Singapore High Court (“SGHC”) Recognises Carve Outs from General Arbitration Clause

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC.

Background

The Plaintiff Silverlink Resorts Ltd (“Silverlink”) is the ultimate holding company of the Aman Group that owns and manages luxury hotels across the world. Silverlink suffered loss at its Amanpuri Resort in Phuket, Thailand due to the closure of all hotels in Phuket and the cessation of all flights to Thailand by government authorities in response to the COVID-19 pandemic. Silverlink submitted a claim under its Industrial All Risks Policy (the “Policy”) issued by the defendant, MS First Capital Insurance Limited (“MS”).

MS rejected Silverlink’s claim on the basis that, on its interpretation of the Policy, a claim must also be accepted under the material damage section of the Policy. In this instance, no physical damage had been suffered.

Silverlink therefore commenced proceedings in the SGHC seeking a declaration that it was not necessary for it to establish a claim under the material damage provisions of the Policy (the “Dispute”). MS subsequently applied to the SGHC to stay proceedings in favour of arbitration.

The Issue

The Policy contained an arbitration clause which applied to “any dispute arising out of or in connection with” the Policy (the “Arbitration Clause”). The Policy also contained a clause that provided that “should any dispute arise between the Insured and the Insurers regarding the interpretation or the application of this Policy the Insurers will, at the request of the Insured, submit to the jurisdiction of any competent Court in Singapore” (the “Jurisdiction Clause”). Further, the Policy Renewal Certificate (“Certificate”) provided that “in the event of any dispute over interpretation” of the Policy, the “Courts of Singapore” would have jurisdiction.

It is well established that a court hearing a stay application should grant it if the applicant can establish a prima facie case that (a) there is a valid arbitration agreement between the parties; (b) the dispute in the court proceedings falls within the scope of the arbitration agreement; and (c) the arbitration agreement is not null and void, inoperative, or incapable of being performed.[1]

The SGHC therefore had to decide if, according to the wording of the Policy, the Dispute should properly be resolved through arbitration or by the Singapore courts.

The Applicable Legal Principles

The SGHC referred to cases from several jurisdictions including Singapore, England & Wales, Australia and New Zealand. The starting point was that in construing an arbitration clause the court looks at the presumed intention of the parties. In addition, parties are presumed to have intended any dispute arising out of their relationship to be decided by the same Tribunal.

MS argued that the SGHC should adopt the “Paul Smith approach”[2] in which the English Court found seemingly inconsistent arbitration and jurisdiction clauses to be valid by finding that the jurisdiction clause (that provided for the “Courts of England” to have exclusive jurisdiction) meant that the English Courts had a supervisory jurisdiction over the arbitration. On MS’ case, the seemingly conflicting clauses in the Policy should be interpreted harmoniously meaning the SGHC had supervisory jurisdiction over arbitrations, and could therefore grant MS’ application to stay proceedings.

Silverlink argued that the Jurisdiction Clause carved out disputes regarding the interpretation or application of the Policy from the Arbitration Clause, and therefore the SGHC would have jurisdiction decide the Dispute and the stay applied for should not be granted.

The Decision

The SGHC noted that the key issue to be determined was the intention of the parties, and found that the parties’ intention, objectively ascertained, was for the Jurisdiction Clause to carve out disputes regarding the interpretation or application of the Policy from the scope of the Arbitration Clause. MS was not therefore entitled to an order to stay proceedings in favour or arbitration.

In making its decision, the SGHC found that: (i) the Jurisdiction Clause did not apply to all disputes (its scope was narrower than the Arbitration Clause); (ii) the jurisdiction clause in the Certificate confirmed the parties’ intention that disputes relating to the interpretation of the Policy were to be resolved through court proceedings; (iii) reserving disputes relating to the interpretation or application of the Policy to be decided by the court made commercial sense because such disputes may be resolved effectively, efficaciously and efficiently; and (iv) applying the Paul Smith approach could result in the arbitration being subject to the supervisory jurisdiction of different courts depending on whether the issue in dispute falls within the jurisdiction clause or not.

Comment

Silverlake v MS sets out in an easily digestible manner the principles the Singapore Courts (and courts of multiple jurisdictions) will apply to seemingly inconsistent arbitration and jurisdiction clauses. The starting point remains the determination of the parties’ intentions in including these provisions in their agreement, taking into account the presumption that if an arbitration clause has been included, that the parties intended for all of their disputes under the agreement to be decided by the same Tribunal (i.e. in arbitration).

However, this presumption can be rebutted present language that shows otherwise. Courts will look to the specific wording of the clause and Silverlake v MS suggests that it is not the case that the “Paul Smith approach” will apply whenever an agreement contains an arbitration clause and a jurisdiction clause. The Court will look to the wording of the clause to determine the intention of the parties, objectively ascertained.

[1] See Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373

(“Tomolugen”) at [63]

[2] Named after the decision in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127

(“Paul Smith”) which has been followed in Singapore in BXH v BXI [2020] 1 SLR 1043 (“BXH”)