BCY v BCZ

• Jurisdiction: Singapore
• Judge: Steven Chong J
• Judgment Date: 09 November 2016
• Neutral Citation: [2016] SGHC 249
• Plaintiff Counsel: Thio Shen Yi SC, Colin Liew, Cheryl Ng and Michelle Chew (TSMP Law Corporation)
• Docket Number: Originating Summons No 502 of 2016
• Date: 09 November 2016
• Hearing Date: 17 August 2016,16 August 2016
• Subject Matter: Governing law,Jurisdiction,Arbitral tribunal,Arbitration,Agreement
• Published date: 11 November 2016
• Defendant Counsel: Herman Jeremiah and Geraldine Yeong (Dentons Rodyk & Davidson LLP)
• Court: High Court (Singapore)
• Citation: [2016] SGHC 249
• Year: 2016

Steven Chong J: Introduction

When the jurisdiction of an arbitral tribunal is challenged on the basis that there is no binding arbitration agreement, the usual ground for such a challenge is that the contract which incorporates the arbitration clause was itself never concluded. In this familiar situation, it has been held that the validity of the arbitration agreement and the existence of a binding contract would “stand or fall together” and the court would usually determine both issues collectively (see Hyundai Merchant Marine Company Ltd v Americas Bulk Transport Ltd [2013] EWHC 470 (Comm) at [35]–[36], cited in Jiangsu Overseas Group Co Ltd v Concord Energy Pte Ltd and another matter [2016] 4 SLR 1336 at [48]).

The present case is a departure from that conventional approach. It concerned an International Chamber of Commerce (“ICC”) arbitration commenced by the defendant against the plaintiff. The dispute arose from a proposed sale of shares (“the Shares”) in a company by the plaintiff to the defendant under a sale and purchase agreement (“SPA”). Seven drafts of the SPA, which incorporated an ICC arbitration clause, were circulated and negotiated but the SPA was not eventually signed.

When the plaintiff decided not to proceed with the proposed sale of the Shares, the defendant commenced ICC arbitration proceedings, purportedly pursuant to the arbitration clause in the SPA. A sole arbitrator (“the Arbitrator”) was appointed. The plaintiff raised a preliminary objection to the Arbitrator’s jurisdiction on the basis, inter alia, that no ICC arbitration agreement had been concluded between the parties. The parties agreed to bifurcate the arbitration. There were thus to be two stages: (a) the jurisdictional challenge; and (b) the hearing on the merits, which has yet to take place. For the jurisdictional challenge, the Arbitrator sensibly proposed to the parties that in dealing with the jurisdictional issue, he should also deal with some issues on the merits, in particular, whether a legally binding SPA was concluded between the parties. This would be entirely in line with the conventional approach. However, the defendant was not agreeable to the Arbitrator’s suggestion and the parties thereafter agreed that the Arbitrator would only decide the jurisdictional issue without examining the question whether a valid SPA had been concluded between the parties.

Interestingly, the defendant’s case is that a binding ICC arbitration agreement was concluded before the conclusion of the SPA. In advancing this case theory, the defendant argued, relying on the doctrine of separability, that the arbitration clause is separate from and independent of the SPA. Given the defendant’s case that the arbitration agreement pre-dated the SPA, it is perhaps explicable why the parties agreed that the Arbitrator should decide the jurisdictional challenge without reference to the question whether the SPA was separately concluded between them. For reasons as explained below, in a situation where the arbitration clause was negotiated in the context of a contract, such an approach is problematic from the perspective of the parties and consequently, the Arbitrator as well.

As a consequence of the defendant’s case theory, the identity of the governing law of the arbitration agreement, as distinct from the governing law of the SPA, was a hotly contested issue in the arbitration. The defendant asserted that the substantive law governing the arbitration agreement should be the same law governing the SPA, ie, New York law, while the plaintiff’s case was that the arbitration agreement should be governed by the law of the seat of the arbitration, ie, Singapore law. That dispute continued to occupy some misplaced primacy in this application. The contest between New York law and Singapore law was misplaced simply because both parties acknowledged during the hearing that there was, in real and practical terms, no material difference between the two systems of law insofar as they relate to the only substantive issue before this court – whether an arbitration agreement was formed. This was essentially the finding of the Arbitrator as well.¹ Nonetheless, owing to seemingly conflicting authorities on this issue, this judgment will examine the two competing positions because in some situations, the differences in the laws may well have a direct and material bearing on the outcome.

Eventually, the Arbitrator proceeded to determine the jurisdictional issues as framed by the parties, in particular, whether a valid and binding ICC arbitration agreement had come into existence as a matter of law. In his First Partial Award dated 15 April 2016 (“Award”), he found that a valid ICC arbitration agreement was indeed concluded between the parties by 18 July 2013 principally on the basis that mutual assent to the arbitration agreement could be inferred from the exchange of drafts subsequent to the second draft SPA containing an identical arbitration provision coupled with the plaintiff’s statement that it was ready to sign the sixth draft, which contained the arbitration clause. This judgment will examine, in the context of negotiations of a contract which incorporates an arbitration clause, when and under what circumstances parties would intend to create legal relations by entering into a discrete arbitration agreement independently and, more critically, prior to the conclusion of the contract itself.

The plaintiff has filed this application under s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) for a declaration that the Arbitrator has no jurisdiction to hear any claim advanced by the defendant under the SPA in the arbitration. Owing to the circumstances under which this application was filed, it is imperative to bear in mind that the issue before me is not whether the dispute as to the existence of the SPA fell within the arbitration clause. Instead, this court has been specifically tasked by the parties to decide, on a balance of probabilities, whether an arbitration agreement, independent of the SPA, was concluded between the parties by 18 July 2013. This inquiry goes to the heart of the Arbitrator’s jurisdiction.

Background facts

I start by recounting, as far as is relevant to these proceedings, the course of the negotiations leading to the aborted SPA.

The negotiations

The plaintiff is a foreign bank and was at all material times the owner of the Shares. The defendant, a foreign company, was a special-purpose vehicle incorporated on 29 April 2013 to be the contracting party to the SPA.² The director and sole shareholder of the defendant is one Mr Z, who is also the director and sole shareholder of another foreign related company (“Y”).³ The defendant and Y were the claimants in the arbitration. During the course of the negotiations relating to the SPA, neither Mr Z nor his lawyers expressly distinguished as to whether they were negotiating on behalf of Y or the defendant.⁴

The sale of the Shares was first discussed between the plaintiff’s investment specialist and Mr Z on 8 December 2012.⁵ The plaintiff and Y entered into a confidentiality undertaking dated 11 December 2012, by which the plaintiff agreed to make available confidential information relating to the Shares that Y was obliged to hold in confidence.⁶ They also entered into an exclusivity agreement dated 8 January 2013, by which the plaintiff agreed not to solicit or accept any proposals for the purchase of the Shares from any other person other than Y until 31 April 2013.⁷

By an offer letter dated 30 April 2013 (“the Offer Letter”), Y wrote to the plaintiff offering to purchase the Shares through the defendant.⁸ The offer was subject to, among other things, the “execution of a mutually acceptable [SPA]”, and the offer price was subject to the parties “entering into a definitive SPA”.⁹ The offer was stated to be valid until 15 May 2013.¹⁰ This was later extended, by consent of the plaintiff and defendant, to 31 May 2013.¹¹

The draft SPAs

The first draft SPA was sent by Mr Z to the plaintiff on 17 June 2013.¹² Article 9.13.1 provided for New York law as the governing law of the agreement.¹³ This choice remained the same in all seven drafts of the SPA.¹⁴ Article 9.13.2 provided for any disputes arising out of or in connection with the agreement to be referred to the New York courts.¹⁵

Meetings were held in Washington DC between 24 and 27 June 2013 to discuss the SPA.¹⁶ These were attended by representatives of the plaintiff, the defendant, and another foreign bank (“W”) which would later become a co-purchaser of the Shares.

The second draft SPA was sent by the defendant to the plaintiff and W on 25 June 2013.¹⁷ Notably, Article 9.13.2 was replaced with an arbitration clause:¹⁸ 9.13 Governing Law and Dispute Resolution 9.13.1 This Agreement and any non-contractual obligations arising out of or in connection with it are governed by and shall be construed in accordance with the Laws of the State of New York of the United States of America. 9.13.2 All disputes (including a dispute, controversy or claim regarding the existence, validity or termination of this Agreement – a “Dispute”) arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules, such arbitration to take place in Singapore.

The third draft SPA was circulated by the defendant to the plaintiff and W on 26 June 2013.¹⁹ It was in this draft SPA that W was added as a co-purchaser. Article 9.13 of the SPA remained unchanged.²⁰

On 12 July 2013, the fourth draft SPA was circulated by the plaintiff to the defendant and W following the Washington DC meetings.²¹ Two amendments were made to Article 9.13.2: any dispute was now to be referred only to one arbitrator and Singapore was specified as...