CASE UPDATE: BXH V BXI [2020] SGCA 28
In BXH v BXI [2020] SGCA 29 (“BXH v BXI”), the Singapore Court of Appeal dealt with the approach to be taken for inconsistent arbitration and litigation clauses, as well as some important issues in relation to the assignment of arbitration rights.
Background. The respondent is a developer and manufacturer of consumer goods and the appellant is a distributor of the respondent’s goods in Russia. The appellant entered into a Distributor Agreement with the respondent’s parent company, which subsequently novated its rights to the respondent. Subsequently, the parties were involved in a series of agreements, and certain debts (referred to as “Debt B”) stemming from the agreements were assigned to another party “the Factor”, and later re-assigned back to the respondent.
The respondent commenced arbitration against the appellant and eventually obtained an award. However, the appellant had objected on jurisdictional grounds and refused to participate in the proceedings. The High Court agreed that the tribunal had jurisdiction, and the appellant appealed to the Court of Appeal.
Inconsistent arbitration and litigation clauses. One issue raised by the appellant was whether to give effect to the arbitration agreement in the Distributor Agreement, as the Distributor Agreement contained a jurisdiction clause followed by an arbitration agreement.
Clause 25.8 of the Distributor Agreement provided that “… The jurisdiction and venue for any legal action between the parties hereto arising out of or connected with this Agreement, or the Services and Products furnished hereunder, shall be in a court located in Singapore.”
Clause 25.9 of the Distributor Agreement provided that “Disputes arising out of or in connection with this Agreement shall be finally settled by arbitration which shall be held in Singapore in accordance with the Arbitration Rules of Singapore International Arbitration Center (“SIAC Rules”) then in effect. …”
The High Court Judge resolved the inconsistency in the 2 clauses by adopting the approach taken in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127, and held that “Nonetheless, a dispute over the parties’ substantive rights and obligations arising out of or connected with the Distributor Agreement cannot obviously be the subject of both litigation and arbitration. The only practical – thought [sic] not entirely satisfactory – solution is to adopt the Paul Smith approach and hold that the parties intended to resolve substantive disputes in arbitration under cl 25.9 and to resolve disputes arising out of any such arbitration in the Singapore courts in the exercise of their supervisory jurisdiction under cl 25.8.”
The Court of Appeal agreed with the High Court ([60] – [61] BXH v BXI). We set out the relevant paragraphs below:
“60 We agree with this approach. Where parties evince a real intention to have matters resolved by arbitration, the court ought to give effect to that intention. Minor inconsistencies between clauses cannot be allowed to detract from the parties’ agreement to arbitrate. Instead, a generous and harmonious interpretation should be given to the purportedly conflicting clauses such as to give effect to the parties’ true intention.
61 We do not think that the wording of the two clauses preclude an adoption of the Paul Smith approach. We are fortified in reaching this conclusion given the amount of detail provided by the parties in cl 25.9. The clause painstakingly provides for the binding effect of the award on parties, the manner in which the award was to be made, the manner in which the arbitrators were to be appointed, the number of arbitrators, as well as the language of the proceedings. This is in contrast to cl 25.8, which simply provides for the applicability of Singapore law and the jurisdiction of the courts located in Singapore.”
This is a significant development as there was only one prior local decision addressing this issue of a contract containing both jurisdiction and arbitration clauses, in the case of PT Tri-MG Intra Asia Airlines v Norse Air Charter Limited [2009] SGHC 13, where the assistant registrar applied the Paul Smith approach as well.
Assignment and the right to arbitrate. Another issue raised by the appellant was whether the right to arbitrate in relation to Debt B was assigned to the Factor and whether there was a subsequent re-assignment back to the respondent. The appellant contended that the re-assignment only took effect in 2017 so the respondent had no right to commence arbitration in relation to Debt B in 2015. ([70] BXH v BXI).
The Court of Appeal emphasized that the appellant could not arbitrate in relation to Debt B once the right has been assigned away, even if it could arbitrate in relation to residual rights and obligations in the Distributor Agreement ([75] BXH v BXI):
“75 The fact that there remains an arbitration agreement between the parties with regard to residual rights and obligations in the Distributor Agreement (including, for instance, the obligation for each party to use care and discretion to avoid the disclosure of confidential information contained in cl 4) does not change this analysis. An arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to. Once the substantive right to Debt B was assigned, the respondent could no longer arbitrate in relation to Debt B.”
Question of existence of arbitration agreement. The Court of Appeal further held that for a dispute over whether a right to arbitrate is assigned away, this falls to be considered under the existence of an arbitration agreement under Art 34(2)(a)(i) of the Model Law, and not the scope of the arbitration agreement under Art 34(2)(a)(iii) of the Model Law, for the purposes of setting aside ([77] – [91] BXH v BXI):
“84 Having assigned the right to Debt B to the Factor, the right to arbitrate in relation to that debt would subsist between the appellant and the Factor. The respondent would not be considered as a proper party to the agreement to arbitrate disputes arising over Debt B. The fact that there remains unrelated substantive rights between the respondent and the appellant (such as the right to require protection of confidential information under cl 8) cannot affect the nature of the inquiry. The question remains whether the respondent, at the relevant time, was able to commence arbitration in relation to Debt B pursuant to a valid arbitration agreement with the appellant.
85 This question is properly considered under the ground of Art 34(2)(a)(i), which concerns the existence and validity of any alleged arbitration agreement. …”
No retroactive vesting of right to sue. On the facts, the Court of Appeal held that Debt B was only re-assigned in 2017. The respondent contended that the right to sue was nonetheless vested in the respondent retroactively, relying on the case of The “Jarguh Sawit” [1997] 3 SLR(R) 829.
The Court of Appeal examined the authorities relied on in The Jarguh Sawit and opined that those authorities “do not actually establish that an assignment can retrospectively vest rights in the assignee.” ([117] BXH v BXI). In any case, the Court of Appeal was of the view that a principle of retrospective vesting for an assignment should not apply to arbitration proceedings as opposed to court proceedings ([125] – [138] BXH v BXI). In particular, we highlight the following:
“131 There is good reason for this especially considering the distinct principles governing the court and the arbitral tribunal’s jurisdiction. …
…
134 As alluded to by the English Court of Appeal, an arbitral tribunal would not possess such a free-standing power to allow for the addition of new causes of action that are independent from the parties’ arbitration agreement. The importance of the parties’ consent is such that the tribunal’s jurisdiction in respect of each cause of action should be jealously scrutinised by the tribunal – the tribunal has to satisfy itself that it possesses jurisdiction (based on party consent) in relation to each issue that is submitted for adjudication. The existence of an arbitration agreement between the parties cannot be taken to automatically confer jurisdiction on the arbitrator in respect of all causes of action that arise between them – the scope and content of the parties’ agreement must be taken into consideration. …
135 The issue of party consent is also closely tied to the importance of ensuring that the proper parties are involved at the onset of arbitral proceedings. …
…
138 Similarly, at the time the respondent in the present case commenced the arbitration in 2015, Debt B was still assigned to the Factor. There was thus only an agreement to arbitrate over disputes relating to Debt 1A. The respondent would not have been a proper party to any arbitration arising out of disputes over Debt B.”
Ultimately, the Court of Appeal allowed the appeal and set aside the portion of the award in relation to Debt B.
Purported assignee can give notice of assignment to debtor. An ancillary issue raised was whether valid notice of assignment can be given by an assignee to the debtor.
The Court of Appeal considered the position under section 4(8) of the Civil Law Act, and under case law, and concluded that notice can be given by either an assignor or an assignee. As regards concerns about false notices by false assignees, the Court of Appeal then affirmed that a debtor has the right to verify the fact of assignment prior to making payment to the purported assignee, although this does not mandate that notice must be provided by the assignor ([139] – [151] BXH v BXI).
Significance. In our previous commentary on the High Court decision (at https://www.chanceryllc.com/news/bxh-v-bxi), we highlighted the need for clear drafting of dispute resolution and governing law clauses. This need remains unaffected by the Court of Appeal decision.
BXH v BXI provides important practical guidance on how inconsistent jurisdiction and arbitration clauses will be resolved, and the issues debtors should look out for when there is an assignment of rights, such as managing the risk of false assignees and making sure which is the correct party to pursue arbitration against.
Tags: Dispute resolution clauses; Arbitration; Assignment
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