ARBITRATION AGREEMENT PITFALL
In Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] SGHC 28 (“Cheung v LVND”), the Singapore High Court found that there was an arbitration agreement based on the parties’ course of conduct and stayed the Court proceedings commenced by the plaintiffs.
Background. The plaintiffs were several purchasers of shop units in Macpherson Mall and the defendant was the vendor developer. Disputes arose over whether the plaintiffs were induced by fraudulent representations to purchase the shop units. The plaintiffs sued the defendant in Court and the defendant applied to stay the Court proceedings in favour of arbitration.
Was there an arbitration agreement in the SPA? In each of the Sale and Purchase Agreements (“SPA”) between a purchaser and the vendor, there was a Clause 20A which stated:
“20A. Mediation
20A.1 The Vendor and Purchaser agree that before they refer any dispute or difference relating
to this Agreement to arbitration or court proceedings, they shall consider resolving the dispute or difference through mediation at the Singapore Mediation Centre in accordance with its prevailing prescribed forms, rules and procedures.
20A.2 For the avoidance of doubt, this clause shall not amount to a legal obligation on the part of either the Vendor or Purchaser to attempt mediation as a means of resolving their dispute or difference.”
The High Court held that Clause 20A was not a valid arbitration agreement.
The High Court held that the clause did not show that parties had intended themselves to be bound to refer disputes to arbitration, and the High Court distinguished the clause from previous cases where valid arbitration agreements were found in elective arbitration clauses ([29] – [33] Cheung v LVND):
“29 The critical point in this case was that Clause 20A.1 did not objectively evince any intention by the parties to be bound to submit their disputes arising from the SPAs to arbitration. The clear text of Clause 20A.1 only stipulates that parties have a duty to consider mediation before referring their dispute “to arbitration or court proceedings”. …
31 The defendant also submitted that Clause 20A.1 is a valid arbitration agreement even if it merely provides an option for parties to elect either litigation or arbitration to resolve their disputes. The defendant relied primarily on WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka [2002] 1 SLR(R) 1088 (“WSG Nimbus”) and Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] 2 SLR 362 (“Wilson Taylor”) for this proposition.
32 However, Clause 20A.1 is distinct from the arbitration clauses in the foregoing cases relied on by the defendant. In those cases, the arbitration clause explicitly conferred a right on the parties to refer the dispute to arbitration.
(a) In WSG Nimbus, the operative clause stated:
… In the event that the parties have a dispute over any term or otherwise relating to this Agreement they shall use their best endeavours to resolve it through good faith negotiations. In the event that they fail to do so after 14 days then either party may elect to submit such matter to arbitration in Singapore […] [emphasis added]
(b) In Wilson Taylor, the operative clause provided:
Any claim or dispute or breach of terms of the Contract shall be settled amicably between the parties by mutual consultation. If no amicable settlement is reached through discussions, at the election of Dyna-Jet, the dispute may be referred to and personally settled by means of arbitration proceedings, which will be conducted under English Law; and held in Singapore. [emphasis added in Wilson Taylor]
33 The text of the foregoing clauses showed that the parties agreed that, once the right to elect to refer the dispute to arbitration is exercised, the parties are bound to submit the dispute to arbitration: see WSG Nimbus at [21]; Wilson Taylor at [13]. The agreement to refer disputes arising from the contract to arbitration, once the relevant party has elected to do so, is clear and unqualified. On the other hand, Clause 20A.1 goes no more than to state that the parties “shall consider” mediation “before they refer any dispute or difference relating to [the SPA] to arbitration or court proceedings”. The modal auxiliary verb expressing compulsion (“shall”) is used in reference to mediation, not “arbitration or court proceedings”. The reference to “arbitration or court proceedings”, ordering wise, comes after the act mandated by the modal auxiliary verb (viz, considering mediation). Simply put, Clause 20A.1 mandates the parties to consider mediation, and nothing more. That is the focus of that clause, and such consideration is to be had before the dispute is referred to either arbitration or court proceedings. This suggests that parties then have to agree on whether to refer the disputes to arbitration or court proceedings.”
Arbitration agreement by conduct. However, the High Court found that the parties had separately concluded an arbitration agreement by conduct. ([36] – [38] Cheung v LVND).
The plaintiffs (via their previous lawyers) had attempted to commence arbitration proceedings twice before the suit was commenced in Court (via their new lawyers). In those proceedings, the defendant had disputed how the arbitration should proceed, but not the existence of an arbitration agreement. As such, the High Court found that by their conduct, the parties had agreed to submit their disputes to arbitration.
“36 In the first attempted arbitration, it appeared quite clear to me that the plaintiffs were, in effect, proposing to arbitrate the disputes that had arisen with the defendant. This is spelt out in the 1st NOA. In the Defendant’s Responses, the defendant did not disagree that parties should arbitrate the disputes (see [8] above). The defendant’s objections were only as to the SIAC being the institution that should administer the arbitration; that the SIAC rules should apply to the arbitration; and that there should be a single consolidated arbitration.
37 In the second attempted arbitration, the plaintiffs unequivocally took the position in the 2nd NOA that the parties had already agreed to submit their disputes to an ad hoc arbitration, which would be seated in Singapore. To this, the defendant did not disagree. Rather, the defendant’s objection was that 12 separate ad hoc arbitrations should be commenced instead. The plaintiffs’ reply was that this was an issue of procedure that could be decided by the arbitrator to be appointed. The plaintiffs then reiterated the fact that “[p]arties agreed that the right forum for dispute resolution is arbitration” [emphasis added]; “there is a valid arbitration agreement between them”; and “the seat of arbitration is Singapore” (see [14] above). This plainly confirmed and reiterated the fact that the parties had an agreement, independent of Clause 20A.1, through their conduct and expressed statements, that their dispute regarding the SPAs should be resolved by arbitration.
38 In my judgment, it was clear therefore that, independently of Clause 20A.1, the parties had agreed to submit their disputes to arbitration to be seated in Singapore. … In this case, there was an unequivocal consensus between the parties on the essential terms. As mentioned, it was repeatedly stated in the correspondence by both the plaintiffs and defendant that there was an arbitration agreement between them in respect of their dispute concerning the SPAs. Hence, the conduct and expressed words of the parties were more than sufficient to indicate that there was a valid arbitration agreement within the meaning of s 4(1) of the AA.”
Deemed effective arbitration agreement. The High Court also opined that because the defendant did not dispute the plaintiffs’ assertion of an arbitration agreement made in the Notice of Arbitration, an arbitration agreement was deemed to exist pursuant to section 4(6) of the Arbitration Act i.e., that a party had asserted the existence of an arbitration agreement which calls for a reply and that the assertion was not denied, causing there to be an effective arbitration agreement. ([64] – [70] Cheung v LVND).
“64 Bearing in mind the views set out above, I found that s 4(6) was satisfied in this case. This is because, contrary to the plaintiffs’ submission (at [22(a)] above), which I found to be contrived, the plaintiffs made a clear assertion in the 1st NOA that there existed an arbitration agreement between the parties. The defendant did not disagree in its 12 separate responses to the 1st NOA that there was an agreement to arbitrate. The parties’ disagreement was whether the SIAC Rules would apply and whether the SIAC would administer the arbitration. In my judgment, the operation of s 4(6) of the AA would deem the existence of an “effective arbitration agreement” between the parties given the Defendant’s Responses to the plaintiffs’ 1st NOA.
…
70 … In my view, s 4(6) creates the legal fiction that there is an existing arbitration agreement through that assertion and non-denial in that arbitral or legal proceeding, even though, as a matter of contract law, the exchanges might not strictly amount to an unequivocal offer and acceptance and thus a contract to arbitrate the disputes.”
Significance. This case illustrates the importance of drafting. It is important to make sure that the dispute resolution clause in your contract is what you want. While there is no impediment to having a tiered dispute resolution clause, as this case illustrates, there is a significant difference between a tiered dispute resolution clause versus a clause which does not evince an intention to arbitrate.
In addition, once a dispute erupts, it may not be easy to agree on a particular set of arbitration procedures. As such, you could find yourself vulnerable to procedural obstructions if you wish to arbitrate your dispute but your contract does not adequately provide for it.
Hence, it is always important to consider if your arbitration clause provides for the arbitration to be administered by an arbitral institution in accordance with the institution’s arbitral rules, and if not, whether there is a good reason not to designate an arbitral institution to administer the arbitration or to not choose a set of arbitral rules governing the arbitration process.
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.