Singapore court issues landmark ruling on ‘law of seat’ to determine arbitrability

The case “provides a useful illustration of the criticality of this issue, which carries the potential for substantial commercial and legal consequences for contracting parties,” according to international arbitration expert Andrea Clark of Pinsent Masons.

It comes after the court ruled in favour of Westbridge Ventures II Investment Holdings (30-page / 252KB PDF), granting an anti-suit injunction against Mr Anupam Mittal, who had launched legal proceedings in India over alleged minority oppression and mismanagement of the Mumbai-based company People Interactive.

Both parties were shareholders in People Interactive and had previously entered into a shareholders' agreement under Indian law, which contained a clause stating that any dispute "relating to the management of The Company or relating to any of the matters set out in this Agreement... shall be referred to arbitration".

The agreement also specified that Singapore was the seat of arbitration – a designation that would typically give Singapore courts broad supervisory jurisdiction over any proceedings.

Westbridge applied to the courts in Singapore seeking an anti-suit injunction against the Mumbai proceedings.

It argued that the dispute should be dealt with through arbitration on the ground that it fell within the arbitration clause in their shareholders' agreement.

Mittal opposed the injunction and argued that the law governing the shareholders’ agreement was Indian law and that, under Indian law, disputes relating to oppression and mismanagement are not arbitrable.

The High Court decided that the law of the seat - rather than the law of the arbitration agreement - was applicable for determining whether the parties’ dispute was arbitrable at the pre-award stage.  This was based on three primary reasons: first, subject matter arbitrability at the pre-award stage is essentially a question of jurisdiction; second, the same law should be applied to determine arbitrability at the pre- and post-award stages; and third, at the pre-award stage, applying the law of the seat to determine arbitrability is more consistent with Singapore’s policy to promote international commercial arbitration.

Clark said: “These two dispute resolution forums offer vastly different features, including in terms of nationality versus neutrality, structure versus flexibility and avenues for disputing and enforcing the resulting decision.”

“The Singapore High Court’s decision represents the first time any Commonwealth court has addressed the issue of whether, at the pre-award stage, the law of the arbitration agreement or the law of the seat applies to determine the arbitrability of a claim. It is now clear that the Singapore courts will apply the law of the seat to determine whether a claim is arbitrable,” she said.

“This issue can be a critical one for contracting parties hoping to resolve a claim by way of arbitration as opposed to another dispute resolution forum, or vice versa.”

“Where the law of the arbitration agreement and the law of the seat differ, and their respective application will produce different results as to whether a claim is arbitrable, this issue will significantly impact whether a stay in favour of one type of proceeding should ultimately be granted.”

Clark said the High Court’s decision highlighted how important it is for parties to consider which dispute resolution forum they prefer at the contract negotiation stage.

“Carefully drafting the scope of claims falling within the arbitration agreement is but one aspect of this,” she said.

“Following the Singapore High Court’s decision, choosing the governing law of the arbitration agreement - which has its own complexities - and a different seat of the arbitration now warrants a heightened level of strategic consideration. This is especially true where the intended seat of arbitration is Singapore, as there is now clarity on the approach that will be applied,” Clark added.

“Looking ahead, we may see additional Commonwealth jurisdictions adopting the reasoning of the Singapore High Court and applying a similar approach to answer this critical issue as well.”