Date01 December 2008
Published date01 December 2008
AuthorLawrence BOO LLB (University of Singapore), LLM (National University of Singapore); FSIArb, FCIArb, FAMINZ, Chartered Arbitrator; Solicitor (England and Wales), Advocate and Solicitor (Singapore); District Judge (Singapore); Visiting Professor, School of Law, Wuhan University (China), Adjunct Professor, Faculty of Law, Bond University (Australia), Adjunct Professor, Faculty of Law, National University of Singapore.
Commencement of arbitration
Domestic arbitration and contractual time limitationScott v Averyclause

3.1 Parties are free to agree to any terms under a contract, including stipulating the time within which action or arbitration ought to be commenced. It is also not uncommon in insurance contracts as part of the policy conditions for insurers to stipulate that the obtaining of an award in arbitration be a condition precedent to commencing or maintaining an action against the insurer. Such clauses, normally known as Scott v Avery clause (following the leading marine insurance case of Alexander Scott v George Avery(1856) 5 HL Cas 811; 10 ER 1121), have been consistently upheld as valid and could operate as a defence to a suit by the insured who had failed to comply with the condition precedent: see Lim Kitt Ping Lynnette v People”s Insurance Co Ltd[1997] 3 SLR 1018. Much, however, depends on the specificity of the covenant which the parties had entered into.

3.2 The plaintiff in Tay Eng Chuan v Ace Insurance Ltd[2008] 4 SLR 95 had suffered injury to his left eye as a result of an accident that occurred while carrying a wire mesh in his house on 12 November 2002. He subsequently submitted claims on his policies with several insurance companies, including the defendant. The plaintiff”s claim against the defendant was for the amount of $300,000 for the loss of sight in his left eye. The defendant admitted liability on 29 July 2003 and paid the plaintiff $3,300 for the 11 days of hospitalisation. The insurance policy issued by the defendant also provided benefits for ‘total loss of lens in one eye’ where 50% of the sum insured was payable. Similarly, for ‘total loss of sight in one eye’, 50% of the sum insured was payable. On 11 December 2003, the defendant paid the plaintiff $300,000 (being 50% of the sum insured and payable for the loss of lens in one eye). The plaintiff acknowledged receipt of a cheque for $300,000 from the

defendant but wrote on the acknowledgment that he did not accept that the payment was in full and final settlement of the defendant”s liability under the insurance policy.

3.3 The policy contained the following provisions on arbitration and right of action:

7. Arbitration

If any dispute or difference arises between the Company and any of the parties hereto concerning any matter arising out of this Policy, such dispute or difference shall be referred to arbitration in accordance with the provisions of the Arbitration Act, Chapter 10 of Singapore and any statutory modification or re-enactment thereof then in force within three (3) months from the day such parties are unable to settle the differences amongst themselves.

8. Governing Law

[The] Policy shall be governed by and interpreted in accordance with Singapore Law. The Singapore courts shall have exclusive jurisdiction.

10. Legal Action

Subject to Clause 7 of this Part [ie, the Arbitration Clause], no action shall be brought to recover on [the] Policy prior to the expiration of sixty (60) days after written proof of claim has been filed in accordance with the provisions of [the] Policy.

3.4 Part 9, cl 3 (‘condition precedent’) stated:

3 Terms and Conditions

The due observance and [fulfilment] of the terms, provisions and conditions of this Policy insofar as they relate to anything to be done or complied with by the Insured Person, the Policyholder and/or the Policy Payer shall be a condition precedent to the liability of the Company to make any payment under this Policy.

3.5 The defendant having rejected the claim on 21 May 2004, the plaintiff should have commenced arbitration within three months thereafter. While actively pursuing his claim against the other two insurers in arbitration, the plaintiff took no steps on his claim against the defendant until November 2006 when he applied to the High Court for an order that the time for commencing arbitration proceedings be extended for three months after the conclusion of a pending arbitration against another insurer, UOI. The application was dismissed by V K Rajah J (as he then was). The plaintiff then commenced this action to claim against the defendant for the loss of sight under the policy.

3.6 The High Court dismissed the action, holding that cl 7 obliged the plaintiff to commence the arbitration within three months of the dispute having arisen. Compliance with the arbitration clause was a condition precedent to establishing liability on the part of the defendant under Pt 9, cl 3 of the insurance policy. As the right to arbitrate was extinguished by the contractual time limitation under cl 7, the plaintiff lost the basis for making a claim for payment under the policy. No alternative route by way of legal action in court was available to him.

3.7 On appeal to the Court of Appeal, Chief Justice Chan Sek Keong took the view that the failure by the plaintiff to commence arbitration within the time stipulated in Pt 9, cl 3 of the policy merely meant that he had lost his right to arbitrate and did not of itself deprive him of the right to pursue the claim by court action. The Court of Appeal referred to Halsbury”s Laws of Singapore vol 2 (LexisNexis, 2003 Reissue) at para 20.049 which states that:

Contractual time bars may apply to bar either the claim or the arbitration. Where a contractual time limit bars only the right to proceed to arbitration, the parties may nevertheless proceed to litigate the dispute in the forum where the jurisdiction could be established over the parties.

3.8 Examining Pt 9, cl 3 (condition precedent), Chan Sek Keong CJ found nothing in its text to suggest that the plaintiff”s cause of action would be lost merely by failing to commence arbitration within the contractual time limit of three months. The condition precedent clause merely stated that a failure to comply with the terms and conditions was ‘a condition precedent to the liability of the Company to make any payment under this Policy’ and, in the Court of Appeal”s view, the insurer”s liability to make payment under the Policy could not be equated with the plaintiff”s right to sue on the policy.

3.9 Taking a contra proferentem approach, the Court of Appeal suggested that if the insurer had intended that these clauses should operate collectively as a Scott v Avery clause (Alexander Scott v George Avery(1856) 5 HL Cas 811; 10 ER 1121) depriving a party of the right to sue unless it had first commenced arbitration, they ought to have done so in clear and certain terms, and not in disparate provisions in the policy. In any event, the Chief Justice observed that cl 10 (legal action) did not state that the plaintiff”s right to commence an action in court could only arise upon compliance with the arbitration clause.

3.10 This decision distinguishes the different impact of a time limitation that bars only the right to go to arbitration and a time bar that operates to extinguish a claim in its entirety.

3.11 The strict approach adopted by the Court of Appeal when construing contractual provisions to deprive a party of its legal recourse is proper and assuring. This approach is also consistent with and easily justified by a strict application of the doctrine of separability in arbitration. If the arbitration clause — which is essentially a separate agreement within the policy — is to be referred to for some corollary effect, it ought to have been specifically referred to. In this regard, Pt 3 cl 9 (condition precedent) had referred only generally to the ‘due observance and [fulfilment] of the terms, provisions and conditions of this Policy’. If the intention was to make the arbitration clause a condition precedent, the non-compliance of which was to extinguish the insured”s rights under the policy, specific mention of the arbitration clause ought to have been made in Pt 3 cl 9 of the policy.

Choice of institutional rules and administering institution

3.12 Due to the historical development of arbitration over the last 70—80 years, common law jurisdictions tended toward the use of ad hoc arbitrations whereas continental or civil law countries adopted a more institutional approach to arbitration. In Singapore, with the founding of the SIAC (Singapore International Arbitration Centre) in 1991, however, institutional rules and processes have gained some following with the SIAC and ICC (International Chamber of Commerce) taking the lead. Rules of institutions when adopted in the arbitration would provide for a prescribed framework and procedure for the conduct of the arbitration, subject only to such modifications as may be agreed or the mandatory arbitration laws of the seat of arbitration. While the degree of institutional involvement may vary, such rules would normally provide for the institutions some supervisory and administrative roles, such as the appointment, confirmation and challenge of arbitrators, scrutiny of awards and financial management of the cases. In negotiating contracts, parties often reach compromises and craft terms which would be acceptable to all. It is, therefore, not uncommon to have clauses referring to an institution located in a country to administer cases in another jurisdiction. In most cases they are workable. More recently with the increasing international presence of the SIAC, arbitration clauses referring to both the SIAC and some other institutions have surfaced. In Insigma Technology Co Ltd v Alstom Technology Ltd[2009] 1 SLR 23; Judith Prakash J was confronted with a clause (cl 18(c)) that read:

[A]ny and all such disputes shall be finally resolved by arbitration before the Singapore International Arbitration Centre (‘SIAC’) in accordance with the Rules of Arbitration of the International Chamber of Commerce (‘ICC’) then in effect.

3.13 The plaintiff in that case had entered into a license agreement (‘LA’) with the defendant. A dispute arose regarding the calculation of annual royalties payable by the plaintiff to the defendant...

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