In CLQ v CLR,(1) the Singapore International Commercial Court (SICC) considered the issue of whether a party to an arbitration agreement repudiated the arbitration agreement by commencing and continuing administrative proceedings against the other party to the arbitration agreement.
The plaintiff is the government of Ruritania (the government).(2) The defendant is a company incorporated in the British Virgin Islands (the developer).
The government made an application under section 10(3) of the International Arbitration Act (IAA) to challenge a ruling by an arbitral tribunal (the tribunal) that it had jurisdiction in a Singapore International Arbitration Centre (SIAC) arbitration commenced by the developer against the government.
The government and the developer signed a joint venture agreement (JVA) for the developer to reclaim and develop a site in Ruritania (the site). Under the JVA, parties were to incorporate a joint venture company (JVC) under Ruritanian law within two weeks from the date of the JVA and the government would enter a "master lease agreement" (MLA) with the JVC for the lease of the site to the JVA for an initial period of 50 years. The JVA was to be governed by the laws of England. Parties agreed to refer disputes to arbitration under the SIAC arbitration rules, with the seat and venue of the arbitration being Singapore, and English being the language of the arbitration (the arbitration agreement).
After the JVA was signed, the developer applied twice to the relevant Ruritanian ministry (MOC) to register the JVC. Both applications were returned without explanation. The developer wrote to the MOC asking for an explanation, but did not receive a reply. As a result, the developer initiated legal proceedings in Ruritania (the Ruritanian proceedings) against the MOC and two other Ruritanian ministries, where the Ruritanian ministries were ordered to fulfil their obligations under the JVA.
The JVC was subsequently registered, but the MLA was not executed so the project never took off. The developer commenced arbitration, claiming loss of profits and wasted expenses from the government's repudiation of the JVA. In response, the government raised a jurisdictional challenge that the developer had repudiated the arbitration agreement by commencing the Ruritanian proceedings and the government had accepted the repudiation by participating in the Ruritanian proceedings.
The tribunal determined that the developer's conduct could not objectively be viewed as evincing a clear intention to abandon the arbitration agreement. Thus, the arbitration agreement remained in effect and the tribunal had jurisdiction.
As a preliminary matter, the SICC held that it had reviewed the arbitral tribunal's jurisdictional ruling under section 10 IAA afresh. There was therefore no general bar against adducing fresh evidence before the Court.
On the principal issue, the SICC held that the developer's commencement and continuation of the Ruritanian proceedings did not amount to a repudiatory breach of the arbitration agreement.
The SICC found that English law applied as there was no evidence to displace the presumption that the proper law of the JVA applied to the arbitration agreement.
In this regard, the SICC noted that regardless of whether the applicable law was English or Singaporen, both involve the same enquiry – did the conduct of a party, objectively assessed, indicate a repudiatory intent? That is, was there an unambiguous intention to repudiate the arbitration agreement and abandon the obligation to submit disputes arising out of a contract to arbitration?
In determining that the developer did not demonstrate an intention to repudiate the arbitration agreement, the SICC observed the following:
- The scope of the Ruritanian proceedings was limited to obtaining administrative relief that would support the preliminary steps in the performance of the JVA. The absence of pre-action communication between the developer and the government indicates, to an objective observer in the shoes of the government, that the developer did not view the government as having procured the conduct of the MOC contrary to the JVA. Without knowing the reasons for the MOC's failure to register the JVC, the reasonable solution for the developer was to compel the MOC to perform its duty as the regulator.
- The documents filed by parties in the Ruritanian proceedings showed that the claim was about seeking administrative relief against the MOC in its capacity as the corporate regulator, and not about a remedy against the government for a breach of the JVA. Crucially, the respondent in the Ruritanian proceedings was not the government, but three Ruritanian ministries – this is consistent with the claim being mounted purely for administrative relief.
- The Ruritanian proceedings were commenced, pursued and argued on the basis of Ruritanian law, although the applicable law of the JVA was English law. This supports the inference that the developer's application purely involved a claim for administrative relief under Ruritanian law.
- The government did not seek to stay the Ruritanian proceedings in favour of arbitration, nor argue that the developer's conduct was a repudiation of the arbitration agreement. Instead, the government's response in the Ruritanian proceedings was focused on the administrative issue of why the MOC did not register the JVC.
- The reasoning of the Ruritanian court was consistent with the conclusion that, objectively assessed, the Ruritanian proceedings were an action for administrative relief.
Finally, the arbitration agreement served as a protective mechanism in case disputes arose during the 50-year life cycle of the JVA. Given the value of the arbitration agreement to both parties, the SICC found that it was unlikely that either would choose to abandon it before the JVA even got off the ground.
While the SICC found that the commencement and continuation of administrative proceedings would not alone constitute a repudiation of an arbitration agreement, it remains to be seen whether such proceedings amount to a breach of an arbitration agreement. The SICC found it unnecessary to decide definitively on this issue, although it observed that, in any event, the fact of breach would not by itself justify a conclusion that an arbitration agreement had been repudiated.
What is clear is that the question of whether there is a repudiation of an arbitration agreement and acceptance thereof, which together would terminate the arbitration agreement, is a factual enquiry to which the context and conduct of the court proceedings in question are relevant. Parties to arbitrations seated in Singapore should consider such factual circumstances before raising jurisdictional challenges in court solely on the basis of their counterparty's commencement of court proceedings.
For further information on this topic please contact Christian Teo or Esther Yong at Helmsman LLC by telephone (+65 6816 6660) or email ([email protected] or [email protected]). The Helmsman LLC website can be accessed at www.helmsmanlaw.com.
(2) The names of parties, related persons or entities have been anonymised. "Ruritania" is used to refer to the country in question.