E-briefing: Update on Resolving Uncertainties in Arbitration Clauses – What will be the Governing Law of the Arbitration Agreement and Seat of Arbitration if it is not expressed?
Why is this important: The Court of Appeal disagreed with the findings of the High Court on the governing law of the arbitration and the seat of the arbitration. Why did the Court of Appeal arrive at a different finding? What are the implications of a vague arbitration agreement that does not expressly identify the governing law of the arbitration agreement and the seat of arbitration?
Key things to note
What does “arbitration in Shanghai” mean? In BNA v BNB  SGHC 142, the Singapore High Court interpreted this as a Singapore seated arbitration with the physical hearing to be held in Shanghai. However, the Singapore Court of Appeal in BNA v BNB  SGCA 84 took a different approach and held that Shanghai was the seat of arbitration.
The background to this appeal can be found in our previous briefing on the Singapore High Court’s decision on this matter. Essentially, the issues turned on the interpretation of the arbitration agreement which provided that the dispute shall be “submitted to the SIAC for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules”.
The High Court found that:
- The proper law of the arbitration agreement is Singapore law. This is notwithstanding the fact the proper law of the underlying agreement is PRC law.
- The seat of the arbitration is Singapore. This is because parties had expressly referred to the SIAC Arbitration Rules. Under the SIAC Rules 2013 which was applicable at the material time, the seat shall be Singapore if parties do not agree on the seat of the arbitration. Having selected the SIAC Rules, parties must have agreed that the seat of the arbitration is Singapore. This is because the arbitration cannot be seated in two jurisdictions.
Dissatisfied with the outcome, the appellant brought an appeal on the basis that the proper law of the arbitration agreement should be the law of the People’s Republic of China (“PRC Law”). Consequently, the arbitration agreement was invalid because under PRC Law, the dispute would be a domestic dispute. A foreign arbitration institution (SIAC) is prohibited from administering an arbitration of a domestic dispute.
Summary of the Singapore Court of Appeal findings
Seat of arbitration
The Court of Appeal disagreed with the High Court and held that the seat was Shanghai.
The Court of Appeal held that the natural meaning of the phrase “arbitration in Shanghai” is most naturally construed as the seat of arbitration. Notwithstanding this, the Court of Appeal qualified this by stating that this natural construction can be displaced by contrary indicia.
Two examples were raised by the respondents as contrary indicia. However, these were rejected:
- Parties’ concerns that the arbitration should be seated in a neutral forum as expressed in their pre-contractual negotiations: This was rejected on the basis that the courts were bound by the parol evidence rule under the Evidence Act and its exceptions. Pre-contractual negotiations could not be admissible as evidence of contrary indicia because such evidence was not reasonably available to all the contracting parties. It also did not relate to a clear and obvious context.
- The invalidating effects of PRC Law on the arbitration agreement: there was no evidence to suggest that parties were alive to the interplay between PRC Law and SIAC as the arbitral institution in charge of administering the arbitration (i.e. if the arbitration agreement were governed by PRC Law, selecting SIAC as the arbitral institution to administer a domestic dispute was illegal under PRC Law).
The fact that Shanghai was a city and not a law district did not persuade the Court of Appeal otherwise. This is because it was common for parties to specify either a city or country in the arbitration agreement.
Proper law of the arbitration agreement
On appeal, parties accepted that the BCY framework to determine the proper law of the arbitration agreement was the proper framework. This is a three-stage framework which can be summarized as follows:
- Have parties expressly chosen the governing law of the arbitration agreement?
- If there is no express choice of law, is there an implied choice of law for the arbitration agreement?
- In the absence of an express or implied choice of law, what is the law with which the arbitration agreement has the closest and most real connection?
Parties also accepted that the governing law of the underlying agreement is generally the governing law of the arbitration agreement. However, this can be displaced, especially if the seat is different from the place of the governing law of the contract. This was not the finding of the Court of Appeal.
The Court of Appeal concurred with the High Court and affirmed that the parties had not made an express selection of the governing law of the arbitration agreement. The Court of Appeal proceeded to consider if there was an implied choice of law of the arbitration agreement. This largely turned on the seat of the arbitration. Since the Court of Appeal has determined that the arbitration is seated in Shanghai, it follows that PRC Law is the proper law of the arbitration agreement.
Implications of the Court of Appeal’s findings
The Court of Appeal did not go so far to decide on whether the tribunal had jurisdiction. This is because having determined that Singapore was not the seat, the Singapore courts will have no supervisory jurisdiction over the arbitration. The Court of Appeal took the view that this was a matter to be determined by the PRC Court as the seat court applying PRC Law.
Was the appellant correct in bringing a jurisdiction challenge before the Singapore courts when it was ultimately decided that the Singapore is not the seat? The Court of Appeal took a practical approach and observed that given the tribunal had earlier determined that Singapore was the seat, the appellant was correct in bringing its application before the Singapore High Court. The Court of Appeal clarified that it is unnecessary and unworkable for the court hearing the jurisdictional challenge to be the seat court, especially when the seat was precisely the subject of the dispute.
The Court left it open for parties to decide what further actions they wish to take.
What this means for parties
It is imperative for parties to ensure that its dispute resolution clauses are watertight. It is important to consider the implications of the governing law of the underlying agreement, the governing law of the arbitration agreement and the seat of the arbitration holistically and how they interplay with each other. Failing which, parties could end up in a long-drawn jurisdictional battle that will serve to impede an efficient resolution of the matter.
The full text of the decision may be accessed here.
Eversheds Harry Elias International Arbitration Group
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