Singapore Court confirms validity of clauses providing for unilateral right to arbitration

In the recent decision in Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2016] SGHC 23, the Singapore High Court confirmed the validity of "one-way" or unilateral clauses which bind one party to one dispute resolution method or jurisdiction, but give the other party the option of choosing a different procedure.  This decision is significant as it confirms what was previously assumed to be the position in Singapore.  It also reconfirms that wherever possible the Singapore courts will uphold the agreement of parties on the manner in which they choose to resolve disputes arising between them.   

Background

Dyna-Jet Pte ltd ("Dyna-Jet") and Wilson Taylor Asia Pacific ("Wilson Taylor") entered into an agreement under which Dyna-Jet was engaged to install underwater anodes on the island of Diego Garcia in the Indian Ocean. Both Dyna-Jet and Wilson Taylor are incorporated and based in Singapore, but have clients across the region.

Dyna-Jet's standard terms and conditions included a dispute resolution agreement which allowed Dyna-Jet – and only Dyna-Jet – to elect to refer any dispute to arbitration in Singapore ("Disputes Clause").

A dispute arose under the contract in 2015 and after parties failed in their attempts to reach a negotiated settlement, Dyna-Jet commenced proceedings in the Singapore High Court. In response, Wilson Taylor applied for a permanent stay of the court proceedings (under section 6 of the Singapore International Arbitration Act), to compel Dyna-Jet to submit the dispute to arbitration pursuant to the Disputes Clause.

Key issues and the court's decision

Wilson Taylor's stay application engaged two key issues:

Firstly, whether the Disputes Clause constituted an "arbitration agreement" within the meaning of section 2A of the IAA; and

Secondly, assuming that it constituted an arbitration agreement, whether the Disputes Clause was nevertheless "null and void, inoperative or incapable of being performed" under section 6(2) of the IAA.

At first instance, the application was dismissed by an assistant registrar on the basis that (i) the dispute resolution agreement was an arbitration agreement because, once Dyna-Jet elected to arbitrate, Wilson Taylor would also be bound to arbitrate, and (ii) since Dyna-Jet had not elected to arbitrate the dispute on this occasion, the arbitration agreement was incapable of being performed.

Justice Vinodh Cooramaswamy at the Singapore High Court dismissed the appeal.

Preliminary issue: Approach to construing arbitration agreements

At the outset, the court accepted that the general approach to be taken to construing arbitration agreements, unless there is a good reason to conclude otherwise, is a generous one. The court would as far as possible seek to determine and advance the parties' commercial intention, objectively ascertained from their arbitration agreement. This was held to be consistent with the modern approach to construction applicable to general contractual provisions as provided for in the seminal case of Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029.

Issue 1: whether the Disputes Clause constituted an arbitration agreement

Justice Cooramaswamy rejected Wilson Taylor's first argument that a dispute resolution agreement which refers to arbitration, without more, constitutes an arbitration agreement. The essential element of an arbitration agreement is the agreement, in a contractual sense, of both parties to be bound to arbitrate.

On this basis, the court accepted that a dispute resolution agreement which confers on only one party a clear right to submit disputes to arbitration would constitute a valid arbitration agreement. Taking its cue from "the overwhelming weight"[1] of modern Commonwealth authority, the court helpfully distilled five propositions of law that it considered represented the state of law in Singapore.

1. There is no requirement for mutuality and for the arbitration agreement to create a present obligation to arbitrate.

    

   • On mutuality, a contractual dispute-resolution agreement that gives only one party a right to elect whether or not to arbitrate a dispute was an arbitration agreement. There is no need for both parties to have the same, mutual right to elect to arbitrate their dispute. The only element of mutuality required for a valid arbitration agreement was the mutual consent of the parties at the point when they entered into a dispute resolution agreement.
   • A contractual dispute-resolution agreement which grants a party the right to decide whether to arbitrate a dispute in the future would also constitute a valid arbitration agreement.
2. A contractual dispute resolution agreement which confers a right to elect to arbitrate a future dispute would therefore constitute a valid arbitration agreement. This position is consistent with Section 2A of the IAA, which does not require an arbitration agreement to refer all future disputes to arbitration, or to do so unconditionally
3. Such an agreement would constitute an arbitration agreement from the moment parties entered into it contractually. Subsequently, when the right to elect to arbitrate is exercised under that agreement, a specific (and separate) arbitration agreement would be created in relation to that dispute. The underlying arbitration, however, would continue to exist, and could still be invoked by election in relation to other disputes.
4. In relation to the party who has the right to elect to arbitrate, it remains a question of construction of that agreement whether, (i) if that party does not elect to arbitrate, that party remains entitled to commence litigation; or (ii) if that party elects to arbitrate, that party can stay any litigation brought by the counterparty.

Applying these principles to the present case, Justice Cooramaswamy held that the Disputes Clause was an arbitration agreement within the meaning of Section 2A of the IAA.

Issue 2: whether the arbitration agreement was "null and void, inoperative or incapable of being performed" under section 6(2) of the IAA

Turning to the second issue, the court found that the proviso “incapable of being performed” in Section 6(2) of the IAA referred to situations where a contingency had arisen that prevented the arbitration from being set in motion. This covered all contingencies whether foreseen or unforeseen by the parties.

The court found that on a true construction of the Disputes Clause, Dyna-Jet's right to elect arbitration could only be exercised once in respect of a particular dispute.  In other words, this right would be definitively spent with respect to that dispute and could not be exercised again.  Therefore, when Dyna-Yet commenced litigation instead of arbitration, it effectively extinguished its right to elect.  In the courts' view, this meant that post Dyna-Jet's election the arbitration agreement was now incapable of being performed for the purposes of section 6(2) of the IAA.

On this basis, the court upheld the assistant-registrar's decision. It nevertheless clarified that the parties would still be bound to arbitrate if a dispute distinct from the present dispute arose, and Dyna-Jet elected to arbitrate that dispute.

Comment

This is a welcome decision from the Singapore High Court in a number of ways.

First, it confirms that properly drafted dispute resolution clauses granting one party the option to arbitrate would constitute a valid arbitration agreement. This already represents the position in many major common law and civil law jurisdictions, and express confirmation of the applicability of this position to Singapore would provide a welcome measure of certainty.  On the basis of the High Court's reasoning, it is likely that a similar clause granting one party the option to submit disputes to litigation over a default arbitration provision would similarly be upheld (although the Singapore courts have not made a definitive pronouncement on this issue).

Second, whilst the decision confirms that the Singapore courts will give effect to arbitration agreements wherever possible, the broader (and arguably more important) point is the court's commitment to giving effect to the commercial intent of the parties. Here for example, the court went to considerable lengths (over a 188 paragraph judgment) to interpret the intention behind the Disputes Clause and the effect of Dyna-Jet's failure to bring the dispute to arbitration. Having done so, it was clear and decisive in deciding that the dispute could no longer be referred to arbitration.

Wilson Taylor has since appealed against the decision.