Case Note
| Citation | (2015) 27 SAcLJ 571 |
| Author | Nicholas POON LLB (Singapore Management University); Assistant Registrar, Supreme Court of Singapore. |
| Date | 01 December 2015 |
| Published date | 01 December 2015 |
THE TITANIC BATTLE FOR JURISDICTION TO DETERMINE THE VALIDITY OF ARBITRATION AGREEMENTS IN APPLICATIONS FOR STAY OF COURT PROCEEDINGS
The Titan Unity
[2013] SGHCR 28
Singapore arbitration law permits a defendant in court proceedings to apply for a stay of the court proceedings on the ground that the dispute is subject to an arbitration agreement. At the same time, the law permits the plaintiff to resist the stay application by demonstrating that the arbitration agreement is, broadly speaking, invalid. These two rules are further complicated by yet a third rule that permits the arbitral tribunal to determine any challenge to its jurisdiction which may, from time to time, involve issues as to the validity of the arbitration agreement. Which is the proper forum to raise and determine such issues of validity?
1 It is trite that a Singapore court will generally not exercise its jurisdiction to hear a dispute that is the subject of an arbitration agreement. Where there exists a valid arbitration agreement between the plaintiff and defendant which covers the dispute that is before the court, the court must, pursuant to s 6(2) of the International Arbitration Act1 (“IAA”),2 stay its proceedings upon an application by the defendant.
2 Implicit in this trite proposition is an oft-ignored process, which is that the court would have to, in determining whether to stay its
proceedings, consider and reach a conclusion on the merits of the question of whether there exists a valid arbitration agreement in the first place. Such an act of considering the validity of an arbitration agreement, and by extension, the jurisdiction of any extant or putative arbitral tribunal, may appear to be at odds with Art 16 of the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration (“Model Law”),3 in particular, Art 16(1) which is widely accepted as a codification of the Kompetenz-Kompetenz principle.3 The court, therefore, appears to be caught in no man's land. Should it engage in a full examination and determination of the validity of the arbitration agreement? Can it do so without offending Art 16(1)? This issue was raised, for the first time in Singapore, in the High Court case of The Titan Unity (“Titan Unity”).4
4 The plaintiff bank provided financing to a third party for the purchase of a cargo of fuel oil by way of a letter of credit. A dispute relating to the delivering of the cargo ensued and the plaintiff, who held the bills of lading for the carriage of the cargo on board the vessel, commenced an in rem action against the demise charterer as well as the owner of the vessel in the Singapore High Court. The demise charterer sought a stay of the court proceedings on the ground that there was an arbitration agreement between itself and the third party which was incorporated into the bills of lading. The plaintiff denied that there was an arbitration agreement between itself and the demise charterer.
5 After a compendious survey of the jurisprudence which included case law from an impressive number of Model Law jurisdictions and the travaux préparatoires of the Model Law, no doubt with a great deal of assistance from counsel, the assistant registrar, Shaun Leong, made the following observations:
(a) The Model Law envisages the arbitral tribunal as having “priority ahead of the courts to decide whether there exists a valid arbitration agreement”.5
(b) It is evident that the statutory framework of the IAA defers the decision of the tribunal's jurisdiction to the tribunal. In other words, the tribunal “is the first arbiter of its own
jurisdiction”, even if this decision is subject to challenge by the parties in court subsequently.6(c) The court is to determine the question of the existence of the arbitration agreement in the context of a s 6 application on a “prima facie standard”, as this is consistent with the “approach of having a full determination of the same question deferred to the arbitral tribunal”.7
6 In Leong AR's view, there is a preference within the Model Law (and the IAA) for questions relating to the tribunal's own jurisdiction to be decided by the tribunal first. Full-scale curial intervention is impermissible, it seems, if the tribunal has not exercised its right of first refusal. For convenience, it might be helpful to label this principle the “tribunal first, court later” principle.
7 The focus of this commentary is whether Titan Unity is correct in suggesting that there is a “tribunal first, court later” principle under the Model Law which limits the court's determination of the question of the validity of the arbitration agreement in stay of court proceedings to a prima facie standard of review. In other words, the court may not engage in and make a full and final determination of the question of the validity of the arbitration agreement.
8 The recognition of the “tribunal first, court later” principle has elevated Titan Unity into a seminal decision that has attracted widespread attention. To a large extent, the “tribunal first, court later” principle is justifiable at many levels. If the court is satisfied, albeit only on a prima facie standard of review, that there exists an arbitration agreement between the parties that also covers a dispute as to the existence of that very agreement, the court has diminished legal impetus to proceed to enter into the merits of the arguments on that same issue. The argument would be that parties should be held to their promises where those promises appear to have been made.
9 The decision in Titan Unity, however, may cause several key features of the Model Law, and by extension the IAA, to be elided. Specifically, the decision gives the impression that the Model Law affirms such a prima facie standard of examination of the question of the validity of the arbitration agreement, even though that is not borne out upon a complete review of the Model Law travaux materials.
10 Before embarking on a review of the travaux of the Model Law proper, the strongest support for an approach that is contrary to the “tribunal first, court later” principle can be found in the judgment of Lord Collins in Dallah Real Estate and Tourism Holding Co v The Ministry of Religious Affairs, Government of Pakistan8 (“Dallah”) in which the learned Law Lord said:9
So also the principle that a tribunal in an international commercial arbitration has the power to consider its own jurisdiction is no doubt a general principle of law. It is a principle which is connected with, but not dependent upon, the principle that the arbitration agreement is separate from the contract of which it normally forms a part. But it does not follow that the tribunal has the exclusive power to determine its own jurisdiction, nor does it follow that the court of the seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it. Nor does it follow that the question of jurisdiction may not be re-examined by the supervisory court of the seat in a challenge to the tribunal's ruling on jurisdiction. Still less does it mean that when the award comes to be enforced in another country, the foreign court may not re-examine the jurisdiction of the tribunal. [emphasis added]
11 It would of course not go unnoticed to the seasoned arbitration practitioner that England is not a Model Law jurisdiction, and to that extent, Dallah is of limited purpose. That may be so, but only to some extent as the 1996 English Arbitration Act10 is partly built upon the same principles found in the Model Law. Indeed, Lord Steyn described the Model Law as the “single most important influence in the shaping of the [1996 Arbitration Act]”, and a yardstick by which the quality of England's existing arbitration legislation was judged and improved upon.11 Where possible, the authors of the 1996 English Arbitration Act made use of the structure and language of the Model Law.12
12 Hence, Dallah cannot be sidestepped even with the cleverest of intellectual feints. Leong AR was careful to avoid this pitfall, which
explains why he referred to Dallah with general approval,13 notwithstanding an earlier caveat that jurisprudence from non-Model Law jurisdictions was not as helpful as that from Model Law jurisdictions.1413 Some might point out that as the tribunal in Dallah had ruled on its jurisdiction, the impact of Lord Collins' statement that it does not “follow that the court of seat may not determine whether the tribunal has jurisdiction before the tribunal has ruled on it” is somewhat diluted. That is, again, true to some extent. However, to the extent that Lord Collins was making a general observation of a general principle, it is an observation that cannot be ignored.
14 Parenthetically, it is also worth mentioning that at least three other English decisions — two High Court15 and one Court of Appeal16— have affirmed the position that under English law, the court is permitted, as a matter of principle, to conduct and make a full determination of the question of the validity of the arbitration agreement.
15 Leaving English law for a moment and returning to the heart of the matter, the travaux to the Model Law is not the easiest of documents to decipher, not least because it comprises, in the main, five major documents, some of which have substantial sub-documents. The intention of the drafters is therefore scattered throughout many places. This makes tracking the evolution of intention part science, part art.
16 This difficulty, coupled with the penumbra of uncertainty inherent in any exercise of interpretation of words, might serve to explain the difference in opinions between the esteemed Gary Born and Leong AR on the scheme under the Model Law relating to the court's role in stay of court proceedings. Born had noted in...
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