Facts

The contract underlying the dispute was a Takeout Agreement, dated 7 August 2012 (Agreement), which contained the following provision:

"ARTICLE 14: DISPUTES

14.1 This Agreement shall be governed by the laws of the People's Republic of China.

14.2 With respect to any and all disputes arising out of or relating to this Agreement, the [p]arties shall initially attempt in good faith to resolve all disputes amicably between themselves. If such negotiations fail, it is agreed by both parties that such disputes shall be finally submitted to the Singapore International Arbitration Centre (SIAC) for arbitration in Shanghai, which will be conducted in accordance with its Arbitration Rules. The arbitration award shall be final and binding on both [p]arties."

The respondents (BNB) commenced a Singapore International Arbitration Centre (SIAC) arbitration on 2 March 2016. The applicants responded by challenging the tribunal's jurisdiction.

The crux of the jurisdictional dispute before the tribunal was whether the proper law of the arbitration agreement was Singapore or the law of the People's Republic of China (PRC). The applicant relied on the following arguments:

• PRC law was the proper law of the arbitration agreement.
• Shanghai was the seat of the arbitration.
• The arbitration agreement was invalid under PRC law as PRC law did not permit a foreign arbitral institution such as SIAC to administer a PRC-seated arbitration or a purely domestic dispute.

The tribunal's decision

The tribunal was required to rule on its jurisdiction. The majority of the tribunal held that Singapore was the seat of the arbitration and that the arbitration agreement was governed by Singapore law.

The majority were concerned to find the proper law to be a law that would not invalidate the arbitration agreement. If Shanghai was the seat of arbitration, PRC law would govern the arbitration agreement, with the effect that the arbitration agreement would be exposed to the risk of being held invalid and illegal. To avoid the possibility of the parties' manifest intention to arbitrate their dispute being nullified, the majority interpreted the phrase "arbitration in Shanghai" in article 14.2 of the Agreement to be a reference to the venue for hearings, rather than the seat of the arbitration. Further, while PRC law would presumptively be the proper law of the arbitration agreement under the second stage of the BCY framework, this could be, and was found to have been, displaced by Singapore law as the law of the seat, as this was the law pursuant to which the arbitration agreement would be valid.

The appellant applied to the High Court of Singapore under section 10(3) of the International Arbitration Act (Cap. 143A, 2002 Rev. Ed.) for a declaration that the tribunal lacked jurisdiction.

High Court's decision

The High Court dismissed the application and affirmed the tribunal's jurisdictional finding. The High Court's judgment was appealed to the Singapore Court of Appeal.

Decision

The Court of Appeal found that Shanghai was the seat of the arbitration, and that PRC law was the governing law of the arbitration agreement. The Court of Appeal reversed the decision of the High Court and the tribunal to that extent. In the circumstances, the Court of Appeal declined to decide whether the arbitration agreement was invalid under what it determined to be the governing law of the arbitration agreement, namely PRC law, on the basis that any such determination was to be decided by the PRC court as the court at the seat.

As it was common ground between the parties that the three-stage framework in BCY applied to determine the proper law of the arbitration agreement, the Court of Appeal followed this framework in applying its reasoning.

Did the parties make an express choice of law?

The Court of Appeal agreed with the High Court that the parties had not made an express choice of law in respect of the arbitration agreement. It held that an express choice of the proper law of the substantive contract would not, in and of itself, also constitute the proper law of the arbitration agreement. Such express choice would simply be a strong indicator of the intended governing law of the arbitration agreement unless there were indications to the contrary.

Did the parties make an implied choice of law?

The starting point of the second stage of the BCY framework was that PRC law, as the governing law of the Agreement, was also the governing law of the arbitration agreement. The issue of whether there was anything to displace the implied choice of PRC law, was only relevant if the law of the seat was materially different from the law governing the arbitration agreement. The Court of Appeal considered the meaning of the phrase "arbitration in Shanghai" in article 14.2 of the Agreement and held that the natural meaning of this phrase was that Shanghai was the seat of the arbitration. Given the significant distinction between the seat of an arbitration and its venue, the Court of Appeal was of the view that where parties only specify one geographical location in an arbitration agreement, and particularly where, as in the Agreement, the parties expressed a choice for "arbitration in [that location]", that should most naturally be construed as a reference to the parties' choice of seat. This interpretation is consistent with the English line of authorities in Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru [1988] 1 Lloyd's Rep 116 and ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyd's Rep 24.

Were there any contrary indications to displace the natural reading of the phrase "arbitration in Shanghai"?

BNB attempted to rely on evidence of the parties' pre-contractual negotiation to argue that the parties intended the seat of the arbitration to be a neutral forum, which, in this case, could not be the PRC and must instead be Singapore. The Court of Appeal distinguished the facts of this case from BQP v BQQ [2018] 4 SLR 1364, and emphasised that the courts were bound to give effect to the parol evidence rule. The Court of Appeal left open the question of whether evidence of pre-contractual negotiations should generally be freely admissible but reiterated the criteria in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 that extrinsic evidence will only be admitted if it is "relevant, reasonably available to all the contracting parties, and relates to a clear or obvious context". On the facts, BNB failed to satisfy these criteria.

BNB also attempted to rely on the invalidating effect which PRC law would have on the arbitration agreement to displace the interpretation resulting in Shanghai as the seat of the arbitration, on the basis that the parties could not have chosen to invalidate their arbitration agreement while simultaneously expressing a manifest intention to arbitrate. The Court of Appeal disagreed. In order to advance this argument, BNB had to show that the parties were, at the very least, aware that the choice of the proper law of the arbitration agreement could have an impact on the validity of the arbitration agreement. There was no such evidence on the facts.

Finally, BNB relied on the fact that Shanghai is not itself a law district, as opposed to Singapore. According to the Court of Appeal, while it would be best practice to specify both the city and the country in an arbitration agreement, an omission to do so would not render a clear reference to the seat, as was the case in article 14.2 of the Agreement, a reference to the venue instead.

In the circumstances, the Court of Appeal held that Shanghai was the seat of the arbitration. Since PRC law was both the law of the seat and the parties' implied choice of governing law for the arbitration agreement, the issue of whether there was anything to displace the implied choice of PRC law did not arise. There was also no need to proceed to the third stage of the BCY framework.

Effect of the Court of Appeal's decision on seat and proper law

Given its decision that Shanghai was the seat of the arbitration and PRC law was the governing law for the arbitration agreement, the Court of Appeal declined to express a view as to jurisdiction. Since Singapore was not the seat of the arbitration, any decision of the Singapore courts on jurisdiction would not be binding on the tribunal.

Comment

Although the Singapore courts are famously supportive of arbitration, this decision by the Court of Appeal unequivocally demonstrates that the Singapore courts are not prepared to uphold parties' apparent manifest intention to arbitrate in all circumstances. The Court of Appeal has emphasised that the parties' choice to arbitrate in a certain way, in a certain place, under the administration of a certain arbitral institution, must all be given effect by a process of construction which critically gives the words of the arbitration agreement their natural meaning, unless there are sufficient contrary indications to displace that meaning. Parties must live with the consequences of their chosen words even if this process of construction does not lend itself to a workable and valid arbitration agreement.

This decision is a stark reminder that contracting parties would be well advised to seek appropriate legal counsel when negotiating arbitration agreements, in order to avoid a situation where their arbitration is subject to the supervision of an unexpected or non-preferred court, or worse, where their arbitration agreement is at risk of being held to be null and void.

Case

BNA v BNB [2019] SGCA 84 (27 December 2019) (Sundaresh Menon CJ; Judith Prakash JA; Steven Chong JA).

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