Is the law governing of your arbitration agreement clear?
31 May, 2023
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Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 highlights the importance of expressly stating the law governing the arbitration agreement. In this case, the parties used a general choice of law clause in the Shareholder’s Agreement, with the governing law stated to be Indian law, and disputes to be resolved by arbitration seated in Singapore. The arbitration agreement did not express its governing law. The Court of Appeal held, on the facts, that Singapore law governed the arbitration agreement, not Indian law; although the court acknowledged that the reverse could have applied in this case had there been a different factual matrix.
Background
This case relates to a shareholder’s dispute between two shareholders of a company. The Shareholder’s Agreement provided for Indian law “in all respects” and for disputes relating to the management of the company or any matters set out in the Shareholders Agreement to be referred to arbitration in accordance with the International Chamber of Commerce rules, and “the place of arbitration shall be Singapore”.
The questions to be determined included whether the dispute was arbitrable, and what was the governing law of the arbitration agreement. The Court considered that the governing law clause in the Agreement only provided for Indian law to govern the ‘main contract’, and did not constitute an express choice of law for the parties’ agreement to arbitrate.
In reaching its decision, the Court reiterated that the question of arbitrability (i.e., whether the subject matter of the dispute is arbitrable) need not be solely governed by the law of the seat, and applied a three-stage test to ascertain the proper law of the arbitration agreement, summarised as follows:
- Stage 1: Whether the parties expressly chose the proper law of the arbitration agreement. Here, the Shareholders Agreement only provided for Indian law to govern the main-contract and it was silent on the governing law of the arbitration agreement.
- Stage 2: Whether the parties made an implied choice of the governing law of the arbitration agreement. While the law governing the main contract could be a “strong indicator” on the law of the arbitration agreement, it can be displaced by the facts. Here, it was found that there was good reason to displace Indian law as the proper law of the arbitration agreement as minority oppression disputes are non-arbitrable in India, and this outcome would frustrate the parties’ intention to provide that disputes be resolved by arbitration.
- Stage 3: If neither an express choice or an implied choice can be found, the court will have to consider with which system of law the arbitration agreement has its closest and most real connection. Here, the court found that to be Singapore law as the seat of the arbitration was Singapore and, therefore, Singapore law would govern the procedure of the arbitration, including challenges to the tribunal or its jurisdiction and the award.
Accordingly, the Court of Appeal held that Singapore law was the law of the arbitration agreement. As the issue of arbitrability depends on both the law of the seat and the law governing the arbitration agreement, the court proceeded to consider if the dispute was arbitrable under the law of the seat, and held that it was.
Takeaways
Standard boilerplate clauses might be insufficient to determine the governing law of any arbitration agreement. It is recommended that insurance contracts clearly state the governing law of any arbitration agreement. This should prevent disputes in this regard should a matter ultimately be referred to arbitration. Otherwise, a court will need to consider the facts surrounding the relationship, objective and/or performance of the main contract and its arbitration agreement. That can result in satellite litigation and additional legal costs, both of which can be avoided.
Whilst there are standard governing law and arbitration clauses, care must be taken when selecting which to use. For instance, even the Singapore International Arbitration Centre’s Model Clause (revised as of 12 January 2023) does not go so far as to expressly specify the law governing the arbitration agreement. In light of Anupam v Westbridge, it might be better that it did.
If you require any assistance reviewing existing policies or contracts and to advise on the adequacy of the clauses therein, please do not hesitate to contact us.
Assosiated office – https://www.clydeco.com/en/insights/2023/05/is-the-law-governing-your-arbitration-agreement-cl
