[From Singapore Office] Key 2023 Court of Appeal Decision on Arbitrability

Key Facts of Westbridge

In Westbridge, the appellant (an Indian resident) and respondent (a Mauritian company) are shareholders in an Indian company, and had entered into a shareholders agreement (“SHA”) containing a dispute resolution clause under which the parties agreed for disputes to be arbitrated in Singapore (“Arbitration Agreement”):

“20 GOVERNING LAW AND ARBITRATION

20.1 This Agreement and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India. In the event of a dispute relating to the management of the Company or relating to any of the matters set out in this Agreement, parties to the dispute shall each appoint one nominee/representative who shall discuss in good faith to resolve the difference. In case the difference is not settled within 30 calendar days, it shall be referred to arbitration in accordance with Clause 20.2 below.

20.2 All such disputes that have not been satisfactorily resolved under Clause 20.1 above shall be referred to arbitration before a sole arbitrator to be jointly appointed by the Parties. … The arbitration proceedings shall be carried out in accordance with the rules laid down by International Chambers of Commerce and the place of arbitration shall be Singapore. …” (emphasis added)

Some years later, relations soured between the shareholders. On 3 March 2021, the appellant commenced proceedings against the respondent (and other shareholders) in the National Company Law Tribunal (“NCLT”) in India (“Indian Proceedings”) for corporate oppression and mismanagement.

On 15 March 2021, the respondent filed and obtained an interim anti-suit injunction (“ASI”) against the appellant in the Singapore High Court. The ASI was premised on the appellant’s breach of the Arbitration Agreement by starting the Indian Proceedings despite the parties’ prior agreement to arbitrate their disputes. On 26 October 2021, the High Court issued a permanent ASI restraining the appellant from amongst others, pursuing the Indian Proceedings based on the following reasoning: (1) the law governing arbitrability at the pre-award stage is the Law of the Seat, which is Singapore law; and (2) the parties’ disputes were arbitrable under Singapore Law.

The appellant then appealed against the High Court’s decision in the Court of Appeal.

The appellant’s position was that there was no breach of the Arbitration Agreement because amongst others, (1) the law governing the arbitrability of the subject matter of the Indian Proceedings (i.e. corporate oppression and mismanagement) is the Law of the AA, which is Indian law; and (2) such disputes are not arbitrable under Indian law as the NCLT has exclusive jurisdiction over them.

The respondent’s position was that (1) the law governing arbitrability is the Law of the Seat i.e. Singapore law; and (2) alternatively, even if the Law of the AA governs arbitrability (as contended by the appellant), it is nonetheless Singapore law (rather than Indian law) and the subject matter of the Indian Proceedings is arbitrable under Singapore law.

Case analysis

The Court of Appeal decided that the Law of the AA governs the issue of arbitrability at the pre-award stage for the following reasons:

In other words, a dispute is arbitrable only if it is permitted under both (1) the Law of the AA and (2) the Law of the Seat. This is a significant point because where parties to an arbitration agreement wish to create certainty at the contracting stage on the kinds of dispute which can (or cannot) be arbitrated, it is not enough to expressly stipulate the Law of the AA – they must also consider whether their choice of the seat of arbitration, and hence the Law of the Seat, allows for the disputes contemplated under the arbitration clause to be arbitrated.

Next, the Court of Appeal went on to decide that the Law of the AA in this case is Singapore law, not Indian law, after applying the 3-stage test laid down by the High Court in BCY v BCZ [2017] 3 SLR 357. The Court of Appeal’s analysis proceeded as follows:

Conclusion

Dispute resolution clauses are commonly treated as a “midnight clause” as the clause is often only addressed at the end of contractual negotiations (often around midnight) without due consideration. Yet as Westbridge (as well as other arbitration precedents) has demonstrated, the arbitration agreement/clause is a highly important, and technical, provision in the contract that could have far-reaching implications on the parties’ intended dispute resolution process and forum if and when disputes eventually arise.

It is therefore crucial that the arbitration clause is adequately considered and detailed at the contracting stage so there is more certainty that it will be aligned with, and give effect to, the parties’ original intentions and expectations as to the manner in which potential disputes are to be resolved at the end of the day. Apart from specifying the seat/place of arbitration and any preferred arbitral institution, it may also be prudent for parties to expressly choose the Law of the AA (in addition to the Law of the Contract) on advice so as to minimise arbitrability uncertainties.