The Singapore Court of Appeal clarifies the law governing arbitrability in the pre-award stage – Anupam Mittal v Westbridge Ventures [2023] SGCA 1

Key Takeaways

• The Singapore Court of Appeal’s recent decision of?Anupam Mittal v Westbridge Ventures II Investment Holdings ?[2023] SGCA 1 ("Anupam”) is significant because it established that a dispute must be arbitrable under?both?the law of the seat and the law of the arbitration agreement before the arbitration agreement can be upheld in the pre-award context (e.g., application for stay of court proceedings or for an anti-suit injunction).
• The significance is that the law of the arbitration agreement has grown in importance as it not only governs general issues of validity of the arbitration agreement, but also arbitrability of the dispute. It would be prudent to specify the law governing the arbitration agreement, apart from the law governing the main contract, so as to reduce the scope of potential disputes.
• Further, it would be prudent to choose the law of a “pro-arbitration” jurisdiction to govern the arbitration agreement, in addition to choosing a “pro-arbitration” seat. This reduces the risk of a party subsequently arguing that the dispute is non-arbitrable as a “guerrilla tactic”, thereby saving time and costs for all parties involved.

Introduction

In its first judgment for the year, the Singapore Court of Appeal broke new ground on the question of the law applicable to subject matter arbitrability, in the context of a pre-award anti-suit injunction application. A dispute is not arbitrable if it is in a class of disputes which are thought to be incapable of settlement by arbitration. In departing from the position taken by foreign jurisdictions, which applies the law of the seat to this question, the Court of Appeal adopted a “composite approach” and found that the law of the arbitration agreement applies?in addition?to the law of the seat to determine this question of arbitrability.

Background

This dispute arose from an unhappy corporate divorce between a private equity fund (Westbridge Ventures II) and the founders / shareholders of the target company, People Interactive Pte Ltd. People Interactive owns and operates Shaadi, a popular Mumbai-based online matchmaking company founded in 1997. In 2017, parties’ relationship had begun to deteriorate, and the fund subsequently sought to divest its interest in the firm by selling its shares to an alleged competitor of Shaadi. The founders, Annupam Mittal and his cousins Anand and Navin Mittal, then claimed corporate oppression and filed a petition with the National Company Law Tribunal (NCLT) in Mumbai, India.

Based on a Singapore-seated ICC arbitration clause in the shareholders’ agreement, the fund applied for a permanent anti-suit injunction against the founders in Singapore, seeking to restrain them from continuing the NCLT oppression claim in Mumbai. In reply, the founders argued that Indian law, which governs the shareholders’ agreement pursuant to a general choice-of-law clause therein, also governed the arbitration agreement contained within the shareholders’ agreement. The founders argued that Indian law applies to the question of arbitrability, and therefore the dispute is non-arbitrable. This was because minority oppression and mismanagement claims are non-arbitrable under Indian law, and the NCLT has exclusive jurisdiction over such disputes.

At first instance, the General Division of the High Court disagreed with the founders, finding that the law of the seat applies to the question of pre-award arbitrability instead. Shareholder disputes and minority oppression claims are clearly arbitrable under Singapore law. Accordingly, the High Court found that the dispute is indeed arbitrable and granted an anti-suit injunction against the founders.

A Novel “Composite Approach”

On appeal, the Singapore Court of Appeal disagreed with the High Court and adopted a “composite approach” such that in determining arbitrability in the pre-award context (e.g., application for stay of court proceedings, anti-suit injunction), the court must be satisfied that the subject matter of the dispute is arbitrable under?both?(a) the law of the seat and (b) the law of the arbitration agreement.

The justification for requiring the dispute to be arbitrable under the law of the arbitration agreement in addition to the law of the seat is two-fold:

1. The UNCITRAL Model Law on International Commercial Arbitration (Model Law) does not specify the law governing arbitrability in the pre-award stage, although it specifies the law of the forum in the post-award stage. In Singapore, section 11 of the International Arbitration Act 1994 (2020 Rev. Ed.) (IAA), which gives legislative expression to the concept of arbitrability, provides that a dispute is not arbitrable if it is “contrary to public policy”. In the Court’s view, “public policy” is phrased broad enough for the court to consider the public policies of the foreign jurisdiction, and that the drafters of section 11 would have contemplated that the public policy of a foreign jurisdiction could impact the parties or the arbitration in some way.
2. Further, the arbitration agreement together with the law that governs it determine exactly what the parties have agreed to arbitrate, and the arbitration agreement forms the source of the tribunal’s jurisdiction. In particular, the law of the arbitration agreement determines the validity of the arbitration agreement. Accordingly, if the law of the arbitration agreement determines that a class of disputes is non-arbitrable, that class of disputes would not be arbitrable. The law of the seat will kick in to determine arbitrability if and only if the dispute is arbitrable under the law of the arbitration agreement.

It should be noted that in the post-award context such as the setting aside of an award and resisting the enforcement of an award, the court would only apply the law of the seat or the law of the enforcement forum respectively.

The Importance of Choosing the Law of the Arbitration Agreement

The Singapore courts apply the?BCY?3-stage test (from?BCY v BCZ?[2017] 3 SLR 357) to determine the law governing the arbitration agreement:

• Stage 1: First, the court will determine whether parties have expressly chosen a law to govern the arbitration agreement.
• Stage 2: Second, in the absence of an express choice, whether parties have made an implied choice of law to apply to the arbitration agreement. A choice of law for the main contract is a strong indicator of the law governing the arbitration agreement unless there are clear indications to the contrary.
• Stage 3: Third, failing any of the above two stages, the court will ascertain the system of law with the closest and most real connection to the arbitration agreement. This law is usually the law of the seat of arbitration.

An important point to note is that a general and express choice of law governing the main contract would not suffice as an express choice of law for the law governing the arbitration agreement. In?Anupam, the Court found that the reference to Indian law in Clause 20.1 of the shareholders’ agreement does not constitute an express choice of law for the arbitration agreement. The relevant part of Clause 20.1 states: “This Agreement and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India”. The significance is that parties would only be taken to have made an express choice of law for the arbitration agreement if there is clear and specific language stating so.

Further, it should be noted that if parties fail to expressly choose a law to apply to the arbitration agreement, there could be a significant degree of uncertainty as to the law governing the arbitration agreement under Stage 2 of the BCY test. Indeed, the case of?Anupam?is illustrative of this uncertainty. The Court found that even though the law governing the main contract (Indian law) is a strong indicator that the same law also governs the arbitration agreement, there were sufficient indications to negate the implication that Indian law was intended to govern the arbitration agreement. This is because such an implication would frustrate the parties’ intention to arbitrate all their disputes, given that minority oppression disputes are non-arbitrable under India law.

Accordingly, the issue of arbitrability of the dispute can turn on the relevant law governing the arbitration agreement. Hence, commercial parties who desire certainty and for their choice of arbitration to be upheld should strive to include an express choice of law for the arbitration agreement which would not render the disputes intended to be submitted to arbitration to be non-arbitrable.

Conclusion

Where Singapore is the seat of arbitration, and the issue of arbitrability is brought up in the pre-award context (e.g., application for stay of court proceedings, anti-suit injunction), a dispute would be found to be arbitrable only if the subject matter of the dispute is arbitrable under both (a) the law of the seat, and (b) the law of the arbitration agreement. The significance is that the law of the arbitration agreement has grown in importance as it not only governs general issues of validity of the arbitration agreement, but also arbitrability of the dispute. Therefore, it would be prudent for commercial parties choosing Singapore as the seat of arbitration to:

• insert a clause specifying their choice of law for the arbitration agreement, preferably within the arbitration agreement/clause itself which is apart from the general choice of law clause which governs the main contract; and
• bear in mind that any eventual award may still be liable to be deemed unenforceable on grounds of non-arbitrability under the laws of the enforcing country (Article V(2)(a) of the New York Convention).

When choosing a law to govern the arbitration agreement, it would be prudent for parties to choose the law of a “pro-arbitration” jurisdiction to govern their arbitration agreement. This ensures that parties’ express choice of arbitration for dispute settlement would be unlikely to be frustrated by a law which renders the subject matter of the dispute non-arbitrable.

The Court of Appeal’s “composite approach” departs from the practice of many national courts, which have applied the law of the seat at the pre-award stage to determine arbitrability. The cogency of the Court of Appeal’s reasoning for its position is beyond the scope of this case update, but an instinctive question that arises is whether the concepts of arbitrability and validity of the arbitration agreement ought to be kept separate, as is the case in the New York Convention and the Model Law. It remains to be seen if the “composite approach” would be adopted by other major arbitral centres such as the United Kingdom (London) and France (Paris). Regardless, expressly specifying the law governing the arbitration agreement would be good practice to achieve greater certainty and reduce the scope for dispute on the validity of the arbitration agreement.