SURVEY OF SINGAPORE ARBITRATION CASE LAW ON CONFLICT OF LAWS ISSUES IN INTERNATIONAL ARBITRATION

Citation(2014) 26 SAcLJ 1059
Published date01 December 2014
Date01 December 2014

The conflict of laws in international arbitration is an increasingly important but vexed issue. This is principally because the concept of “forum”, which is central to orthodox understanding of private international law as applied by national courts, may not necessarily apply to international arbitrations. This conundrum is then amplified where a decision of a tribunal is placed before the courts because other considerations — such as the need to avoid unnecessary intervention in the arbitral process — overlay the analysis. This survey seeks to elucidate how the Singapore courts have addressed the choice of law issues that arise in the context of setting-aside challenges to an award, challenges to the enforcement of an award, and determining the applicable law in the arbitration itself. It will be seen that the Singapore courts have generally tended to adhere to the theory of international arbitration which views the seat as the source of law and control over the arbitral process, although it is too early to confirm that this is the settled view of the Singapore courts.

I. Introduction

1 As Singapore emerges as one of the world's leading centres for international commercial arbitration, the Singapore courts must embrace the internationality inherent to the process. This internationality inevitably gives rise to issues relating to the conflict of laws. This survey is intended to examine the cases in which the conflict of laws has arisen in the arbitral setting and to assess the treatment of this difficult area of the law by the Singapore courts. One theme that emerges clearly from the survey is that the law is in flux. Important philosophical issues including the extent to which the need to avoid unnecessary intervention in the arbitral process should outweigh an erroneous determination of the applicable law; the relevance of the seat

in international arbitration; and the extent to which arbitral tribunals are bound by the same analytical strictures of private international law applicable to national courts1 and, in particular, the concept of “forum”, and as to what is foreign law or not, remain open to further development.2
II. Whether an erroneous choice of law analysis by a tribunal may be set aside

2 The most recent case involving the treatment of a tribunal's choice of law analysis is the case of Quarella SpA v Scelta Marble Australia Pty Ltd,3 in which the Singapore High Court had to determine whether an arbitral tribunal had applied the correct governing law to a dispute that arose from an agreement, and if not, whether this would provide grounds for setting aside an award.

3 The plaintiff, Quarella, and the defendant, Scelta, had entered into a distributorship agreement. The agreement provided for disputes to be resolved by arbitration in Singapore according to the rules of the International Chamber of Commerce of Paris.4 The agreement, at cl 25, also specified that the agreement “shall be governed by the Uniform Law for International Sales under the United Nations Convention of April 11, 1980 (Vienna) [“the CISG”5] and where not applicable by Italian law”.

4 In the arbitration, both parties had initially agreed that Italian law applied rather than the CISG. Indeed, Quarella had agreed that the CISG only had a limited application to the agreement at hand because it did not expressly govern distributorship agreements. Accordingly, it was prepared to refer to and rely on Italian law. However, Quarella subsequently changed its position and submitted, in a letter from its solicitors, that the CISG was the governing law chosen by both parties to determine any disputes that arose and thus should apply for the purposes of the arbitration.

5 The tribunal concluded that cl 25 was to be construed such that the CISG should apply only to the extent that it was capable of application; and that Italian law was to govern if the CISG was inapplicable whether in part or in whole. The tribunal went on to hold that the CISG was not applicable in the circumstances as the agreement was not a contract for the sale of goods, and thus applied Italian law to the dispute. Consequently, an award was made in Scelta's favour.

A. Setting aside under Art 34(2)(a)(iv) of the Model Law

6 Dissatisfied, Quarella first submitted that the award should be set aside under Art 34(a)(iv) of the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 19856 (“Model Law”) on the basis that the arbitral procedure was not in accordance with the agreement of the parties. The reasoning was that if a tribunal misinterprets the choice of law provision, it constitutes a violation of the parties' right to agree upon the applicable law under Art 17 of the International Chamber of Commerce Rules.

7 The High Court disagreed with this. Judith Prakash J was careful to draw a distinction between two circumstances: (a) where an applicable law agreed between parties had been disregarded by the arbitral tribunal; and (b) where the tribunal had respected the choice of law provision but may have misinterpreted or misapplied it. While the former circumstance may cause an arbitral award to be set aside under Art 34(2)(a)(iv), the latter would not.7

B. Setting aside under Art 34(2)(a)(iii) of the Model Law

8 Quarella also submitted that the arbitral award issued by the tribunal should be set aside under Art 34(2)(a)(iii) because the tribunal had improperly decided matters that had not been submitted to it or failed to decide matters that had been submitted to it. Arguments to support this ground were described by Prakash J as “scant and lacking in substance”.8 In this regard, Prakash J cited Court of Appeal authority for the proposition that “Article 34(2)(a)(iii) of the Model Law merely reflects the basic principle that an arbitral tribunal has no jurisdiction to decide any issue not referred to it for determination by the parties”.9 As the issue of the applicable law had been submitted to the tribunal, and was addressed, this was not a case falling within the embrace of Art 34(2)(a)(iii) of the Model Law.10

9 Prakash J further observed that, in her view, merely showing that a tribunal has applied the wrong governing law would not constitute a ground for setting aside under Art 34(2)(a)(iii).11

C. Observations

10 Prakash J's decision considerably narrows the scope for challenging a tribunal's ruling on the law applicable to a dispute. It is clear that merely alleging that a tribunal has erred in ascertaining the applicable law is not a basis for setting aside. It is also clear that so long as the issue had been put to the tribunal, Art 34(2)(a)(iii) of the Model Law would provide no refuge for the dissatisfied.

11 However, Prakash J's decision does not entirely close the door on challenges to a tribunal's ruling on the applicable law. In fact, Prakash J expressly acknowledged the possibility of setting aside an

award where the tribunal had disregarded the parties' choice of law.12 The practical question is how a court would go about making this determination. In the case before her, Prakash J placed emphasis on the fact that “the Tribunal took pains to explain the process by which he derived the applicable law”.13 This comes very close to imposing a requirement for reasons, at least in respect of the applicable law.14

12 Prakash J's decision does not address the situation where parties have not made a choice of law.15 In such a situation, a party may not have recourse to Art 34(2)(a)(iv) since there is no agreement to speak of.

13 Apart from Art 34(2)(a)(iv), another potential candidate for setting aside an award in relation to a tribunal's treatment of the applicable law could be Art 34(2)(b)(ii) of the Model Law. This will invariably depend on the circumstances. Where, for example, the choice of law analysis by a tribunal is such that it evades the application of otherwise mandatory law,16 or ignores the application of an international law treaty such as the CISG itself, it may be possible to contend that it would be contrary to public policy to allow such an award to stand. Although this may be the subject of debate, at least some support may be drawn from what appears to be recognition in some quarters of a duty on the part of tribunals to properly ascertain the content of the applicable law. It has been argued that such a duty operates without tribunals being necessarily constrained by the parties' submissions and that tribunals should rely on their own knowledge and sources so long as parties have the opportunity to address them.17 That said, it is of

course important not to confuse the existence of a duty with a defective award. However, that duty, if one exists, may reinforce a challenge on public policy grounds in circumstances where the tribunal has failed to apply mandatory or international law.

14 The need to keep the possibility of challenge open to misguided decisions on the applicable law is important for the arbitral process.18 The applicable law is a foundational aspect of the parties' contractual relationship and quite different rights and obligations may flow from the application of different laws.19 It is somewhat of a red herring to characterise a challenge to a tribunal's ruling on the applicable law as being an attack on the merits of a tribunal's decision since the starting point of any challenge is that the tribunal's decision is awry. Otherwise, there is no prejudice, and hence nothing to reverse in court. What is important is for the court to be satisfied that the challenge goes beyond a mere allegation that the tribunal has fallen into error and that the challenge properly falls within one of the enumerated grounds for challenge.

III. Applicable law in the context of setting aside on grounds of breach of public policy

15 In AJU v AJT,20 the Singapore Court of Appeal had to decide whether an interim award that enforced a settlement agreement obliging...

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