CAN A PARTY BE BOUND BY AN ARBITRATION AGREEMENT WHICH THE PARTY DID NOT SIGN?
In CUG & 3 Ors v CUH [2022] SGHC(I) 16, Sir Henry Bernard Eder IJ considered whether a legally binding arbitration agreement existed between parties where one party never signed any agreement containing an arbitration agreement.
The issue in brief. In brief, the issue before the Singapore International Commercial Court is this: should a party who did not sign the arbitration agreement, and had objected to signing the arbitration agreement, nonetheless be found to be a party of the arbitration agreement? Among others, would the fact that the said party had authorised payments to the other contracting party be fatal to an objection that the said party was not a party to the arbitration agreement, given that the arbitration agreement is part of the contract?
The JV. In 2013, various parties, including CUH (“JV Parties”), entered into a Joint Venture Agreement (“JV Agreement”) to form an unincorporated joint venture (“JV”) to act as joint contractors of a large refinery construction project ([11]). CUG was not one of the JV Parties.
The JV operated one bank account (“JV Bank Account”). Any transactions involving the payment of money out of the JV Bank Account required the authorisation of all the JV Parties, including CUH ([11]).
In the course of performing the Main Contract, the JV Parties were unable to collect payments due under the Main Contract ([12]).
Enter CUG. Sometime in 2017, the JV and CUG negotiated for CUG to, inter alia, provide services to the JV to secure the outstanding payments (“Services”) ([13]).
It was initially agreed that CUG would be paid a commission rate of 1% as consideration for CUG’s performance of the Services. Following further discussions, the JV Parties other than CUH (“Original Parties”) agreed, on certain conditions, to increase CUG’s commission rate to 2.2%. CUH, however, did not agree to this increment ([14]).
On 16 November 2017, the JV leader issued what purported to be a provisional resolution supposedly on behalf of the JV to the effect that the JV would enter into agreements with CUG at the rate of 2.2% (the “First Provisional Resolution”) ([15]).
CUH maintained its objection to the First Provisional Resolution and stated that it would not agree to pay CUG a fee in excess of 1%. But CUH did not resort to the dispute resolution mechanism in the JV Agreement.
In November 2017, the Original Parties and CUG commenced negotiations in respect of two agreements relating to the engagement of CUG for the aforesaid services. These two agreements were termed the Subcontract Agreement and the Services Agreement (collectively, the “Agreements”) ([17]).
Clause 13 of each of the Agreements contained identical arbitration clauses (the “Arbitration Agreements”) ([23]). The Arbitration Agreements specified that the arbitration shall take place in Singapore, and shall be conducted pursuant to the Rules of Arbitration of the International Chamber of Commerce.
On 19 November 2017, CUG and the Original Parties signed the Agreements. However, CUH did not sign the Agreements as it maintained its objections in relation to the fee structure proposed by CUG ([26]).
Payments to CUG. It suffices to say that thereafter, CUH initially objected to, and did not, authorize payments to be made to CUG in November 2017 – December 2017 ([27] – [34]). But starting in February 2018 to October 2018, ten payments were made to CUG, which were authorized by all the JV Parties, including CUH ([41] – [42]). CUH did not express any reservations in making these payments ([42]). However, CUG would not have actual knowledge of which JV Parties had authorized each payment, though CUG assumed that CUH had authorized payment to CUG ([42]).
The Disputes. Subsequently, disputes arose between CUG and the JV over the quality and scope of CUG’s services provided under the Agreements ([43]).
And on 19 September 2019, CUG filed a Request for Arbitration against the JV Parties to recover amounts said to be contractually due under the Agreements ([51]). This resulted in a settlement agreement, and CUG withdrew this arbitration ([53]).
However, further disputes arose, and on 6 July 2020, CUG commenced another arbitration against CUH and the Original Parties ([67]).
In this arbitration, CUH raised a jurisdictional objection, denying that it was a party to the Agreements ([68]).
It suffices to say that the tribunal held that, among other things, it lacked jurisdiction over CUH on the basis that CUH was not a party to the Agreements and hence was not bound to the terms of the Agreements, which included the Arbitration Agreements ([71]).
Evidence. In the Singapore International Commercial Court, CUG argued that while CUH objected to and therefore did not sign the Agreements, the “outward manifestation of CUH’s conduct in performing the Agreements, from CUG’s perspective, demonstrates a clear and unequivocal intent on CUH’s part to accept and therefore be bound by the Agreements.” ([73(a)]).
Key to this argument by CUG was that CUH had “performed the Agreements, by its authorisation of the payments out of the JV Bank Account and by its payment of its 37.5% share of the fees to CUG pursuant to the terms of the Agreements … CUH’s authorisation of full payments of CUG’s invoices conveyed to CUG that CUH’s objections to the Agreements no longer existed, and that CUH accepted the Agreements. CUH thus conducted itself no differently from the Original Parties who were signatories to the Agreements. CUG was also aware that CUH had authorised payments out of the JV Bank Account, and that CUH had paid its portion of the fees because full payment of the invoiced amounts was made.” ([73(a)(ii)])
The Original Parties’ submissions were substantively similar to those made by CUG.
In response, CUH argued that as CUH did not sign the Agreements, the legal burden rested on the Applicants to demonstrate that CUH was a party to the Agreements ([75(a)]). In this regard, CUH emphasized that CUG had “actual knowledge of CUH’s refusal to sign the Agreements”, and “… the fact that CUH assisted with the facilitation of payment to help its JV partners discharge a liability they had assumed to CUG, in circumstances where CUH retained a financial and commercial interest in the successful completion of the JV Project, is not sufficient to evidence a clear and unequivocal intention that CUH intended to enter into the Agreements with CUG” ([75(c)(ii)]).
There are other arguments canvassed by the Parties, but for the purposes of this blog, we focus on these arguments.
What the SICC held. Sir Henry Bernard Eder IJ held that “the absence of a signature to a written agreement does not, of itself, preclude the coming into existence of a legally binding contract; the relevant conduct on the part of the parties which “crosses the line” may nevertheless justify a conclusion that the parties are to be regarded as having entered a legally binding contract on the terms of such written agreement” (at [95]).
Justice Eder elaborated by saying “[b]y “crossed the line”, I mean that which is communicated between the parties by words or conduct as well as any relevant “factual matrix” known to both parties” (at [91]).
On the facts, Justice Eder held that:
There is no doubt that not only did CUH not sign the Agreements in November 2017, but CUH had “… made it absolutely plain to all concerned, both CUG and the Original Parties, that it was not prepared to do so in particular because it objected to the fee structure claimed by CUG” ([96]).
CUH’s position was communicated to and understood by the Original Parties and CUG ([97]).
As for the payments, which “are the highpoint of the Applicants’ case” ([101]), they, too, did not “cross the line”. There was no actual payment directly by CUH itself to CUG: instead, there was simply a series of invoices issued by CUG to the JV and the payments by the JV to CUG. CUG had conceded that CUG was not aware that such payments were in fact authorised by CUH ([105]; [113]).
Throughout the period of time when these payments were being made by the JV, ie, from February to October 2018, the Agreements remained unsigned by CUH, and there was no evidence to suggest that CUG made any contact with CUH to persuade CUH to sign the Agreements ([110]).
And these took place against the backdrop of CUH having refused to sign the Agreements ([109]; [112]). As such, “… it would seem at least equally possible that CUG was simply prepared to let sleeping dogs lie…” ([111]).
The key point noted by Justice Eder was that the payments made by the JV to CUG between 19 February 2018 and 27 October 2018 did not “cross the line” to justify a conclusion that the parties are to be regarded as having entered a legally binding contract on the terms of such written agreement as CUG was not actually aware that CUH had authorised such payments.
Instead, there was, so far as CUG was concerned, silence on the part of CUH ([113]): given that CUG had been given assurances that the JV would make payments regardless of CUH’s position, Justice Eder therefore not prepared to make a positive inference from CUH’s silence.
Decision. The result was that Justice Eder held that CUH did not by its conduct become bound by the Agreements or the Arbitration Agreements, and therefore dismissed the applications ([136]).
Conclusion. The key takeaway from the decision in CUG v CUH [2022] SGHC(I) 16 is that the absence of a signature to a written arbitration agreement (found in a contract) does not preclude the existence of a binding arbitration agreement between parties, as a binding arbitration agreement can arise between parties by way of conduct.
In this regard, as alluded to by Justice Eder, one important form of conduct is if the parties to the arbitration agreement had conducted themselves pursuant to the terms of the contract which contained the said arbitration agreement, such as by making payments in accordance with the contract.
However, as highlighted by this case, when one of the parties is a “group entity”, such as unincorporated joint venture, then extra care is called for. The conduct of the “group entity” may not be reflective of, and therefore may not necessarily bind, the members constituting the group.
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