Singapore Court of Appeal confirms the validity of "unilateral option to arbitrate" clauses

In the recent decision of Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32, the Singapore Court of Appeal confirmed that the Singapore courts will enforce a dispute resolution clause which gives only one party the option to arbitrate.  The court also clarified the requirements and threshold for a stay of proceedings to be granted under section 6 of the Singapore International Arbitration Act ("IAA")

Background

The background to the dispute, as well as the decision of the court below, is set out in our previous report which can be accessed here.  In summary, the decision revolved around a dispute resolution agreement which allowed only the Respondent ("Dyna-Jet") to elect to refer any dispute to arbitration in Singapore ("Disputes Clause"). A dispute arose and Dyna-Jet elected to commence proceedings in the Singapore court. In response, the Appellant applied for a permanent stay of the Singapore court proceedings to compel Dyna-Jet to bring the dispute to arbitration ("Stay Application").

The Stay Application was dismissed by the Singapore High Court, which upheld the decision of the assistant registrar below.

Decision of the Court of Appeal

Citing its previous decision In Tomolugen Holdings,[1] the Court of Appeal held that the following three conditions would have to be satisfied before a court would grant a stay under IAA, section 6(2):

1. a valid arbitration agreement exists between the parties;
2. the proceedings concern a dispute which falls within the scope of that arbitration agreement; and
3. the arbitration agreement is not null and void, inoperative, or incapable of being performed.

The Court of Appeal agreed with the court below that the Disputes Clause constituted a valid arbitration clause, and held that on the weight of Commonwealth authority, neither the fact that the clause was asymmetrical nor the fact that it made arbitration of a future dispute entirely optional prevented the court from arriving at this decision.

On the second condition however, the Court of Appeal disagreed with the High Court's apparent assumption that the dispute fell within the scope of the clause.  It held that the optional nature of the clause (insofar as only the respondent had the ability to elect arbitration) meant that the Clause "would give rise to an arbitration agreement only if and when [Dyna-Jet] elected to arbitrate a specific dispute in the future." In other words, unless and until Dyna-Jet elected to arbitrate, the Dispute could not be a "matter which is the subject of the agreement" under section 6(1) of the IAA.

Accordingly, the Court of Appeal held that "at the time the stay application was filed, the Dispute could not possibly be said to fall within the scope of the arbitration agreement that was contained in the Clause." On the basis of this finding, the Court of Appeal found it unnecessary to consider the third condition, which would have canvassed the question the question of whether the clause was 'null and void, inoperative or incapable of being performed' under IAA, s 6(2).

The court also took the opportunity to reiterate that when considering whether a dispute, on a prima facie standard of review, fell within the scope of an arbitration clause and where the principal argument by the applicant for a stay of proceedings in favour of arbitration turned on a particular construction of the arbitration agreement, the burden lay squarely on the applicant to advance the interpretation that would support its contention that the dispute fell within the scope of the arbitration agreement.

Comment

This decision confirms that the Singapore courts will enforce a properly drafted dispute resolution clause granting one party the sole option to arbitrate. This already represents the position in many major common law and civil law jurisdictions, and whilst this was assumed also to represent the position in Singapore, the Court of Appeal's express endorsement of the decision of the lower courts provides a welcome measure of certainty. On the basis of the courts' 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).

More generally the decision shows that the Singapore courts will not shy away from scrutinising the scope and content of the underlying dispute and the relevant clause in order to arrive at a correct decision, whether or not this ultimately results in the dispute being referred to arbitration. Notable in particular is the Court of Appeal's thorough analysis which led it to depart from the High Court's finding that the Dispute fell within the ambit of the Clause This robust approach reaffirms Singapore's standing as a supervisory jurisdiction of choice and should bolster confidence in parties considering Singapore as a forum for arbitration.

For further information, contact Alastair Henderson, Managing Partner, Emmanuel Chua, Senior Associate, or your usual Herbert Smith Freehills contact.