20 November, 2015
The Singapore Court of Appeal has ruled that the courts should normally refer jurisdictional issues to an arbitral tribunal for the first detailed review.
Introduction
The relationship between national courts and arbitration presents a dilemma. If arbitration is a separate dispute resolution forum, then it should be able to establish what its jurisdiction is. But if national courts are to support arbitration, they should be able to set limits on where arbitration can go. Which comes first? This is the "chicken and egg question", as one Singapore judgment has called it.1 The Singapore Court of Appeal has looked at this question in detail in Tomolugen Holdings Ltd -v- Silica Investors Ltd.2
The dispute
Silica Investors Limited (Silica), an investor in a mining company, complained that the value of its shareholding had been diminished by the actions of the other shareholders. It started litigation in the Singapore courts, claiming unfair prejudice to a minority shareholder under section 216 of the Singapore Companies Act. One of the defendants, Lionsgate Holdings Pte Ltd (Lionsgate), which had sold the shares to Silica, pointed out that this claim partly fell within an arbitration agreement in the original sale contract. It asked the High Court to refer the whole dispute to arbitration. The High Court declined to do so. Lionsgate appealed.
Should the court or tribunal decide?
The New York Convention, issued in 1958, says that a court should refer a dispute to arbitration unless it finds that the arbitration agreement is "null and void, inoperative or incapable of being performed". At that time, the idea that a tribunal may rule on its own jurisdiction was not commonly accepted, so the Convention is silent on this.
By the 1980s, however, there was wider acceptance of that principle. Article 16 of the 1985 UNCITRAL Model Law on arbitration expressly states that a tribunal may rule on its own jurisdiction.
When faced with an allegation that a dispute should be referred to arbitration, therefore, it is acknowledged that there are two courses open to national courts:
- they could examine in full whether there is a valid arbitration agreement that covers the dispute: this is approach of the English courts;3 or
- they could place more emphasis on the tribunal ruling on its own jurisdiction, and only examine this question on a prima facie basis.
This is the approach of the courts in Hong Kong4 and Canada,5 which will refer a dispute to arbitration unless it is clear that there is no basis for doing so (they may, of course, consider the tribunal's jurisdiction at a later stage if there is a challenge to an award).
The Court of Appeal preferred the latter approach. It thought this accorded better with the policy behind the International Arbitration Act, i.e. limited intervention by the courts in arbitration. This approach also avoids giving the claimant a choice of where to submit the jurisdiction issue to be heard: whether the claim is started in litigation or arbitration, the tribunal should be the first to consider its jurisdiction in detail.
Is it arbitrable?
The Court of Appeal then had to consider whether this particular dispute fell within the arbitration clause. This raised the question of whether the claim was "arbitrable", since national courts reserve to themselves certain disputes where there is a public interest to do so, and some company law issues are not arbitrable under Singapore law. For example, it is not possible to refer the liquidation of an insolvent company to arbitration: it is in the public interest to hear this in open court so that all affected parties – shareholders and creditors – can be heard.
The Court of Appeal observed that there is a presumption of arbitrability so long as a dispute falls within the wording of an arbitration clause; and no particular public interest arises in the relationship between shareholders. As the Court of Appeal said, "if those persons choose to have their differences resolved by an arbitral tribunal, they should be entitled to do so". This is so even if a tribunal may order a narrower range of remedies than a court. A party could still apply for court-ordered remedies after an arbitration award has been issued.
The Court of Appeal therefore ruled that the part of the complaint which fell within the arbitration clause was arbitrable and must be referred to arbitration.
What about the rest of the claim?
This left the question of how to divide up the claim between part that must go to arbitration and the part that could stay in court litigation.
The Court of Appeal said that this cannot be left to how the parties have presented the case in their pleadings, but the courts must "undertake a practical and common-sense inquiry" about what falls within the arbitration clause.
The Court of Appeal also recognised that it could allow the other part of the claim to continue in litigation, or it could suspend that part while the arbitration takes place. It decided there were good case management reasons here not to proceed with the court litigation for the time being. It therefore directed Silica to confirm whether it was pursuing the part of its claim that fell within the arbitration agreement. If it was, then that part of the claim should go to arbitration and the court litigation would be suspended while the arbitration takes place.
Practical tips
- If you have an arbitration agreement specifying Singapore as the seat of arbitration, you should usually submit any jurisdictional issue to the tribunal in the first instance rather than to the Singapore courts. The Singapore courts will only look at this before the tribunal if there is plainly no basis to go to arbitration.
- A dispute is likely to be arbitrable in Singapore unless there is a clear public interest for it to be heard by the courts.
- The Singapore courts will take a common sense approach to dealing with any part of a dispute that falls outside the arbitration clause, and may suspend court litigation over that part in order to allow the arbitration to proceed if this would be a fair and efficient way of resolving the dispute.
Notes
1 Malini Ventura -v- Knight Capital Pte Ltd [2015] SGHC 225.
2 [2015] SGCA 57.
3 Joint Stock Company "Aeroflot Russian Airlines" -v- Berezovsky [2013] 2 Lloyd's Rep 242.
4 PCCW Global Ltd -v- Interactive Communications Service Ltd [2007] 1 HKLRD 309. Union des consommateurs -v- Dell Computer Corp [2007] 2 SCR 801. Exceptionally, the Canadian courts will examine a jurisdiction question if this is purely a matter of law.
