Arbitration Clause Interpretation #9

Case: Firstlink Investment Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12

Parties' Arbitration Agreement:

“Any claim will be adjudicated by Arbitration Institute of the Stockholm Chamber of Commerce. You and GTPayment agree to submit to the jurisdiction of the Arbitration Institute of the Stockholm Chamber of Commerce. Both parties expressly agree not to bring the disputes to any other jurisdiction, except as agreed here to the Arbitration Institute of the Stockholm Chamber of Commerce”.

(There is a typo but the defendant sought to keep that error as it is).

There is no indication that the parties have chosen the law applicable to the arbitration agreement, but they did choose the law applicable to the underlying contract as follows:

“This Agreement is governed by and interpreted under the law of Arbitration Institute of the Stockholm Chamber of Commerce such laws are applied to agreements entered into and to be performed entirely within Stockholm”.

Issue: While it is quite unusual that the substantive law expressly chosen by the parties is the rules of the arbitration institute as it is unsure how the parties’ substantive obligation can be governed by it, the arbitration agreement is shielded by the doctrine of separability and therefore can be determined independently. Therefore, the issue is: ?What is the law applicable to the arbitration agreement?

Held: The law of the seat of arbitration will govern the arbitration agreement, thereby signifying the departure of the Singaporean Court from Súlalmerica.

Firstly, “in absence of any express clause prescribing a different place in which the arbitration proceedings will be conducted”, the choice of the Swedish Chamber of Commerce Arbitration meant that the place of arbitration was Sweden. This choice “evinces an objective intention to elect the lex arbitri of Sweden as the curial law applicable to the arbitration. Section 46 of the Swedish Arbitration Act 1994 also provides that the Act shall apply to arbitration proceedings which take place in Sweden.

Secondly, the reason given by the Judge the conclude the law applicable to the arbitration agreement are the following:

(1) there cannot be any inference that the parties want their rights and obligations under the arbitration clause to be governed by the same law that applies to the substance of the dispute because the two, potentially different, laws concern different legal relationships, namely the performance of the contract and the resolution of disputes when the substantive relationship breaks down;

(2) the natural inference would be that, when the substantive relationship breaks down, the parties’ desire for neutrality comes to the fore and the law chosen as the procedural law of the arbitration takes precedence over the substantive law;

(3) ‘the arbitral seat is the juridical centre of gravity which gives life and effect to an arbitration agreement’;

(4) the importance of the seat is recognized internationally, in particular in Article V (1)(a) of the New York Convention and Articles 36(1)(a)(i) and 34(2)(a)(i) of the Model Law;

?(5) the choice of seat determines the choice of remedies against the award, including the power of the courts to determine the jurisdiction of the arbitral tribunal and it would be reasonable for the parties to demand consistency between the substantive law and the procedure of determining the validity of the arbitration agreement.