings should be permissible (presently, SIAC is the only major arbitral institution to provide for this in its 2016 Rules).
  5. Reasoned decisions: Whether the institutions (either the joint committee or single institution) will issue reasoned decision(s) on consolidation application. Whilst this may increase costs and cause some delay, reasoned decisions would enhance transparency and the legitimacy of decision-making.

II.  The administration of consolidated proceedings and the rules adopted

SIAC proposes that arbitral institutions agree on either:

(1) a new set of rules for consolidated proceedings; or

(2) a set of objective criteria to ascertain which institution should administer the proceedings under its own rules.

While acknowledging that the first option would have strategic benefits, SIAC has highlighted the significant practical challenges to devising a new set of rules between institutions.

SIAC goes on to suggest that these complexities can be avoided by adopting the second option (i.e. choosing one institution on the basis of an agreed set of objective criteria). SIAC sets out its suggested criteria as follows:

  1. Number of cases: where there is an odd number of arbitrations, the institution with the larger number of proceedings will retain administration authority.
  2. Aggregate value of disputes: the institution with the highest aggregate value of the quantum in dispute will administer the consolidated proceeding.
  3. Time of commencement of arbitrations: proceedings to be consolidated into the arbitration that commenced first.
  4. Subject matter of the dispute: institutions could agree on a division of cases based on the type of dispute. SIAC acknowledges that this criterion is likely to be unattractive as it would limit the ability of institutions to expand their respective portfolios.
  5. Nationality and domicile of the parties: that consolidation be based on the top users for each arbitral institution by nationality (for e.g. SIAC to focus on cases involving parties in Asia whilst ICC focuses on disputes involving American and European parties). That said, SIAC acknowledges that this criterion may be unattractive, as institutions would not want to fetter their geographical reach.

Incorporation of the consolidation protocol

SIAC proposes that arbitral institutions amend their respective rules to incorporate the consolidation protocol, thus giving the protocol the same contractual force as other provisions of institutional rules.

By expressly selecting a set of institutional rules, parties would be consenting to the application of the consolidation protocol.

To ensure that parties are well informed and adapted to the rules, SIAC proposes that the consolidation protocol could be made to apply to arbitration agreements concluded after the date of the protocol and that the protocol could operate as an opt-in mechanism for a transition period.

Comment

Benefits of SIAC’s proposal

The benefits of cross-institution consolidation are readily apparent:

  1. As commercial transactions become increasingly globalised and complex, more parties are now involved in different aspects of a project. This has led to a rise in related contracts which may not have consistent dispute resolution clauses providing for the same arbitral institutions to administer interrelated disputes. SIAC’s proposal tackles this issue head-on and provides a bold solution to a long-standing and unresolved challenge faced by users of arbitration.
  2. Cross-institution consolidation of arbitrations would be a step forward in reducing the complexity, cost and time of arbitral proceedings.
  3. Having interrelated disputes resolved together is likely to enhance the overall quality of decision-making.

Challenges with implementation

There are inevitable difficulties associated with the implementation of SIAC’s proposal:

1. The consolidation protocol may be (incorrectly) perceived as an infringement on party autonomy to determine and utilise their institution and arbitration rules of choice.

1.1 In our view, SIAC’s proposal(s) that: (i) arbitral institutions amend their rules to incorporate the consolidation protocol; (ii) the consolidation protocol applies to arbitration agreements concluded after the date of the protocol; and (iii) the protocol operates as an opt-in or opt-out mechanism addresses this.

2. The protocol may introduce uncertainty as to which rules would ultimately apply to disputes arising out of a contract where a party designates arbitral rules incorporating the consolidation protocol. The decision as to how the consolidated proceeding will be administered will not be known to the parties beforehand, as it would be determined by the objective criteria set out above.

3. Practically, it may be in an arbitral institution’s interest to retain the conduct of an arbitration without ceding the same to another arbitral institution.

3.1 That said, from a commercial perspective, SIAC’s proposal offers significant benefits to arbitration users and is a welcome one.

SIAC has invited comments from users and other arbitral institutions on its proposal by 31 January 2018. Comments can be sent to consolidationconsult@siac.org.sg.

With thanks to Lakshanthi Fernando.

* This article may be cited as Wei Ming Tan and Pradeep Nair, “Towards reducing the complexity, cost and time of arbitral proceedings: SIAC’s proposal on cross-institution consolidation”  (10 January 2018) (https://singaporeinternationalarbitration.com/2018/01/10/towards-reducing-the-complexity-cost-and-time-of-arbitral-proceedings-siacs-proposal-on-cross-institution-consolidation/)

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Singapore High Court reaffirms its power to stay court proceedings in favour of arbitration

Introduction

Can a non-party to an arbitration agreement apply to stay court proceedings in favour of arbitration? Would it make a difference if arbitration proceedings had not yet commenced?

These were some of the questions before the Singapore High Court in the recent case of Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210.

In short, the Singapore High Court reaffirmed its inherent power to stay proceedings in favour of arbitration on the basis of case management and in doing so, observed that the exercise of such power is premised on the wider need to facilitate the fair and efficient administration of justice.

Background

Gulf Hibiscus Limited (the “Plaintiff”), Rex Middle East Limited (“RME”) and Schroder & Co Banque S.A. (“Schroder”) were shareholders of Lime Petroleum PLC (“Lime PLC”) and parties to a Shareholder’s Agreement (“SHA”).

The SHA provided that the parties had entered into the agreement to “regulate the affairs of” Lime PLC and “their respective rights and obligations as shareholders of” Lime PLC.

The SHA further provided for a dispute resolution procedure with an arbitration mechanism (the “arbitration clause”). The arbitration clause expressly stated that “any dispute, controversy or claim arising under, out of or relating to” the SHA must be arbitrated under the Rules of International Arbitration of the International Chamber of Commerce.

Disputes arose between the parties in relation to the management and operations of Lime PLC and some of its subsidiaries. The Plaintiff commenced court proceedings in the Singapore High Court for conspiracy, wrongful interference and unjust enrichment against:

(1) Rex International Holding Ltd, the ultimate holding company of RME; and

(2) Rex International Investments Pte Ltd, an intermediate holding company of RME, and a wholly owned subsidiary of Rex International Holding Ltd.

(collectively, the “Defendants”).

The Defendants applied to stay the court proceedings relying on the arbitration clause in the SHA – despite the fact that they were not parties to the SHA.

At first instance, the learned Assistant Registrar granted the stay on the basis that the legal and factual disputes in the Plaintiff’s claims overlapped and were intertwined with those concerning breaches of the SHA. The Plaintiff appealed the decision.

The Plaintiff’s Case

On appeal, the Plaintiff amended its case against the Defendants. The Plaintiff argued that:

(1) it did not rely on breaches of the SHA and thus, there was no basis for ordering a stay of court proceedings in favour of arbitration pursuant to the arbitration clause; and

(2) it could not be compelled to commence arbitration proceedings against a party it did not intend to sue (in this case, RME).

The Defendants’ Case

The Defendants argued that the substance of the Plaintiff’s claims (notwithstanding amendments to its pleadings) was still premised on breaches of the SHA. Thus, the Defendants submitted that the dispute fell within, and should be resolved in accordance with, the arbitration clause in the SHA which was wide enough to cover a broad range of disputes.

On this basis, the Court should stay the current proceedings and refer the disputes to arbitration.

The Court’s Decision

The appeal was heard by the Honourable Judicial Commissioner Aedit Abdullah (as he then was) (“Abdullah JC”). In upholding the stay granted by the Assistant Registrar before him, Abdullah JC observed that: 

  • It is well established that the Singapore courts have the power to stay court proceedings in favour of arbitration under section 6 of the International Arbitration Act (Cap. 143A, 2002 Rev. Ed.) and section 6 of the Arbitration Act (Cap. 10, 2002 Rev. Ed.).
  • Whilst these provisions apply to cases involving parties to the same arbitration agreement and the Defendants could not rely on these provisions as they were not parties to the SHA containing the arbitration clause, it was still possible for a non-party to an arbitration agreement to apply for a stay by invoking the inherent case management powers of the court.
  • The basis for the court’s power in this regard was not predicated on holding parties to any agreement but “the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice”.
  • While the Defendants in this case were not parties to the arbitration agreement, they could seek a stay of proceedings on the basis of case management if it was established that it would be necessary to “serve the ends of justice” (citing the Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”)).

In short, the absence of an arbitration agreement between the Plaintiff and the Defendants did not preclude Abdullah JC from deciding that a stay could be awarded, notwithstanding the fact that arbitration had not commenced.

Key Questions

The key questions for Abdullah JC were:

(1) Did the scope of the arbitration clause cover the dispute between the Plaintiff and Defendants?;

(2) Were the Plaintiff’s claims premised, in substance, on the SHA?; and

(3) Would it be appropriate to order a stay of proceedings?

With respect to the first question, Abdullah JC found that the phrase “arising under, out of or relating to” the SHA in the arbitration clause was very wide. Various other terms of the SHA also showed that the scope of the arbitration clause was intended to extend beyond the specific parties to the SHA to include matters relating to their subsidiaries (such as the Defendants). As such, the court found that the arbitration agreement did not only cover disputes concerning the specific parties to the SHA, but also the dispute between the Plaintiff and Defendants.

With respect to the second question, whilst the Plaintiff had not expressly pleaded any breach of the SHA, Abdullah JC held that considered holistically, the substance of the Plaintiff’s primary claims against the Defendants were in the nature of disputes between the shareholders under the SHA and related to alleged improper actions taken at the Lime PLC level. Abdullah JC viewed these disputes as arising out of the SHA, given the SHA regulated the business of Lime PLC.

With respect to the third question, Abdullah JC held that it was appropriate to stay the Singapore court proceedings as (amongst other things):-

  • There was a significant overlap between the factual and other issues in the prospective arbitration with those in the court proceedings.
  • There was sufficient risk of inconsistent findings of fact between the court proceedings and any prospective arbitration given these overlapping issues.
  • There was likely to be duplication of witnesses and evidence in both forums.
  • There was nothing to bar the claims made in relation to the activities of the shareholders and directors in the court proceedings from being pursued in the prospective arbitration. The arbitration clause was broad enough to encompass claims arising out of the SHA and associated tortious claims.

However, Abdullah JC did amend the terms of the order for stay of proceedings granted in the first instance to impose certain conditions:

(1) if arbitration proceedings are not commenced within five months from the date of the court’s judgment, the parties would be at liberty to apply for the stay to be lifted by the court; and

(2) the Defendants would be bound by the findings of fact made by the arbitral tribunal.

Comment / Practical Implications 

  • This decision confirms that the Singapore courts’ power to stay proceedings in favour of arbitration is not merely limited to the circumstances spelt out in Singapore’s arbitration legislation. The Singapore courts have the power to order a stay of proceedings by exercising their inherent case management powers to facilitate and support the fair and efficient administration of justice.
  • While a plaintiff’s right to sue is a fundamental one, that right is not absolute (per Tomolugen).
  • Abdullah JC’s decision in this case reinforces the balance the court must strike between:
    • a plaintiff’s right to choose the party it wishes to sue and where to sue such a party;
    • the court’s desire to prevent a party from circumventing the operation of an arbitration clause; and
    • the court’s inherent power to manage case to prevent an abuse of process and to ensure the efficient and fair resolution of disputes.

 

* This article may be cited as Pradeep Nair, “Singapore High Court reaffirms its power to stay court proceedings in favour of arbitration”  (8 November 2017) (https://singaporeinternationalarbitration.com/2017/11/08/singapore-high-court-reaffirms-its-power-to-stay-court-proceedings-in-favour-of-arbitration/)

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Heartronics Corp v EPI Life: Singapore High Court makes landmark ruling on multi-tier dispute resolution clauses

Introduction

Should multi-tier dispute resolution clauses be treated as a series of discrete dispute resolution agreements, or regarded as a unitary dispute resolution mechanism?

When will the court find an arbitration agreement to be “inoperative” or “incapable of being performed” in an application to stay court proceedings in favour of arbitration?

The Singapore High Court (the “Court”) had the opportunity to address these and other questions in Heartronics Corporation v EPI Life Pte Ltd and Others [2017] SGHCR 17, a decision concerning a mediation-arbitration (“med-arb”) dispute resolution procedure jointly introduced by the Singapore Mediation Centre (“SMC”) and the Singapore International Arbitration Centre (“SIAC”).

We take a critical look at four main issues canvassed by the Court and their practical implications on dispute resolution clauses in contracts.

Background

The Plaintiff is a Malaysia-incorporated entity engaged in the distribution of medical devices.

The 1st Defendant is a Singapore-incorporated company carrying on business as a wholesaler and distributor of medical devices.

The 2nd Defendant is the sole shareholder of the 1st Defendant. The 3rd Defendant was a director of the 1st and 2nd Defendants, whilst the 4th Defendant was a director of the 2nd Defendant.

In Suit 192/2017 (the “Suit”), the Plaintiff seeks damages and the rescission of, respectively, a License Agreement and a Distribution Agreement (collectively, the “Agreements”) entered into by the Plaintiff and the 1st Defendant sometime in late 2010.

The Plaintiff had alleged that one or more of the Defendants had made false representations regarding (amongst other things):

  • the launch of a 3G-enabled medical device (the “Product”) by the 1st Defendant by end-2010;
  • the Product having obtained CE Certification to be sold in France; and
  • a data server and call centre having been set up in India to market the Product.

Relying on the Defendants’ purported representations, the Plaintiff entered into various downstream distribution agreements with third parties to distribute the Product in France and India. However, the Plaintiff subsequently discovered that no CE Certification for the Product had been obtained in France, nor was the relevant infrastructure set up in India to facilitate the sale of the Product. The Plaintiff suffered loss and expense as a result.

The Applications

The Defendants took out two applications against the Plaintiff:

  • The IAA Stay Application: By way of SUM 1372, the 1st Defendant sought a stay of the Suit pursuant to s 6 of the International Arbitration Act (Cap. 143A) (“IAA”).
  • The Case Management Stay Application: By way of the other prayers in SUM 1372 and SUM 1396, and subject to the Suit being stayed against the 1st Defendant, the 2nd to 4th Defendants sought a stay of the proceedings pursuant to the court’s inherent powers of case management as set out in Order 92, rule 4 of the Rules of Court.

Both Agreements contain dispute resolution clauses (the “ADR Clauses”) requiring the parties to proceed to med-arb under “the SMC-SIAC Med-Arb Procedure for the time being in force” (the “SMC-SIAC Procedure”) in the event of a dispute.

Before commencing the Suit, the Plaintiff triggered the ADR Clauses under the Agreements:

  • On 13 June 2014, the Plaintiff initiated its claim against the 1st Defendant, inviting the 1st Defendant to submit the dispute to med-arb in accordance with the ADR Clauses.
  • On 8 September 2014, the Plaintiff issued a further letter initiating its claim against the 2nd Defendant and similarly inviting the 2nd Defendant to submit to med-arb.
  • The Plaintiff’s solicitors submitted a Request for Mediation with SMC on 13 October 2014.
  • The parties’ solicitors exchanged letters between November 2014 to June 2015 but the 1st Defendant failed to commit to any firm mediation date(s) after several delays. The 1st Defendant also did not pay the SMC’s fees, citing “cash flow problems”.
  • On 13 July 2015, the Plaintiff’s solicitors issued a final ultimatum to the 1st Defendant to provide suitable dates for mediation, failing which, the 1st Defendant will be regarded as having repudiated the ADR Clauses. The 1st Defendant did not respond.

The IAA Stay Application

The Court found that the ADR Clauses contained valid arbitration agreements and that the dispute in the Suit arose “in connection with” the arbitration agreements.

In deciding whether to grant a stay, the Court had to determine whether the arbitration agreements found in the ADR Clauses were “null and void, inoperative or incapable of being performed” pursuant to s 6(2) of the IAA.

The Plaintiff submitted that:

  • the arbitration agreements were either “inoperative” or “incapable of being performed” as the 1st Defendant had committed a repudiatory breach of the arbitration agreements by its conduct in response to the Plaintiff’s attempts to commence med-arb.
  • (in the alternative) the financial circumstances of the 1st Defendant have made it impossible for the med-arb proceedings to be set in motion.

The 1st Defendant submitted that:

  • each ADR Clause in fact contained two separate and distinct agreements – one to mediate and the other to arbitrate – and that the 1st Defendant had only breached the agreement to mediate but not the arbitration agreement.
  • the Plaintiff had not adduced sufficient evidence to show that the arbitration agreements were “incapable of being performed”.

Issue 1: Whether the ADR Clauses are a unitary dispute resolution mechanism or separate and distinct dispute resolution agreements

AR Teo Guan Kee (“AR Teo”) held that the ADR Clauses were a unitary dispute resolution mechanism, the entirety of which formed an “arbitration agreement” under s 6, IAA.

The Court found that the obligations to mediate and arbitrate under the SMC-SIAC Procedure were “closely intertwined” and therefore not severable:

  • As parties had expressly agreed to this hybridized dispute resolution mechanism, it would be inconsistent with the parties’ commercial intentions to separate the processes within the med-arb framework.
  • Further, if the processes were severed and a stay granted, the Plaintiff would in effect be compelled to proceed directly to arbitration as if the ADR Clauses did not provide for mediation at all.
  • In various other judicial decisions (i.e. from Hong Kong, Malaysia, England and Canada), courts had found that multi-tier dispute resolution clauses were to be regarded as a unitary dispute resolution mechanism rather than multiple discrete dispute resolution agreements – even where there were no clear links between each tier.

Issue 2: Whether the arbitration agreements were “inoperative” due to the 1st Defendant’s repudiatory breach

AR Teo held that the 1st Defendant’s actions amounted to repudiatory breaches of the ADR Clauses and deprived the Plaintiff of “substantially the whole benefit” of the arbitration agreements.

In particular the 1st Defendant was found to have failed to act in good faith by (1) failing to make payment of the SMC fees; and (2) continually postponing the commencement of mediation.

The Court also found that the 1st Defendant had renounced the arbitration agreements by clearly conveying no interest in performing its obligations under the ADR Clauses. Apart from not paying the SMC fees and failing to agree on a mediation date, the 1st Defendant also stopped responding to the Plaintiff’s solicitors’ letters altogether.

The 1st Defendant’s repudiatory breach meant that the arbitration agreements were “inoperative” within the meaning of s 6(2), IAA. This on its own justified dismissing the IAA Stay Application.

Issue 3: Whether the arbitration agreements were “incapable of being performed”

The Court held that the arbitration agreements were not “incapable of being performed” as there was insufficient evidence to show that the 1st Defendant would be unable to take the necessary steps to set the med-arb proceedings in motion.

In Dyna-Jet Pte Ltd v Wilson Taylor Pte Ltd [2016] SGHC 238, Vinodh Coomaraswamy J opined that an arbitration agreement is only “incapable of being performed” if there is a contingency that prevents the arbitration from being set in motion. The Court found that the 1st Defendant’s financial circumstances did not amount to such a permanent contingency. As such, it cannot be said that the arbitration agreement was “incapable of being performed”.

Issue 4: When will the courts grant a case management stay?

The Case Management Stay Application was moot in that it could only succeed if the IAA Stay Application was granted. Nevertheless, the Court went on to consider when a case management stay might be granted:

  1. Existence of common issues to be tried: Where there are common issues to be tried in relation to each and every defendant, the courts will be more inclined to grant a case management stay so that the broader dispute could be decided after the arbitration (involving the narrower dispute) has been heard.
  2. Step in the proceedings no impediment: The fact that the defendants might have taken a step in the proceedings will not preclude the court from granting a case management stay. A party applying for a case management stay does not in fact dispute the court’s jurisdiction to hear the case.

The Plaintiff had argued that the 3rd and 4th Defendants were precluded from applying for a case management stay as they had taken a step in the proceedings by filing a Notice to Produce Documents Referred to in Pleadings. The Court disagreed, citing an earlier High Court decision in which Quentin Loh J held that:

A case management stay only affects the plaintiff’s choice of the sequence in which he pursues proceedings against different defendants, and involves no more on the part of the court in which the proceedings are brought than declining to hear the proceedings before it until some other time.” [emphasis added in bold]

(BC Andaman Co Ltd & Ors v Xie Ning Yun & Anor [2017] SGHC 64)

Comment / Practical Implications

This landmark decision addresses many practical implications in dispute resolution clauses which drafters and end-users ought to be mindful of:

  • Multi-tier dispute resolution clauses: This case is (further) support for the general principle that multi-tier dispute resolution clauses are, in effect, a unitary dispute resolution mechanism and not to be treated as severable or consisting of multiple discrete dispute resolution agreements. This would be the case even if the multi-tier dispute resolution clauses “do not provide a level of inter-relatedness between their various tiers”.
  • Applicability to SIAC-SIMC Arb-Med-Arb Protocol (“AMA Protocol”): Proponents of the AMA Protocol will be pleased to learn that the same principles applied to the SMC-SIAC Procedure are likely to apply to the AMA Protocol, i.e. the AMA Protocol is likely to be regarded as a unitary dispute resolution mechanism rather than several distinct dispute resolution agreements. This is particularly so given that, under the AMA Protocol, SIMC mediation is commenced within the framework of the arbitration proceedings after the arbitral tribunal has been constituted. For more about the AMA Protocol, read our earlier blog post here.
  • Different bases of IAA stay and case management stay applications: The Court’s analysis of the distinction between the basis of an IAA stay application and a case management stay is instructive. Whilst an IAA stay is premised on the ground that the parties have not submitted to the court’s jurisdiction, the case management stay is the exact opposite – it is premised on the basis that the parties do submit to the court’s jurisdiction.
  • Failure to pay fees: A failure to pay the requisite fees related to the dispute resolution procedure may or may not be construed as a repudiatory breach, depending on the dispute resolution mechanism governing the arbitration agreement.
    • In an English decision concerning the ICC Rules of Arbitration (“ICC Rules”), the judge found that the defendant was not in repudiatory breach by not paying the advance on costs of the arbitration. This is because the ICC Rules specifically contemplates such a scenario and provides that the claimant may pay the advance on behalf of the respondent first. The issue of the advance was in any event due to be addressed in a preliminary hearing for security for costs and the defendant had evidenced a clear intention to participate in the arbitration. (per Hamblen J in BDMS Ltd v Rafael Advanced Defence Systems [2014] All ER (D) 244)
    • By contrast, the SMC-SIAC Procedure had expressly contemplated the payment of the SMC fees by each party. More importantly, the 1st Defendant in this case had demonstrated no real intention to participate in the SMC mediation – as evidenced by its repeatedly stalling for time and subsequently, failing to even respond to the Plaintiff’s solicitors’ letters.
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Singapore High Court affirms principles on when arbitral tribunal is deemed to exceed jurisdiction

When will an arbitral tribunal be deemed to have exceeded its jurisdiction?

In the recent decision of Quanzhou Sanhong Trading Limited Liability Co Ltd v ADM Asia-Pacific Trading Pte Ltd [2017] SGHC 199 involving the enforcement of a foreign arbitral award, the Singapore High Court (“Court”) held that an arbitral tribunal has not exceeded its jurisdiction as regards its determination on the governing law of a contract.

The Court found that the issue on governing law was properly submitted to the arbitration and the tribunal had acted within its terms of reference in deciding the issue. As such, even if the tribunal had decided wrongly on the governing law of the contract, it would not have exceeded its jurisdiction.

Background

The Plaintiff entered into a contract to purchase corn from the Defendant (the “Contract”). A dispute arose as to the quality of the corn supplied. The dispute was referred to arbitration in Beijing, China under the auspices of the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules.

The arbitral tribunal (the “Tribunal”) gave an award ordering the Defendant to pay the Plaintiff the sums of US$777,957.41 and RMB 4,223,702.69 with interest (the “Award”).

The Plaintiff obtained an order for leave to enforce the Award against the defendant (“Enforcement Order”).

The Defendant filed a summons (“Summons”) in Court seeking, amongst other things, to set aside the Enforcement Order.

Concurrently, the Defendant also filed an application to set aside the Award at the Beijing Intermediate People’s Court, which was promptly dismissed.

The assistant registrar (“AR”) dismissed the Summons but ordered a stay of execution of the Enforcement Order pending appeal on condition that the Defendant provided security in the sum of the damages awarded under the Award. The Defendant furnished the said security and appealed against the AR’s decision.

Issue

The key issue is whether the Tribunal had exceeded its jurisdiction if it had made an error as to the governing law of the Contract.

Section 31(2)(d) of the International Arbitration Act (Cap. 143A, 2002 Rev Ed) (“IAA”) provides that the court may refuse enforcement of a foreign award if “the award deals with a difference not contemplated by, or not falling within the terms of the submission to arbitration or contains a decision on the matter beyond the scope of the submission to arbitration”.

Section 31(2)(d) of the IAA is worded similarly to Article 34(2)(a)(iii) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). Art 34(2)(a)(iii) applies where an arbitral tribunal improperly decides matters that had not been submitted to it or fails to decide matters that had been submitted to it. By way of section 3 of the IAA, Art 34(2)(a)(iii) of the Model Law has the force of law in Singapore.

The Defendant’s submissions

The Defendant applied to set aside the Award on the basis that:

  • the Award contained a decision on a matter beyond the scope of the submission to arbitration under (s 31(2)(d) of the IAA);
  • enforcing the Award would be contrary to Singapore’s public policy (s 31(24)(b) of the IAA).

Before the Tribunal, the Parties had argued that different governing laws were applicable to the Contract. The Defendant argued that the Contract was governed by English law under the GAFTA 88, a standard form contract produced by the Grain and Feed Trade Association. The Plaintiff argued that PRC law was applicable as it was the law most closely connected to the Contract.

The Tribunal found that only one section of the Contract was governed by English law, whilst the rest of the Contract was governed by PRC law.

The Defendant did not dispute that, in general, errors of law or fact made by an arbitral tribunal is not a sufficient ground for setting aside an award. However, the Defendant sought to draw a distinction here as the issue related to the governing law of the Contract.

According to the Defendant, an error by the Tribunal in relation to the governing law of the Contract would cause the Tribunal to exceed its jurisdiction by disregarding the Parties’ express agreement as to the governing law. The Court is therefore at liberty to review the Tribunal’s decision and to set aside the Award if the Court found that the Tribunal’s decision was wrong.

The Court’s decision

The Court dismissed the Defendant’s appeal.

Justice Chua Lee Ming (“Chua J”) found that the Tribunal would not exceed its jurisdiction just because it came to a wrong decision on an issue within the scope of the Parties’ submission to arbitration. There is no reason why an issue as to governing law should be treated differently from other issues submitted to arbitration.

Chua J cited Quarella SpA v Scelta Marble Australia Pty Ltd [2012] 4 SLR 1057 (“Quarella”) in support of his decision. In Quarella, the plaintiff similarly argued that the tribunal’s decision on governing law was wrong and that by failing to apply the law chosen by the parties, the tribunal had gone beyond the scope of the arbitration. The court in Quarella rejected the plaintiff’s arguments, holding that the plaintiff had based its application entirely upon its disagreement with the tribunal’s interpretation of the choice of law clause. The court in Quarella held that the dispute did not engage Art 34(2)(a)(iii) of the Model Law.

Agreeing with the reasoning in Quarella, Chua J held that in substance, the Defendant was arguing an appeal against the Tribunal’s decision on the governing law of the Contract. This did not engage section 31(2)(d) of the IAA.

The Defendant’s alternative argument that enforcing the Award would be contrary to public policy under section 31(4)(b) of the IAA was dismissed as the Court found that the Tribunal did not exceed its jurisdiction.

Comment

This decision clarifies that issues relating to the governing law of the contract will not be treated differently from other issues that are submitted to arbitration by parties.

In determining whether an arbitral tribunal has acted in excess of jurisdiction, the key is whether the tribunal is acting within the scope of the parties’ submission to arbitration. As long as an issue falls within the scope of the arbitration, the tribunal’s decision, even if manifestly wrong, will not cause it to exceed its jurisdiction.

The similarities between s 31(2)(d) of the IAA and Art 34(2)(a)(iii) of the Model Law means that setting aside applications made under either of these provisions are likely to be decided on similar, if not identical principles.

As held in previous cases, errors of law or fact made by an arbitral tribunal will not be a sufficient ground to set aside an arbitral award. This decision is another example of the high threshold required to be met before the Singapore courts would set aside an arbitral award. This reflects the local courts’ strict adherence to the principle of minimal curial intervention and accords well with Singapore’s status as an arbitration-friendly jurisdiction.

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SGCA recognises asymmetric arbitration clause giving only one party right to elect to arbitrate

Introduction

Is a dispute resolution clause that gives only one party the right to elect to arbitrate a dispute a valid arbitration agreement?

The Singapore Court of Appeal (the “Court”) answered this question in the affirmative recently in Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32. We consider the Court’s decision in detail here.

Facts

The Appellant, Wilson Taylor (“Appellant”) engaged the Respondent, Dyna-Jet (“Respondent”) to install underwater anodes on the island of Diego Garcia. The parties’ contract (“Contract”) contained a dispute resolution clause (“DR Clause”) which gave only the Respondent a right to elect to arbitrate a dispute arising from the Contract.

A dispute arose under the Contract (the “Dispute”) but parties were unable to reach a settlement. The Respondent then commenced Suit No 1234 of 2015 (“Suit 1234”) against the Appellant in the High Court.

The Appellant then filed Summons No 6171 of 2015 (“SUM 6171”) to have Suit 1234 stayed pursuant to section 6 of the International Arbitration Act (Cap. 143A, 2002 Rev Ed) (“IAA”).

The Assistant Registrar (the “AR”) hearing SUM 6171 dismissed the Appellant’s stay application, holding that the DR Clause constituted a valid arbitration agreement within the meaning of s 6 of the IAA. The AR further held that given that the Respondent had elected to pursue litigation rather than arbitration, the arbitration agreement had become “inoperative or incapable of being performed” under s 6(2) of the IAA.

The Appellant appealed against the AR’s decision under Registrar’s Appeal No 43 of 2016 (“RA 43”) but the High Court judge (the “Judge”) similarly dismissed the appeal, albeit on different grounds. The Judge held that the DR Clause was a valid arbitration agreement despite its asymmetrical nature. The Judge concluded that a dispute resolution clause which confers an asymmetric right to elect whether to arbitrate a future dispute is properly regarded as an arbitration agreement under s 2A of the IAA. Ultimately, however, the DR Clause became “incapable of being performed” by virtue of the Respondent electing to litigate the Dispute.

The Court’s Decision

The Court previously held in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”) that three requirements must be fulfilled before the Court would grant a stay of court proceedings in breach of an arbitration agreement:

  1. First, there must be a valid arbitration agreement between the parties to the court proceedings (“First Requirement”);
  2. Second, the dispute in the court proceedings must fall within the scope of the arbitration agreement (“Second Requirement”); and
  3. Third, the arbitration agreement is not null and void, inoperative, or incapable of being performed (“Third Requirement”).

A prima facie standard of review is adopted in respect of the three requirements. This is in recognition of the doctrine of kompetenz-kompetenz, which gives an arbitral tribunal the jurisdiction to rule on its own jurisdiction, including the question of whether an arbitration agreement has been validly constituted.

The First Requirement

The Court found that the DR Clause constituted a valid arbitration agreement even though:

  1. it only entitled the Respondent to compel its counterparty to arbitrate a dispute (“lack of mutuality” characteristic); and
  2. made arbitration of a future dispute entirely optional rather than an obligation (“optionality” characteristic).

On the weight of modern Commonwealth authority, the Court held that neither the “lack of mutuality” characteristic nor the “optionality” characteristic of the DR Clause prevented the Court from finding that it was a valid arbitration agreement.

The Second Requirement

As to the requirement of whether the Dispute fell within the scope of the arbitration agreement, the Court held that such a review must be conducted as at the time when the stay application was filed.

In particular, the Court found that the Dispute did not fall within the meaning of the arbitration agreement on a prima facie standard of review. This is because under the DR Clause, only the Respondent was entitled to exercise the option to arbitrate the Dispute, but not the Appellant. The Appellant therefore could not invoke a right which was vested in the Respondent alone.

By the time of the Appellant’s stay application, the Respondent had already chosen to refer the Dispute to litigation by commencing Suit 1234. As such, the Court held that the Dispute did not fall within the scope of the DR Clause as it was not a “matter which is the subject of the [arbitration] agreement” under s 6(1) of the IAA.

The Third Requirement

As the Court had found that the Dispute did not fall within the scope of the arbitration agreement, the Court did not have to consider the Third Requirement of whether the DR Clause was “null and void, inoperative or incapable of being performed”.

Accordingly, the appeal was dismissed.

Comment

This decision settles the frequently asked question of whether an arbitration agreement can only arise if it provides both parties with the mutual right to arbitrate.

The Court’s broad construction of what constitutes a valid arbitration agreement means that even if the option was only given to one party to elect to arbitrate a future dispute, this would not prevent the Court from recognising such a clause as a valid arbitration clause.

The Court also observed that the onus is on an applicant applying for a stay of court proceedings in favour of arbitration to persuade the court(s) as to:

  1. whether a dispute falls within the scope of an arbitration clause; and
  2. to advance the interpretation of the dispute resolution clause that would support the applicant’s contention that a stay should be ordered.

In other words, the courts’ adoption of a prima facie standard of review does not relieve an applicant of the burden of proving that its construction of the clause is the correct one.

The Court’s robust approach means that there can be no assumption that a court would order a stay of proceedings on account of the existence of a valid arbitration agreement. The Court is equally prepared not to send a dispute to arbitration if doing so would not accord with the parties’ underlying intentions under an arbitration agreement.

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Updates on Third Party Funding in Singapore and developments in Mediation

Third Party Funding

We covered the key proposed changes under the Civil Law (Amendment) Bill 2016 (“Funding Bill“) in our earlier post, which provides a framework for third party funding in Singapore. It will currently apply to international arbitration proceedings and related court and mediation proceedings, and may be broadened (by subsidiary legislation) to include more categories of proceedings after a period of assessment.

The Funding Bill was introduced in Parliament on 7 November 2016, went through a second reading and passed on the same day on 10 January 2017.

Related amendments were also made to:

The Legal Profession Act: lawyers are to be allowed to play a role in funder referral and act for clients in relation to third party funding agreement; and

The Legal Profession (Professional Conduct) Rules: lawyers will have a duty to disclose the existence of any third party funding that their client is receiving.

The passing of the Funding Bill is expected to further cement Singapore’s ambition as a premier international dispute resolution hub where similar third party funding arrangements were commonplace in major arbitration institutions in London, Paris and Geneva. The next big question would be on the possible enlargement of categories of proceedings beyond international arbitration. The Singapore courts’ willingness (in Re Vanguard Energy Pte Ltd [2015] 4 SLR 597) to recognise third party funding in litigation within the context of corporate insolvency may be a promising signal of how this area will further develop in time to come.

Mediation

The Mediation Bill, which was introduced into parliament on the same day as the Funding Bill on 7 November 2016 and similarly passed on 10 January 2017, is part of a series of deliberate steps taken by the government to strengthen and expand the international dispute resolution pie in Singapore. It is expected to cement the role of mediation in complementing the existing dispute resolution mechanisms to deepen Singapore’s position as an international dispute resolution hub.

The Mediation Bill aims at implementing recommendations made by the International Commercial Mediation Working Group (“the Working Group”). The Working Group was set up in 2013 to develop strategies to grow Singapore’s international mediation landscape. Its recommendations have resulted in the establishment of the Singapore International Mediation Centre and the Singapore International Mediation Institute (SIMI), amongst others. The Mediation Bill has 4 key features:

  1. Enforceability of mediated settlement agreements strengthened: It provides for the expeditious enforcement of mediated agreements; parties can record the settlement agreement as a court order. Non-breaching parties will no longer be required to commence fresh court proceedings to sue for breach of the settlement agreement in the event of non-compliance.
  1. Restrictions on disclosure and admissibility clarified: It explicitly clarifies that communications made in a mediation cannot be disclosed to third parties and cannot be admitted in court or arbitral proceedings as evidence. Parties no longer required to expend resources to dispute on admissibility issues.
  1. Basis for stay of court proceedings clarified: A specific basis is now provided for parties to a mediation agreement to apply to the courts to stay concurrent court proceedings relating to the same dispute. This would lead to greater certainty and saves resources required to litigate on this.
  1. Mediation no longer part of restrictions on the practice of Singapore law: The Legal Profession Act will be amended to provide more freedom for parties to choose their own mediators and counsels as long as the mediation is conducted by (1) a certified mediator; or (2) administered by a designated mediation service provider. This aims to attract international mediators and counsels to Singapore for mediation, and grow the international mediation pie in a manner similar to arbitration.

In practice, a stay of court proceedings can be granted as of right when mediation is attempted, and can lead to overall time and cost savings. A settlement negotiated through mediation provides parties with an amicable, speedy and cost-efficient resolution. Mediation’s emphasis on amicable resolution is particularly suited to business contexts where parties are desirous of preserving long term business relationships. In the event parties are unable to achieve settlement at mediation, the suit may continue to be heard before the court. In addition to point 1 above (on the enforceability of mediated settlements), the UNCITRAL Working Group II is expected to discuss a new instrument to facilitate the enforcement of international commercial settlements resulting from mediation in early February in order to similarly strengthen the enforceability of settlement agreements in the context of international mediation.

The knock-on effect of these proposed changes is expected to further increase the popularity of the SIMC, where mechanisms such as the Arb-Med-Arb protocol (see our earlier post) is already in place, as well as the Singapore Mediation Centre (SMC). The SMC, the first of its kind, which began offering mediation as a mainstream dispute resolution mechanism since its inception in 1997, has handled an unprecedented number of cases (499) and total quantum of disputes (S$775 million) in 2016.[1] This represents a 72% caseload increase (which were commercial in nature) compared to 2015. The most common types of disputes mediated were company/shareholder and construction in nature.

It should be noted that the Funding Bill mentioned above will only extend to mediation proceedings that arise from or are connected with international arbitration proceedings. The Funding Bill will not apply to stand-alone mediation proceedings (for now).

In any event, 2017 is expected to be a year of dynamic growth for international dispute resolution in Singapore as these measures kick in.

With thanks to Jonathan Beh and Lakshanthi Fernando.

[1] http://www.mediation.com.sg/assets/downloads/News-Release-Bumper-number-of-mediation-cases-for-Singapore-Mediation-Centre-in-2016.pdf

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