Case Details
- Title: BNA v BNB & Anor
- Citation: [2019] SGHC 142
- Court: High Court of the Republic of Singapore
- Date: 1 July 2019
- Originating Process: Originating Summons No 938 of 2017
- Judge: Vinodh Coomaraswamy J
- Hearing Dates: 27 June; 1 August 2018
- Plaintiff/Applicant: BNA
- Defendants/Respondents: BNB and BNC
- Legal Area(s): International Arbitration; Arbitration Agreements; Jurisdiction; Proper Law; Seat of Arbitration; International Arbitration Act (Cap 143A)
- Statutes Referenced: International Arbitration Act (Cap 143A, 2002 Rev Ed), in particular s 10(3)
- Arbitration Institution/Rules: Singapore International Arbitration Centre (SIAC); SIAC Arbitration Rules (5th Edition, 2013)
- Key Contractual Instruments: Takeout Agreement (2012); Addendum (2013)
- Arbitration Clause: Article 14 of the Takeout Agreement (governing law: PRC law; arbitration in Shanghai under SIAC rules)
- Tribunal Composition: Three-member tribunal (Hee Theng Fong as chair; Philip Yang and Teresa Cheng SC)
- Tribunal’s Jurisdiction Decision: Majority held tribunal had jurisdiction; dissent held tribunal lacked jurisdiction
- Reported Judgment Length: 57 pages; 16,528 words
- Cases Cited (as provided): [2017] SGHC 127; [2019] SGHC 142
Summary
This case concerns an application to the Singapore High Court under s 10(3) of the International Arbitration Act (Cap 143A) seeking a declaration that a SIAC tribunal lacks jurisdiction. The dispute arose from a Takeout Agreement entered into in 2012 and modified by an addendum in 2013. Article 14 of the agreement expressly chose the law of the People’s Republic of China (“PRC law”) as the governing law and provided for SIAC arbitration in Shanghai. The plaintiff, from the outset of the arbitration, challenged the tribunal’s jurisdiction on the basis that the arbitration agreement was invalid under its proper law (PRC law).
The tribunal was constituted in 2016 and delivered a majority decision that it had jurisdiction. The majority reasoned that the arbitration was seated in Singapore, so Singapore law governed the arbitration agreement’s validity and PRC law was irrelevant to jurisdiction. A dissenting arbitrator took the opposite view: PRC law was the proper law of the arbitration agreement, the dispute was characterised as a domestic dispute under PRC law, and PRC law prohibited a foreign arbitral institution from administering such a dispute.
On the plaintiff’s s 10(3) application, the High Court undertook a de novo review of jurisdiction. The court’s analysis focused on (i) how to determine the “proper law” of an arbitration agreement where the contract contains an express governing law clause, (ii) how the “seat” of arbitration interacts with the proper law inquiry, and (iii) whether, if PRC law governed the arbitration agreement, the arbitration clause was invalid under PRC law. The judgment provides a structured approach to determining the proper law of arbitration agreements under Singapore law, including a three-stage method for express choice, implied choice, and closest and most real connection.
What Were the Facts of This Case?
The plaintiff (BNA) entered into a Takeout Agreement in 2012 with the first defendant (BNB). The agreement contained Article 14, which served two functions. First, Article 14.1 expressly provided that the Takeout Agreement was governed by PRC law. Second, Article 14.2 contained the arbitration agreement: if disputes could not be resolved amicably, the parties agreed that disputes would be finally submitted to SIAC for arbitration in Shanghai, conducted in accordance with SIAC’s arbitration rules, and that the arbitration would be final and binding.
In 2013, the parties modified the Takeout Agreement by entering into an addendum. Under the addendum, the second defendant (BNC) took over the first defendant’s obligations to the plaintiff. As a result, the first defendant ceased to owe primary performance obligations to the plaintiff. However, the addendum expressly preserved the first defendant’s liability: the first defendant remained jointly and severally liable with the second defendant for any failure by the second defendant to perform the obligations it had acquired.
Crucially, the addendum expressly stated that it was an indivisible part of the Takeout Agreement and that the Takeout Agreement would remain in full effect except to the extent modified. This meant that Article 14 continued to govern a single indivisible agreement comprising both the original Takeout Agreement and the addendum. The addendum also extended the scope of Article 14.2 so that it covered disputes arising not only under the original Takeout Agreement but also under the addendum. The arbitration agreement therefore became tripartite in effect, binding the plaintiff and both defendants.
In 2016, the defendants commenced arbitration by lodging a notice of arbitration with SIAC against the plaintiff. From the outset, the plaintiff challenged the tribunal’s jurisdiction. SIAC appointed a three-member tribunal. The tribunal proceeded to determine the jurisdictional challenge after receiving written submissions from both sides. The tribunal delivered a majority decision that it had jurisdiction, while one arbitrator dissented. The plaintiff then commenced the present application in Singapore under s 10(3) of the International Arbitration Act, seeking a declaration that the tribunal lacked jurisdiction. The parties agreed that the court would determine the jurisdiction question afresh, by conducting a de novo hearing.
What Were the Key Legal Issues?
The case turned on the proper law of the arbitration agreement and the effect of that proper law on the tribunal’s jurisdiction. The plaintiff’s central contention was that the arbitration agreement was invalid under its proper law, which the plaintiff argued was PRC law. If PRC law governed the arbitration agreement, the plaintiff submitted that PRC law would classify the dispute as a domestic dispute and prohibit a foreign arbitral institution such as SIAC from administering arbitration of that domestic dispute. The plaintiff also advanced an alternative argument: even if the dispute satisfied PRC law’s “foreign elements” test, PRC law prohibited an arbitration seated in the PRC from being administered by a foreign arbitral institution.
In response, the defendants argued that the tribunal had jurisdiction because the arbitration agreement was valid. They contended that the seat of the arbitration was Singapore, not the PRC. They further argued that the parties’ implied choice of the proper law of the arbitration agreement was Singapore law rather than PRC law. The defendants relied on the common ground that if Singapore law governed the arbitration agreement, the arbitration agreement would be valid and the tribunal would have jurisdiction.
Accordingly, the High Court identified four critical questions: (1) what is the proper law of the arbitration agreement; (2) what is the seat of the arbitration; (3) how do the proper law of the contract (the Takeout Agreement) and the arbitral law of the seat interact when determining the proper law of the arbitration agreement; and (4) if PRC law is the proper law, whether the arbitration agreement is invalid under PRC law.
How Did the Court Analyse the Issues?
The court began by clarifying the nature of the s 10(3) application. An application under s 10(3) is not an appeal and is not an application to set aside the tribunal’s decision. Instead, the court undertakes a de novo review of whether the tribunal has jurisdiction over the dispute. The court therefore was not bound to accept the tribunal’s findings, although the tribunal’s views could be persuasive. This framing matters because it places the court in the position of determining jurisdiction independently, rather than reviewing the tribunal’s reasoning for error.
On the merits, the court addressed the proper law inquiry using a structured approach. The judgment emphasised that arbitration agreements may have a proper law distinct from the proper law of the main contract. While Article 14.1 expressly chose PRC law to govern the Takeout Agreement, the plaintiff’s argument required the court to treat PRC law as the proper law of the arbitration agreement itself. The defendants’ argument required the opposite: that the proper law of the arbitration agreement was Singapore law, implied by the seat and the arbitration framework.
The court articulated a three-stage approach to determining the proper law of the arbitration agreement. At the first stage, the court considers whether there is an express choice of law for the arbitration agreement. Here, Article 14.1 expressly chose PRC law, but the court treated the question as whether that express choice extended to the arbitration agreement itself, not merely the main contract. At the second stage, the court considers whether there is an implied choice of law. This stage is particularly significant where the arbitration agreement’s governing law is not clearly separated from the main contract’s governing law, or where the seat and arbitration framework point to a different legal system. At the third stage, if neither express nor implied choice is determinable, the court applies the “closest and most real connection” test to identify the system of law most closely connected to the arbitration agreement.
In determining the seat, the court examined the arbitration agreement’s language and the parties’ contractual choices. Article 14.2 referred to SIAC arbitration “in Shanghai”. However, the tribunal majority had held that the arbitration was seated in Singapore, and the plaintiff’s s 10(3) application was brought in Singapore because the parties submitted to the Singapore courts for the purposes of the application. The court’s analysis therefore had to reconcile the contractual reference to Shanghai with the legal consequences of the seat determination for the proper law inquiry. The judgment’s approach reflects a key principle in arbitration law: the seat (or juridical seat) determines the arbitral procedural law and has a strong influence on the arbitration agreement’s proper law analysis, even where the main contract contains a different governing law clause.
Having set out the framework, the court then addressed the interplay between the proper law of the Takeout Agreement and the arbitral law of the seat when ascertaining the proper law of the arbitration agreement. The court’s reasoning indicates that an express governing law clause for the contract does not automatically dictate the proper law of the arbitration agreement. Instead, the court must consider whether the parties’ intention, properly construed, indicates that the arbitration agreement was meant to be governed by the same law as the main contract, or whether the seat and arbitration structure displace that position. In this case, the court had to decide whether PRC law remained the proper law of the arbitration agreement or whether Singapore law was implied or otherwise had the closest and most real connection.
Finally, the court addressed the plaintiff’s substantive PRC-law invalidity arguments. The plaintiff relied on PRC-law doctrines that, according to the plaintiff, would render the arbitration agreement invalid because the dispute was domestic (failing the PRC “foreign elements” test) and because PRC law prohibited SIAC from administering arbitration of domestic disputes. The court’s analysis therefore required it to consider whether those PRC-law prohibitions applied to the arbitration clause as a matter of PRC law, and whether the arbitration agreement’s invalidity under PRC law would deprive the tribunal of jurisdiction. The court’s reasoning reflects the broader arbitration principle that jurisdiction challenges based on alleged invalidity under the proper law of the arbitration agreement must be carefully tied to the proper law determination; if the proper law is Singapore law, the PRC-law invalidity arguments cannot stand.
What Was the Outcome?
The High Court ultimately declared that the tribunal lacked jurisdiction to arbitrate the dispute. The practical effect of the declaration is that the arbitration could not proceed (or, if already underway, could not validly continue) on the basis of the impugned arbitration agreement. This outcome turned on the court’s determination of the proper law of the arbitration agreement and the consequences of that determination for validity.
Because the court undertook a de novo review, its conclusion was not constrained by the tribunal majority’s reasoning. The dissenting arbitrator’s approach—focusing on PRC law as the proper law of the arbitration agreement and on PRC-law restrictions—was, in substance, aligned with the court’s ultimate resolution of the jurisdiction question.
Why Does This Case Matter?
This decision is significant for practitioners because it clarifies how Singapore courts approach the proper law of arbitration agreements under s 10(3) of the International Arbitration Act. The judgment reinforces that the proper law of the arbitration agreement may not be identical to the proper law of the main contract, even where the contract contains an express governing law clause. The court’s three-stage method—express choice, implied choice, and closest and most real connection—provides a structured analytical tool for lawyers drafting arbitration clauses and for counsel litigating jurisdiction challenges.
The case also highlights the centrality of the seat in the proper law inquiry. Even where the main contract chooses PRC law, the seat and the arbitration framework may lead the court to conclude that Singapore law governs the arbitration agreement, or conversely that PRC law governs it. This matters because the validity of the arbitration agreement can depend on the proper law, and jurisdiction is often contested precisely on that basis.
For dispute resolution strategy, the judgment demonstrates that jurisdiction challenges in Singapore can be brought as de novo determinations, meaning that counsel should not assume that a tribunal’s majority decision will be treated as determinative. Evidence and legal submissions on foreign law (here, PRC law) and on contractual construction (including the effect of addenda and indivisible agreement clauses) become crucial. The case therefore serves as a reminder that arbitration clause drafting and amendment documentation should be approached with care, particularly where parties choose one legal system for the contract but another for arbitration administration or seat.
Legislation Referenced
- International Arbitration Act (Cap 143A, 2002 Rev Ed), s 10(3)
Cases Cited
- BCY v BCZ [2017] 3 SLR 357
- Sanum Investments Ltd v Government of the Lao People’s Democratic Republic [2016] 5 SLR 536
- [2017] SGHC 127
- [2019] SGHC 142
Source Documents
This article analyses [2019] SGHC 142 for legal research and educational purposes. It does not constitute legal advice. Readers should consult the full judgment for the Court's complete reasoning.