Determining Arbitrability in Singapore: Law of Seat vs. Agreement

Case Note: Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1

 

IN BRIEF

Parties entering into arbitration agreements must be mindful that arbitrability of a dispute will be dependent on the law of the arbitration agreement and the law of the seat. The Court would apply a “composite approach”.

This involves the following steps:

1. Examining the law of the arbitration agreement. The Court of Appeal applied the three-stage test in BCY v BCZ;
2. Whether the disputes fall within the scope of the arbitration agreement; and
3. Where the seat is Singapore, Singapore courts would examine whether it is contrary to public policy. This involves assessing public policy beyond the law of the seat into the public policies of the foreign jurisdiction.

Arbitration agreements are typically negotiated at the last moment before the conclusion of negotiations. It is also common knowledge that arbitral institutions now provide model boilerplate dispute resolution clauses for insertion into transactional contracts. These model boilerplate clauses are useful as a starting point. However, in a situation where a dispute may potentially be non-arbitrable in certain jurisdictions, careful drafting would be necessary to prevent additional hurdles which may prove timely and expensive.

The recent Court of Appeal decision of Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 (“Anupam Mittal”) highlights a key issue that typical boilerplate clauses would not account for – the law of the arbitration agreement, the law of the seat and its relationship with the arbitrability of a dispute.

 

BACKGROUND

The case concerns two parties, the founder of Shaadi.com (the “Appellant”) a popular matchmaking service and another private equity firm (the “Respondent”). The Respondent invested in the Appellant’s company and entered into various agreements including a Shareholders’ Agreement (the “SHA”) and a Supplementary Subscription-Cum-Shareholders’ Agreement (the “SSSA”).  Years later, the relationship between the parties deteriorated and was exacerbated by the Respondent’s threat of exit. The failings of the relationship culminated in the Appellant filing a petition for oppression (and mismanagement) before the National Company Law Tribunal (“NCLT”) in Mumbai, India.

The Respondent applied for a permanent anti-suit injunction in the Singapore High Court restraining the Appellant from pursing its claim in the NCLT. The basis of the Respondent’s application was that the arbitration agreement in the SHA had been breached by the NCLT proceedings.

The Appellant then commenced proceedings in the Bombay High Court seeking (a) a declaration that the NCLT was the only competent forum to hear and decide disputes raised in the NCLT petition; and (b) an injunction against continuing with the Singapore proceedings.

The permanent anti-suit injunction was granted, and the Appellants appealed leading to this decision.

 

KEY ISSUES AND ARGUMENTS ON APPEAL

The main issue before the Court of Appeal was whether the dispute pertaining to oppression and mismanagement was in fact arbitrable and therefore in breach of the arbitration agreement. As a first step, the court had to determine whether arbitrability is determined by the law of the seat or the law of the arbitration agreement.

The key aspects of the arbitration agreement are as follows:

• The arbitration agreement provided that the “agreement and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India.”
• In particular, it provided that “[I]n the event of a dispute relating to the management of the Company or relating to any of the matters set out in [the SHA]…it shall be referred to arbitration…”
• The seat was stated as Singapore with arbitration under the rules of the International Chambers of Commerce. It is clear from the arbitration agreement that the governing law of the SHA was Indian law whilst the law of the seat was Singapore law.
• As will be explained below, the parties did not agree on the law of the arbitration agreement.

In summary, the Appellant argued against the anti-suit injunction for the following reasons:

1. Arbitrability is determined solely by the law of the arbitration agreement. They submitted that Indian law governed the arbitration agreement. Since NCLT has exclusive jurisdiction to adjudicate oppression and mismanagement disputes, such disputes are non-arbitrable.
2. By specifying “dispute relating to the management of the Company or relating to any of the matters set out in [the SHA]”, the parties could not have intended to include issues of oppression and mismanagement as part of the scope of the arbitration agreement. This would nullify the arbitration agreement under Indian law.

The Respondents argued that they were entitled to the anti-suit injunction for the following reasons:

• The law of the seat (i.e. Singapore law) solely governs subject matter arbitrability at the pre-award stage. Given that oppression and mismanagement claims are arbitrable under Singapore law, the disputes are therefore arbitrable.
• Applying Singapore law as the law of the arbitration agreement, the dispute fall within the scope of the arbitration agreement.
• Even if Indian law applied as the law of the arbitration agreement, the disputes are contractual or relate to the management of the company and the wording of the arbitration agreement covers such disputes.

 

THE “COMPOSITE APPROACH”

The Court of Appeal highlighted its main concerns that:

• there should be consistency of application across both the pre and post award stages;
• public policy plays a crucial role in determining matters of arbitrability. Despite the core of an arbitration agreement being the mutual consent of parties to resort to private adjudication, the Courts recognised that nations still have an interest in the issues that should be exclusively dealt with in public forums;
• given that enforcement of an award may be sought in a court other than the seat court, the question of arbitrability cannot be solely governed by the law of the seat.

Accordingly, the Court of Appeal took a “composite approach” in coming to its decision:

1. The courts will first examine what the law of the arbitration agreement is. After all, the arbitration agreement determines parties’ agreement as to what they wish to arbitrate. It followed the three-stage test established in BCY v BCZ [2017] 3 SLR 357:

• Stage 1: Whether parties have expressly stated the law governing the arbitration agreement;
• Stage 2: If there is no express choice, the court will consider whether there is an implied choice of law governing the arbitration agreement. It would first look to the governing law of the contract; and
• Stage 3: If there is no express or implied choice, the court will ascertain which is the system of law with which the arbitration agreement has its “closest and most real connection.”

2. Whether the dispute falls within the scope of the arbitration agreement; and

3. Where the seat is Singapore, Singapore courts would examine whether it is contrary to public policy. The Court of Appeal highlighted that “public policy” in section 11 of the International Arbitration Act should be interpreted such that the public policy of Singapore and the foreign jurisdiction would be covered especially in arbitrations with a substantial foreign element.

In the present case, the Court of Appeal applied the “composite approach” and upheld the anti-suit injunction:

1. The law of the arbitration agreement was Singapore law because:

• The express wording in the arbitration agreement that the SHA is to be “governed by and construed in all respects in accordance with the laws of the Republic of India” did not constitute an express choice of law for the arbitration agreement. Instead, it held that there needs to be “explicit language stating in no uncertain terms”;
• It was unlikely that Indian law was the implied choice of law of the arbitration agreement given that oppression and management disputes would not be arbitrable in India; and
• Given that the seat is Singapore, stage 3 meant that Singapore would be the law with the most real and substantial connection with the arbitration agreement.

2. The complaints made by the Appellant in the NCLT proceedings related to the management of the company or the SHA and therefore fell within the scope of the arbitration agreement. On that basis, there was a breach of the arbitration agreement.

 

SIGNIFICANCE OF THE DECISION FOR COMMERCIAL PARTIES

Dispute resolution clauses should not be treated like a “midnight” clause. In the present case, parties had specifically set out to include management claims within the scope of the arbitration agreement as they foresaw the issue of arbitrability. However, that was still insufficient given the extent to which this matter had been appealed in the Singapore Courts.

While it is helpful for parties to adopt model clauses from arbitral institutions, these only serve as good starting points. Any contentious issues ought to be expressly addressed. Where parties foresee issues of arbitrability which may impede dispute resolution, parties ought to consider expressly stating (a) what the law of the arbitration agreement in the dispute resolution clause; and (b) the scope of disputes to be covered, especially if parties foresee that such disputes would face issues of arbitrability.

Notably, the Court of Appeal’s decision is novel and departs from many established positions of other national courts. These courts apply the law of the seat (at the pre-award stage) to determine subject matter arbitrability.

Ultimately, parties should still be mindful that, even if an arbitral award is made in favour of a party and even if a subject matter is found to be arbitrable, issues of enforcement may still exist in jurisdictions where the subject matter is non-arbitrable. There is therefore still a possibility of any award being deemed unenforceable in a foreign jurisdiction.

 

The writers are grateful for the contribution of Marcus Tong, Legal Trainee at PDLegal LLC.