By Deepika Madan
Nature of Matter
Appeal to set aside an award
Case Summary
In our December 2019 newsletter, we reported on the High Court's decision to dismiss an application to set aside an arbitral award in BXH v BXI [2019] SGHC 141.
BXH appealed against the dismissal of its setting aside application.
Ruling
There was an issue over whether the inconsistencies found in the dispute resolution provisions in the Distributor Agreement meant an irreconcilable inconsistency such that the court could not give effect to the arbitration clause alone.
The High Court found for a valid arbitration agreement in the first instance. It was held that, so long as the intent to arbitrate was not in doubt, a court would strive to give effect to that intention, preferring an interpretation that would render the clause workable over one that would not. In this regard, the High Court adopted and endorsed the practical solution in the English case of Paul Smith Ltd v H&S International Holding Inc.
When assessing the effect of purportedly inconsistent clauses, the Court of Appeal expressed the view that one should always start with their plain language. Where parties evince a real intention to have matters resolved by arbitration, that intention ought to be given effect. Minor inconsistencies between clauses should not be allowed to detract from the parties’ agreement to arbitrate. Instead, a generous and harmonious interpretation should be given to the purportedly conflicting clauses such as to give effect to the parties’ true intention.
In this instance, the arbitration clause in the Distributor Agreement painstakingly provided for the binding effect of the award on parties, the manner in which the award was to be made, the manner in which the arbitrators were to be appointed, the number of arbitrators, as well as the language of the proceedings. This was in contrast to the conflicting provision which simply provided for the applicability of Singapore law and the jurisdiction of the courts located in Singapore. The Court of Appeal therefore found the case was more akin to the situation in Paul Smith.
Right to arbitrate
There was a series of assignments involving Debt B in the matter. There was therefore an issue whether the right to arbitrate in relation to Debt B was assigned by the respondent to the Factor, and, if so, whether there was a subsequent reassignment of Debt B from the Factor back to the respondent.
On this, the Court of Appeal acknowledged that arbitration agreements would, as a class, be capable of assignment.
Relying on the doctrine of separability, as well as the fact that the arbitration agreement would continue to attach to other rights and obligations arising from the Distributor Agreement, the respondent contended the effect of the assignment of Debt B was that both the respondent and the Factor would simultaneously possess the right to commence arbitration against the appellant. The Court of Appeal did not accept this. It was made clear that “[t]he legal assignment extinguishes the legal cause of action of the assignor against the party liable so that the assignor cannot thereafter himself ask for an award against the party liable”. The fact that there remained an arbitration agreement between the parties with regard to residual rights and obligations in the Distributor Agreement (including, for instance, the obligation for each party to use care and discretion to avoid the disclosure of confidential information) would not change this analysis. An arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to. Once the substantive right to Debt B was assigned, the respondent could no longer arbitrate in relation to Debt B.
On the question whether the right to arbitrate in relation to Debt B involved an issue over the existence or scope of the parties’ arbitration agreement, the Judge in the first instance took the view this was a question relating to the scope of the arbitration agreement between the parties. The Court of Appeal, however, took a differing view. As an arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to, the right to arbitrate cannot be seen in isolation – it must necessarily attach to a specific right. In this instance, the Court of Appeal held that the question concerned the existence of one’s right to arbitrate in relation to Debt B.
Having assigned the right to Debt B to the Factor, the right to arbitrate in relation to that debt would subsist between the appellant and the Factor. The respondent would not be considered as a proper party to the agreement to arbitrate disputes arising over Debt B. There was however a further question whether the respondent, at the relevant time, was able to commence arbitration in relation to Debt B pursuant to a valid arbitration agreement with the appellant given an apparent subsequent reassignment of Debt B from the Factor back to the respondent. On the facts, the Court of Appeal took the view that the right to Debt B was only reassigned to the respondent in April 2017, via a letter, which confirmed that “any rights which [the Factor] may have under the Distributor Agreement between [the respondent] and [the appellant] dated 24 December 2010 and any further rights which it may have had to collect payment from [the appellant] in respect of invoices for [the respondent’s products] have been assigned to [the respondent]". The respondent therefore would not have been a proper party to any arbitration arising out of disputes over Debt B at the time of commencement of the arbitration in 2015 when Debt B was still assigned to the Factor. Accordingly, the arbitral tribunal acted beyond its jurisdiction when determining issues in relation to Debt B, the portion of the award dealing with Debt B would thus be set aside.