BNA v BNB and another

• Judge: Vinodh Coomaraswamy J
• Judgment Date: 01 July 2019
• Neutral Citation: [2019] SGHC 142
• Citation: [2019] SGHC 142
• Court: High Court (Singapore)
• Published date: 04 July 2019
• Docket Number: Originating Summons No 938 of 2017
• Plaintiff Counsel: Thio Shen Yi SC, Thara Rubini Gopalan and Andrew Neil Purchase (TSMP Law Corporation)
• Defendant Counsel: William Ong, Tan Xeauwei and Sheryl Lauren Koh Quanli (Allen & Gledhill LLP)
• Subject Matter: Arbitration,Agreement,Governing law,Arbitral tribunal,Jurisdiction
• Hearing Date: 01 August 2018,27 June 2018

Vinodh Coomaraswamy J: Introduction

The plaintiff brings this application under s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”). By this application, the plaintiff invites the court to declare¹ that a three-member tribunal appointed by the Singapore International Arbitration Centre (“SIAC”) to arbitrate a dispute between the defendants and the plaintiff lacks the jurisdiction to do so.

The parties’ dispute arises out of a contract which the plaintiff entered into with the first defendant in 2012. That contract is known as the Takeout Agreement.² In 2013,³ all three parties agreed to modify the Takeout Agreement by entering into an addendum to it. Under the addendum, the second defendant took over from the first defendant all of the first defendant’s obligations to the plaintiff under the Takeout Agreement. The result of the addendum was that the first defendant immediately ceased to owe any primary performance obligations to the plaintiff under the Takeout Agreement. But the addendum expressly provided that the first defendant was nevertheless to be liable to the plaintiff, jointly and severally with the second defendant, for any failure by the second defendant to perform its newly-acquired obligations under the Takeout Agreement.

The critical provision of the Takeout Agreement for the purposes of this application is Article 14. Article 14 serves two purposes. First, it records the parties’ express choice of the law of the People’s Republic of China (“the PRC”) to govern the Takeout Agreement. Second, it contains the parties’ arbitration agreement. Article 14 provides as follows:⁴

ARTICLE 14: DISPUTES

14.1 This Agreement shall be governed by the laws of the People’s Republic of China. 14.2 With respect to any and all disputes arising out of or relating to this Agreement, the Parties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration shall be final and binding on both Parties.

The addendum expressly provides that it constitutes an indivisible part of the Takeout Agreement, which is to remain in full effect to the extent that the addendum has not modified it.⁵ The result is that Article 14 governs a single indivisible agreement comprising both the Takeout Agreement and the addendum. The addendum thus turned the Takeout Agreement in general, and Article 14.2 in particular, from a bipartite agreement between the plaintiff and the first defendant into a tripartite agreement between the plaintiff and both defendants. The addendum also extended the scope of Article 14.2 to encompass disputes not only under the original Takeout Agreement but also under the addendum. I shall henceforth use the term “Takeout Agreement” to refer to the single indivisible agreement comprising both the original Takeout Agreement and the addendum.

The parties’ arbitration agreement manifests the parties’ unambiguous and unqualified intention to arbitrate “any and all disputes arising out of or relating to” the Takeout Agreement. The plaintiff’s case on this application, however, is that the tribunal lacks jurisdiction to resolve all such disputes because the arbitration agreement is invalid under its proper law, being PRC law. The question before me is therefore whether the parties nullified their manifest intention to arbitrate disputes under the Takeout Agreement by making PRC law its proper law.

The arbitration and the tribunal’s decision on jurisdiction

The defendants commenced the underlying arbitration in 2016 by lodging a notice of arbitration⁶ against the plaintiff with the SIAC under the Arbitration Rules of the SIAC (5th Edition, 2013).⁷ In its response to the notice of arbitration, ie from the very outset of the arbitration, the plaintiff challenged the tribunal’s jurisdiction.⁸

The SIAC appointed a tribunal comprising three arbitrators: Mr Hee Theng Fong as chair with Mr Philip Yang and Ms Teresa Cheng SC on the wings. The tribunal gave directions for the plaintiff’s jurisdictional challenge to be determined.⁹ The parties exchanged written submissions on the issue of jurisdiction.¹⁰

In due course, the tribunal handed down its decision on jurisdiction. A majority of the tribunal, comprising Mr Hee Theng Fong and Mr Philip Yang, held that the tribunal had jurisdiction in the arbitration because: (i) the arbitration is seated in Singapore; (ii) the arbitration agreement is thereby governed by Singapore law; and (iii) PRC law is therefore irrelevant on the question of jurisdiction.¹¹ Ms Teresa Cheng SC, dissenting, held that the tribunal lacked jurisdiction because: (i) the proper law of the parties’ arbitration agreement is PRC law; (ii) the parties’ dispute is classified in PRC law as a domestic dispute; and (iii) PRC law prohibits a foreign arbitral institution from administering the arbitration of a domestic dispute.¹²

The plaintiff commences this application

The plaintiff now applies under s 10(3) of the Act to have it declared, contrary to the majority decision of the tribunal, that the tribunal has no jurisdiction in the arbitration. The plaintiff makes this application in Singapore because the tribunal has decided, albeit by a majority, that the arbitration is seated in Singapore. The parties have submitted to the jurisdiction of the courts of Singapore for the purposes of this application.¹³

It is common ground between the parties that I am to determine the question of jurisdiction afresh, by undertaking a hearing de novo. An application under s 10(3) of the Act is neither an application to set aside the tribunal’s majority decision on jurisdiction nor an appeal against that decision. In order to succeed on this application, therefore, the plaintiff need not satisfy the grounds for setting aside an award specified in the Act or even show that the tribunal fell into error in its majority decision. As Steven Chong J (as he then was) said in BCY v BCZ [2017] 3 SLR 357 (“BCY”) at [36]:

Pursuant to s 10(3) of the IAA, the court undertakes a de novo review of the issue of whether an arbitral tribunal has jurisdiction over any particular dispute. While the tribunal’s own views may be persuasive, “the court is not bound to accept or take into account the arbitral tribunal’s findings on the matter” (see Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] 5 SLR 536 at [41]).

The parties’ respective cases on this application

The plaintiff’s case on this application is that the tribunal lacks jurisdiction to arbitrate the parties’ dispute because their arbitration agreement is invalid under its proper law.¹⁴ The plaintiff’s case proceeds as follows:¹⁵ PRC law is the proper law of the parties’ arbitration agreement. PRC law classifies the parties’ dispute as a domestic dispute because it does not satisfy PRC law’s “foreign elements” test. PRC law prohibits a foreign arbitral institution such as the SIAC from administering the arbitration of a domestic dispute. The parties’ arbitration agreement is therefore invalid under its proper law. Alternatively, even if the parties’ dispute does satisfy PRC law’s “foreign elements” test, PRC law prohibits an arbitration which has its seat in the PRC from being administered by a foreign arbitral institution such as the SIAC The parties’ arbitration agreement provides that the seat of any arbitration between the parties is to be Shanghai. Accordingly, on this alternative ground also, the parties’ arbitration agreement is invalid under its proper law.

The plaintiff therefore submits that the only dispute-resolution mechanism open to the defendants is litigation in the courts of the PRC.¹⁶

The defendants’ case on this application is that the tribunal has jurisdiction to arbitrate the parties’ dispute because the arbitration agreement is valid and, insofar as PRC law is relevant, does not contravene PRC law. The defendants’ case proceeds as follows:¹⁷ The seat of the arbitration is Singapore and not the PRC; The parties’ implied choice as the proper law of their arbitration agreement is Singapore law and not PRC law; and It is common ground between the parties that, if the proper law of the parties’ arbitration agreement is Singapore law, the arbitration agreement is valid and the tribunal does have jurisdiction.¹⁸

Four critical questions therefore lie at the heart of this application. First, what is the proper law of the parties’ arbitration agreement? Is it PRC law, given that that is their express choice to be the proper law of the Takeout Agreement? Second, what is the seat of the parties’ arbitration? Is it the PRC, being the jurisdiction in which Shanghai – the only geographical location expressly referred to in the arbitration agreement – is situated? Third, what is the interplay between the proper law of the Takeout Agreement and the arbitral law of the seat chosen by the parties in their arbitration agreement when it comes to ascertaining the proper law of the parties’ arbitration agreement? Finally, if the proper law of the parties’ arbitration agreement is PRC law, is the plaintiff correct that the agreement is invalid under PRC law?

What is the proper law of the parties’ arbitration agreement? The three-stage approach

In determining the proper law of an arbitration agreement, a distinction is drawn between: (i) a free-standing arbitration agreement, ie an arbitration agreement which is contractually separate from the substantive agreement between the parties under which the dispute arises; and (ii) an integrated arbitration agreement, ie an arbitration agreement which is integrated contractually into that substantive...