REUTERS | Edgar Su

Drafter beware: High Court of Singapore confirms approach to interpreting apparently “conflicting” arbitration and jurisdiction clauses

On 16 November 2020, the High Court of Singapore rejected an application from the defendant to the litigation for a stay in favour of arbitration. In doing so, the court provided a helpful summary of the court’s analysis when faced with prima facie overlapping dispute resolution clauses in the same or related agreements. On the facts of the case, the court concluded that the parties’ intentions, objectively ascertained, were that, notwithstanding the existence of an arbitration agreement, a separate jurisdiction clause in favour of the Singapore courts operated as an effective carve out for certain defined disputes.

Background

As also seen throughout the world, the effects of the COVID-19 pandemic have been devastating to the Thai tourism industry.  In April 2020, the Civil Aviation Authority of Thailand banned all international flights to the country and the Governor of the Province of Phuket ordered the closure of all hotels.  Among those forced to close was the luxury Amanpuri Hotel, owned by the Aman Group.

Following the closure, Silverlink Resorts Ltd (the holding company for the Aman Group) (Silverlink) made a claim under its Industrial All Risks Policy (Policy) held with MS First Capital Insurance Ltd (MS Insurance) in respect of the closure of the hotel by the Governor of Province of Phuket and the closure of the Phuket International Airport by the Civil Aviation Authority.

The Policy was split into two sections:

  • Section I was entitled “Material Loss or Damage” and dealt with damage to covered properties.
  • Section II of the Policy was entitled “Business Interruption” and dealt with the interruption of or interference with the covered businesses.

MS Insurance rejected Silverlink’s claim under the Policy on the grounds that, for a claim to be admitted under Section II, the claim also had to be made and accepted under the corresponding Section I of the Policy. Section I related to material damage loss and, since “there was no material damage whatsoever to any of the insured properties”, MS Insurance asserted that Silverlink’s claims were not admissible.

The General Conditions under the Policy contained a number of clauses relating to mediation, arbitration and litigation.  In particular:

  • Clause 11 of the General Conditions (titled “Arbitration”) stated that “any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination shall be referred to arbitration and the parties shall unless otherwise mutually agreed, use the best practice within the jurisdiction of this Policy to have the dispute arbitrated before legal action is commenced” (arbitration clause).
  • Clause 12 of the General Conditions (titled “Jurisdiction”) stated that “should any dispute arise between the Insured and the Insurers regarding the interpretation or the application of this Policy the Insurers will, at the request of the Insured, submit to the jurisdiction of any competent Court in Singapore” (jurisdiction clause). [Emphasis added.]
  • A renewal certificate also provided that “in the event of any dispute over interpretation of this Policy”, the courts of Singapore would have jurisdiction.

In May 2020, Silverlink commenced proceedings in the Singapore courts seeking a declaration that the terms of the Policy did not require the insurer to establish an admissible claim under Section I before a claim could be admitted under Section II. Therefore, Silverlink had a valid claim under the Policy.  In July 2020, MS Insurance applied to have the court proceedings stayed on the basis that the claim should properly be submitted to arbitration under Clause 11 of the General Conditions.

Court’s reasoning

The court noted that “it was clear that the dispute could fall within the scope of the arbitration clause, but as it related to the interpretation or application of the Policy, it could also fall within the scope of the jurisdiction clause”. The issue that fell to be determined in the application was whether the arbitration clause or the jurisdiction clause applied to the dispute.

In reaching his decision, Justice Chua Lee Ming noted the following points of principle:

  • It is now well settled that, in construing an arbitration clause, a court does not adopt a technical approach, but construes it based on the presumed intentions of the parties as rational commercial parties.
  • Parties are presumed to have intended that any disputes arising from the same relationship should be decided by the same tribunal and courts have taken a generous approach when construing arbitration clauses by adopting a general rule of construction that, unless shown otherwise, all disputes between parties are assumed to fall within the scope of the arbitration agreement.
  • One example of this generous approach is from the English case of Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127. In this case, the English court reconciled two (apparently) inconsistent clauses by interpreting the references to the exclusive jurisdiction of the Court of England as referring only to the English courts’ supervisory jurisdiction over the arbitration and not to the ability of the parties to litigate in the English courts as an alternative to arbitration. This approach had been followed by the Singapore Court in BXH v BXI [2020] 1 SLR 1043.
  • The Paul Smith approach, however, is only applicable where there are truly conflicting dispute resolution clauses and it does not automatically apply in all insistences where an agreement contains both an arbitration clause and a jurisdiction clause. Rather, parties can decide to have some disputes under the agreement resolved by arbitration and some disputes resolved by litigation (that is through so-called unilateral or asymmetric dispute resolution clauses) and, if this can be shown to have been the parties’ objectively ascertained intentions, this intention should be respected and given effect to,  which was the approach adopted in Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] SLR 821.

Taking into account these principles, the judge found that this was not a case where two dispute resolution clauses were directly conflicting. Instead, the judge held that the parties’ intention, objectively ascertained, was for the jurisdiction clause to expressly carve out certain disputes (that is, questions of interpretation or application of the Policy) from the scope of the more general arbitration clause. In doing so, the judge rejected MS Insurance’s submission that this would leave the arbitration clause with such a narrow scope that it could not have been commercially logical for the parties to have intended to do so.

MS Insurance’s application for a stay of the court proceedings was therefore rejected.

Key takeaways

This is a further case in a long line of authorities that demonstrate how important it is to carefully draft dispute resolution clauses to precisely and properly reflect the parties’ intentions as to where and how they want their disputes to be heard. Parties are, of course, free to agree that certain disputes be determined in a particular manner.  However, it is important to note that unilateral or asymmetric clauses are frequently the subject of disputes and are also not recognised or enforceable in a number of jurisdictions, for example, Russia. It is therefore very important, if incorporating such a clause in a contract, that thought is given to the identity and nationality of the parties, the applicable jurisdictions and any other jurisdictions in which enforcement may be sought in the future.

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