Out-Law News | 30 Nov 2020 | 2:50 pm | 2 min. read
The Singapore High Court has rejected an insurer’s attempt to have a policy claim resolved through arbitration, saying the clauses in the policy mean the case should be heard before a court.
The court, in dismissing the stay application, held that the jurisdiction clause in the insurance policy agreement should apply, as it was intended to carve out disputes regarding the interpretation or application of the policy from the scope of the agreement’s arbitration clause.
Judge Chua Lee Ming said if the arbitration and jurisdiction clauses in an agreement showed the parties intended to have different disputes resolved by arbitration and litigation, that intention should be respected (26 page / 205KB PDF).
The dispute arose after hotel company Silverlink Resorts filed an insurance claim relating to the Covid-19 pandemic, after its Thai hotel was ordered to close by the government. Its insurer, MS First Capital Insurance, rejected the claim, on the basis that the claim was not covered by the policy as there had been no material property damage to any of Silverlink's insured properties.
Silverlink turned to the court for a declaration that it was unnecessary to show an admissible claim for property damage before it claimed for business interruption under the policy. MS First Capital responded by applying for a stay in favour of arbitration.
The insurance policy provided for mediation, arbitration and jurisdiction of the Singapore courts. The arbitration clause applied to any dispute arising out of or in connection with the policy which was not settled pursuant to the mediation clause, while the jurisdiction clause applied to disputes regarding the interpretation or application of the policy.
As the present dispute involved the interpretation or application of the policy, the dispute fell within the scope of both the arbitration and jurisdiction clauses.
While the Singapore courts have generally adopted a generous approach to interpreting arbitration clauses, the judge said: “There are limits to this generous approach to interpretation and ultimately, it all depends on the intention of the parties, objectively ascertained.”
In the current case, the court applied a “carve out” approach and held that the jurisdiction clause should apply instead. The court said the facts of this case, where the arbitration clause and jurisdiction clause were not inconsistent with each other as both clauses performed entirely separate functions and were independently enforceable, should be distinguished from cases where the arbitration clause and jurisdiction clause were completely inconsistent with one another.
Arbitration expert Melissa Heng of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, the law firm behind Out-Law, said in the latter scenario the Singapore courts had previously applied the ‘Paul Smith approach’, opting to read arbitration clauses generously by giving them their full effect while jurisdiction clauses were interpreted to refer only to the court’s supervisory jurisdiction over the arbitrations.
However, the court said where the arbitration clause and jurisdiction clause are not inconsistent with one another, as in the Silverlink case, it is not necessary to apply the Paul Smith approach.
“The case is noteworthy in two ways. First, it demonstrates that while the Singapore courts generally adopt a generous approach in construing arbitration clauses, where all disputes between the parties are assumed to fall within the scope of the arbitration clause unless shown otherwise, this approach is ultimately subject to the overarching principle of giving effect to the intention of the parties, which is objectively ascertained,” Heng said.
“If the parties intended for certain disputes to be resolved by litigation, the courts will give effect to such an intention notwithstanding the fact that there is a wider arbitration clause in the agreement, if these disputes are capable of being ‘carved out’ from the arbitration clause,” Heng said.
“Second, parties should be mindful and careful in drafting dispute resolution clauses. If it is intended that all disputes are to be settled by way of arbitration, save for certain specified disputes – whether by way of litigation or otherwise – this should be made clear in the agreement and parties should ensure that the clauses are not inconsistent and are independently enforceable,” Heng said.
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