Singapore High Court: Whether High Court can decide the tribunal’s jurisdiction in a case where the tribunal has a positive jurisdictional finding in its final award

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In the case of Sinolanka Hotels & Spa (Private) Limited v Interna Contract SpA [2018] SGHC 157, the Singapore High Court dealt with the issues related with interpretation of arbitration clauses contained in the pre-negotiating documents to ascertain the applicability of relevant arbitration clauses contained in two different documents. In its ruling, the High Court addressed some interesting issues such as whether the Sri Lankan courts would apply purely English law principles when dealing with contracts of a commercial nature and held that Court can decide the disputed issue in the present case by applying principles of English and Singapore contract law based on the concurrence of the Sri Lankan experts of both sides in this regard. On the core issue, the Court found that it has no power under Section 10(3) of the IAA or Art 16(3) of the Model Law as an application to the High Court for a jurisdictional ruling is only available if the tribunal had ruled as a preliminary question that it has jurisdiction whereas in this case, the tribunal had decided the issue of its own jurisdiction and made the positive jurisdictional finding as part of its final award.

I had covered the Singaporean principles of interpretation for two Arbitration Clauses found in two agreements amongst the same parties in my recent post available at following link:

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

Factual Matrix

Sinolanka Hotels & Spa (Private) Limited (Sinolanka), a Sri Lankan company, was the developer of the Grand Hyatt Colombo Project for Hyatt International (Europe Africa Middle East) LLC in Colombo Sri Lanka. Interna Contract SpA (Interna) was an Italian specialist in furnishing and finishing in turnkey projects. Sinolanka awarded the contract to provide interior fit out and furnishing works for the Grand Hyatt Colombo Project to Interna via Contract Agreement along with Memorandum of Understanding (MOU). Dispute arose when the board of directors of Sinolanka was totally changed. By this time, the Defendant had completed a portion of the contracted works and had incurred significant expenditure. Interna commenced ICC arbitration in accordance with an arbitration clause (the ICC Clause) in a Letter of Acceptance issued by Sinolanka. ICC constituted the arbitral tribunal and decided the seat of arbitration as Singapore due to non-agreement amongst the parties. The jurisdiction of the tribunal was contested by Sinolanka.

Arbitration Clause

Arbitration clause in Letter of Acceptance

“All disputes arising out of or in connection with the Contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules. The arbitration venue shall be in Singapore and arbitration proceedings shall be in English language”

Parties’ Contentions

Sinolanka contended that the parties had not agreed to the ICC arbitration clause found in the Letter of Acceptance. Instead, what parties had agreed to was one of the particular conditions which was issued with the tender document to make the Arbitration Act No. 11 of 1995 of Sri Lanka as the applicable law of arbitration with the place of Arbitration as Colombo Sri Lankan Arbitration Clause. As per Sinolanka the ICC arbitration clause Letter of Acceptance was never agreed amongst the parties and the Letter of Acceptance was simply a counter-offer by the Plaintiff The tribunal passed the award ruling against Sinolanka finding that it has jurisdiction to decide the matter and awarding damages to Interna. The award has been challenged before the Singapore High Court in the instant case on the ground that the tribunal lacked jurisdiction to hear and determine the dispute between the parties pursuant to Section 10 of the International Arbitration Act of Singapore (IAA) read with Art 16(3) of the Model Law and the award it is liable to be set aside under Section 3 of the IAA read with Art 34(2)(a)(i) of the Model Law because the tribunal had founded its jurisdiction on an invalid arbitration agreement.

Interna argued that as per Contract Agreement, the Letter of Acceptance was a contractual document, and the terms therein bound the parties and therefore, the tribunal was right in giving effect to the ICC Arbitration Clause found in the Letter of Acceptance. It was further contended that the parties intentions can be deciphered from pre-contractual negotiations leading to the signing of the Contract Agreement which makes it clear that parties did share a common intent to have any disputes arbitrated under ICC Rules in Singapore. With regard to Section 10(3) of the IAA or Art 16(3) of the Model Law contention raised by Sinolanka, Interna contended that the Court had no power to make such a ruling because the tribunal had not ruled on its jurisdiction as a preliminary question, but as part of its final award.

Applicable Legal Principles

Section 10(3) of the IAA

“10 Appeal on ruling of jurisdiction

(3) If the arbitral tribunal rules

(a) on a plea as a preliminary question that it has jurisdiction; or

(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,

any party may, within 30 days after having received notice of that ruling, apply to the High Court to decide the matter.”

Art 16(3) of the Model Law

“Article 16 Competence of arbitral tribunal to rule on its jurisdiction

(3)    The  arbitral  tribunal  may  rule  on  a  plea  referred  to  in  paragraph  (2)  of   this  article  either  as  a  preliminary  question  or  in  an  award  on  the  merits.  If   the  arbitral  tribunal  rules  as  a  preliminary  question  that  it  has  jurisdiction,   any  party  may  request,  within  thirty  days  after  having  received  notice  of   that  ruling,  the  court  specified  in  article  6  to  decide  the  matter,  which  decision  shall  be  subject  to  no  appeal;  while  such  a  request  is  pending,  the   arbitral  tribunal  may  continue  the  arbitral  proceedings  and  make  an  award.”

Analysis

The court observed that the proper starting point in the analysis is the Contract Agreement which was executed by the parties after the tender process, exchange of letters and negotiations. The court found that the terms of the Contract Agreement are plain and unambiguous in stating that the Letter of Acceptance was a part of the agreement between the parties. It did not state that only portions of the Letter of Acceptance were part of the parties’ contract. Thus, the Court concluded that there was quite clearly a valid arbitration agreement between the parties to arbitrate using ICC rules in Singapore because the ICC Arbitration Clause was clause 9 of the Letter of Acceptance.

Clause 2 of the Contract Agreement which states the priority rule also sets out a priority of the contractual documents when it comes to questions of interpretation. The court read it to mean that, if there is an inconsistency or conflict between two or more terms set out in the contractual documents, the term found in the contractual document with higher priority will prevail over those found in contractual documents with lower priority. Applying this rule of construction which the parties had agreed to, the Court held that the ICC Arbitration Clause in the Letter of Acceptance prevailed over the Sri Lankan Arbitration Clause in the Particular Conditions. Since there was no arbitration clause in the Memorandum of Understanding, even though it ranked in priority over the Letter of Acceptance, there was nothing in the Memorandum of Understanding that would override the ICC Arbitration Clause found in the Letter of Acceptance.

The Court commented that the language used in Letter of Acceptance showed that Sinolanka was quite clearly accepting the offer made by the Interna in its letter which Sinolanka described as the “final negotiated offer”. Although this “final negotiated offer” letter did not make reference to any arbitration clause, but the minutes of the Colombo indicated that the parties had discussed the Interna’s wish to have arbitration in accordance with ICC rules and the Sinolanka’s indication that it might agree to arbitration being held in Singapore. This showed that both parties had at the very least contemplated that arbitration could be in Singapore. Sinolanka’s subsequent inclusion of the ICC Arbitration Clause in the Letter of Acceptance was an acknowledgement of the Interna’s wishes and reflected the acceptance by Sinolanka that they would be prepared to arbitrate in accordance with the ICC rules in Singapore.

Sri Lankan Law

With regard to the applicability of Sri Lankan Law, the major question before the Court was whether the Sri Lankan courts would apply purely English law principles when dealing with contracts of a commercial nature. After going through the experts opinions of Mr. Mohamed Faisz Musthapha (for Sinolanka) and Mr. Kanaganayagam Kanag-Isvaran (for Interna) which were in disagreement on this issue (but concurred that the general principles of Sri Lankan law as to the construction of contract terms and the formation of contracts were not materially different from those in English law), the High Court concluded that Court can decide the disputed issue by applying principles of English and Singapore contract law and applying such principles the Court concluded that the parties had agreed to the ICC Arbitration Clause found at clause 9 of the Letter of Acceptance.

Conclusions

The Court found that it has no power under Section 10(3) of the IAA or Art 16(3) of the Model Law as an application to the High Court for a jurisdictional ruling is only available if the tribunal had ruled as a preliminary question that it has jurisdiction whereas in this case, the tribunal had decided the issue of its own jurisdiction and made the positive jurisdictional finding as part of its final award. The Court also denied the Sinolanka’s prayer to set aside the award under Art 34(2)(a)(i) of the Model Law holding that the arbitration agreement which formed the entire basis of the arbitration, that is, the ICC Arbitration Clause, was a valid agreement since the parties had agreed to that clause.

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