SINGAPORE ARBITRATION UPDATE: A POTENTIAL CHANGE FOR 'OPT-IN' APPEALS FOR ERRORS OF LAW AND COURT CONFIRMATION OF THE CORRECT STANDARD TO BE MET TO RESTRAIN WINDING UP PROCEEDINGS WHERE A CLAIM IS SUBJECT TO ARBITRATION

Two recent developments in the Singapore arbitration landscape are of interest.  First, a written response from the Singapore Minister for Law confirms that the government is considering amending the International Arbitration Act (the "IAA") to allow for appeals on errors of law on an opt-in basis. Second, a recent Singapore High Court decision confirms the standard to be met by a party seeking to restrain winding up proceedings when there is a valid arbitration agreement.  Underscoring both developments is a common objective of respecting party autonomy in arbitration.

Proposed 'opt-in' appeal of error of law mechanism

On 1 April 2019, Minister for Law, K Shanmugam, confirmed in response to a parliamentary question that the Singapore government is considering, as part of a review of the IAA, an opt-in mechanism to allow parties to appeal arbitration awards on points of law.

Finality and certainty have often been viewed as benefits of international arbitration over litigation.  This has been achieved, at least in part, by fairly limited rights of recourse against arbitral awards in Model Law jurisdictions such as Singapore.  Those rights of recourse are generally limited to issues of jurisdiction, due process and public policy.

The Minister stressed that Singapore must react to developments in international best practices.  For example, some jurisdictions such as Hong Kong already allow appeals on errors of law on an opt-in basis.  This stands in contrast to the opt-out system under the current English Arbitration Act as well as recent changes made to Malaysian arbitration legislation to remove similar rights of appeal.

The proposal may be targeted at addressing a criticism that arbitration hampers the development of the common law.  It may also and relatedly be influenced by the Government's wish to promote and develop Singapore law as the law of choice for international business agreements in the region.  This development would go some way to addressing this criticism and promoting this policy, although a balance needs to be struck so that the advantages of finality and certainty are not lost or, at least, if they are lost then that is a result of a positive and express decision made by the parties.

Parties would need to be aware of the implications of this development.  The opt-in decision would almost certainly need to be made at the time of contracting, as in practice it is unlikely that parties would be able to agree on this issue at the time of the dispute when their relationship may well be acrimonious, and even less likely after an award has been issued.  Before making such a decision parties would need to carefully consider the potential for appeals on points of law to increase the costs of and time taken to reach a final resolution of any dispute.

The Ministry is plainly aware of these issues, as it stated "such appeals could be heard in the High Court, with safeguards to prevent frivolous or vexatious appeals."  We do not know yet what those safeguards would be, but they would clearly play an important role in addressing concerns as to finality, speed and cost.  We have separately written here about the high-threshold applied by Hong Kong courts where the Tribunal's decision needs to be "obviously, or demonstrably, wrong" or "seriously in doubt."  It remains to be seen whether a similar test would be proposed, or if a more stringent standard would be applied.

The Ministry of Law intends to conduct a public consultation on the proposal and we expect that there will be some lively debate not just on this issue but perhaps others related to Singapore's arbitration legislative framework.  Interestingly, the Minister has said that the public consolation will also address "other enhancements to the International Arbitration Act [and further details will be released] in due course." We will report further as matters develop.

Injunction to restrain winding-up granted due to existence of dispute subject to arbitration agreement

In the recent case of BWF v BWG [2019] SGHC 81 the Singapore High Court granted BWF an injunction to restrain winding-up proceedings after deciding that the correct test to be applied in such circumstances is whether there is a bona fide prima facie dispute that is subject to an arbitration agreement.

By way of background, BWF signed a contract with BWG for the sale and purchase of crude oil.  The contract stipulated that it was to be governed by English law and that disputes were to be referred to arbitration.  BWG claimed that despite BWG having performed its obligations under the contract, BWF failed to pay BWG.  As a result, BWG served a statutory demand under the Companies Act 2006 on BWF.  BWF disputed the debt claim, requesting that the dispute be referred to arbitration, and asking for an injunction to restrain BWG from commencing winding-up proceedings.

BWF argued that the standard to be applied is whether there is a bona fide prima facie dispute that is subject to an arbitration agreement.  BWG contented that the correct standard should be the higher standard of whether there is a triable issue.

The High Court held in favour of BWF, endorsing the view that under Singapore law respect for party autonomy is "…the cornerstone underlying judicial non-intervention in arbitration…" and therefore, the "…countervailing concern is to hold parties to their agreement if they have made a bargain that disputes are to be arbitrated…"

The High Court found that in situations involving a stay of court proceedings in favour of arbitration, "…a merely asserted dispute suffices to warrant a stay of court proceedings without any inquiry into the genuineness or merits of the defence…"  The correct test to be applied was therefore whether there is a bona fide prima facie dispute that is subject to an arbitration agreement.

The High Court distinguished the line of authorities relied upon by BWG as these did not concern an arbitration clause – it was held that where parties had agreed to an arbitration clause, the test of whether there is a triable issue doesn't come into play.

Comment

These recent developments show that the Singapore judiciary and legislature are mindful of the importance of party autonomy in arbitration, while continuing to fine tune the Singapore legislative framework to remain a leading centre for arbitration.

For more information, please contact Alastair Henderson, Partner, Daniel Waldek, Of Counsel, Mitchell Dearness, Associate or your usual Herbert Smith Freehills contact.