THE DEEMING EFFECT OF SECTION 4(6) OF THE ARBITRATION ACT
In Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] SGCA 77, the Court of Appeal overturned the High Court’s decision to stay the proceedings in favour of arbitration, finding that there was no arbitration agreement, whether ad hoc or otherwise. The Court of Appeal also disagreed with the High Court’s observations in obiter, stating that Section 4(6) of the Arbitration Act (Cap 10, 2002 Rev Ed) (“AA”) is limited in its application and “cannot be construed to permit the creation or formation of a new arbitration agreement through the operation of its deeming effect”.
Facts. The respondent, LVND Investments Pte Ltd (“the Developer”), is the developer of Macpherson Mall (“the Mall”) (at [5]). Out of the 16 plaintiffs (“the Purchasers”) who had purchased 12 shop units in the Mall, the appellants consisted of 13 plaintiffs who purchased 9 shop units in the Mall pursuant to 9 separate sale and purchase agreements (“the SPAs”) between 2013 and 2016.
The underlying disputes between the Purchasers and the Developer arose out of allegations that the Developer had made fraudulent misrepresentations and suppressed material facts that induced the Purchasers into purchasing their respective units in the Mall (at [6]).
There were two attempts at arbitration as per the two Notice of Arbitrations issued on 6 May 2019 (“the 1st NOA”) and 28 June 2019 (“the 2nd NOA”) that were objected to by the Developer (at [7]-[8]).
Thereafter, the Purchasers discontinued the second attempt at arbitration and commenced court proceedings. The Developer sought a stay of the court proceedings based on an arbitration agreement pursuant to cl 20A.1 of the SPAs, or alternatively, that the parties had entered into an arbitration agreement by their conduct (at [9]-[10]).
Issues. Of the five issues laid out by the Court of Appeal (at [28]), the focus of this article will be on the second issue: i.e., after finding that the parties had not entered into an arbitration agreement apart from cl 20A.1 of the SPAs, whether the High Court erred in holding that s 4(6) of the AA would deem there to be an arbitration agreement between the parties.
Cl. 20A.1. As a start, the Court of Appeal found that:
Cl 20A.1 of the SPAs is not an arbitration agreement within the definition of s 4(1) of the AA (at [29]);
The parties had not entered into an arbitration agreement independent of cl 20A.1 of the SPAs (at [33]) because “the parties had at all times acted exclusively on the assumption that cl 20A.1 was an arbitration agreement” and “While the 1st and 2nd NOAs did contain offers to arbitrate that were on terms additional to cl 20A.1 … those offers were never accepted by the Developer. It follows that there was never any separate arbitration agreement on the facts of this case.” (at [46])
“Having rejected the Appellants’ two offers for arbitration (which was entirely within the Developer’s prerogative), it seems incongruous for the Developer to then apply for a stay of the Suit on the basis of a purported ad hoc arbitration agreement. In truth, the Developer had spurned the opportunity to arbitrate. We therefore conclude that there was no basis on which to find an arbitration agreement apart from cl 20A.1 and reverse the Judge’s finding on this point.” (at [66])
Section 4(6) of the AA. The Court of Appeal then went on to consider the application and effect of s 4(6) of the AA which is in pari materia with s 2A(6) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) (at [67]).
The Court of Appeal agreed with the High Court on the three requirements for s 4(6) to apply, with the first being a threshold requirement (at [68]). We set out s 4(6) of the AA below with the three requirements identified for ease of reference:
“(6) Where in [1] any arbitral or legal proceedings, a party [2] asserts the existence of an arbitration agreement in a pleading, statement of case or any other document in circumstances in which the assertion calls for a reply and [3] the assertion is not denied, there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings.” (emphasis added)
The Court of Appeal held that the threshold requirement and second requirement were not satisfied on the facts (at [69]-[70]).
The Court of Appeal proceeded to consider “on the basis that there was neither a valid arbitration clause in cl 20A.1 nor an ad hoc arbitration agreement independent of cl 20A.1 ... whether s 4(6) can nonetheless deem an effective arbitration agreement to be in existence” (at [73]; emphasis by Court of Appeal). While the High Court in obiter observed that it could, the Court of Appeal disagreed.
Adopting the same purposive approach laid out by Tan Cheng Bock v Attorney-General [2017] 2 SLR 850 (at [74]), the Court of Appeal stated that there were three possible layers of meaning contained in the phrase “effective arbitration agreement” (at [77]):
“(a) that there is an agreement, ie, a contract”;
“(b) that the agreement is an arbitration agreement as defined by s 4(1) of the AA”; and
“(c) that the arbitration agreement is a formally valid agreement which can be given effect to under the AA.”
Given the context of s 4(6), the “narrow” view set out by the Appellants was preferred; “only the third is in view, and the first two aspects must be established independently of s 4(6) of the AA.” (at [78]). The Court of Appeal set out two reasons (at [78]-[79]):
Considering the “clear statutory sequence and structure” of s 4 of the AA, ““effective” in s 4(6) of the AA appears to be limited to the writing requirement, ie, that the agreement would be “effective” for the purposes of qualifying under the AA in relation to this formality requirement.”
Given that “s 4(6) is situated in s 4 of the AA, which is a definition provision ... It would be surprising … if a definition provision should be interpreted to create substantive rights, which would be the consequence if we find that s 4(6) of the AA can be used to deem the existence of an arbitration agreement notwithstanding the court’s finding that none exists as a matter of fact.”
The Court of Appeal also considered the legislative purpose or object of s 4(6) of the Act (at [80]-[114]) and found that “there is no indication in the legislative history ... that ... modifications for local needs were intended to broaden the effect of s 4(4) of the 2001 AA or s 4(6) of the AA in deeming the existence of an arbitration agreement when there was none.” (at [112]; emphasis by Court of Appeal).
The Court of Appeal thus concluded that “... s 4(6) of the AA is consistent with the Model Law provisions and s 4(4) of the 2001 AA. It follows that, like these other provisions, the specific purpose of s 4(6) is to ensure that an arbitration agreement would be treated as effective for the purposes of the AA even if the writing requirement is not met. In other words, the specific purpose of s 4(6) of the AA is to prevent a party who has not denied the existence of the arbitration agreement in circumstances in which the assertion of the existence of an arbitration agreement in a pleading, statement of case or any other document calls for a reply, from arguing that the agreement (whether pre-existing or arising in the course of the assertion and non-denial) is not in writing and is hence formally invalid in order to escape the consequences of that agreement.” (at [114])
Comparing the possible interpretations against the purposes of the provision, the Court of Appeal considered that the narrow view “best reflects the specific purpose of that provision … by providing for the validity and effectiveness of the agreement for the purposes of the AA, without stepping further into matters that are not required for s 4(6) to achieve its limited intended purpose. Here, the purposive approach and the strict approach in construing a deeming provision are aligned. The narrow view is also most consistent with the broad legislative purpose in seeking to bring our domestic laws into conformity with the Model Laws. Finally, the narrow view is the most consistent with the legislative history, as outlined above.” (at [117])
The Court of Appeal also observed how “the broad view would also satisfy the purpose of s 4(6) of the AA … [but] with a number of additional implications which were not intended by Parliament.” (at [118])
In reaching its decision, the Court of Appeal also expressed disagreement with Vitol Asia Pte Ltd v Machlogic Singapore Pte Ltd [2021] 4 SLR 464, a decision on s 2A(6) of the IAA which is in pari materia with s 4(6) of the AA, although the decision was not referred to by the High Court or by the parties on appeal (at [122]-[129]).
Conclusion. The case proceeded thus far because the Developer sought to stay legal proceedings under s 6 of the AA which requires an arbitration agreement. On the findings of the Court of Appeal, there was none.
Firstly, cl 20A.1 of the SPAs was only an “obligation to consider mediation” (at [31]; emphasis by Court of Appeal) and “does not confer on any party the unilateral right to commence arbitration against the other party without the concurrence of the other party, since the parties have not agreed to arbitration as the binding form of dispute settlement.” (at [32]). Secondly, there was no “unqualified acceptance” by the Developer of the Purchasers’ offers to arbitrate (at [54]-[55] and [62]). Thirdly, since there was no arbitration agreement between the parties, s 4(6) does not apply to deem the existence of one.
Therefore, if you want disputes under your contract to be governed by arbitration, make sure that your contract contains an arbitration clause. Alternatively, make sure that any separate arbitration agreement entered into is clearly recorded. Otherwise, s 4(6) of the AA will not offer any assistance to deem an arbitration agreement that is not independently established.
In addition, for both counsel and parties, it bears noting the Court of Appeal’s concluding remarks at [137]-[138]: in certain situations, it does not pay to “play hardball”, as tactical decisions can backfire, which can lead to parties incurring much higher costs than they would otherwise have had to incur.
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.