the instant case, the Arbitration Agreement provided for “arbitration in Shanghai“. The COA cited a number of authorities which support the proposition that this wording means that the parties chose Shanghai to be the seat and not, as the HC and the Tribunal found, merely as the venue of the arbitration.
The COA acknowledged that the natural reading of “arbitration in Shanghai” (i.e. meaning Shanghai as the seat) could be displaced by “contrary indicia“. The Respondent argued that it should be displaced because the “background contextual material, including the earlier drafts of the [Contract], and the email correspondence between the parties, would show that the parties intended for their arbitration to be seated in a neutral forum which, in this case, could not be the PRC, and must instead be Singapore.”
However, the COA refused to admit this evidence as doing so would contravene the parol evidence rule which applies according to s94 of the Evidence Act. The Respondent attempted to argue that the parol evidence rule and its exceptions (under ss 94 – 97 of the Evidence Act) should be displaced because the Evidence Act does not apply to arbitration proceedings. This argument failed. The COA emphasised that s2(1) of the Evidence Act provides that the applicable parts of the legislation do not apply to “proceedings before an arbitrator.” The Respondent sought to introduce the evidence in the HC proceeding, which clearly was not a proceeding “before an arbitrator.”
Since there were no contrary indicia to displace the natural meaning of “arbitration in Shanghai“, the COA therefore concluded that the parties had chosen Shanghai as the seat. The COA therefore held that there was no basis to rebut the starting position that PRC law applied to the Arbitration Agreement.
Third limb: What is the system of law with the closest and most real connection with the arbitration agreement?
This third limb only applies if there is no express or implied choice of the law which governs the Arbitration Agreement. Given the COA’s finding that PRC law was the implied choice of law, the third limb was therefore not considered in this case.
Outcome of the COA’s decision
The COA found that the arbitration was seated in Shanghai and that PRC law governed the arbitration agreement. In these circumstances, the COA did not consider it was able to then go on to determine whether the Tribunal had jurisdiction, as the Singapore courts did not properly have supervisory jurisdiction given that the seat was in the PRC. The COA did not, therefore, make any finding as to whether or not the Arbitration Agreement would be invalid under PRC law. As the COA stated: “it is for the parties to decide what further actions they wish to take“.
Key points
The COA’s decision provides a welcome confirmation that the Singapore courts will not uphold the validity of an arbitration clause at all costs. The case also highlights some important takeaways:
• First, when it comes to drafting arbitration agreements it is critical to be as clear as possible as to the choice of legal seat and the law that governs the arbitration agreement (in addition to the law governing the balance of a contract). It is particularly important to include drafting on the choice of governing law where the law of the seat and the law governing the contract are different, as is common in many cross border transactions.
• Second, parties should take extra care to seek advice on the negotiation and drafting of arbitration clauses for China related contracts. Further guidance can be found in our guide here.
• Third, if a party wishes to rely on extrinsic evidence to support arguments in relation to the validity of an arbitration clause where the seat of arbitration is in Singapore, it should attempt to do so during the arbitration and not belatedly during any jurisdictional review or set aside proceedings before the Singapore courts. Proceedings before the HC or the COA are not proceedings “before an arbitrator” and, therefore, the parol evidence rule in the Evidence Act may prevent the admissibility of such evidence.
Herbert Smith Freehills is pleased to have advised the Appellant in this dispute, as counsel in the arbitration and as instructing solicitors to Singapore counsel TSMP Law Corporation in the Singapore court proceedings. The Herbert Smith Freehills team has been led by Brenda Horrigan (Partner, Sydney) and Dan Waldek (of Counsel, Singapore) and supported by Weina Ye (Senior Associate, Shanghai) and Mitch Dearness (Associate, Singapore).
ReSolution | Mar 2020
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