The Singapore High Court has clarified that the law governing an arbitration agreement is presumed to be the same as the law of the contract containing that arbitration agreement, and has clarified the application and nature of the separability doctrine.
In BCY v. BCZ, the Singapore High Court was asked to determine whether an arbitration agreement was capable of being entered into before the execution of the sale and purchase agreement (SPA) containing the arbitration agreement. The plaintiff who brought the appeal to the Singapore High Court disputed an arbitral tribunal’s ruling that it had jurisdiction to hear claims relating to the SPA in arbitration.
The first question for the court was which law applied to determine if the arbitration agreement had been entered into by the parties—the law of the seat of arbitration (Singapore) or the law of the underlying contract containing the arbitration agreement (New York).
The court considered the approach taken by the English Court of Appeal in Sulamérica Cia Nacional de Seguros SA v. Enesa Engelharia SA, in which the English court held that where there was a direct tension in determining the governing law of the arbitration agreement—between the law of the seat and the law governing the underlying contract—that tension would be resolved in favour of the law governing the underlying contract. The approach in Sulamérica had been rejected in an earlier Singapore judgment, FirstLink Investments Corp Ltd v. GT Payment Pte Ltd, in which the Assistant Registrar resolved the tension in favour of the law of the seat, notwithstanding an express choice of law clause in the underlying contract containing the arbitration agreement.
The High Court in BCY agreed with the approach taken by the English Court of Appeal in Sulamérica and rejected the Assistant Registrar’s approach in FirstLink. The court reasoned that the weight of authority supported the Sulamérica approach and that this approach was preferable as a matter of principle. In addition, the court found that FirstLink was not a true reflection of the law in Singapore and that the Assistant Registrar had failed to consider other Singapore authorities where the governing law of the arbitration agreement had been implied from that of the main contract.
The court speculated that the confusion which arose in FirstLink came about due to the doctrine of separability, which states that an arbitration agreement is, in theory, separable from its underlying contract. However, the court in BCY expressed the view that the separability doctrine is a tool used when the validity of an arbitration agreement itself is challenged, in order that a party may avoid arbitration by arguing that the main contract is invalid. The court clarified that the doctrine does not mean that the arbitration clause forms a distinct agreement from the time the main contract is formed.
On the facts of BCY itself, the court was satisfied that New York law was the governing law of the arbitration agreement because the arbitration agreement was intended to form part of the SPA, which itself was intended to be governed by New York law.
On the issue of whether a valid and binding arbitration agreement is formed in circumstances where the related SPA is not executed, the court found that there was no objective manifestation of any mutual intention by the parties to be bound by the arbitration agreement prior to the execution of the SPA and no intention that the arbitration agreement would apply independently of the SPA.
The court thus found that no valid arbitration agreement had been entered into and that the tribunal in the underlying matter did not have jurisdiction to hear claims relating to the SPA in arbitration.