In FirstLink Investments Corp Ltd v GT Payment Pte Ltd [2014] SGHCR 12, the Singapore High Court held that an international arbitration agreement expressed to be governed by an arbitral institution’s rules instead of a national law may be enforceable. The court also held that, in absence of any contrary indications, the parties’ choice of arbitral seat would be taken as the parties’ implied choice of proper law governing the arbitration agreement.
Facts
FirstLink Investments Corp Ltd (the “plaintiff“) had agreed to be bound by the defendant’s online user agreement on GT Payment Pte Ltd’s (the “defendant“) website during registration as a member to use the defendant’s online payment services (the “main contract“).
The main contract provided for the following 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 court jurisdictions, except as agreed here to the Arbitration Institute of the Stockholm Chamber of Commerce[.]”
The law governing the main contract (the “substantive law“) was stated as follows:
“This Agreement is governed by and interpreted under the laws of Arbitration Institute of the Stockholm Chamber of Commerce as such laws are applied to agreements entered into and to be performed entirely within Stockholm.”
The main question before the court was whether a stay of court proceedings should be granted in favour of arbitration under section 6 of the International Arbitration Act (“IAA“).
Issues
In deciding whether to grant a stay of court proceedings, the court considered the following issues:
- the applicable standard to determine the validity of an international arbitration agreement;
- how to determine the implied choice of law governing an international arbitration agreement; and
- whether an international arbitration agreement governed by the rules of an international arbitral institution instead of a national law can be enforced.
Decision
Following the decision in The “Titan Unity” [2013] SGHCR 28, the court held that once an applicant for a stay of court proceedings pursuant to s. 6(1) of the IAA had shown the existence of an arbitration agreement, the agreement is presumed to be valid unless it is proved that the arbitration agreement is “null and void, inoperative or incapable of being performed” under s. 6(2) of the IAA. The court considered that the term “null and void” encompassed all challenges to the validity of an arbitration agreement. There is no need for the court to conduct a full review of the validity of the arbitration agreement.
The court also held that in the absence of an express choice of law governing the arbitration agreement, parties would be presumed to have impliedly chosen the law of the arbitral seat to be the proper law applicable to the arbitration agreement. Since parties agreed to refer their disputes to the Stockholm Chamber of Commerce (“SCC“), the court therefore held that Swedish law was both the law of the seat and the proper law of the arbitration agreement.
Finally, the court held that the arbitration agreement was not rendered unenforceable even though it purported to be governed by the “laws” of the SCC, as opposed to a national law. The court looked beyond the imperfect drafting and held that parties intended to refer to the rules and principles of the SCC which reflected the legal principles and best practices in the field of arbitration.
For the purposes of the stay application, the court was content to find that there was a prima facie valid arbitration agreement, although it considered that the SCC Board would finally determine whether it could assume jurisdiction over the dispute.
Commentary
Implied choice of law governing arbitration agreement
As most commonly used arbitration clauses do not expressly provide for the law governing the arbitration agreement, courts and tribunals often consider the substantive law of the underlying contract or the law of the chosen seat to be the primary contenders for the proper law, being either the parties’ implied choice or the laws with potentially the closest connection.
Prior to FirstLink, a line of English authorities culminating in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company [2013] EWHC 4071 (Comm) had held that all factors being equal, parties will be taken to have impliedly chosen the substantive law to be the proper law applicable to the arbitration agreement, on the basis that parties would ordinarily intend to have the whole of their relationship governed by the same law.
This approach was regarded as logical, especially taking into account the fact that the arbitration agreement (although legally considered to be separable from the main contract) was often one of many clauses in a principal contract and it seemed intuitive that the governing law clause for a contract in general should ordinarily also apply to the arbitration clause in the same contract. Well-known arbitration treatises such as Redfern and Hunter on International Arbitration and International Commercial Arbitration also noted the intuitive appeal of this approach, although such treatises also observed that some cases had held that the law of the seat was the governing law, in particular where this would result in the arbitration clause being upheld.[1]
The court in FirstLink broke rank with the English authorities and stated that the natural inference should be that parties would prefer the law of the seat to be the governing law of the arbitration agreement, as opposed to the law of the substantive contract. The court’s reasons are as follows:
- When commercial relationships break down, parties would desire a neutral forum to resolve their disputes. Therefore, primacy is accorded to the neutral law selected by the parties to govern the proceedings of the dispute resolution.
- There was a risk of creating an unenforceable award pursuant to Art V(1)(a) of the New York Convention if the arbitration agreement was invalid under the law of the seat. Therefore, the choice of an arbitral seat presupposes parties’ intention to have the law of that seat recognise and enforce the arbitration agreement.
- The law of the seat usually governs the procedure of the arbitration and it is conceivable that parties would want the same system of law to govern the validity of the arbitration agreement to ensure consistency.
FirstLink will have an impact on future drafting considerations. It remains to be seen whether this view will be upheld by a higher court or followed in future cases.
If so, arbitral institutions and contracting parties may now wish to include express provision for the governing law of the arbitration agreement in their arbitration clauses to clarify that the arbitration agreement is governed by a law different from the governing law chosen by the parties for the rest of the contract.
Arbitration agreement governed by institutional rules can be enforced
Equally interesting is the court’s interpretation that parties (especially laymen) may not necessarily have intended “law” in the conventional sense of a national law but could have been referring to “rules of law”, including the rules of an arbitral institution. However, the court’s reasoning was limited only to the law governing the arbitration agreement.
Given that the parties had purportedly agreed to the rules of the “Arbitration Institute of the Stockholm Chamber of Commerce” to be the governing law of the entire contract, it remains to be seen how a future tribunal will interpret the same governing law clause when deciding the substantive obligations of the parties under the contract.
[1] Redfern, Hunter et al, Redfern and Hunter on International Arbitration (Oxford University Press, 2009), para. 3.09-3.29; Born, International Commercial Arbitration (Kluwer Law International, 2nd Edn, 2014) para. 4.02
By Andy Leck, Leng Sun Chan SC, Celeste Ang and Jennifer Fong.
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