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    07:11 PM Wu Junneng and Tan Tian Hui (Rajah and Tann Singapore LLP)

    Of prima facie standard(s), bare arbitration clauses and constituting arbitral tribunals: KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd and another suit [2017] SGHC 32

        

    Introduction

    A bare arbitration clause is an arbitration clause that does not specify the place or means of appointing arbitrators. It may also not specify the seat of arbitration and in which case, two interesting questions arise. First, how is a Court that has yet to be seized with jurisdiction deal with a request to refer the dispute to arbitration? Second, what is the extent to which the International Arbitration Act (“IAA”) or the Singapore Court can assist in commencing arbitration? The recent case of KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32 (“KVC”) presented an opportunity to deal with these difficult questions. 

    Facts of KVC

    In KVC, a dispute had arisen between the Plaintiffs and Defendant, which was subject to resolution pursuant to an arbitration clause found in each of the parties’ two agreements. The Defendant refused to cooperate to submit the dispute to arbitration. The Plaintiffs commenced the suits, which were hampered by the Defendant’s successful application for an unconditional stay order against the Plaintiffs.

    In the circumstances, the Plaintiffs brought an appeal, seeking to (a) set aside the stay order, or in the alternative (b) impose a condition on the stay order that the arbitration be subject to Singapore law, so as to ensure that the arbitration can proceed unhindered (pursuant to s 8(2) IAA, which provides for the President of the Court of Arbitration of the SIAC (“the SIAC President”) powers to appoint an arbitrator, in the event that parties fail to agree on the same).

    As the arbitration clauses are in pari materia, it suffices to reproduce one of the clauses, which states:

    The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Indian Contract Rules.”

    The other clause is identical, except that it refers to “Singapore Contract Rules”, instead of “Indian Contract Rules”.

    In applying to set aside the stay order, the Plaintiffs made the following arguments. First, the phrase “arbitration as per Singapore/Indian Contract Rules” does not refer to any existing or known set of procedural rules. Second, the arbitration clauses did not designate a seat or governing law for the arbitration. Thus, it would be impossible to give effect to the parties’ intention or commence arbitration within their contemplation (at [18]).

    To the contrary, the tenor of the Defendants’ submissions was that even though the arbitration clauses were devoid of details, the details could nevertheless be agreed between the parties or be resolved via a mechanism available under the law. In particular, Art 11 of the UNCITRAL Model Law (“ML”), incorporated into domestic law by s 3 IAA, provides for the SIAC President to appoint the arbitrator if parties cannot agree on the same (at [23]).

    In coming to its findings, the Court had to decide, inter alia, the following issues. First, whether the bare arbitration clause renders the arbitration agreement “incapable of being performed”, and hence, a mandatory stay ought not to be ordered. Second, whether avenues exist under Singapore law to break a deadlock between parties concerning the appointment of the arbitral tribunal, notwithstanding the absence of express provisions in the IAA empowering the SIAC President or the Singapore courts to make appointments in cases where the place of arbitration is unclear or not yet determined.   

    Bare arbitration clauses

    On the first issue, the Court adopted the consistent approach of upholding a bare arbitration clause, so long as parties have evinced a clear intention to settle any dispute by arbitration (at [29]). This much is uncontroversial, and echoes the line of previous cases which were decided in accordance with the pro-arbitration policy adopted by our courts.

    The Court also went on to consider the difficulties arising from bare arbitration clauses in international contracts. The Court observed that although both the Arbitration Act (“AA”) and IAA contain provisions for the SIAC President to intervene to appoint arbitrators where parties fail to agree on the same, the provisions only apply if the place of arbitration is Singapore, pursuant to Article 1(2) ML. Thus, these provisions do not plug the gap where bare arbitration clauses are concerned, since they provide for neither the place of arbitration nor the law applicable to the arbitration (at [30]). The relevant connecting factors may also point in different directions, such that it is unclear whether Singapore is the place of arbitration (at [31]).

    As the clause in the parties’ agreement fell within this category, the Court had to decide whether the default mechanism for appointing arbitrators would apply, notwithstanding that the place of arbitration was unclear.

    Appointment of tribunal where place of arbitration is unclear/not yet determined

    Two sub-issues arise from this issue - first, whether the IAA allows the SIAC President to appoint the arbitral tribunal where the place of arbitration is unclear or not yet determined; second, if the SIAC President is unable to act, whether other mechanisms exist under Singapore law to break a deadlock between parties concerning the appointment of the arbitral tribunal where the place of arbitration is unclear or not yet determined (at [43]).

    On the first issue, the Court held that the IAA allows the SIAC President to appoint the arbitral tribunal where the place of arbitration is unclear or not yet determined. In this regard, the Court held that the standard of review to be applied by an appointing authority for determining the existence of its jurisdiction to make an appointment would be much lower than the standard of review adopted by an arbitrator for determining its jurisdiction to conduct the arbitration. The prima facie standard that applies to stay proceedings (as set out in Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373) should be adopted. It would otherwise amount to a usurpation of the arbitrator’s role and a waste of time and expenses if the appointing authority were required to examine these issues to the same extent and on the same standard, as an arbitrator (at [47]).

    In the present case, the Court considered that the reference to arbitration “as per Singapore contract rules” gave rise to three possible approaches (at [50]-[53] and [55]), all of which pointed towards the choice of Singapore law as the law applicable to the arbitration. Accordingly, the Court held that a prima facie case existed such that the SIAC President can act (at [63]).

    On the second issue, the Court explained that in the event the SIAC President is unable to act, it nevertheless remains possible to break the deadlock between parties concerning the appointment of the arbitral tribunal.

    In this regard, the Court retains a “residuary jurisdiction to make an appointment to implement the intention of the parties that their disputes should be resolved by arbitration”, adopting the test in Comtec Components Ltd v Interquip Ltd [1998] HKCFI 803 (“Comtec) (at [72]-[73]). Consistent with Singapore’s public policy of strong support for international arbitration, Pang JC held that in a case where there was “truly no other way to prevent injustice to a would-be claimant, a Singapore Court would be prepared to step in to directly appoint an arbitrator, provided the dispute had some connection with Singapore” (at [71]).

    Commentary

    First, as Pang JC held, an appointing authority only needs to be satisfied that there is a prima facie case that it has the jurisdiction to act. In reaching this decision, Pang JC extended the prima facie standard of review in determining the existence of an arbitration agreement to determining the existence of an agreement on the place of arbitration (at [48]). It is submitted that this approach is correct for it gives effect to the doctrine of kompetenz-kompetenz. The substantive determination on whether Singapore is the place of arbitration should be one for the arbitral tribunal to decide. By adopting a prima facie standard of review, the issue of whether Singapore is the place of arbitration would be rightly referred to the arbitral tribunal which should have the “first bite” in determining whether it has jurisdiction to hear the dispute (Malini Ventura v Knight Capital Pte Ltd [2015] SGHC 225 at [19] and [28]).

    In relation to the Court’s residuary jurisdiction to come in aid of arbitration through the appointment of arbitrators, three points will be made.

    First, the Court adopted the reasoning of Findlay J in Comtec in a wholesale fashion, on the basis that Comtec was decided on statutory provisions in pari materia with the relevant provisions of the IAA (at [73]). It is submitted that this could be a dangerous step forward. For instance, in Comtec, it was merely declared by Findlay J that the Hong Kong Courts would, as a last resort, have a residuary jurisdiction to appoint the arbitral tribunal. However, the decision in Comtec does not explain the basis on which the Court derives this residuary jurisdiction, nor the scope of this jurisdiction. Accordingly, the reasoning of Pang JC in adopting Findlay J’s opinion merely on the basis that the statutory provisions are in pari materia, may require fuller consideration.

    Second, Pang JC also indicated that this residuary jurisdiction could be exercised only when the dispute has some connection with Singapore (at [71]). However, further clarification is required in respect of the meaning of “some connection”—essentially, what is the requisite degree of connection. This is important because the extent of connection to Singapore will determine the scope of the Court’s residuary jurisdiction, and clarify when it would be appropriate for the Singapore Court to intervene and assist in appointing the arbitral tribunal. Surely, remote connections to Singapore would not suffice to engage the Court’s residuary jurisdiction. Even though Singapore may adopt a pro-arbitration policy, the Court have on other occasions demonstrated their willingness not to enforce invalid arbitration agreements (see the most recent decision, TMT Co Ltd v The Royal Bank of Scotland plc [2017] SGHC 21). Nonetheless, on the basis that Singapore adopts a pro-arbitration policy, it is suggested that the threshold of “some connection” may be low and connections such as either party being based in Singapore or having the consignments delivered to Singapore may be sufficient to engage the Singapore Court’s residuary jurisdiction.

    Third, on a practical note, KVC establishes a two-layer fallback for parties who wish to refer their dispute to arbitration in the event that the arbitration agreement fails to provide for an effective procedure of appointment of the arbitral tribunal. If parties wish to rely on the Court’s residuary jurisdiction, they should take care in considering whether the contracting parties or the contractual clauses have “some connection” to Singapore in drafting their commercial agreement. It is also apposite at this juncture to remind contracting parties that in drafting their arbitration agreement, certain key elements like the law governing the arbitration agreement and arbitral procedure as well as seat of arbitration ought to be specified with clarity.

     

     

    Conclusion

    In conclusion, the decision in KVC is to be welcomed. However, it is submitted that the scope of the Court’s residuary jurisdiction will require further refinement to prevent an abuse of the Court’s processes. This decision inevitably results in parties potentially being able to commence arbitration as a delaying tactic. There ought to be a higher threshold in engaging the Court’s residuary jurisdiction to restrain cases that are devoid of merit. It follows that the dispute may face disproportionate delays and incur unnecessary costs. If this were to occur, we might end up in a situation where we take two steps forward but in fact, one step back.

    * This blog entry may be cited as Wu Junneng and Tan Tian Hui, “Of prima facie standard(s), bare arbitration clauses and constituting arbitral tribunals”  (12 April 2017) (http://www.singaporelawblog.sg/blog/article/183)

    ** A PDF version of this entry may be downloaded here

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