In Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32, the Singapore Court of Appeal had to consider a clause that gave one party a right to elect to arbitrate. It confirmed that the clause was a valid arbitration agreement. However, it ruled that, where the party with the right to elect to arbitrate elects to resolve the parties’ dispute through litigation and not arbitration, by virtue of this election the dispute falls outside the arbitration agreement. Accordingly, it refused the applicant’s request to stay the litigation proceedings.

The clause under consideration by the Court stated: "Any claim or dispute or breach of terms of the Contract shall be settled amicably between the parties by mutual consultation. If no amicable settlement is reached through discussions, at the election of Dyna-Jet, the dispute may be referred to and personally settled by means of arbitration proceedings, which will be conducted under English Law; and held in Singapore." A dispute arose; the parties failed to settle it amicably; and Dyna-Jet Pte Ltd (Dyna Jet) commenced proceedings in the Singapore courts. Wilson Taylor Asia Pacific Pte Ltd (Wilson Taylor) applied for a stay under section 6 of the International Arbitration Act (IAA) in favour of arbitration. The Assistant Registrar, High Court Judge and Court of Appeal all refused the stay.

Clause was an arbitration agreement despite optionality

The Court of Appeal affirmed (citing Tomolugen Holdings Ltd & Anor v Silica Investors Ltd [2016] 1 SLR 373) that the court must be satisfied of three things before ordering a stay under section 6 of the IAA, and that it must be satisfied of those things only to a prima facie standard:

  • That there is a valid arbitration agreement between the parties to the proceedings;
  • That the dispute in the proceedings (or part thereof) falls within the scope of the arbitration agreement;
  • That the arbitration agreement is not null and void, inoperative or incapable of being performed.

At all three levels of court, it was held that the optionality in the dispute resolution clause did not prevent it being an arbitration agreement. The first test was satisfied.

The dispute did not fall within the scope of the arbitration agreement

It was common ground between the parties that the second test was satisfied; the Assistant Registrar and the High Court accepted this but held that Dyna-Jet’s commencement of litigation meant that the arbitration agreement was incapable of being performed and the third test was not satisfied.

The Court of Appeal, however, rejected the common ground and held that, as Dyna-Jet had elected to litigate, the dispute did not fall within the scope of the arbitration agreement. In essence, the optionality of the arbitration agreement meant that Dyna-Jet could decide whether a dispute fell within the arbitration agreement by electing to submit that dispute to arbitration: "... the Dispute could have fallen within the scope of the Clause only if [Dyna-Jet] had so elected. In the absence of such an election, in the words of s 6(1) of the IAA, the Dispute in the present circumstances was not a 'matter which is the subject of the agreement'". In analysing the clause, the Court of Appeal distinguished the English case of Pittalis v Sherefettin [1986] 1 QB 868 and the Hong Kong case of China Merchants Heavy Industry Co Ltd v JGC Corp [2001] 3 HKC 580, which respectively concerned a rent review clause (whereby the landlord would set the rent subject to a right of the tenant to challenge it by way of arbitration) and a construction contract (in which the main contractor had the right to resolve disputes subject to a right of the sub-contractor to challenge the decision by way of arbitration). In both those cases the court held there were valid arbitration agreements and it appears that the English and Hong Kong courts regarded the relevant disputes as falling within the scope of the arbitration agreement. But both concerned situations where one party made a decision and the other could challenge it by arbitration, so only the latter party would ever commence any proceedings at all, and the point of the clause was that it allowed either arbitration or no proceedings at all. In contrast, the present case concerned all disputes under the contract; either party could commence proceedings in relation to a dispute, and the point of the clause was to give Dyna-Jet a choice of forum.

Having decided that the second ground was not satisfied, the Court therefore did not have to go on to decide whether the arbitration agreement was incapable of being performed, which was the basis on which the Assistant Registrar and the High Court had decided the matter in favour of Dyna-Jet.

Comment

This is not the first Singapore case upholding an arbitration agreement providing for some form of optionality. In WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka [2002] SGHC 104, the High Court upheld an arbitration agreement which allowed either party to elect to arbitrate (following a failure to resolve a dispute by good faith negotiations) (i.e. a symmetrical optional arbitration agreement). In Sembawang Engineers and Constructors Pte Ltd v Covec (Singapore) Pte Ltd [2008] SGHC 229, the Assistant Registrar held that a clause providing for disputes to be arbitrated, subject to a unilateral option to litigate, was to be classed as an arbitration agreement. The Court of Appeal in Wilson Taylor has now gone on to uphold an asymmetrical optional arbitration agreement. Taking these cases together, it therefore seems that Singapore courts will uphold arbitration agreements that provide for a choice between arbitration and litigation (or simply a choice to arbitrate), be it one or both parties who possess that right, or be the starting position arbitration with an option to litigate or vice versa. This is helpful, particularly given that clauses granting lenders a choice between arbitration and litigation are common in many finance documents.

Users of optional arbitration clauses should, of course, continue to consider whether courts in other jurisdictions relevant to the transaction (e.g. the likely place of enforcement of an award) would uphold it as a valid agreement to arbitrate and ensure that the clause is clearly drafted, especially as to how any option is to be exercised.