BXH V BXI [2019] SGHC 141
In the recent High Court decision of BXH v BXI [2019] SGHC 141 (“BXH v BXI”), the High Court dismissed an application to set aside an arbitral award under Article 34 of the UNCITRAL Model Law. This article will briefly examine some of the issues dealt with BXH v BXI.
I. Background
The Plaintiff was a Hong Kong company, who was in the business of distributing and remarketing the Defendant’s consumer goods in Russia. The Defendant was also a Hong Kong company, and was a wholly-owned subsidiary of a Singapore company (termed as the “Parent Company” in BXH v BXI).
In October 2015, the Defendant commenced arbitration against the Plaintiff with the SIAC, alleging that a total of US$36.4M was due and owing in respect of unpaid invoices for goods sold and delivered.
The Plaintiff rejected the Tribunal’s jurisdiction from the outset. The SIAC constituted the Tribunal in April 2016, and left the Tribunal to determine whether it had jurisdiction. The Plaintiff then declined to participate any further in the Arbitration.
In July 2017, the Tribunal issued a final award in favour of the Defendant in respect of both the Plaintiff’s objection to jurisdiction and the Defendant’s substantive claim.
In the High Court, the Plaintiff sought to set aside the arbitral award under Art 34(2)(a)(i) of the Model Law on the basis that the Tribunal lacked jurisdiction (the “Jurisdiction Issue”). The Plaintiff also sought to set aside the award under Art 34(2)(a)(iv) of the Model Law on the basis that the composition of the Tribunal was not in accordance with the agreement between the Plaintiff and the Defendant (the “Composition Issue”).
II. The Jurisdiction Issue
On the Jurisdiction Issue, inter alia, the Plaintiff submitted that it was not a party to any arbitration agreement with the Defendant. In support of this contention, the Plaintiff raised several grounds, including an argument that there was no valid arbitration agreement as the arbitration agreement was inconsistent with the governing law and jurisdiction clause in the contract ([44] BXH v BXI).
A. Was there an arbitration agreement between the parties?
The Tribunal’s jurisdiction was founded in Cl. 25.9 of a Distributor Agreement that was entered into between the Plaintiff and the Parent Company ([67] BXH v BXI).
Plaintiff’s arguments (in brief). The Plaintiff argued that the defendant was never a party to this Distributor Agreement, as the Distributor Agreement had expired on 26 December 2012 before the Parent Company transferred the arbitration agreement to the Defendant via the Assignment and Novation Agreement ([68] BXH v BXI).
Defendant’s arguments (in brief). This was rejected by the Defendant, who relied on the Parties’ conduct to argue that the Distributor Agreement continued to have contractual force after the expiry of the Distributor Agreement. The Defendant also sought to rely on the doctrine of separability to argue that the arbitration agreement continued to have contractual force after the expiry date ([69] BXH v BXI).
What the High Court found. The High Court found that the Distributor Agreement as a whole did not continue after 26 December 2012 ([75] – [79] BXH v BXI). However, the High Court accepted that the Plaintiff and the Parent Company did intend for the arbitration agreement, i.e., Cl. 25.9, to continue to have effect post-26 December 2012, due to, inter alia, the presumption that the parties would have intended for a dispute resolution clause to survive the substantive contract ceasing to have contractual force ([85] – [87] BXH v BXI).
The High Court also found that based on the course of conduct between the Plaintiff and the Parent Company after 26 December 2012, they had considered themselves to be bound by a contract on the terms as set out in the Distributor Agreement. Similarly, the Plaintiff and the Defendant’s conduct after entering into the Assignment and Novation Agreement made clear that they considered themselves bound by a contract on the terms as set out in the Distributor Agreement. ([96] – [100] BXH v BXI).
B. Conflict between arbitration agreement with jurisdiction clause?
Plaintiff’s argument. As stated earlier, the Plaintiff also sought to argue that the arbitration agreement in Cl. 25.9 was unworkable as it conflicted with another clause, being the “Governing Law, Jurisdiction and Venue” clause:
“25.8 Governing Law, Jurisdiction and Venue. This Agreement shall be governed by and interpreted in accordance with the laws of Singapore, except for its rules regarding conflict of laws. The jurisdiction and venue for any legal action between the parties hereto arising out of or connected with this Agreement, or the Services and Products furnished hereunder, shall be in a court located in Singapore. ...
25.9 Disputes. Disputes arising out of or in connection with this Agreement shall be finally settled by arbitration which shall be held in Singapore in accordance with the Arbitration Rules of Singapore International Arbitration Center (“SIAC Rules”) then in effect. ...”
What the High Court found. The High Court rejected that there was any inconsistency in the clauses. Re-iterating that “…where the parties have evinced a clear intention to submit their disputes to arbitration, the court should seek to give effect to this intention as far as possible…” ([234] BXH v BXI), the High Court observed that while this intention “…may, arguably, be less clear where the contract contains both an arbitration clause and a jurisdiction clause. Even so, a line of first-instance decisions demonstrates that the courts in common law jurisdictions have sought to construe the clauses in such a way as to give effect to both, rather than to disregard entirely one or the other. ” ([235] BXH v BXI).
The High Court then adopted the reasoning and approach in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127 (“Paul Smith”), Axa Re v Ace Global Markets Ltd [2006] Lloyd’s Rep IR 683, and PT Tri-MG Intra Asia Airlines v Norse Air Charter Limited [2009] SGHCR 13, stating that “… in the absence of any allegation that either clause is vitiated in some way… [then] the parties intended for both clauses to have some contractual effect” (see [236] – [241] BXH v BXI).
The High Court found that as a dispute arising out of or connected with the Distributor Agreement cannot be the subject of both litigation and arbitration, the “… only practical – though not entirely satisfactory – solution is to adopt the Paul Smith approach and hold that the parties intended to resolve substantive disputes in arbitration under cl 25.9 and to resolve disputes arising out of any such arbitration in the Singapore courts in the exercise of their supervisory jurisdiction under cl 25.8” ([243] BXH v BXI).
III. The Composition Issue
As for the Composition Issue, as summarised at [269] BXH v BXI, the Plaintiff sought to submit that “… it ought to have been allowed to nominate an arbitrator out of time because the right to appoint an arbitrator is a fundamental right which, in this arbitration, only the defendant has enjoyed…”
What the High Court found. This argument was given short shrift by the High Court, who found that the Tribunal was constituted in accordance with the Parties’ agreed procedure ([272] BXH v BXI).
While the Plaintiff had cited decisions of “… the US federal courts which have upheld the right of a party to have its nominee on an arbitral tribunal despite that party’s failure to nominate an arbitrator within the period stipulated in the parties’ arbitration agreement” ([273] BXH v BXI), the High Court rejected the Plaintiff’s reliance on those US decisions, holding that the position of the US courts in those decisions are different from a court hearing a setting aside application under Art 34 of the Model Law.
In addition, the High Court also endorsed the case of Triulzi Cesare SRL v Xinyi Group (Glass) Co Ltd [2015] 1 SLR 114, which held that “… a departure from the parties’ agreed procedure is not a ground for setting aside an award if the departure was the result of the applicant’s own conduct, failures or strategic choices” ([279] BXH v BXI).
IV. Some takeaways from BXH v BXO
BXH v BXI is a lengthy decision that deals with numerous issues. It is beyond the scope of this brief article to go through all the issues raised in BXH v BXI. Nevertheless, there are a few takeaways to note from a brief examination of BXH v BXI.
Firstly, parties would do well to ensure that dispute resolution clauses and governing law clauses are clearly drafted, so as to avoid any potential conflicts or ambiguities. In this regard, it is important to bear in mind that the “choice of law” can (potentially) refer to the choice of the law governing the contract, or the choice of the substantive law governing the arbitration, or the choice of the procedural law governing the arbitration.
Secondly, parties should note that if they make a strategic choice not to exercise their right to nominate an arbitrator, or to abstain from a contractually stipulated appointment process, this can have ramifications including on their ability to subsequently challenge the constitution of the arbitral Tribunal.
Thirdly, parties should note that while arbitration agreements are generally found in writing, arbitration agreements can also “arise” via, e.g., the parties adopting a course of conduct demonstrating that the parties intend to be bound by the terms of an earlier contract which included an arbitration agreement. In this regard, parties should take note of s2A(3) – s2A(4) of the International Arbitration Act, and the decision by Judith Prakash J (as she then was) in AQZ v ARA [2015] 2 SLR 972 as mentioned at [101] in BXH v BXI.
Tags: International Arbitration Act; UNCITRAL Model Law on International Commercial Arbitration; Setting aside; Arbitral awards; Lack of jurisdiction; Composition of Tribunal
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