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Singapore High Court considers enforceability of defective arbitration clause
Practical Law UK Legal Update Case Report 9-524-8280 (Approx. 4 pages)
Singapore High Court considers enforceability of defective arbitration clause
by Jonathan Leach (Partner), Paul Teo (Partner) and Edward Foyle (Associate), Hogan Lovells Lee & Lee
| Published on 05 Mar 2013 • Singapore |
In HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5, a Singapore Court considered the enforceability of a potentially pathological arbitration clause that referred to a non-existent arbitral institution.
Speedread
The Singapore High Court has stayed court proceedings in favour of arbitration where the arbitration clause provided for a non-existent arbitral institution, on condition that the parties obtain the agreement of the Singapore International Arbitration Centre (SIAC), or another arbitral institution in Singapore, to conduct a "hybrid" arbitration applying the ICC Rules. The parties were also still at liberty to agree to another form of arbitration. In reaching its decision, the court found that the arbitration clause was otherwise workable and operative within the meaning of section 6(2) of the Singapore International Arbitration Act (Cap 143A, 2002 Rev Ed).
The case highlights the importance of careful drafting of arbitration clauses to eliminate the risk of jurisdictional challenges, which can result in delays and costs. The decision is, however, a further demonstration of how, when confronted with a defective arbitration clause, which nevertheless evinces an intention by the parties to arbitrate, the Singapore courts will seek to interpret the clause in a way that enables the clause to be effective. However, the condition imposed by the High Court may prove, in practice, difficult to satisfy. (HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5.)
Background
Section 6 of the Singapore International Arbitration Act (Cap 143A, 2002 Rev Ed) (IAA) provides that, on receipt of an application, the Singaporean court will stay court proceedings in favour of arbitration unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.
Where there are various possible interpretations of an arbitration clause, the Singaporean courts have previously preferred an interpretation that gives effect to the clause. In Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR(R) 936, the Singapore Court of Appeal held that an arbitration clause providing that disputes should be resolved by the Singapore International Arbitration Centre (SIAC) applying the ICC Rules was a workable and operative "hybrid" arbitration agreement (see Legal update, Clause stipulating arbitration by SIAC under ICC Rules upheld as valid).
Articles 1(2) and 6(2) of the 2012 ICC Arbitration Rules, which were introduced following the Insigma decision, state, respectively:
“The [International] Court [of Arbitration] is the only body authorised to administer arbitrations under the [ICC] Rules" and “By agreeing to arbitration under the [ICC] Rules, the parties have accepted that the arbitration shall be administered by the [ICC] Court.”
Facts
In 2011, HKL Group Co Ltd (HKL) and Rizq International Holdings Pte Ltd (Rizq) entered into a contract for the shipment of sand from Cambodia to Singapore. In 2012, HKL initiated court proceedings in Singapore against Rizq, claiming for sums due under unpaid invoices. Rizq applied for the court proceedings to be stayed on the basis that there was an arbitration clause in the contract. The clause stated:
“Any dispute shall be settled by amicable negotiation between two Parties. In case both Parties fail to reach amicable agreement, all dispute out of in connection with the contract shall be settled by the Arbitration Committee at Singapore under the rules of The International Chamber of Commerce of which awards shall be final and binding both parties..."
HKL argued that the clause was defective because there was no entity in Singapore named the "Arbitration Committee", and, as no defence had been filed by Rizq in the proceedings, HKL sought judgment in default. Rizq argued that the clause demonstrated the parties' clear intention to arbitrate and that the court should apply the principle of effective interpretation to find that the dispute should be resolved by arbitration in Singapore.
Decision
The Singapore High Court found that the normal approach taken by the courts to potentially pathological arbitration clauses, as in Insigma, was to apply the usual principles of contractual interpretation and that, as far as possible, the courts should give effect to the clause. Applying these principles, the court held that the arbitration agreement was (subject to the below condition) operable and capable of being performed for four stated reasons:
- The clause provided clear evidence of the parties' intent to resolve the dispute by arbitration. The court noted that in other jurisdictions incorrect references to arbitral institutions had been held to demonstrate a clear intention that disputes be resolved by arbitration.
- The clause provided mandatory consequences; if a dispute arose under the agreement it had to be referred to arbitration.
- The clause stated a place for arbitration (Singapore).
- The clause provided that the arbitration was to be conducted under a particular set of rules (ICC Arbitration Rules).
Consequently, the court upheld the arbitration clause on the condition that the parties obtain the agreement of SIAC, or another arbitral institution in Singapore, to conduct a hybrid arbitration applying the ICC rules. The court stressed that the condition "in no way impedes the parties from resolving the matter in a more practical manner by now agreeing as between themselves to simply submit the dispute to another form of arbitration" (paragraph 38, judgment).
Comment
The case highlights the importance of careful drafting of arbitration clauses to eliminate the risk of jurisdictional challenges, which can result in delays and costs.
The condition imposed by the Singapore High Court appears to have been influenced by the agreement of SIAC in the Insigma case to administer an arbitration applying the ICC Rules.
There was no discussion of the new ICC Arbitration Rules by the Singapore court in this case and it is unclear if they were brought to the court's attention by the parties. In the light of Articles 1(2) and 6(2) of the new ICC Rules, it remains to be seen whether the SIAC will once again agree to administer an arbitration applying the ICC Rules, or whether another arbitral institution in Singapore will now confirm that it would be willing and able to do so. There is, therefore, some uncertainty as to whether, as a practical matter, it will be possible for the parties to satisfy the condition imposed by the Singapore High Court.
It is also noteworthy that the condition imposed by the court only expressly contemplates a "hybrid" arbitration applying the ICC Rules. An alternative interpretation, which was not fully discussed by the court, might have been that the ICC administers the arbitration under its own Rules, with Singapore as the place of arbitration.