SILVERLINK RESORTS LIMITED V MS FIRST CAPITAL INSURANCE LIMITED
The High Court decision of Silverlink Resorts Limited v MS First Capital Insurance Limited [2020] SGHC 251 (“SR v MS”) is a cautionary tale of why parties need to consider and draft their dispute resolution clauses carefully if they elect for a hybrid dispute resolution mechanism of submitting some types of disputes to arbitration and others to litigation.
Salient facts. In summary, the plaintiff, Silverlink Resorts Limited (“Silvelink”), is one of the insured parties under an Industrial All Risks Policy (the “Policy”) issued by the defendant, MS First Capital Insurance Limited (“MS Capital”) ([2] SR v MS).
Silverlink commenced an action seeking a declaration that it has a valid claim under the Policy ([2] SR v MS). MS Capital took up a summons to stay the proceedings in favour of arbitration ([3] SR v MS).
Key terms. The Policy, which comprises of a Renewal Certificate and a set of terms and conditions ([7] SR v MS), contained the following terms:
1. Cl. 11 General Conditions, which, in gist, provides that “Any dispute arising out of or in connection with this contract” shall be submitted to arbitration (the “Arbitration Clause”);
2. Cl. 13 General Conditions which, in gist, provides that “any dispute aris[ing] between the Insured and the Insurers regarding the interpretation or application of this Policy” shall be submitted to the “jurisdiction of any competent Court in Singapore” (the “Jurisdiction Clause”); and
3. The Renewal Certificate indicates in the provision for “Choice of Law and Jurisdiction” that “In the event of any dispute over interpretation of this Policy: Law: Singapore Jurisdiction: Courts of Singapore” (the “Renewal Certificate Jurisdiction Clause”).
As summarised by the High Court at [20] SR v MS, the dispute in the proceedings was “whether the plaintiff had to establish an admissible claim for property damage under Section I of the Policy before a claim may be admitted under Section II for business interruption”, and this dispute could fall within the scope of the Arbitration Clause or the Jurisdiction Clause. So, which clause applied?
The Paul Smith approach does not always apply. The High Court held that the approach set out in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127 (“Paul Smith”) does not always apply when an agreement contains both an arbitration clause and a jurisdiction clause ([30] SR v MS).
This is because parties can decide to have some types of disputes resolved by arbitration, and others by litigation ([31] SR v MS).
In such situations, there is no reason to apply the Paul Smith approach since the arbitration clause would not be inconsistent with the jurisdiction clause as they perform separate functions and are independently enforceable ([32] SR v MS).
Specific over general. The High Court referred to the decisions of Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] SLR 821, Seeley International Pty Ltd v Electra Air Conditioning BV [2008] FCA 29 and Hi-Tech Investments Ltd v World Aviation Systems (Australia) Pty Ltd [2006] NZHC 1228, where the courts had “resolved the apparent inconsistencies between the jurisdiction and arbitration clauses by giving an interpretation that favoured the jurisdiction clause” instead of applying the Paul Smith approach ([45] SR v MS).
The High Court agreed with those cases as they “gave effect to the intention of the parties” and the “jurisdiction clauses in these cases covered specific types of disputes only and were thus narrower in scope than the arbitration clauses” ([46] SR v MS). “[A]pplying the Paul Smith approach to such cases would result in the jurisdiction clause being interpreted to mean that it provides for the courts supervisory jurisdiction over the arbitration in so far as it relates to the specific disputes that fall within the scope of the jurisdiction clause. The question that then arises is which courts would have supervisory jurisdiction over the arbitration with respect to disputes that do not fall within the jurisdiction clause?” (emphasis in original) ([57] SR v MS).
The High Court observed that this could result in the arbitration being subject to the supervisory jurisdiction of different courts, which would be exacerbated if the “arbitration (as it is likely to) involves disputes which fall within the jurisdiction clause as well as disputes which do not” ([58] SR v MS): “parties could not have intended such a chaotic result” and would be inconsistent with the “Fiona Trust presumption that parties intend their disputes to be decided by the same tribunal.”
Applying to the case. In SR v MS, the High Court applied the carve-out approach instead of the Paul Smith approach ([55] SR v MS).
The High Court highlighted the following:
1. The Jurisdiction Clause did not apply to all disputes, and its scope was narrower than the Arbitration Clause ([56] SR v MS).
2. The Renewal Certificate Jurisdiction Clause “confirmed the parties’ intention that disputes relating to the interpretation of the Policy were to be resolved through court proceedings” ([57] SR v MS);
3. It made commercial sense for disputes relating to the interpretation or application of the Policy to be decided by the courts as “such disputes may be resolved effectively, efficaciously and efficiently through the originating summons procedure” ([58] SR v MS); and
4. Applying the Paul Smith approach would result in problems highlighted at [47] – [48] SR v MS ([59] SR v MS).
As such, the High Court held that the Jurisdiction Clause carved out disputes relating to the interpretation or application of the Policy from the scope of the Arbitration Clause. The High Court therefore held that MS Capital was not entitled to an order to stay the proceedings in favour of arbitration.
Takeaway. As highlighted by the High Court at [1] SR v MS, while parties can intend for and draft clauses for some types of dispute to be resolved by arbitration and others by litigation, such a dispute resolution mechanism must be carefully thought through and drafted. If not, “such dispute resolution clauses tend to lend themselves to dispute over which dispute resolution mechanism should apply.”
This is not to say that parties should not draft such clauses. As set out by the High Court in SR v MS, there can be sound commercial reasons for such clauses. For instance, certain types of disputes may be resolved more effectively and efficaciously through the summary procedures available in litigation but not in arbitration.
However, SR v MS is a cautionary tale of the need for such clauses to be carefully drafted so as to avoid unnecessary disputes over how the dispute resolution mechanism is to be applied. If not, before you can resort to the mechanism, you will end up in a dispute over how the mechanism is to be applied.
This publication is not intended to be, nor should it be taken as, legal advice; it is not a substitute for specific legal advice for specific circumstances. You should not take, nor refrain from taking, actions based on this publication. Chancery Law Corporation is not responsible for, and does not accept any responsibility for, any loss or damage that may arise from any reliance based on this publication.