Introduction

Recently, in January 2023, the Singapore Court of Appeal (Court of Appeal) pronounced an interesting judgment on the issue of the law governing the arbitration agreement in the absence of an express choice by the parties when the arbitration is seated in Singapore. At issue in this dispute was, whether by commencing proceedings before the National Company Law Tribunal (NCLT) in Mumbai, India, the founder promoter of the popular matrimonial services company "Shaadi.com" (the Company), acted in breach of an arbitration agreement with an investor and was, therefore, liable to be restrained by an anti-suit injunction.

Facts

The founder promoter, Anupam Mittal (the Promoter), filed a petition for corporate oppression and mismanagement before the NCLT against the investor, Westbridge Ventures II Investment Holdings (Westbridge), a company registered in Mauritius, seeking certain declaratory and injunctive reliefs under the statutory provisions of the Indian Companies Act.

In response, Westbridge filed a suit before the Singapore High Court seeking an anti-suit injunction against the Promoter from continuing with the NCLT proceedings. Westbridge asserted that the parties are bound by the arbitration agreement contained in the Shareholders Agreement (SHA) which contemplated that all disputes between the shareholders – including disputes pertaining to management of the company – be referred to arbitration seated in Singapore.

The Singapore High Court (High Court) granted an ex parte interim ant-suit injunction against the Promoter restraining him from pursuing the NCLT proceedings, which was later confirmed by the High Court by issuing a permanent anti-suit injunction order.

To neutralise the effect of the anti-suit injunction order passed by the Singapore High Court, the Promoter filed a suit before the Bombay High Court in India. The Promoter sought a declaration that the NCLT was the only competent forum to adjudicate the allegations of oppression and sought consequent restraining orders against Westbridge from pursuing the Singapore proceedings or enforcing the orders passed therein.

The Arbitration Clause

Clause 20 of the SHA contained the governing law and arbitration clause. The governing/substantive law of the SHA was Indian law. The clause provided for disputes 'relating to the management of the company or relating to any of the matters set out' in the SHA to be resolved by arbitration. The arbitration proceedings were to be carried out in accordance with the rules of the International Chambers of Commerce (ICC). The seat/place of arbitration was Singapore.

The Singapore High Court Proceedings

The Singapore High Court granted the anti-suit injunction prayed for by Westbridge. In so doing, the High Court held that the subject matter arbitrability at a pre-award stage shall solely depend on the law of the seat of arbitration and that it would not be necessary to ascertain the law of the arbitration agreement for that purpose. Therefore, the High Court found that, even if the substantive law governing the SHA was chosen by the parties to be Indian law, the proper choice of law for determining the question of 'arbitrability' would be Singaporean law i.e., the law of the seat. Unlike Indian law, since disputes pertaining to corporate oppression and mismanagement are arbitrable under the laws of Singapore, the High Court held that the Promoter was not permitted to resile from the arbitration agreement and pursue the disputes before an Indian court/fora.

The Singapore Court of Appeal Decision

Aggrieved by the order of the High Court, the Promoter filed an appeal before the Singapore Court of Appeal, on the ground that the subject matter arbitrability is governed by the law of the arbitration agreement which was Indian law in this case. The Promoter argued that since corporate oppression and mismanagement are non-arbitrable disputes under Indian law, the High Court was wrong in applying Singaporean law to hold that the issues before the NCLT are arbitrable. The Court of Appeal framed four principal issues:

  • Are questions of arbitrability to be determined according to the law of the seat or the proper law of the arbitration?
  • What is the proper law of the arbitration agreement in this case?
  • What is the proper characterisation of the disputes here?
  • Even if the disputes are arbitrable, should the court order a stay of the anti-suit injunction on case management grounds?

Law governing 'arbitrability'

The Court of Appeal, after a somewhat arduous discussion on the relation of 'arbitrability' to 'public policy', held that the High Court was wrong in holding that: (i) the question of 'arbitrability' should be simply decided on the basis of the law of the seat of the arbitration and (ii) it was unnecessary to ascertain the law governing the arbitration agreement. The issue of arbitrability, the Court of Appeal held, has to be tested at two levels. First, there must be an examination whether the dispute is arbitrable under the law governing the arbitration agreement. Second, if the dispute is arbitrable under that law governing the arbitration agreement, then there must be an examination whether the dispute is arbitrable under the law of the seat of the arbitration. The dispute should be referred to arbitration only if it passes both these choice-of-law tests.

Interestingly, the Court of Appeal observed that whilst it is public policy in Singapore to encourage arbitration, such encouragement cannot override principles of comity or insist on the application of Singaporean law to a substantive matter involving a foreign system of law expressly chosen by the parties. The Court of Appeal noted that the solution to problems that may arise due to "differences in subject matter arbitrability between the proper law and the law of the seat" lies in the hands of the parties themselves and their legal advisor. There is no reason, the Court of Appeal held, why during the contract negotiation process, parties should not be able to investigate possible differences in public policy between the two systems and craft an arbitration agreement which in its choices of proper law (of arbitration agreement) and seat would prevent such difficulties from frustrating the parties' desire to settle disputes by arbitration.

Proper law of the arbitration agreement

Having found that the issue of 'arbitrability' would necessarily have to be first decided by ascertaining the proper law of the arbitration agreement, the Court of Appeal turned to examine what was the law of the arbitration agreement in this dispute. To determine this, the Court applied the three-stage enquiry as laid down in BCY v BCZ [2017] 3 SLR 357 (which is consistent with the English law position per Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102), namely:

  1. Whether parties expressly chose the proper law of the arbitration agreement?
  2. In the absence of an express choice, whether parties made an implied choice of the proper law to govern the arbitration agreement, with the starting point for determining the implied choice of law being the law of the contract?
  3. If neither an express choice nor an implied choice can be discerned, which is the system of law with which the arbitration agreement has its closest and most real connection.

Starting with stage 1, the Court of Appeal considered that the arbitration clause stipulated Indian law to be the governing law for the whole contract but did not make it explicitly specific to the arbitration clause itself. Accordingly, the Court of Appeal, applying the principle of separability, held that the parties had not expressly chosen Indian law as the proper law of the arbitration agreement but the same was only meant to be the governing/substantive law for the contract.

Moving on to stage 2, the critical part of the examination where the Court of Appeal may have erred in its analysis, it considered whether the choice of Indian law to govern the contract (i.e., the SHA) made Indian law the implied choice of law to govern the arbitration agreement. The Court of Appeal in Sulamérica noted the principle that in the absence of any indication to the contrary, an express choice of law governing the substantive contract is a strong indication of the parties' intention in relation to the arbitration agreement. A search for an implied choice of proper law to govern the arbitration agreement, the Court of Appeal considered, is therefore likely to lead to the conclusion that the parties intended the arbitration agreement to be governed by the same system of substantive law as the substantive contract, "unless there are other factors present which point to a different conclusion". The Court of Appeal noted with approval, the earlier judgment in BCY that the governing law of the main contract should only be displaced if the consequences of choosing it as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties have themselves evinced a clear intention to be bound to arbitrate their disputes.

By applying the above principle, the Court of Appeal came to the simple conclusion that the parties could not have implied Indian law to be the governing law of the arbitration agreement since that would frustrate the parties' intention to arbitrate their disputes relating to the management of the company given that minority oppression disputes are non-arbitrable under Indian laws. Therefore, the Court of Appeal concluded that the fact that the parties chose Singapore as the seat of the arbitration to be administered under ICC Rules meant that the parties consciously wanted Singaporean law to be applicable to the arbitration disputes by which, and which alone, would all disputes – including those pertaining to management of the Company – could be arbitrated upon. The court's concluding passage on this point at paragraph 74 is quite remarkable in as much as it reaffirms the public policy of Singapore to uphold arbitration agreements.

As for Stage 3, curiously, despite coming to the specific finding that the arbitration clause must be construed to mean that the parties had impliedly chosen Singaporean law as the proper law of the arbitration agreement, the Court of Appeal went on to examine the test which admittedly would only have to be analysed if the Court had failed to discern any intent, either express or implied, of the parties on the choice of law for the arbitration agreement. Be that as it may, the Court of Appeal answered the third stage enquiry and held that Singaporean law is the proper law of the arbitration agreement since Singapore had the most "real and substantial connection" to the arbitration agreement.

Characterization of the disputes before the NCLT

The Court of Appeal having concluded that the arbitration agreement is governed by Singaporean law and the disputes are, therefore, arbitrable; next turned to the examine whether the complaints before the NCLT would fall within the ambit of the arbitration agreement. This examination was necessary for the purpose of deciding the necessity of issuing an anti-suit injunction qua the Promoter from proceeding further with the NCLT proceedings. After a laborious analysis of each of the six prayers sought from the NCLT, the Court of Appeal held that since all the claims were either related to mismanagement or arose from the SHA, they would all fall within the ambit of the arbitration agreement capable of being adjudicated by an arbitral tribunal. Accordingly, the Court of Appeal upheld the anti-suit injunction passed by the High Court.

Whether the Singapore proceedings should be stayed to avoid obtaining an award that would be unenforceable in India

Turning to the most interesting, if not baffling, part of the judgment, the Court of Appeal, in exercise of its court management powers, considered whether to grant a limited stay on the Singapore court proceeding to avoid conflicting decisions that may come about owing to the proceedings pending in India.

The Promoter's submission was that even if he succeeds in the arbitration, the award will not be enforceable in India. Under Section 48(2) of the Indian Arbitration & Conciliation Act, 1996, a foreign award is rendered unenforceable if the disputes were not capable of settlement by arbitration under Indian law.

The Court framed the question before it thus: "On one hand, we have found that the arbitration agreement binds the appellant...On the other hand, the court is always concerned to ensure the fair and efficient resolution of disputes and making the parties undergo an arbitration which may result in an award that cannot be enforced may not conduce to such a resolution here." Surprisingly, even after recognising that making the parties undergo a futile arbitration which may result in an award that cannot be enforced in India and would ultimately be a fruitless endeavour and a waste of resources, the Court of Appeal decided to order just that. The Court refused to stay the Singapore proceedings and held that the Promoter's only remedy is to pursue arbitration. The Court of Appeal's reasoning was two-fold: (i) the seemingly slow pace of proceedings pending before the Indian fora; and (ii) even if the award that may be rendered is unenforceable in India, it can't be said that it will entirely be a fruitless exercise since the process of the arbitration itself could be beneficial to the parties in that it will compel them to collect and test their evidence and legal arguments and give them a strong indication of the strength of their respective cases.

The appeal of the Promoter was accordingly dismissed and the Court of Appeal upheld the anti-suit injunction passed by the High Court.

Remarks

Against the above background, we first offer some comments on the analysis undertaken by the Court of Appeal in support of its interpretation before turning to share some thoughts on the systemic implications of this decision for Indian parties choosing to arbitrate in Singapore, something that has become a common phenomenon of late.

Having found that the arbitration clause must be construed to mean that the parties had impliedly chosen Singaporean law as the proper law of the arbitration agreement basis the analyses of Stage 1 (whether there was express choice – which was answered in the negative) and Stage 2 (whether there was implied choice – which was answered in the affirmative), it is difficult to understand why the Court of Appeal proceeded to examine Stage 3 namely, determining the real and substantial connection. In our view, the Court of Appeal's attempt to answer this enquiry was misplaced since the same was only necessary, if and when the Court was unable to discern the proper law of the arbitration agreement after having concluded the Stage 1 and Stage 2 analysis. In this case, to the extent that the Court of Appeal was able to answer the Stage 2 enquiry in the affirmative and discern the choice of law applicable to the arbitration agreement by implication, then it was no longer necessary for the Court to analyse and apply the third and final test postulated in Stage 3.

Next, interestingly, the Court of Appeal also clarified, and curiously so, that this decision should not be regarded as an endorsement of Westbridge's submission that all the complaints were contractual in nature and do not fall within the jurisdiction of the NCLT. In other words, while the Court admitted that some of the complaints could well be within the jurisdiction of the NCLT, it omitted to dwell on this aspect any further than just a single paragraph.

As for the enforceability of the award issue, the Court of Appeal noted that the Promoter had a "substantial basis" to be concerned with the fact that even if he succeeded in the arbitration, the whole process would ultimately be a waste of effort as the Indian courts would not assist in enforcing the award. Nonetheless, the Court reasoned that even if the award was unenforceable in India, it could not be said that it would entirely be a fruitless exercise since the process of the arbitration itself could be beneficial to the parties in that it would compel them to collect and test their evidence and legal arguments and give them a strong indication of the strength of their respective cases.

This reasoning is difficult to accept. The Court of Appeal was making the parties enter into an arbitration process which, for all practical purposes, would have the advantages of a mock drill and perhaps nothing more. The irony of such a conclusion is that it is palpably clear that regardless of who wins or loses in such a mock exercise – only one party, i.e., the Promoter would stand to lose either way. The Court essentially held that the Promoter would have to undertake a Sisyphean task – even if he succeeds in obtaining a hard-fought award, it would be unenforceable in India and resultantly rendered nothing more than a paper decree.

Finally, the Court of Appeal's zeal to advance the public policy of Singapore to promote arbitration and be seen as an arbitration friendly court in coming to the present decision regarding the proper law of the arbitration agreement may simply end up achieving the opposite. In other words, it may have the effect of deterring Indian parties to choose Singapore as the seat given the expansive interpretation accorded by the Court of Appeal.

That said, the silver lining is that parties are likely to be now more careful in explicitly specifying the law governing the arbitration agreement to avoid such unhelpful outcomes which effectively means saying goodbye to the practice of drafting arbitration clauses as a "last minute clause" during contract negotiations. Thus, a key takeaway from this decision is that parties should expend considerable time in drafting and agreeing arbitration clauses including testing the arbitrability of disputes that may arise under the main contract vis-à-vis the law of the arbitration agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.