Singapore

Case updates

Westbridge Ventures II Investment Holdings v Anupam Mittal [2021] SGHC 244

Subject matter arbitrability refers to the power of an arbitrator to hear certain categories of disputes as a matter of public policy. Naturally, national laws vary in the extent to which they limit arbitrable subject matters. Generally, disputes or claims relating to commercial or contractual matters are arbitrable, whereas criminal, family, bankruptcy, and insolvency matters are not. In many countries with pro-arbitration policy, legislation and judicial decisions have narrowed the scope of non-arbitrable disputes agreements in order to encourage and uphold arbitration.

In this context, the Singapore High Court (High Court), in Westbridge Ventures II Investment Holdings v Anupam Mittal [2021] SGHC 244 (Westbridge), issued a novel decision clarifying that when determining issues of subject matter arbitrability at the pre-award stage, the law of the seat applies as opposed to the law governing the arbitration agreement in the contract.

Westbridge involved a dispute between shareholders of a company registered in Mumbai, India (Company). The Shareholders’ Agreement provided that any dispute “relating to the management of the Company or relating to any of the matters set out in this Agreement... shall be referred to arbitration.” The seat of arbitration was designated as Singapore. Indian law governed the arbitration agreement.

The defendant commenced court proceedings in Mumbai, India, against the plaintiff alleging, inter alia, minority oppression and mismanagement. Relying on the arbitration clause of the Shareholders’ Agreement, the plaintiff sought an anti-suit injunction in the Singapore Courts against the Mumbai proceedings. The defendant opposed the injunction on the ground that it should be the law governing the arbitration agreement (i.e., Indian law) that determined whether the subject matter was arbitrable. In this case, Indian law did not permit arbitration of disputes relating to minority oppression and mismanagement. To the contrary, the plaintiff argued that the law of the seat of the arbitration should determine whether the issue of minority oppression was arbitrable.

Faced with the question of the law applicable to issues of subject matter arbitrability, the High Court determined that the law of the seat applies, not the law governing the arbitration agreement. The Court’s determination was based on the following reasoning:

• first, subject matter arbitrability is essentially a question of jurisdiction. It is well-settled that the law of the seat prescribes arbitrability of disputes;
• second, national courts in the enforcement stage routinely apply the law of the seat when considering an application to set aside an award on the ground of arbitrability. Thus, applying the same law, the law of the seat, to issues of subject matter arbitrability in the pre-award stage will ensure consistent results regardless of whether a challenge is brought in the pre-award stage or in the enforcement stage; and
• third, applying the law of the seat is consistent with the policy to promote international commercial arbitration. Singapore Courts have given broad effect to international arbitration agreements and giving effect to foreign non-arbitrability rules would potentially undermine Singapore’s policy of supporting international commercial arbitration.

Based on the High Court’s reasoning, it granted the plaintiff’s anti-suit injunction. Applying the law of the seat, the High Court concluded that the court proceedings brought in Mumbai fell within the scope of the arbitration agreement and that the Mumbai court proceedings were brought in breach of the arbitration agreement. Like all anti-suit injunctions, the High Court’s injunction applied to the particular party and not enforceable against the court in Mumbai.

Westbridge is the first decision by any Commonwealth court on the issue of the law applicable to arbitrability of a dispute. It is now clear that the Singapore courts will apply the law of the seat when determining whether a claim is arbitrable. This decision further reinforces Singapore’s pro-arbitration stance and reassures contracting parties that arbitration clauses in shareholder agreements will be upheld.

In light of Westbridge, contracting parties negotiating arbitration agreements should understand the implications of and give strategic considerations to designating a seat that is different from the law of the arbitration agreement in terms of the impact on the arbitrability of a claim.

CAJ & CAK V. CAI [2021] SGCA 102

In CAJ & CAK v. CAI [2021] SGCA 102, the Singapore Court of Appeal upheld a High Court judgment partially setting aside an arbitral award on the basis that the tribunal exceeded its jurisdiction, and that there had been a breach of natural justice. The judgement is a reminder of the critical role of parties’ pleadings in demarcating the scope of a tribunal’s jurisdiction, and the need to raise defences clearly, directly, and punctually.

Background

CAI (the Owner) was the respondent in the appeal. It entered into two agreements (Contracts) with the appellants CAJ and CAK (Contractors) for the construction of a polycrystalline silicon plant (Plant).

The Contracts required the Contractors to achieve mechanical completion of the Plant by a specified date, with liquidated damages if the date was missed. The Contracts also contained a provision that mechanical completion would be extended if the Contractors were delayed or impeded by acts, omissions, or defaults of the Owner.

The Plant encountered excessive vibration during its construction. The Owner directed the Contractors to rectify this, and provided detailed instructions, which the Contractors followed. Although the Contractors contended that the Owner’s instructions were misconceived, and caused a delay to mechanical completion, they did not ask the Owner for an extension of time under the Contracts.

The Tribunal’s Award

The Contracts provided for disputes to be resolved by arbitration in Singapore under the ICC Rules. The Owner commenced arbitration seeking liquidated damages for the delay in mechanical completion. The Contractors asserted that the Owner was estopped from seeking liquidated damages because the delay to mechanical completion resulted from its poor instructions (Estoppel Defence). However, in their written closing submissions, the Contractors for the first time, sought an extension of time of 71 days (EOT Defence). The Owner objected to the EOT Defence, which had not been pleaded at any point in the arbitration.

The tribunal rejected the Estoppel Defence but decided the EOT Defence could be considered, despite its late introduction, on the basis that the Owner had an opportunity to address it in its closing submissions. The Tribunal found that the Owner’s instructions had caused the Contractors to carry out rectification works in a piecemeal fashion, therefore contributing to the delay. Despite accepting that there was no precise factual or expert evidence which would shed light on the appropriate length of the EOT, the Tribunal concluded that taking into account “all the evidence and its experience in these matters”, the Contractors were entitled to an EOT of 25 days. Consequently, the Owner was only awarded liquidated damages for 74 days’ delay, instead of 99 days. The Tribunal’s decision to grant the EOT reduced the liquidated damages payable by the Contractors to the Owner by around SGD20 million.

The High Court’s decision

The Owner applied to the High Court to set aside the award in part on the grounds that: (i) the tribunal had exceeded its jurisdiction in allowing the EOT Defence; and (ii) there had been a breach of natural justice.

The High Court agreed with the Owner’s submissions and set aside the award in part.

The court of appeal’s decision

The Court of Appeal agreed with the High Court that the tribunal exceeded its jurisdiction and breached natural justice by considering the EOT Defence.

Excess of jurisdiction

The Court of Appeal reiterated that the parties’ own pleadings, together with lists of issues and (in arbitrations under the ICC Rules) Terms of Reference, are critical to demarcating the matters in dispute in an arbitration, and thus the ambit of a tribunal’s jurisdiction.

If the tribunal had wished to decide on the EOT Defence, the Contractors should have pleaded that defence and cited relevant contractual provisions. Relatedly, the tribunal should have invited submissions on whether to allow the pleadings to be amended to include the EOT Defence. The Contractors also would need to make an application to amend, and the tribunal would need to decide if additional evidence and submissions should be permitted in the arbitration. None of that had been done.

Breach of natural justice

Noting that it was faced with a “classic case of a breach of natural justice”, the Court of Appeal agreed with the High Court that the EOT Defence was new, raised for the first time in the Contractors’ closing submissions, and that the respondent did not have a fair and reasonable opportunity to address it. Given the final award was made as a result of the breach of natural justice, the Owner’s rights had been materially prejudiced.

The Court of Appeal also held that a separate breach of natural justice occurred when the tribunal relied upon its “unarticulated experience” in granting the 25-day EOT and failed to inform the parties how this experience would bear on the EOT issue. It noted that claims for extensions of time in construction projects are fact-sensitive, such that a tribunal’s prior experience was irrelevant when deciding on the appropriate time extension.

Given the Court of Appeal’s determination that the EOT Defence was outside the tribunal’s jurisdiction, the issue was not remitted back to the tribunal. It was in any event far too late to allow the pleadings to be amended to introduce the EOT Defence. The Court of Appeal instead confirmed the High Court’s order amending the number of days of delay in the final award from 74 days to 99 days.

Other key developments

Conditional fee arrangements allowed in Singapore

On 1 November 2021, the Singapore Ministry of Law introduced the Legal Profession (Amendment) Bill (Bill) for first reading in the Singapore Parliament.The Bill provides, for the first time in Singapore, a framework for conditional fee agreements to be entered into between lawyers and clients a lawyer may agree to receive payment of the whole or part of his or her legal fees only in specified circumstances, for example, where the claim is successful.

The framework applies to international and domestic arbitrations, some proceedings in the Singapore International Commercial Court and related court and mediation proceedings.

Public consultation was conducted in 2019 and the Ministry of Law noted that the legal profession and other respondents are generally positive and supportive of the framework and opined that the introduction of the framework will build on the third-party funding framework recently introduced and level the playing field for Singapore lawyers in areas such as international arbitration vis-à-vis their counterparts in foreign jurisdictions, who are already able to offer such arrangements to support the needs of businesses and lawyers.

The Bill was passed by the Singapore Parliament on 12 January 2022.