Singapore High Court: pro-arbitration stance confirmed by recognition of the primacy of the arbitral tribunal to rule on the existence of an arbitration agreement

Malini Ventura v Knight Capital Pte Ltd [2015] GHC 225

On 11 August 2015, the Singapore High Court (the “High Court”) held that the Arbitral Tribunal has priority over State courts “to decide the issue of existence of an arbitration agreement, holding that evidence that an arbitration agreement existed prima facie only would be enough for the courts to refer the issue to the tribunal for final determination”.

The facts of the case at issue were as follows:

The Plaintiff allegedly entered into a personal guarantee deed (the “Deed”) as security for a third party’s loan. The Deed contained a SIAC arbitration agreement covering any dispute or difference arising amongst the parties with respect to the Deed or “as to any matter or thing of whatsoever nature arising thereunder or in connection therewith, including any question regarding its existence, validity or termination”.

After the borrower’s default on the scheduled repayment of the loan, the Defendants called in the guarantee for repayment, but the Plaintiff did not repay.

Therefore, the Defendants issued a notice for arbitration under the SIAC rules. Through a statement of defense, the Plaintiff objected to jurisdiction arguing that she had not entered into the Deed and that the signature it contained was forged. As a result, the Defendants requested the Arbitral Tribunal to stay the proceeding pending the determination by the State courts on the “existence, termination or validity of the arbitration agreement”. Notwithstanding this objection, the Arbitral Tribunal held that it had power to rule on its own jurisdiction and refused the application for a stay.

Three days later, the Plaintiff applied to the High Court, seeking an interim injunction to restrain the Defendants from pursuing the SIAC arbitration proceedings. In response, the Defendants issued a summons for the court proceedings to be stayed pending the full and final determination of the Arbitral Tribunal.

Before the High Court, the Defendants underlined that the international arbitration regime in place in Singapore gives primacy to the Arbitral Tribunal holding that it “has the first bite at deciding whether or not there is an arbitration agreement which confers jurisdiction on it”. Under section 6 of the International Arbitration Act (the “IAA”), national courts have no choice but to refer to the Arbitral Tribunal issues regarding the existence, validity or termination of the arbitration agreement.

On the other hand, the Plaintiff argued that section 6 of the IAA would only apply to an arbitration agreement: since no Deed had been signed, neither the Defendants nor the Plaintiff were party to an arbitration agreement.

To answer the issue, the High Court rendered a decision today known as the “chicken or the egg” decision, under which it took into account the English High Court’s position under the 1996 English Arbitration Act (the “1996 Arbitration Act”) in Nigel Peter Albon (trading as N A Carriage Co) v Naza Motor Trading Sdn Bhd and anor [2007] 2 All ER 1075, according to which a stay of court proceedings in favor of arbitration may not be granted when the fact that an arbitration agreement has been concluded is not sufficiently evidenced.

However, the High Court refused to follow the English approach. It held that the IAA differs from the 1996 Arbitration Act and “promote[s] the efficiency and speediness of the arbitral process” (§26) by combating dilatory tactics and obstruction since:

  1. Unlike the 1996 Arbitration Act, the IAA incorporates the UNCITRAL Model Law and its article 16 specifically empowers the arbitral tribunals to decide on the existence of an arbitration agreement; and
  2. The IAA deals only with international arbitration when the 1996 Arbitration Act deals with both domestic and international arbitration.

Moreover, since it has “[…] accepted and given effect to the principle of “kompetenz-kompetenz” for so many years”, the High Court held that “evidence that an arbitration agreement existed prima facie only would be enough for the courts to refer the issue to the tribunal for final determination”. In front of a prima facie case, a stay must therefore be granted unless the State court is satisfied that the arbitration agreement is null and void or inoperative or incapable of being performed – which means “devoid of legal effect” under the IAA and only result from duress, mistake, fraud or waiver.

Applying the rule to the case, the High Court concluded that the Defendants made out a prima facie case that the Plaintiff had signed the Deed. It consequently dismissed the Plaintiff’s application for an interim injunction and ordered any and all proceedings before it to be stayed.

After the launch of the Singapore International Commercial Court in January 2015, this decision shows once again Singapore’s pro-arbitration stance. Even though Singapore courts apply common law, they strive to give primacy to arbitration proceedings, refusing to take jurisdiction over an arbitral tribunal when there is a prima facie arbitration agreement.

The decision is available here.

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