BNA V BNB AND ANOTHER [2019] SGHC 142
In the recent decision of BNA v BNB and another [2019] SGHC 142 (“BNA v BNB”), the High Court made many important observations concerning arbitration law in Singapore.
Background. The dispute concerned an agreement which contained an Article 14 providing that the contract shall be governed by the laws of the People’s Republic of China, and that disputes shall be “submitted to the Singapore International Arbitration Centre for arbitration in Shanghai, … in accordance with its Arbitration Rules” ([3] BNA v BNB).
The defendants commenced arbitration in 2016, and the plaintiff challenged the jurisdiction of the 3-member tribunal ([6] BNA v BNB).
A majority of the tribunal decided that the tribunal had jurisdiction ([8] BNA v BNB).
Dissatisfied, the plaintiff appealed to the High Court pursuant to section 10(3) of the International Arbitration Act for a declaration that the tribunal has no jurisdiction ([9] BNA v BNB).
The dispute. The essence of the plaintiff’s argument is that the tribunal had no jurisdiction as the arbitration agreement is invalid under PRC law ([11] – [12] BNA v BNB).
- The law of the arbitration agreement is PRC law.
- If the dispute was a domestic dispute under PRC law, then foreign institutions are prohibited from administering the arbitration of a domestic dispute. The arbitration agreement is therefore invalid.
- If the dispute was not a domestic dispute, when the seat of the arbitration is in the PRC (Shanghai), foreign institutions are prohibited from administering such arbitrations. The arbitration agreement is again invalid.
The defendant argued that the arbitration agreement is valid ([12] BNA v BNB).
- The seat of the arbitration is Singapore.
- The proper law of the arbitration agreement is Singapore law.
- And if the proper law of the arbitration agreement is Singapore law, then it is not in dispute that the arbitration agreement is valid.
So, the High Court identified four key questions at [13] BNA v BNB:
1) What is the proper law of the arbitration agreement?
2) What is the seat of the arbitration?
3) What is the interplay between the proper law of the contract, and the arbitral law of the seat, when ascertaining the proper law of the arbitration agreement?
4) If the proper law of the arbitration agreement is PRC law, is the arbitration agreement invalid?
Determining the proper law of the arbitration agreement. The High Court accepted and applied the approach as set out in Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102, BCY v BCZ [2017] 3 SLR 357, and BMO v BMP [2017] SGHC 127 ([16] – [17] BNA v BNB).
The three Insigma principles. The High Court also reiterated the applicable principles in construing an arbitration agreement ([22] – [27] BNA v BNB).
In this regard, the High Court held that three principles can be drawn from Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR 936 (“Insigma”):
1) “… the fundamental purpose of construing an arbitration agreement is to give effect to the parties’ intention as they have manifested it objectively in their arbitration agreement” ([23] BNA v BNB).
2) “… the court should, as far as possible, construe an arbitration agreement so as to give effect to a clear intention evinced by the parties to settle their disputes by arbitration …” ([24] BNA v BNB).
3) “… a defect in an arbitration agreement does not render it void ab initio unless the defect is so fundamental or irretrievable as to negate the parties’ intent or agreement to arbitrate …” ([26] BNA v BNB).
The High Court also held that:
1) “… To the extent that the principle of “effective interpretation” in international arbitration law differs from the second Insigma principle, I consider that the Court of Appeal’s decision in Insigma prevents me from accepting it as part of Singapore law …” ([47] BNA v BNB).
2) “… I do not accept that the validation principle forms a part of Singapore’s arbitration law … [it] fundamentally misstates the objective of the exercise which a court undertakes when construing an arbitration agreement in order to ascertain its proper law…” ([52] – [66] BNA v BNB).
Doctrine of separability. The High Court also held that the doctrine of separability can apply “… to give effect to the parties’ manifest intention to arbitrate their disputes when a provision of the parties’ substantive contract might operate to defeat that intention. …” ([76] BNA v BNB).
Contractual analogue to parol evidence rule. The Court rejected evidence of previous drafts of the arbitration agreement, evidence of pre-contractual negotiations and affidavits of the defendant’s witness as to his intentions during the negotiations ([29] – [30] BNA v BNB).
The Court held that although the parties had contracted out of the parol evidence rule when they incorporated the SIAC Rules in the arbitration agreement, they had “… reintroduced a contractual analogue …” by way of the entire agreement clause ([41] – [43] BNA v BNB).
Applying the three-stage inquiry. Applying principles to the facts:
1) Express choice of law. There was no express choice of law to govern the arbitration agreement ([80] BNA v BNB). The mere fact that PRC law governs the substantive contract is not enough to constitute an express choice of law for the arbitration agreement ([82] BNA v BNB).
2) Implied choice of law. As a starting point, PRC law would be the parties’ implied choice, as parties “… do not ordinarily draw a distinction between the proper law of their substantive contract and the proper law of the arbitration agreement…” ([90] – [91] BNA v BNB).
3) However, the High Court found that PRC law was displaced, because “… it is likely that the parties’ arbitration agreement is invalid if PRC law is its proper law … This finding suffices in itself to displace PRC law as the proper law of the parties’ arbitration agreement and to constitute Singapore law as the parties’ implied choice … The contextual approach to construing contracts and the ut res magis principle both permit me legitimately to adopt the law of the seat as the proper law of the arbitration agreement if hewing to the starting point of PRC law would defeat the parties’ manifest intention to resolve their disputes through arbitration.” ([116] – [117] BNA v BNB).
4) Closest and most real connection. The High Court then found that having concluded that Singapore law is the proper law of the arbitration agreement, it was not necessary to embark on this stage ([118] BNA v BNB) though “… the parties’ arbitration agreement has its closest and most real connection with Singapore, that being the seat of arbitration chosen by the parties …” ([119] BNA v BNB).
Significance. We have simply sought to give a flavor of the broad grounds covered by the High Court in BNA v BNB. But in summary, what BNA v BNB clearly shows is that the Singapore Courts would strive to uphold the parties’ manifest intention to arbitrate.
However, BNA v BNB also sounds a cautionary note: parties should be aware that arbitration clauses which refer to multiple countries have the potential to engender dispute. It is prudent for parties to be clear on:
1) The distinction between the seat of arbitration, vs. the place of arbitration (being where the hearing is to be held); and
2) The distinction between the law of the substantive contract, vs. the proper law of the arbitration agreement, vs. the law of the seat of the arbitration.
Great care must be taken to avoid complications when the laws of different countries are involved.
Tags: Arbitration agreement; Proper law of arbitration agreement vs. Proper law of contract; Seat of arbitration; Choice of law; Pre-contractual negotiations
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