BNA V BNB AND ANOTHER [2019] SGCA 84
In BNA v BNB and another [2019] SGCA 84 (“BNA v BNB”), the Singapore Court of Appeal allowed (to an extent) an appeal against the decision of the Singapore High Court on the issue of the parties’ choice of seat of the arbitration.
The facts. As per our previous article (https://www.chanceryllc.com/news/bna-v-bnb), the facts are relatively straightforward. In essence, the dispute turned on the following clause ([17] BNA v BNB): “ARTICLE 14: DISPUTES 14.1 This Agreement shall be governed by the laws of the People’s Republic of China. 14.2 With respect to any and all disputes arising out of or relating to this Agreement, the [p]arties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration award shall be final and binding on both [p]arties.” It suffices to state that a dispute arose, and an arbitration ensued. A challenge to the tribunal’s jurisdiction was made, and the majority of the tribunal found that (a) the tribunal did have jurisdiction, (b) Singapore was the seat of arbitration, and (c) Singapore law was the proper law of the arbitration agreement. The dissenting arbitrator’s opinion was that Shanghai was the seat of the arbitration, and that there was nothing to displace the law of the People’s Republic of China (the “PRC”) as the law of the arbitration agreement ([13] – [20] BNA v BNB). An application was made to the High Court of Singapore for a declaration that the tribunal lacked jurisdiction under s. 10(3) of the International Arbitration Act (the “IAA”) ([21] BNA v BNB). Applying the framework set out in BCY v BCZ [2017] 3 SLR 357 (“BCY”), the High Court found that the parties did not expressly chose a law to govern the arbitration agreement, that the Singapore was the seat as the parties have expressly incorporated the SIAC Rules, and Singapore law as the law of the seat could displace the implied choice of PRC law as the governing law of the arbitration agreement ([28] – [31] BNA v BNB). Leave to appeal to the Court of Appeal under s. 10(4) IAA was granted by the High Court.
Proper law of the arbitration agreement. In the course of the judgment, the Court of Appeal observed the “law that the seat court will apply in any setting aside application will ultimately depend on the grounds of challenged raised by the applicant” ([51] BNA v BNB), though the Court stated that it was not necessary for the Court to express a definitive view as regard the law that is to apply to each of the grounds of challenge under s. 24 IAA or Art 34(2) of the Model Law ([55] BNA v BNB).
Parties did not make an express choice. Agreeing with the High Court, the Court of Appeal found that the parties had not made any express choice of law for the arbitration agreement ([56] BNA v BNB). The Court of Appeal observed that the clause in question is similar to the dispute resolution clause in BCY, and that the mere specification that the governing law of the contract was insufficient to constitute an express choice of the proper law of the arbitration agreement ([59] – [61] BNA v BNB).
Parties did make an implied choice. However, disagreeing with the High Court, the Court of Appeal found that the “natural meaning of the phrase “arbitration in Shanghai” is that Shanghai is the seat of the arbitration.” ([65] BNA v BNB). In this regard, the Court of Appeal highlighted that while a seat is essential to arbitration law, the venue is not, and hence “where parties specify only one geographical location in an arbitration agreement, and particularly where, as here, the parties express a choice for “arbitration in [that location]”, that should most naturally be construed as a reference to the parties’ choice of seat.” ([65] BNA v BNB).
No contrary indicia. While accepting that this natural reading can be displaced by contrary indicia ([69] BNA v BNB), the Court of Appeal found that there were no contrary indicia. In this regard, an important issue decided by the Court of Appeal was that the parties’ pre-contractual negotiations (which the respondents had relied upon to show that the parties did not intend for the arbitration to be the PRC) ([70] – [73] BNA v BNB) was only proffered in the High Court, and was not evidence before the tribunal ([78] BNA v BNB). This led the Court of Appeal to decide that as the High Court was bound by s 2(1) Evidence Act, the admission of such evidence of pre-contractual negotiations had to satisfy the Zurich criteria for admissibility, which the Court of Appeal found that they did not ([79] – [88] BNA v BNB). The other issue decided by the Court of Appeal was the argument that “the parties could not have chosen to invalidate their arbitration agreement at the same time as they expressed a manifest intention to arbitrate” ([89] BNA v BNB). However, the Court of Appeal held that “there is nothing in evidence to show that the parties were sensitive to the interplay between PRC law and choosing the SIAC as the administering institution, much less the invalidating effect of this particular combination of choices… It therefore cannot form part of the context in construing Art 14.2” ([90] BNA v BNB).
Orders made. Having found that Shanghai is the seat, the Court of Appeal only allowed the appeal to this extent, and declined to take any concluded view on whether the tribunal did or did not have jurisdiction ([96] BNA v BNB). This is because the since Shanghai is the seat, “any decision of the Singapore courts on jurisdiction would not be binding upon the tribunal anyway. The Singapore courts would simply have no supervisory jurisdiction over the arbitration.” ([97] BNA v BNB). However, the Court of Appeal held that this did not mean that the jurisdictional challenge was not properly brought in the High Court, as “it was unnecessary or even unworkable that the court hearing the jurisdictional challenge be the court of the seat in a situation such as the present case where the location of the seat was precisely the subject of the jurisdictional challenge” ([100] – [101] BNA v BNB; emphasis in original).
Takeaways. Perhaps the most practical takeaway is that when it comes to drafting arbitration agreements, it is prudent to state the seat clearly and in unequivocal terms. The other important takeaway is the Court of Appeal’s observation on the impact of s. 2(1) Evidence Act. Parties raising jurisdictional challenges before arbitral tribunals would do well to pay careful attention to how the Court of Appeal addressed this issue in BNA v BNB. Tags: Arbitration; International Arbitration; UNCITRAL Model Law on International Commercial Arbitration; s. 10(3) International Arbitration Act; Seat; Choice of Seat
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