PT Tugu Pratama Indonesia v Magma Nusantara Ltd

• Jurisdiction: Singapore
• Judgment Date: 10 September 2003
• Date: 10 September 2003
• Docket Number: Originating Motion No 9 of 2003
• Court: High Court (Singapore)

PT Tugu Pratama Indonesia

Plaintiff

and

Magma Nusantara Ltd

Defendant

[2003] SGHC 204

Judith Prakash J

Originating Motion No 9 of 2003

High Court

Arbitration–Agreement–Scope–Whether parties had agreed to arbitrate disputes over insurer's maximum liability under insurance policy–Arbitration–Arbitral tribunal–Jurisdiction–Whether arbitral tribunal exceeded jurisdiction in awarding costs of preliminary hearing to one party where arbitration agreement prescribed that expense of appraisal should be borne by parties equally–Arbitration–Arbitral tribunal–Jurisdiction–Whether arbitral tribunal had jurisdiction over dispute between parties–Arbitration–Award–Interim award–Ancillary orders made by arbitral tribunal in interim award–Whether court has power under Art 16 (3) of the UNCITRAL Model Law on International Commercial Arbitration to set aside such ancillary orders

A dispute arose between the applicant (“PT Tugu”) and the respondent (“MNL”) regarding PT Tugu's maximum liability under an insurance policy (“the Policy”) it had issued to cover MNL's geothermal wells. In 1998, MNL had made a claim for US$10m but PT Tugu, taking the view that the Policy limit was US$2.5m, had only paid out US$2m.

On 6 October 1999, MNL served PT Tugu with a document entitled “Notice of Arbitration” in accordance with cl 3.18 of the Policy and proposed that the arbitration should be situated in Singapore and resolved in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”). On 14 October 1999, PT Tugu replied by letter, confirming its acceptance of MNL's proposal that the matter be resolved by arbitration. A document entitled “Submission to Arbitration” was attached to the letter. MNL did not reply to PT Tugu's letter.

On 12 March 2002, MNL sent a request for arbitration to the SIAC and a tribunal was constituted. After a hearing in January 2003, the tribunal made an award on preliminary issues and found that it had jurisdiction over the dispute. The tribunal ordered PT Tugu to pay MNL's costs of arbitrating the dispute.

Pursuant to Art 16 (3) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”), PT Tugu applied to the High Court for a declaration that the tribunal had no jurisdiction over the dispute and for an order setting aside the Interim Award made by the tribunal.

PT Tugu argued that cl 3.18 was not an agreement to arbitrate a dispute over PT Tugu's maximum liability under the Policy. As there was no agreement between the parties to refer the dispute to arbitration, the tribunal had no jurisdiction over the dispute. PT Tugu also submitted that by MNL's letter of 6 October 1999, MNL had proposed a new arbitration agreement to take the place of that contained in cl 3.18. PT Tugu further contended that its letter of 14 October 1999 was not an acceptance of MNL's letter of 6 October 1999. PT Tugu also took the view that the exchange of correspondence between the parties failed to satisfy Indonesian law requirements, specifically Art 9 of Law No 30 of 1999, with respect to the conclusion of a valid arbitration agreement.

On the issue of costs, PT Tugu submitted that the tribunal had no power to direct PT Tugu to pay MNL's costs of arbitrating the preliminary issue since cl 3.18 expressly required that each appraiser be paid by the party selecting him and the expense of appraisal and the umpire be paid by the parties equally.

Held, dismissing the application in part and setting aside the tribunal's award on costs:

(1) Clause 3.18 was a valid arbitration clause capable of applying to the dispute between PT Tugu and MNL on the monetary limit of the cover provided by the Policy. While cl 3.18 provided that the parties had to each appoint an “appraiser” to determine the dispute between them, there might well be situations where an appraiser could be required to determine whether a particular claim was covered by the Policy and cl 3.18 was wide enough to cover an arbitral function on the part of the appraisers: at [20] to [21] and [24].

(2) By its letter of 6 October 1999, MNL had effectively commenced arbitration proceedings under cl 3.18. MNL's proposal to resolve the arbitration in accordance with the Arbitration Rules of the SIAC could not be read as a proposal to jettison cl 3.18 entirely in favour of a new arbitration agreement: at [29] and [32].

(3) By its letter of 14 October 1999, PT Tugu accepted MNL's proposal and an agreement to arbitrate was concluded: at [39].

(4) Article 9 of Law No 30 of 1999 did not apply to the agreement between the parties as it applied only to arbitration agreements entered into after the dispute in question had arisen. On the facts, cl 3.18 constituted an arbitration agreement which had been concluded before the dispute arose and the applicable article was Art 8: at [43].

(5) The court's power under Art 16 (3) of the Model Law to determine the issue of jurisdiction after a tribunal has made a preliminary ruling encompassed any ancillary orders, including orders of costs made by the tribunal in relation to that ruling. The tribunal exceeded its jurisdiction in awarding the costs of the preliminary hearing to MNL as such an order was not in accordance with cl 3.18: at [46].

Benja Bhum, The [1993] 3 SLR (R) 242; [1994] 1 SLR 88 (refd)

Society of Lloyds v Twinn [2000] EWHC Admin 308 (refd)

Star-Trans Far East Pte Ltd v Norske-Tech Ltd [1996] 2 SLR (R) 196; [1996] 2 SLR 409 (refd)

Civil Code (Indonesia) Art 1349

Law No 30 of 1999 (Indonesia) Arts 3, 8, 9, 11 (1)

Kenneth Tan SC and Wang Wei Chi (Kenneth Tan Partnership) for the applicant

Michael Hwang SC and Ernest Wee (Michael Hwang SC) for the respondent.

Judgment reserved.

Judith Prakash J

Introduction

1 This is an application under Art 16 (3) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) for the following reliefs:

(a) adeclaration that the arbitral tribunal constituted in SIAC Arbitration No 019 of 2002 has no jurisdiction over the dispute between the applicant, PT Tugu Pratama Indonesia (“PT Tugu”) and the respondent, Magma Nusantara Ltd (“MNL”); and

(b) an order setting aside the Interim Award on preliminary issues dated 13 March 2003 made by the said tribunal whereby the tribunal found that it did have jurisdiction over the stated dispute.

The ground of the application is that no valid arbitration agreement was concluded between PT Tugu and MNL that referred the dispute between the parties to arbitration in Singapore.

Background

2 PT Tugu carries on business in Indonesia as an insurance company. In 1998, it issued a policy of insurance which covered MNL for, amongst other matters, Onshore Well Control in respect of the Wayang Windu Contract Area for the period 1 January 1998 to 31 December 1998 (“the Policy”). It is PT Tugu's position that the limit of its liability under the Policy is US$2.5m whereas MNL maintains that that limit is US$10m.

3 For the purposes of this judgment, the most important provisions of the Policy are cll 3.15 and 3.18. These read as follows:

1. 3.15 SUIT AGAINST INSURER

It is a condition of this Insurance that no suit action or proceeding for the recovery of any claim hereunder shall be maintainable in any court of law or equity unless the same be commenced within two years and one day after the time a cause of action accrues provided however that if by the laws of the state or nation of the address of the Insured shown herein such limitation is invalid then any such claim shall be void unless such action or suit or proceeding be commenced within the shortest limit of the time permitted by the laws of such state or nation.

1. 3.18 ARBITRATION

In case the Insured and the Insurer shall fail to agree as to any matter arising under this Policy each shall, on written demand, select a competent and disinterested appraiser. The appraisers shall first select a competent and disinterested umpire, and failing for 15 (fifteen) days to agree upon such umpire, then on request of the Insured or the Insurer, such umpire shall be selected by a judge of an Indonesian Court/Jurisdiction. The appraisers shall then appraise the loss or damage, stating separately sound value and loss or damage to each item and failing to agree shall submit their differences only to the umpire. An award in writing so itemized, of any two when filed with the Insurer shall determine the amount of sound value and loss or damage. Each appraiser shall be paid by the party selecting him and the expense of appraisal and the umpire shall be paid by the parties equally.

It is PT Tugu's position that as no court proceedings were commenced by MNL within two years and one day of the incident described below, MNL's claim under the Policy, if any, is time-barred. MNL on the other hand says that cl 3.15 is not applicable to bar its claim as there is a valid arbitration proceeding afoot.

4 On 30 March 1998, one of MNL's geothermal wells blew out causing MNL to suffer a loss of more than US$12.5m. Subsequently, MNL made a claim under the Policy for US$10m. In December 1998, PT Tugu paid MNL US$2m towards settlement of its claim on the basis that the Policy limit was only US$2.5m. MNL did not accept that that was the end of the matter and on 6 October 1999 it served PT Tugu with a document entitled “Notice of Arbitration” to which PT Tugu replied by letter on 14 October 1999. The main point at issue in this application is as to the true effect of the notice and the reply. These documents must therefore be set out in full.

5 The document sent out by MNL read:

NOTICE OF ARBITRATION

Policy of Insurance No. P-98102

Date of Policy: 10 March 1998

Nature of Incident: Geothermal Well Blowout

Place of Incident: Gunung Wayang and Gunung Windu, Pangalengan, Jawa Barat, Indonesia

Date of Incident: 30 March 1998

We refer to the above incident and our claim under the...