Author: Herbert Smith Freehills LLP
The Singapore High Court has interpreted a potentially defective arbitration clause, which selected the “China International Arbitration Centre” (a non-existent institution), as an agreement to CIETAC arbitration and therefore upheld an award issued by a CIETAC Tribunal. The Court held that, provided the parties objectively intended to refer to the same arbitral institution (rather than intended different arbitral institutions, or it being impossible to tell either way), the validity of the arbitration agreement would not be affected.
Re Shanghai Xinan Screenwall Building & Decoration Co, Ltd [2022] SGHC 58
What are the practical implications?
This case demonstrates that relying on technical failings in an arbitration agreement and refusing to participate in the proceedings, with a view to setting aside any award, can be dangerous. This is particularly the case in jurisdictions such as Singapore or Hong Kong, which strive to give effect to a clear intention to arbitrate where possible.
A similar approach was previously taken by the Singapore Courts, interpreting a clause referring to arbitration “by the Arbitration Committee at Singapore under the rules of The International Chamber of Commerce” as an agreement that the SIAC (ie an institution in Singapore) could administer an arbitration under the ICC Rules, notwithstanding that the “Arbitration Committee at Singapore” was a non-existent institution (HKL Group Co Ltd v Rizq International Holdings Pte Ltd [2013] SGHCR 5). (The ICC now administers arbitrations from its office in Singapore, and so could administer a future dispute under a similar clause.)
While it is encouraging that the Singapore Courts will work to overcome defects and give effect to parties’ agreement to arbitrate, remedies will not be possible in every case. Moreover, it is obviously undesirable – as well as expensive and time-consuming – for parties to end up before the courts because of defects in their drafting. Such defects are easily avoided by double checking the institution’s name on its website before inserting it into the clause.
Background
Shanghai Xinan, a Chinese company, obtained an arbitral award from the China International Economic and Trade Arbitration Commission (CIETAC) against Great Wall, a Singapore company. The dispute arose out of two construction contracts with identically worded arbitration clauses. Great Wall had not participated in the arbitration proceedings.
Xinan obtained an enforcement order from the Singapore Court. Great Wall filed an application to set aside the order, relying on s.31 of the International Arbitration Act 1994 (IAA) to argue that the award should not be enforced.
Great Wall’s most important argument was that the arbitration agreements were not valid under Chinese law (the proper law of the arbitration), and therefore fell within s.31(2)(b) of the IAA. This provides that courts may refuse enforcement of a foreign award if the party against whom enforcement is sought proves to the court that “the arbitration agreement is not valid under the law to which the parties have subjected it or, in the absence of any indication in that respect, under the law of the country where the award was made”.
Article 16 of the Arbitration Law of the People’s Republic of China provides that parties must select an arbitral institution. Article 18 provides that, where no institution is selected in the original arbitration agreement or a supplemental agreement, the arbitration agreement will be null and void.
Here, the arbitration agreements provided for the dispute to be submitted to the “China International Arbitration Center”. No such institution exists. Great Wall argued that the arbitration agreements were void under Chinese law and should not be enforced in Singapore.
What did the Singapore Court decide?
The Court rejected this argument. The Court found that the arbitration clauses showed that the parties intended to resolve their disputes by arbitration in China, at the institution they called the “China International Arbitration Center”. The judge pointed out that the parties would not deliberately have chosen a non-existent institution, but must have intended to choose an existing arbitral institution, which they misnamed. The question was therefore whether the arbitration agreements “evince a common intention that CIETAC would be that arbitral institution”.
The Court noted the close similarities between the words used in the arbitration clause (“China International Arbitration Center”) and the name of CIETAC, noting that the first two words (“China International”) were identical, and “Arbitration” was in both names. It then looked at a list of five major arbitral institutions in China that had been provided by Great Wall’s Chinese counsel. Of the four other major arbitral institutions, three were named after cities instead of the nation. The other arbitral institution had the word “Maritime” in its name, and was thus not likely to be chosen by parties involved in non-maritime disputes, as here.
The Court concluded that the parties had agreed on CIETAC as the arbitral institution. It reiterated that this was not a matter of choosing a non-existent arbitral institution, but rather giving an agreed arbitral institution a wrong name. This inaccuracy in the name did not nullify the parties’ consent to arbitration or their choice of institution.
The Court noted that a Chinese court decision, upheld on appeal, had held that a reference to “China International Arbitration Center” was not to be read as referring to CIETAC and thus no institution was named. The arbitration clause was void, and the Chinese court took jurisdiction over the case. Nonetheless, the Singapore Court distinguished the case by pointing out that it involved the interpretation of a different contract between different parties, and stating that it did not mean that any arbitration clause with those words were invalid under Chinese law. The Chinese court had concluded it was “impossible to infer a specific arbitration institution” from that clause in the context of the case before it. The Singapore Court stated that it had undertaken the exercise of contractual interpretation in this case and concluded the objective intention of the parties was to refer disputes to CIETAC.
Other aspects of the decision
Great Wall raised several other challenges to enforcement.
Great Wall argued that it had had no proper notice of the arbitration, because most of the arbitration documents were delivered after it had moved its business office. It also argued that the award had not been properly served and was therefore not binding. Specifically, the award had been delivered after Great Wall had moved its registered office.
The Court held that documents served to what was then Great Wall’s registered office were properly served under Singapore law, and that all documents (including the award) sent to Great Wall’s last-known place of business were served in compliance with the UNCITRAL Model Law. In any event, the address to which the documents were sent had been the address indicated in the contracts. This was proper notice of an arbitration unless the respondent had notified the claimant of a change of address beforehand.
The time limit for Great Wall to have filed an application in China to set aside the Award had expired, and Great Wall had neither filed an application nor asked for an extension to do so.
Finally, Great Wall argued that the arbitral procedure was not in accordance with the parties’ agreement. It claimed that CIETAC had not followed its own rules, because it had incorrectly applied its domestic arbitration provisions to the matter, when Great Wall, a Singaporean company, was a foreign entity to CIETAC. The Court agreed that CIETAC had made a passing reference to its domestic provisions, which was incorrect. However, it considered that Great Wall had failed to identify any impact or consequence of this error on the conduct of the arbitration or the award. It thus rejected this final argument.
Comment
The decision is interesting because the Singapore Court declined to follow a Chinese court decision that considered the words “China International Arbitration Center” insufficient to indicate a specific arbitral institution as a matter of Chinese law. While the Singapore Court noted that the contracts and context of the two cases differed, it did not delve into how the different facts of this case meant that a different result would be reached under Chinese law.
Whether a defective arbitration clause is valid is a question of the proper law of the arbitration agreement. However, based on this decision it appears that Singapore courts will require strong expert evidence before concluding that a foreign law would strike down an arbitration agreement for failure to clearly specify an arbitral institution.
