Singapore High Court: Principles of Interpretation for two Arbitration Clauses found in two agreements amongst the same parties

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In the case of Sanum Investments Limited v ST Group Co Ltd and others [2018] SGHC 141, the Singapore High Court faced the issue regarding a dispute arising out of the interpretation and relevance of two dispute resolution clauses found in two agreements amongst the parties. Detailed analysis of the case is as follows:

Factual Matrix

A Macau based gaming company (Sanum) entered into a joint venture arrangement (the Master Agreement) with a Lao company (ST Group) whereby Sanum would eventually come to hold 60% of all present and future gaming businesses of the joint venture. The Master Agreement envisioned that there would be three joint ventures created to hold and develop certain properties. Two of the joint ventures concerned the running of casinos whereas the third joint venture concerned the operation of slot clubs. ST Vegas Co and ST Vegas Enterprise are also companies incorporated in Lao which owned certain gaming licences and operate certain slot clubs in Lao. To execute the joint venture for two slot clubs, Sanum subsequently entered into a participation agreement with ST Vegas Enterprise. There was a third slot club named the Thanaleng Slot Club. ST Vegas Co and Sanum entered into a temporary revenue-sharing agreement in relation to the Thanaleng Slot Club. Under this Agreement, it was agreed that Sanum would provide additional slot machines to the Thanaleng Slot Club, and that the revenue generated from these machines was to be shared in accordance with certain agreed percentages: 40% to ST Vegas Co and 60% to Sanum. The dispute arose between Sanum and the Lao disputants ( which includes ST Group Co., Ltd. (“ST Group”), Mr Sithat Xaysoulivong (“Mr Sithat”), ST Vegas Co., Ltd. (“ST Vegas Co”), and S.T. Vegas Enterprise Ltd. (“ST Vegas Enterprise”) regarding the turnover of the Thanaleng Slot Club.

OEDR Arbitration and Vietnam Court Proceedings

Sanum commenced arbitral proceedings before the Lao Organisation of Economic Dispute Resolution (OEDR) who dismissed its claim. Thereafter, ST Vegas Co commenced proceedings against Sanum in the Vientiane People’s Commercial Court, seeking inter alias, a declaration that the Temporary Thanaleng Participation Agreement had expired and that the parties no longer owed any obligations to each other in relation to the Thanaleng Slot Club. Sanum filed a defence and counterclaim which was dismissed was dismissed and ST Vegas Co’s claim was affirmed. Sanum appealed first to the Court of Appeal, and then to the People’s Supreme Court but both appeals were dismissed holding that the Temporary Thanaleng Participation Agreement had been terminated.

SIAC Arbitration

Sanum subsequently commenced arbitration seeking damages for breaches of the Master Agreement, and the Participation Agreement between Sanum and ST Vegas Enterprise against the Lao disputants.

Contentions raised by Lao disputants

Lao disputants argued that:

  • That the Award was made pursuant to an arbitration agreement (or agreements) to which not all the Lao disputants were a party to (Jurisdictional objection under Article 36(1)(a)(i));
  • That the Award deals with a dispute not contemplated by or falling within the scope of the submission to arbitration (Jurisdictional objection Article 36(1)(a)(iii)); and
  • That the composition of the tribunal and the seat of the arbitration were not in accordance with the agreement of the parties (Article 36(1)(a)(iv)).

Lao disputants’ refused to nominate an arbitrator and therefore, the SIAC, pursuant to Rule 9.1 of the SIAC Rules 2013, proceeded to appoint all the tribunal members. The tribunal rendered an award in favour of Sanum and made certain orders against the Lao disputants.

Award

The tribunal found that the Five Agreements were to be read together in order to determine the intentions of the parties in relation to the Thanaleng Slot Club and held that the Lao disputants had “breached the [Five Agreements] … insofar as they concerned the Thanaleng Slot Club”.

In ruling on its own jurisdiction, the tribunal accepted that the underlying dispute arose out of the Master Agreement and the Participation Agreement between Sanum and ST Vegas Enterprise. In doing so, the tribunal relied on the two dispute resolution clauses found in the respective agreements to found jurisdiction. The tribunal took the view that “the Master Agreement and the [Participation Agreement between Sanum and ST Vegas Enterprise] must be construed together in the light of the parties’ intention”.

Arbitration Clauses

Clause 2(10) of the Master Agreement states as follows:

“If any dispute shall arise, the Parties agree to conduct an amicable negotiation. If such dispute cannot be settled by mediation, the Parties may submit such disputes to the Resolution of Economic Dispute Organization or Courts of the Lao PDR according to the provision and law of Lao PDR in accordance with this Agreement. All proceedings of the arbitration shall be conducted in the Lao and English languages.

Before settlement by the arbitrator under the rules of the Resolution of Economic Dispute Organization, the Parties shall use all efforts to assist the dispute resolution in accordance with the laws of Lao PDR.

If one of the Parties is unsatisfied with the results of the above procedure, the Parties shall mediate and, if necessary, arbitrate such dispute using an internationally recognized mediation/arbitration company in Macau, SAR PRC.”

Clause 19 of the Participation Agreement between Sanum and ST Vegas Enterprise states as follows:

“(a) This Agreement is governed by the laws of Lao PDR.

(b) Any dispute, controversy or claim arising out of or relating to the Agreement, including any question regarding its existence, validity or termination, the parties agree to conduct an amicable negotiation. In the event such dispute cannot be settled by mediation, the unsettled dispute shall be referred to and resolved by, unless the parties otherwise agree, Resolution of Economic Dispute Organization or Courts of the Lao PDR according to the provision and law of Lao PDR.

(c) If one of the parties is unsatisfied with the results of the decision or judgment of the above procedure the Parties shall mediate and, if necessary, arbitrate such dispute using an internationally recognized mediation/arbitration at the Singapore International Arbitration Centre (SIAC), Singapore and the rules of SIAC shall be applied.

(d) The tribunal shall consist of three arbitrators. Each of the parties to this Agreement (as a group) shall each be entitled to appoint one arbitrator and the third shall be nominated by the chairman of the arbitration in Singapore, but must be an arbitrator of a different nationality from that of the others. All proceeding of mediation or arbitration shall be conducted in the English language.

(e) The parties shall continue to perform their respective obligations under this Agreement despite the occurrence of a dispute or arbitration to resolve that dispute.”

Analysis

The Court cited the famous case of Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 3 SLR(R) 936 to hold that the court would strive to uphold an arbitration agreement where the parties have evinced a clear intention to arbitrate disputes. The parties appointed their respective experts on Lao law to determine the issue of whether Lao law as the governing law of the arbitration agreements. But the Court found the experts’ opinions as inadequate for several reasons.

Relying on Pacific Recreation Pte Ltd v SY Technology Inc and another appeal [2008] 2 SLR(R) 491, the Court further observed that the construction of a contractual document is a matter the court can come to its own conclusions on; applying the relevant principles of law presented by the experts.

The observed that it is inappropriate to cast the Lao disputants’ jurisdictional objections under both Articles 36(1)(a)(i) and 36(1)(a)(iii) of the Model Law as Article 36(1)(a)(iii) presupposes the existence of an agreement to arbitrate and the inquiry is as to the scope of the arbitration

The Court further held that ST Vegas Enterprise was not a named party in the Master Agreement. This distinguishes ST Vegas Enterprise from the other Lao disputants named in the Master Agreement. In Court’s view, properly construed, ST Vegas Enterprise does not feature in the Master Agreement through the definition of 2nd Party, namely the reference to “affiliates, subsidiaries, principles [sic] or assigns”. The references, at best, seek to incorporate the terms and conditions of the Master Agreement as terms and conditions of the Participation Agreement between Sanum and ST Vegas Enterprise; ST Vegas Enterprise cannot be made a contracting party by the backdoor.

With regard to reference to proper arbitration clause, the Court held that having concluded that the underlying dispute arose out of the Master Agreement, the relevant arbitration agreement to be construed is Clause 2(10) of the Master Agreement. Having accepted this interpretation, the Court further held that the correct seat of the arbitration is Macau and not Singapore.

The Court agreed with the view of the tribunal that the right to commence arbitration accrues to the dissatisfied party.

Citing the relevant portions of Clause 2(10) of the Master Agreement, the Court remarked that The phrase “[i]f one of the Parties”, read with the words “such disputes” and “results of the above procedure”, lead to the conclusion that the relevant parties of the arbitration are those who have fulfilled the “above procedure” (ie, the OEDR procedure or Lao court proceedings). The party who is dissatisfied with the results of the OEDR or Lao court proceedings is entitled to call for international arbitration and the counterparty agrees to abide by this choice and to “arbitrate such dispute”.

The OEDR was commenced by Sanum against ST Group and ST Vegas Co. The Lao court proceedings were commenced by ST Vegas Co against Sanum and in its counterclaim, Sanum named ST Vegas Co, ST Group, Mr Sithat and Xaya Construction Company Ltd as parties. Sanum lost both proceedings and thus would naturally be a dissatisfied party within the meaning of Clause 2(10) to commence international arbitration.

Principles of Interpretation for Arbitration Clauses

In this regard, two principles of interpretation stand out.

Principle of Effective Interpretation

First, where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars, so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party. This is the principle of effective interpretation.

Principle of Contextual Interpretation

Second, where the text of an agreement is clear and unambiguous, the agreement will generally be interpreted on the basis of its text alone.

The corollary to both these principles is that a harmonious reading of an arbitration agreement should be adopted. While the court should strive to uphold the parties’ intention to arbitrate, the court should, as far as possible, avoid an interpretation that does violence to express words of the arbitration agreement.

The Court held that the best interpretation of the identity of the “internationally recognized” arbitration company is an open category, leaving the selection of the institution to the party dissatisfied with the result of the stated procedure (ie, OEDR or Lao court proceedings). The understanding to be given to the chosen institution of the parties is that an institution will qualify as coming under Clause 2(10) as long as the institution is “internationally recognized”. The choice of selecting the institution is given to the party dissatisfied with the results of the OEDR or Lao court proceedings as this right flows from the dissatisfied party’s entitlement to commence arbitration. In the present case, Sanum’s choice of the SIAC as the arbitration institution with an international reputation is an acceptable one.

Conclusions

The Court held as under

  • The underlying dispute arose out of the Master Agreement which contains an agreement to arbitrate. Accordingly, the Lao disputants’ contention that there was no valid arbitration agreement was rejected.
  • Only ST Group, Mr Sithat and ST Vegas Co are parties to the Master Agreement.
  • ST Vegas Enterprise is not a party to the arbitration agreement in Clause 2(10) of the Master Agreement. By the same token, ST Vegas Enterprise is not a party to the SIAC Arbitration and the Award does not bind ST Vegas Enterprise.
  • The relevant arbitration agreement to be construed is Clause 2(10) of the Master Agreement.
  • Sanum is only entitled to call for international arbitration against Mr Sithat, ST Group and ST Vegas Co.
  • That the correct seat of the arbitration is Macau and not Singapore.
  • That the mere assertion of an incorrectly seated arbitration is not enough. There must be evidence of how the law of the incorrect seat would impact the arbitral procedure that was adopted by the tribunal.

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