Interpreting the interaction between arbitration and jurisdiction clauses

Out-Law Analysis | 23 Mar 2021 | 10:31 am | 3 min. read

The Singapore High Court's ruling in the Silverlink Resorts v MS First Capital Insurance Ltd case last year highlighted the issues businesses can face in interpreting loosely worded contracts containing both arbitration and jurisdiction clauses.

In that case, the insurer’s attempt to have a policy claim resolved through arbitration was rejected, after the court held that the jurisdiction clause in the insurance policy agreement took precedence over the arbitration clause. That finding was made on the basis that the parties' intention was for the former to carve out disputes regarding the interpretation or application of the policy from the scope of the arbitration clause.

However, in cases where the parties' intentions are not clear, the approach taken by the Singapore courts in interpreting contracts containing both arbitration and jurisdiction clauses will be different.

Intention

It is clear both from the judgment in the Silverlink Resorts case and prior case law that the touchstone of any inquiry under Singapore law as to the interpretation of contracts containing both arbitration and jurisdiction clauses is the parties' intentions.

The contractual expression of the parties' intentions – for example, through the carving out of a specific subject matter for arbitration rather than litigation – is given primacy. In that sense, the arbitration and jurisdiction clauses are not truly in conflict and both apply within the limits which the parties have assigned to them.

The decision in the Silverlink Resorts case may be understood as falling in this category of cases. In his decision, judge Chua Lee Ming found that the parties' intention was for the jurisdiction clause to carve out from arbitration any disputes regarding the interpretation or application of the insurance policy, as the arbitration and jurisdiction clauses were not the same in scope and the carve out was commercially sound.

A more difficult question arises, however, as to what happens when the parties' intentions only extend so far. This problem was alluded to in the judgment in the Silverlink Resorts case. In those scenarios, the intention of the parties no longer provides a clear way forward for interpreting seemingly conflicting dispute resolution clauses, one in favour of arbitration and the other, litigation.

The problem here is more complicated.

Two clauses, same jurisdiction

Where both the arbitration and jurisdiction clause point to the same jurisdiction, i.e. the arbitration is seated in the jurisdiction which the jurisdiction clause selects, the Singapore courts will apply the approach taken in the 1991 case of Paul Smith Ltd v H&S International Holding Inc before the High Court in England and Wales, which was affirmed by the Singapore courts in 2020 in the case of BXH v BXI. In practice, this means the courts will give full effect to the arbitration clause while interpreting the jurisdiction clause to refer only to the court’s supervisory jurisdiction over the arbitration.

This solution is not entirely satisfactory, however, since it effectively reduces the jurisdiction clause to a choice of procedural, or curial, law in respect of arbitration. Nevertheless, this practical concession in order to avoid the exclusion of either or both clauses appears to be the preferred approach in giving effect to the parties' intentions, by reconciling both clauses.

However, where the arbitration is seated in a jurisdiction which differs from that selected by the jurisdiction clause, the result is far from settled.

Two clauses, two jurisdictions

In situations where a contract contains two dispute resolution clauses pointing to different jurisdictions, one found in a negotiated part of the contract and the other incorporated through the use of a standard form contract, the dispute resolution clause found in the negotiated part may be found to take precedence. Here, the conflict will be resolved on the basis of the parties' more specific expressed intentions.

Moreover, an arbitration clause may be given precedence over a non-exclusive jurisdiction clause by virtue of the former being considered a mandatory provision and the latter, an optional one.

However, the Singapore courts will generally seek to avoid the possibility of an arbitration seated in Singapore being governed by a foreign curial law.

In the Singapore High Court decision of PT Tri-MG Intra Asia Airlines v Norse Air Charter Ltd in 2009, the court said that the approach taken in the Paul Smith case "would not have been possible if the parties had, in their arbitration agreement, expressly stipulated a third country as the seat or place of arbitration". As a result, where the parties choose a seat of arbitration which differs from the jurisdiction selected by the jurisdiction clause, the court will not conclude that the jurisdiction clause provides the procedural, or curial, law of that arbitration.

This approach is arguably more compelling where certain disputes have been carved out by the jurisdiction or arbitration clause, since applying the approach taken in the Paul Smith case could result in a different supervisory jurisdiction for the disputes to be arbitrated from those subject to the jurisdiction clause, as in the Silverlink Resorts case.

In that scenario, it is not entirely clear what the result would be. There is precedent to suggest that the courts will consider pro-arbitration policies and principles of the appropriate forum, but the result may not be a stay in favour of arbitration.

Actions for businesses

This issue continues to underscore the importance of considered and precise drafting to reflect how parties intend to have their disputes resolved, particularly where there are potentially overlapping arbitration and jurisdiction clauses.

Co-written by Andrea Clark and Glenn Sim of Pinsent Masons.