* Simon Jones is a Partner in Reed Smith's Singapore office. Rachel Loke is an Associate in Resource Law LLC.
Speedread
In an appeal against a decision dismissing an application to set aside an order granting leave to enforce an arbitral award, the Singapore High Court has reiterated the position that if an issue is firmly within the scope of submission to arbitration, it cannot be taken outside of that scope simply because the arbitral tribunal came to a wrong, or even manifestly wrong, conclusion on it. The court was of the view that the above applies with equal force where the issue in question is that of the governing law of a contract, stating that there was no reason why an issue as to governing law should be treated differently from other issues submitted to arbitration.
In this case, a China International Economic and Trade Arbitration Commission (CIETAC) tribunal had found that two systems of law applied to the contract between the parties although the main contract sought to incorporate a Grain and Feed Trade Association (GAFTA) standard terms which provide for English law as the governing law.
This decision clearly illustrates the Singapore courts' prevailing attitude of minimal curial intervention in relation to arbitration. As is evident from the court's reasoning, the Singapore courts will only intervene when a statutorily prescribed ground for refusal of enforcement is clearly established. (Quanzhou Sanhong Trading Ltd Liability Co Ltd v ADM Asia-Pacific Trading Pte Ltd [2017] SGHC 199.)
Background
Section 31 of the International Arbitration Act (Cap. 143A) (IAA) sets out the grounds on which a court may refuse enforcement of a foreign arbitral award, which follow those set out in the New York Convention. The grounds which were relevant in this case were sections 31(2)(d) and 31(4)(b) which provide as follows
"31.—(1) In any proceedings in which the enforcement of a foreign award is sought by virtue of this Part, the party against whom the enforcement is sought may request that the enforcement be refused, and the enforcement in any of the cases mentioned in subsections (2) and (4) may be refused but not otherwise.
(2) A court so requested may refuse enforcement of a foreign award if the person against whom enforcement is sought proves to the satisfaction of the court that —
…
(d) subject to subsection (3), the award deals with a difference not contemplated by, or not falling within the terms of, the submission to arbitration or contains a decision on the matter beyond the scope of the submission to arbitration;
…
(4) In any proceedings in which the enforcement of a foreign award is sought by virtue of this Part, the court may refuse to enforce the award if it finds that —
…
(b) enforcement of the award would be contrary to the public policy of Singapore."
Facts
The plaintiff entered into a contract with the defendant to purchase corn. The contract made reference to a standard form contract, Grain and Feed Trade Association (GAFTA) 88, which contains a domicile clause stipulating that the governing law is English law. A dispute subsequently arose in relation to the quality of the corn. The dispute was referred to arbitration in Beijing, China, under the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules.
The arbitral tribunal rendered its award on 6 May 2016 in favour of the plaintiff, requiring the defendant to pay the sums of $772,957.41 and RMB4,223,702.69 together with interest. The tribunal appears to have found that one section of the contract was governed by English law and that the remainder of the contract was governed by People's Republic of China (PRC) law, which the plaintiff contended was the law of the state most closely connected with the contract.
The plaintiff obtained an order of court granting it leave to enforce the award against the defendant. The defendant then sought, among other things, to set aside the order for enforcement.
The main issue the Singapore High Court had to consider on appeal was whether the arbitral tribunal exceeded its jurisdiction if (as the defendant contended) it made an error as to the governing law of the contract.
The two grounds in section 31 of the IAA that the defendant relied on were sections 31(2)(d) and 31(4)(b).
Decision
The Singapore High Court rejected both grounds relied on by the defendant and refused to set aside the order for enforcement.
Section 31(2)(d), IAA
The court reiterated the principles set out in an earlier decision, Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1, that if an issue is firmly within the scope of submission to arbitration, it cannot be taken outside that scope simply because the arbitral tribunal came to a wrong, or even manifestly wrong, conclusion on it.
In this instance, it was not disputed that the governing law of the contract was an issue that was firmly within the scope of submission to the arbitral tribunal. The defendant's argument was that where the issue related to the governing law, an error of the arbitral tribunal would cause it to exceed its jurisdiction as the tribunal would have disregarded the parties' express agreement as to the governing law.
The court rejected the defendant's argument, stating that there was no reason why an issue as to governing law should be treated differently from other issues submitted to arbitration. The court was of the view that the defendant was, in substance, arguing an appeal against the arbitral tribunal's decision on the governing law of the contract. This was not within the scope of section 31(2)(d) of the IAA.
Section 31(4)(b), IAA
The defendant's case was that enforcement of the award would be contrary to the public policy of Singapore because the arbitral tribunal had exceeded its jurisdiction when it found that the contract was governed by PRC law (save for one section of the contract). The court similarly rejected this argument as it had decided that the tribunal had not exceeded its jurisdiction.
Comment
This decision clearly illustrates the Singapore courts' prevailing attitude of minimal curial intervention in relation to arbitration. As is evident from the court's reasoning, the Singapore courts will only intervene when a statutorily prescribed ground for refusal of enforcement is clearly established.
An issue arising out of the facts of this case which may be of some interest is the CIETAC tribunal's finding in the underlying arbitration, which appears on its face to be somewhat curious, that two different systems of law applied to the contract. The tribunal appears to have found that one section of the contract was governed by English law, which is the governing law of the GAFTA 88 standard contract form which was referred to in the contract. The remainder of the contract was found to be governed by PRC law, notwithstanding that PRC law was not mentioned in the contract. It is unclear from the judgment how the tribunal in the underlying arbitration reached its decision, although the plaintiff had contended that PRC law was the law of the state most closely connected to the contract.
To seek to avoid such pitfalls in future, when parties are seeking to incorporate contract terms by reference, including standard contracts such as the GAFTA and the Federation of Oils, Seeds and Fats Association (FOSFA) contracts, and particularly where China is the agreed seat of any arbitration or the place where potential arbitral awards may be enforced, the following practical steps are suggested:
- Include the governing law and arbitration clauses in the contract in full, so that these clauses appear in both the main contract document and the incorporated terms.
- Attach a copy of the incorporated terms (for example, a copy of the relevant general terms and conditions or of the GAFTA or FOSFA contract) to the contract confirmation or main contract document when negotiating and concluding the contract and send the incorporated terms to the counterparty together with the signed contract.
