Pre-award arbitrability: the seat, the governing law and the composite approach

In the event a party challenges arbitrability of a dispute, a threshold question arises: should the issue of arbitrability be considered under the law governing the arbitration agreement or the law of the seat of the arbitration? This issue was most recently considered by the Singapore Court of Appeal in the case of Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 (“Mittal”).

(1) The Singapore Position

(A) Brief Facts of Mittal

The Appellant was one of the founder-shareholders of a company incorporated in India that owns and operates a well-known matrimonial service (the “Company”). The Respondent was a Mauritian private equity fund which invested in the Company as a shareholder in 2006. The Shareholders’ Agreement (“SHA”) between parties contained an arbitration agreement at clause 20 (“Arbitration Agreement”) providing that any dispute relating to the management of the Company or relating to any of the matters set out in the SHA shall be referred to arbitration seated in Singapore under the rules of the International Chamber of Commerce. The governing law of the SHA was specified to be the Indian law and there was no separate choice of law specified for the Arbitration Agreement.

In 2017, the Respondent expressed a desire to exit the Company and parties’ relationship started to sour. In 2021, the Appellant filed a petition in the National Company Law Tribunal in Mumbai against the Respondent seeking remedies for corporate oppression (the “NCLT Proceedings”). Relying on the Arbitration Agreement in the SHA, the Respondent applied to the Singapore High Court for a permanent anti-suit injunction. The Singapore High Court found that the law of the seat applies to the question of arbitrability at the pre-award stage. Given that under Singapore law, shareholder disputes and minority oppression claims are arbitrable, the Singapore High Court accordingly concluded that the commencement of the NCLT Proceedings was in breach of the Arbitration Agreement and granted the Respondent’s application for an anti-suit injunction.

(B) Holding of the Singapore Court of Appeal in Mittal

On appeal, while the Singapore Court of Appeal dismissed the Appellant’s appeal, it adopted a different approach from the High Court, establishing a 2-tiered composite approach to determine arbitrability at the pre-award stage and providing guidance on determining the law governing the Arbitration Agreement.

(C) The Holding of the Singapore Court of Appeal in Mittal

Arbitrability - The Two-Tiered Composite Approach

Stage 1: The arbitrability of a dispute is determined with reference to the law of the arbitration agreement. If that law is a foreign governing law which finds that dispute non-arbitrable, the Singapore court will not allow the dispute to proceed to arbitration because it will be contrary to foreign public policy.

Stage 2: Even if the dispute is arbitrable under the law of the arbitration agreement, if Singapore law, as the law of the seat, finds the dispute non-arbitrable, the arbitration would not be able to proceed because it is contrary to Singapore public policy.

In formulating the composite approach, the Court reasoned that:

1. An arbitration agreement derives its authority from the consensus of the parties, and therefore the arbitration agreement together with the law that governs it must determine exactly what the parties have agreed to arbitrate. The law of the seat deals with matters of procedure but the law of the arbitration agreement deals with matters of the validity of the agreement and is, in that sense, anterior to the actual conduct of the arbitration.
2. Section 11 of the Singapore International Arbitration Act 1994 (“IAA”) provides that a dispute is not arbitrable if it is contrary to public policy. It was obviously within the drafters’ contemplation that arbitrations may be seated in Singapore with no other connection to Singapore and in such a situation, the public policy of a foreign jurisdiction could impact the parties or the arbitration (in addition to that of Singapore).
3. Additionally, if the arbitration concerns an issue that happens to be non-arbitrable by the law of the seat, that would be another obstacle by reason of Art 34(2)(b)(i) of the Model Law, which authorises the seat court to set aside an award in such circumstances.

Proper Law of the Arbitration Agreement

The Singapore Court of Appeal then went on to determine the proper law of the arbitration agreement based on the three-stage test laid down in BCY v BCZ [2017] 3 SLR 357. The Court found that Singapore law was the law of the arbitration agreement.

1. There was no express choice of any law in the arbitration agreement. The reference to Indian law being “in all respects” the governing law of “[the SHA] and its performance” is not to be construed as expressly choosing the law to govern the arbitration agreement. An express choice of law for an arbitration agreement would only be found where there is explicit language stating so in no uncertain terms.
2. While the choice of law for the main contract will generally lead a court to hold that the same law also applies to the arbitration agreement, there were sufficient indications in this case to negate the implication that Indian law was intended to govern the arbitration agreement in the SHA as that implication would mean frustrating the parties’ intention to arbitrate all their disputes (given oppression claims are not arbitrable in India).
3. Singapore law had the most real and substantial connection with the arbitration agreement in the SHA as the arbitration was to take place in Singapore and as the law of the seat of the arbitration, Singapore law would govern the procedure of the arbitration. 

Conclusion on Singapore Position

As the dispute was arbitrable under Singapore law (which was both the seat and the law of the arbitration agreement), the Court concluded that the NCLT proceedings were brought in breach of the Arbitration Agreement and dismissed the appeal.

(2) The Position in England

Arbitrability

In Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company) [2020] EWHC 2483 (Comm) (“Riverrock”) (our full analysis available here), the English High Court considered the issue of arbitrability in the context of an interim anti-suit injunction in respect of certain bankruptcy proceedings. The English Court considered that whether the claims were capable of being submitted to arbitration should be determined in accordance with English law, which in this case was both the law of the arbitration and the seat. There was no sufficient countervailing public policy arising from the fact that the claims were avoidance claims in a foreign bankruptcy to override the clear English law policy of upholding arbitration agreements. In circumstances where the arbitral tribunal was able to grant the relief sought, those claims were arbitrable.

Referencing the Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, the English Court noted, in the specific narrow context of insolvency, that a claim may be non-arbitrable not only because the claimant seeks an order that “only a court can make”, or that it affects the interests of third parties such as shareholders not party to the arbitration agreement, but because it “represent[s] an attempt to delegate to the arbitrators what is a matter of public interest which cannot be determined within the limitations of a private contractual process”.

Proper Law of the Arbitration Agreement

In Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 (“Enka”) (our full analysis available here) the UK Supreme Court considered the issue of which system of law governs the validity and scope of the arbitration agreement when the law applicable to the contract containing it differs from the law of the seat of the arbitration. The 3:2 majority cited the Singapore decision of BCY v BCZ [2017] 3 SLR 357 with approval and held that:

1. The starting point is the English common law rules for resolving conflicts of laws rather than the provisions of the Rome I Regulation because article 1(2)(e) of Rome I excludes from its scope “arbitration agreements and agreements on the choice of court”.
2. In order to determine whether the parties have made a choice, the arbitration agreement and the contract containing it are to be construed, as a whole, applying the rules of contractual interpretation of English law (being the forum of the dispute).
3. If there is no separate choice of law for the arbitration agreement, but there is a choice of governing law for the main contract, the main contract governing law will generally apply to the arbitration agreement.
   1. The fact that the seat of the arbitration is different from the choice of governing law of the main contract is not on its own enough to negate an inference that the governing law of the main contract applies to the arbitration agreement as well.
   2. Factors that can indicate a different governing law for the arbitration agreement are, for example, the existence of a serious risk that, if governed by the same law as the main contact, the arbitration agreement would be ineffective
4. In the absence of such a choice, the governing law will be law with which the arbitration agreement is most closely connected.
   1. The majority held that despite the reasonable assumption that the parties have intended for all terms of their contract to be governed by the same system of law, there is authority for a “general rule” that the arbitration agreement is most closely connected with the law of the seat of the arbitration, even if that law differs from the law applicable to the parties’ substantive obligations
   2. In his dissenting judgment, Lord Burrows was of the view that “absent an express choice of law in the arbitration agreement, there is a presumption (or general rule) that the proper law of the main contract is also the proper law of the arbitration agreement; and there is no such presumption (or general rule) that the law of the seat is the proper law of the arbitration agreement”.

Notably, Mittal (CA) also cites Enka as authority for the principle that there should be harmony on the applicable law for determining arbitrability of the dispute between the pre- and post-award stages. In Enka, the UK Supreme Court emphasised that it would be illogical if the law governing the validity of the arbitration were to differ depending on whether the question of validity is raised before or after an award has been made.

(3) Key Takeaways

As a matter of economic practicality and commercial certainty, the landmark decisions of the apex courts of Singapore and the England are generous reminders that the key features of an agreement should be spelt out in clear, express terms, including the governing law of the main contract and the arbitration agreement respectively, as well as choosing the seat of the arbitration. Parties should ideally choose the law of a pro-arbitration jurisdiction to govern their arbitration agreement and specify the governing law in the clause/agreement itself. Parties should also consider if the subject matter or nature of the dispute would be arbitrable under the law of the arbitration agreement and the law of the seat.

Parties should also consider raising issues of arbitrability at the pre-award stage. Failure to do so could be interpreted as an unconditional waiver of the right to object, precluding parties from raising objections based on arbitrability at the post-award stage.

Article co-authored by Nikki Ang, Intern at CMS Holborn Asia