Singapore: important arbitration developments in 2009

Practical Law Legal Update 5-501-0459 (Approx. 4 pages)

Singapore: important arbitration developments in 2009

Clause stipulating arbitration by SIAC under ICC rules upheld as valid

The validity of a "hybrid" arbitration clause (that is, a clause stipulating that an arbitration is to be carried out before one arbitral institution but using the rules of another arbitral institution) was considered by the Singapore Court of Appeal in Insigma Technology Co Ltd v Alstom Technology Ltd [2009] SGCA 24. The appellant, Insigma Technology Co Ltd, sought to challenge the validity of such an arbitration clause, which stated:

"Any and all such disputes shall be finally resolved by arbitration before the Singapore International Arbitration Centre in accordance with the Rules of Arbitration of the International Chamber of Commerce then in effect and the proceedings shall take place in Singapore and the official language shall be English…"

The clause was upheld by the High Court and by the Court of Appeal which made various useful observations in its judgment on the approach to be taken in relation to such arbitration clauses. These were as follows:

The court would seek to give effect to the parties' clear intention to settle their disputes by arbitration, even if certain aspects of the agreement to arbitrate might be ambiguous, inconsistent, incomplete or lacking in certain particulars. However, this approach was subject to the following qualifications:
- The court should strive for an interpretation which meant that the arbitration could be carried out without prejudice to the rights of either party.
- The court could not adopt an interpretation which would result in an arbitration that had not been in the contemplation of the parties.
- When construing an arbitration clause, courts should adopt a commercially sensible and logical construction rather than one that is commercially illogical.
The court also adverted to the appellant's argument that the arbitration clause was a "pathological clause" – that is, one that contains defects liable to disrupt the smooth progress of the arbitration. The court noted the approach of courts in other jurisdictions, which was not to treat such clauses as invalid but to seek to interpret them in a manner to render them effective. Simply referring an arbitration clause as a "pathological clause" did not advance the argument any further: the question was whether it could be interpreted in a manner that would render it workable.
Public policy was in favour of upholding such clauses in accordance with the parties' intentions and in upholding party autonomy.

This decision reaffirms the pro-arbitration approach of the Singapore courts and provides assurance that our courts will in construing arbitration agreements seek to uphold the intention of the parties to arbitrate.

The case does, however, highlight the need to be cautious when agreeing to a hybrid arbitration clause. In this case, the appellant's apparent lack of good faith in objecting to an interpretation of the clause which it had agreed, and the fact that the SIAC had been willing to administer the arbitration under the ICC Rules with its own departments/officers acting in roles equivalent to those stipulated in the ICC Rules, possibly militated against the Court finding the clause void for uncertainty. Further, both the Court of Appeal and the High Court had made clear their view that the clause would have been unworkable if the SIAC had been unable to provide similarly equipped substitute bodies.

Singapore amends International Arbitration Act

On 19 October 2009, the Singapore Parliament passed the International Arbitration (Amendment) Bill (Amendment Bill) (see Legal update, Singapore proposes amendments to its International Arbitration Act). The Amendment Bill was the product of proposed amendments to the International Arbitration Act (IAA) by the Ministry of Law in July and August 2009. The then draft Amendment Bill underwent a process of public consultation before being presented in Parliament on 14 September 2009. While the Amendment Bill has been passed, it is not yet in force. Once it comes into force, it will amend the IAA in the following three key areas discussed below.

Interim Orders in Aid of Foreign Arbitrations: In Swift-Fortune Ltd v Magnifica Marine SA (2007), the Singapore Court of Appeal ruled that a Singapore court has no statutory power under the IAA to grant interim orders or relief to assist arbitrations conducted abroad, unless it involved a dispute that was justiciable in Singapore. To address this lacuna, the Amendment Bill inserts a new section 12A that will give the Singapore courts power to grant interim orders in arbitrations held outside of Singapore. The section specifically provides that the court will be empowered to make such an order whether or not it relates to a matter that is justiciable before a Singapore court. The orders that may be made include orders to freeze the assets of parties. This amendment will bring Singapore in line with the position in the UK and New Zealand.

New Definition of "Electronic Communications": Currently, section 2(1) of the IAA defines an "arbitration agreement" as an agreement in writing. The Amendment Bill clarifies that an arbitration agreement can be contained in "electronic communications" such as electronic emails and electronic data messages. This extended definition of "arbitration agreement" will not apply to Part III of the IAA, which deals with the enforcement of foreign arbitral awards. For such awards, the current definition of "arbitration agreement" will continue to apply. This is because the New York Convention does not have a modernised definition of an arbitration agreement.

Authenticating Agents: Under a new section 19C, the Minister for Law is empowered to designate entities to authenticate, on a non-mandatory basis, "made in Singapore" arbitration awards. At present, there is no public body in Singapore that can authenticate such awards. This has caused difficulties for some parties in enforcing their Singapore arbitration award overseas because some foreign courts require that the awards be duly authenticated before allowing the awards to be enforced. The authentication by designated entities is not mandatory and is not the sole means of authentication.

When is a dispute a "dispute"?

Arbitration clauses commonly provide that "all disputes arising out of" the parties' contract will be settled by arbitration. The Singapore Court of Appeal in Tjong Very Sumito & Ors v Antig Investments Pte Ltd [2009] SGCA 41 recently set out the applicable rules for determining when a dispute will fall within this formula (see Legal update, Singapore Court of Appeal rules arbitral tribunal and not court to examine existence of dispute). These are:

The court will interpret the word "dispute" broadly and will readily find that a dispute exists unless the defendant has unequivocally admitted that the claim is due and payable.
There is a "dispute" if the defendant expressly asserts that he denies the claim; the court will not assess the merits of this denial.
The court can also infer that the claim is not admitted from the previous inconclusive discussions between parties, prevarication or even silence:
- There is prevarication where a defendant unequivocally admits the claim, but then later resiles from this admission. In this case, there is a "dispute" over the substantive claim and also whether the defendant can challenge his earlier admission.
- The defendant's silence, without more, is insufficient to constitute a clear and unequivocal admission since there may be good reasons why a party remains silent.
If a defendant makes an unequivocal admission extending to both liability and quantum, then there is no "dispute". The claimant may bring his claim in court but must come armed with compelling evidence of the admission. If that admission is challenged with any semblance of credibility, the court will ordinarily be inclined to decide that a "dispute" has arisen.

This decision makes clear that the situations where a claimant may seek to bring court proceedings in lieu of agreed upon arbitration processes are limited. For practical purposes, the situations where a defendant clearly and unequivocally admits both liability and quantum of damage but insists on proceeding with arbitration are relatively rare.

The Court of Appeal's helpful explanation of the current judicial policy clearly affirms that the courts will give effect to parties' contractual choice of dispute resolution. As emphasised by the court:

"Courts should therefore be slow to find reasons to assume jurisdiction over a matter that parties have agreed to refer to arbitration. It must also be remembered that the whole thrust of the IAA is geared towards minimizing court involvement in matters that the parties have agreed to submit to arbitration."

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