The High Court of Republic of Singapore on October 26, 2021, in the case of Westbridge Ventures II Investment Holdings (“Plaintiff”) v. Anupam Mittal (“Defendant”), [2021] SGHC 244, inter-alia, adjudicated upon the res integra position of law i.e., which system of law governs the issue of determining subject matter arbitrability at the pre-award stage? will it be the law of the seat or the proper law of the arbitration agreement? 

Brief Facts:

A dispute arose out of a shareholding agreement (“SHA”) entered into amongst the Plaintiff, (a private equity fund incorporated under the laws of Mauritius holding 30.96% of the authorised, issued and paid-up share capital of People Interactive, a private limited company registered in Mumbai), the Defendant (an Indian resident and the Managing Director of People Interactive from November 30, 2004 and  November 30, 2019) and People Interactive Private Limited. The SHA comprised a dispute resolution clause reproduced below:

                “20 GOVERNING LAW AND ARBITRATION

20.1 This Agreement and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India. In the event of a dispute relating to the management of the Company or relating to any of the matters set out in this Agreement, parties to the dispute shall each appoint one nominee/representative who shall discuss in good faith to resolve the difference. In case the difference is not settled within 30 calendar days, it shall be referred to arbitration in accordance with Clause 20.2 below.

20.2 All such disputes that have not been satisfactorily resolved under Clause 20.1 above shall be referred to arbitration before a sole arbitrator to be jointly appointed by the Parties. In the event the Parties are unable to agree on a sole arbitrator, one of the arbitrators shall be appointed jointly by the Founders and the second arbitrator will be appointed by [the plaintiff] and the third arbitrator will be appointed by the other two arbitrators jointly. The arbitration proceedings shall be carried out in accordance with the rules laid down by International Chambers of Commerce and the place of arbitration shall be Singapore. The arbitration proceedings shall be conducted in the English language. The parties shall equally share the costs of the arbitrator’s fees, but shall bear the costs of their own legal counsel engaged for the purposes of the arbitration….”                                               (emphasis supplied)

The Defendant commenced proceedings before the National Company Law Tribunal (“NCLT”) against, the Plaintiff in India. In those proceedings, the Defendant alleged, inter-alia, minority oppression by the Plaintiff. The Plaintiff, in response, applied for an anti-suit injunction in Singapore to restrain the Defendant from prosecuting the NCLT proceedings in India basis those proceedings being brought in breach of an arbitration agreement requiring all disputes between them to be arbitrated in Singapore.

The Defendant contends that the claims made by it in the NCLT proceedings in India are non-arbitrable under the laws of India (which the Plaintiff asserts is the proper law governing the arbitration agreement) and thus, those proceedings are not brought in breach of the arbitration agreement. On the other hand, the Plaintiff contends that the claims are arbitrable under Singapore law as the law of the arbitral seat and thus, the court proceedings brought by the Defendant are in breach of the parties’ arbitration agreement, thereby warranting the grant by this court of an anti-suit injunction.

Issue:

The issue thus, which arose for consideration before the Court was, what would be the applicable law for determining arbitrability of a dispute at a pre-arbitration stage, where the law of the seat is at variance with the law of the agreement, in relation to arbitrability of a specific dispute?

Decision of the Court: 

The Court before adjudicating upon the decision whether the dispute between the parties were capable of being arbitrated regarded it to be necessary to determine what would be the proper law of the arbitration agreement. The Court, therefore, reiterated the three-stage test/ framework enumerated in the case of BCY v. BCZ, [2017] 3 SLR 357 for determining the proper law of the arbitration agreement:  

a) The parties` express choice;

b) the implied choice of the parties as gleaned from their intentions at the time of contracting; or

c) the system of law with which the arbitration agreement has the closest and the most real connection.

However, the Court opined that, the proper law of the arbitration agreement is not the preferred approach for determining the subject matter arbitrability at the pre-award stage basis the following:

a) Subject matter arbitrability, when raised at the pre-award stage before the seat court, is essentially an issue of jurisdiction:

1. The Court while referring to the “tribunal versus claim” test [a test which asks whether the objection is targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration), or at the claim (in that the claim itself is defective and should not be raised at all)], opined that, the issue of subject matter arbitrability, when it arises before the seat court at the pre-award stage, is better characterised as an issue that, in essence, goes towards jurisdiction. Elaborating further, the Court noted that, a claim that a particular dispute is non-arbitrable due to its subject matter, in substance, raises a defect as to the parties’ consent to arbitration, regardless of the width and scope of the wording of the arbitration agreement and therefore, such a claim raises a question of the jurisdiction of the tribunal and consequently, the parties’ consent would be invalid since parties cannot agree to submit non-arbitrable disputes to arbitration as a matter of public policy. Hence, the courts, in such circumstances, would recognise that the arbitration agreement is either ‘inoperative’ or ‘incapable of being performed’.
2. The Court further noted that, consequences of a challenge, whether pre-award or post-award, made to a seat court, by a party asserting non-arbitrability, are consistent with such a challenge being in the nature of a jurisdictional objection; more so where the challenge succeeds since, if the challenge before the seat court succeeds, it simply means that the particular dispute cannot be arbitrated in the seat, however, it can, still be litigated in the appropriate court. In contrast, there is no discretion for the arbitral tribunal to exercise as to whether it wishes to hear a dispute which is non-arbitrable. Thus, the Court opined that, taking a view through the “tribunal versus claim” lens, the question of subject matter arbitrability cannot merely be a matter of admissibility and rather, strikes at the tribunal’s jurisdiction.
3. The Court also stipulated that it is the law of the seat which limits party autonomy by prescribing what type of disputes are arbitrable and consequently, limits the arbitral tribunal’s jurisdiction accordingly.
4. Therefore, the Court held that, whenever the seat court is asked to consider an arbitral tribunal’s subject matter jurisdiction on grounds of arbitrability, whether pre-award or post-award, the law of the seat of arbitration i.e. Singapore law in the instant case, shall be applicable.
5. It is pertinent to mention that the Court also took note of the fact that, wherein a foreign enforcement court is asked not to recognise or enforce an arbitral award on grounds of non-arbitrability or public policy, it applies its own law to determine that question. The Court described the same as an “exceptional escape valve” which allows contracting states of the New York Convention to refuse enforcement of an otherwise valid and binding arbitration award on non-arbitrability grounds. Hence, the Court observed that one could conceive of a scenario wherein a seat court in Singapore, applying its own law, refuses to set aside an award on grounds of non-arbitrability or public policy; which essentially means that the arbitral tribunal was clothed with jurisdiction to hear the dispute concerned and despite this determination by the seat court, a foreign enforcement court may, applying its own law, nevertheless decline to enforce that award on the very same grounds of non-arbitrability and/ or public policy according to its law. The Court noted that there is nothing incongruous or anomalous about such an outcome as this is simply an illustration of the “exceptional escape valve” mechanism that is ingrained within, and therefore, in a sense envisaged by, the very structure of the UNCITRAL Model Law on International Commercial Arbitration and the New York Convention.

b) The same law should be applicable to arbitrability issues at both the pre-award and post-award stages

The Court observed that if the seat court while considering an application to set aside an award on grounds of non-arbitrability of the dispute, applies its own law, however, when the defendant’s case is to be accepted, if the seat court has to apply a potentially different law i.e. the proper law of the arbitration agreement, to determine arbitrability of issues at the pre-award stage, the same would result in potentially anomalous outcomes. Therefore, in order to avoid any potential conflict, as per the Court, the law of the seat of arbitration should be applied to subject matter arbitrability issues, both at the pre-award and post-award stages to ensure that a consistent result is always arrived at by the seat court regardless when the issue of arbitrability arises.

c) Applying the law of the seat at the pre-award stage is more consistent with the policy to promote international commercial arbitration

The Court highlighted that, Singapore courts have consistently given broad effect to international arbitration agreements and comprises an unequivocal judicial policy of facilitating and promoting arbitration. Therefore, as per the Court, it is neither necessary nor desirable to give effect to foreign non-arbitrability rules, when particularly doing so would potentially undermine Singapore’s policy of supporting international commercial arbitration. Hence, the Court opined that applying the law of the seat to the issue of subject matter arbitrability would be consistent with the policy to facilitate such arbitrations in Singapore.

d) The weight of authority leans in favour of the law of the seat being applied

The Court relied on the decision of the Genoa Court of Appeal’s in the case of Fincantieri – Cantieri Navali Italiani SpA and Oto Melara SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, Republic of Iraq, (1996) XXI YBCA 594 (“Fincantieri”), to garner support in its findings. The Court in Fincantieri was faced with the question of whether disputes as to the effects of a United Nations embargo against Iraq were arbitrable and consequently, whether the Italian court proceedings should be stayed in favour of arbitration in Paris. The Genoa Court held that, such a question of arbitrability can only be determined as per the Italian law basis that, when an objection for foreign arbitration is raised in court proceedings concerning a contractual dispute, the arbitrability of the dispute must be ascertained as per the legal system of the country of the court which is being seized of jurisdiction.

The Court, in the instant case, enumerated that, the reasoning in Fincantieri would also apply to a scenario where proceedings are brought before the seat court purportedly in breach of an arbitration agreement and hence, the seat court, in that event, can either apply its own law to determine if the dispute is arbitrable or decide if it should decline its jurisdiction to hear the dispute and order a stay of proceedings in favour of arbitration.

Therefore, basis the aforementioned reasonings, the Court held that, it shall be the law of the seat which would apply in determining the issue of subject matter arbitrability at the pre-award and post-award stage.

With reference to the facts of the case in hand, the Court held that, applying Singapore law as the law of the arbitral seat, all the disputes which arose out of the SHA including those relating to oppression and mismanagement are arbitrable under Singapore law and hence, claims pertaining to oppression and mismanagement being non-arbitrable under Indian law will not have any bearing on the arbitrability of the dispute. 

Please find a copy of the judgment here.

This update has been contributed by Arka Majumdar (Partner) and Kunal Dey (Associate).

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