Case Details
- Citation: [2002] SGHC 53
- Court: High Court of the Republic of Singapore
- Decision Date: 20 March 2002
- Coram: Woo Bih Li JC
- Case Number: Originating Summons No 600037 of 2001 (OM 600037/2001)
- Hearing Date(s): 19 February 2002
- Claimants / Plaintiffs: Dermajaya Properties Sdn Bhd
- Respondent / Defendant: Premium Properties Sdn Bhd; CFE Holdings (Malaysia) Sdn Bhd
- Counsel for Claimants: Christopher Chuah and Michael Chia (Drew & Napier LLC)
- Counsel for Respondent: Sundaresh Menon and Hilbert Lee (Rajah & Tann)
- Practice Areas: International arbitration; Conflict of laws; Curial law; Setting aside of arbitral awards; Security for costs
Summary
Dermajaya Properties Sdn Bhd v Premium Properties Sdn Bhd and Another [2002] SGHC 53 stands as a seminal authority on the "opting out" mechanism within the Singapore international arbitration framework, specifically concerning the interpretation of Section 15 of the International Arbitration Act (Cap 143A, 1995 Ed) ("IAA"). The dispute arose from a share purchase agreement involving Malaysian and Brunei entities, which provided for arbitration in Singapore under the UNCITRAL Arbitration Rules. The central legal conflict focused on whether an arbitrator, presiding over an international arbitration seated in Singapore, possessed the jurisdiction to order security for costs against a claimant when the chosen procedural rules (the UNCITRAL Rules) were silent on such powers, but the IAA expressly provided for them.
The Claimant, Dermajaya Properties Sdn Bhd, challenged an interim award by the arbitrator, Dato Mahadev Shankar, which required the Claimant to provide S$200,000 as security for the Respondents' costs. The Claimant's primary contention was that by adopting the UNCITRAL Rules—which at the material time did not empower an arbitrator to order security for costs—the parties had impliedly "opted out" of the IAA and the UNCITRAL Model Law on International Commercial Arbitration ("Model Law") pursuant to Section 15 of the IAA. They argued that the arbitration should instead be governed by the domestic Arbitration Act (Cap 10) ("AA"), which similarly did not grant arbitrators the power to order security for costs.
The High Court, presided over by Woo Bih Li JC, dismissed the appeal. The Court held that the mere adoption of a set of institutional or ad hoc arbitration rules (such as the UNCITRAL Rules) that might be incompatible with certain provisions of the Model Law or Part II of the IAA did not, in itself, constitute an agreement to exclude the IAA or the Model Law under Section 15. The judgment clarified that for the purposes of the pre-2001 amendment version of Section 15, an "agreement to settle a dispute otherwise than in accordance with the Model Law" required a clear and unequivocal exclusion of the statutory regime, rather than a mere selection of procedural rules.
This decision is of significant doctrinal importance as it reinforced the primacy of the IAA as the default curial law for international arbitrations seated in Singapore. It established that the IAA and the Model Law are intended to operate in tandem with the parties' chosen rules, and the statutory powers granted to arbitrators under Section 12 of the IAA—including the power to order security for costs—remain available unless the parties have expressly and effectively opted out of the international regime in favor of the domestic one.
Timeline of Events
- 4 October 1996: The Claimant (Dermajaya Properties Sdn Bhd) enters into an agreement ("the Agreement") to purchase 100% of the paid-up capital of President Hotel Sdn Bhd from the First Respondent (Premium Properties Sdn Bhd) and the Second Respondent (CFE Holdings (Malaysia) Sdn Bhd) for RM297,000,000.
- 3 September 1997: Following the emergence of disputes, the Claimant commences legal action in the High Court of Malaya in Kuala Lumpur. This action is subsequently stayed in favor of arbitration.
- 9 March 2001: After a significant delay of approximately three and a half years, the parties formally agree to the appointment of Dato Mahadev Shankar as the sole arbitrator.
- 17 August 2001: The Respondents file an application before the arbitrator seeking security for costs against the Claimant in the sum of RM500,000 (later adjusted to RM470,000).
- 5 October 2001: The arbitrator hears the application for security for costs.
- 5 November 2001: The arbitrator issues an interim award ordering the Claimant to deposit S$200,000 as security for the Respondents' costs, finding that the IAA applied and granted him the necessary jurisdiction.
- 1 November 2001: (Contextual date) The Arbitration Act 2001 and amendments to the IAA come into force, though the Court determines the pre-amendment law applies to this dispute.
- 19 February 2002: The appeal against the arbitrator's interim award is heard by the High Court of Singapore.
- 20 March 2002: The High Court delivers its judgment, dismissing the Claimant's appeal and upholding the arbitrator's jurisdiction.
What Were the Facts of This Case?
The dispute originated from a substantial commercial transaction involving the sale of shares in a Malaysian company, President Hotel Sdn Bhd. The Claimant, Dermajaya Properties Sdn Bhd, a company incorporated in Brunei, agreed to purchase the entire share capital of President Hotel Sdn Bhd from the Respondents, Premium Properties Sdn Bhd and CFE Holdings (Malaysia) Sdn Bhd, both Malaysian entities. The consideration for this transaction was RM297,000,000. The Agreement, dated 4 October 1996, was governed by the laws of Malaysia (Clause 12.16).
Central to the litigation was the dispute resolution mechanism set out in Clause 12.15 of the Agreement, which provided:
"Any dispute or difference between the parties in connection with this Agreement shall be referred to a sole arbitrator under the Arbitration Rules of the United Nations Commission on International Trade Law... The place of arbitration shall be Singapore." (at [4])
When disputes arose, the Claimant initially sought recourse in the Malaysian courts, but those proceedings were stayed on 3 September 1997. It was not until 9 March 2001 that the parties finalized the appointment of Dato Mahadev Shankar as the sole arbitrator. The arbitration was clearly international in nature, as the parties had their places of business in different states (Brunei and Malaysia) and the seat of arbitration was Singapore, satisfying the criteria under Section 5(2) of the IAA.
During the arbitral proceedings, the Respondents grew concerned about the Claimant's ability to satisfy a costs award should the Respondents prevail. Consequently, on 17 August 2001, the Respondents applied for security for costs. They initially sought RM500,000, which was later refined to RM470,000. The breakdown of this sum included RM100,000 for the arbitrator's fees, RM300,000 for the Respondents' solicitors' fees, RM50,000 for the Singapore International Arbitration Centre (SIAC) costs, and RM20,000 for other disbursements.
The arbitrator, in his interim award dated 5 November 2001, determined that he had the power to order security for costs under Section 12 of the IAA. He ordered the Claimant to provide S$200,000 as security. The Claimant challenged this, arguing that the arbitrator had no such power. The crux of the Claimant's factual and legal position was that by choosing the UNCITRAL Rules, the parties had excluded the IAA. They pointed to the fact that the UNCITRAL Rules contained their own procedures for the appointment of arbitrators and other matters that were "incompatible" with the Model Law, and thus the parties must have intended to opt out of the Model Law regime entirely.
The Claimant further argued that if the IAA did not apply, the domestic Arbitration Act (Cap 10) would apply by default. Under the AA as it stood then, an arbitrator did not have the power to order security for costs; only the High Court possessed such a power. Therefore, the Claimant contended the arbitrator had exceeded his jurisdiction by making the order himself.
What Were the Key Legal Issues?
The primary legal issue was whether the arbitrator had the jurisdiction to order security for costs against the Claimant. This necessitated a deep dive into the following sub-issues:
- The Interpretation of Section 15 of the IAA (Pre-2001 Amendment): Did the phrase "agreed that any dispute... is to be settled or resolved otherwise than in accordance with this Part or the Model Law" allow for an implied opting out of the IAA?
- The Effect of Adopting Incompatible Rules: Does the mere adoption of a set of arbitration rules (like the UNCITRAL Rules) that contain provisions different from or incompatible with the Model Law constitute an agreement to exclude the Model Law and Part II of the IAA?
- The Relationship Between the IAA and the AA: If the IAA is excluded, does the domestic Arbitration Act (Cap 10) automatically apply to an international arbitration seated in Singapore?
- The Scope of Section 12 of the IAA: If the IAA applies, does the power to order security for costs under Section 12 include the power to secure the arbitrator's fees and institutional (SIAC) costs, or is it limited to the legal costs of the opposing party?
- The Nature of the 2001 Amendments: Were the amendments to Section 15 of the IAA (which clarified that adopting institutional rules does not exclude the IAA) a change in the law or merely a clarification of the existing law?
How Did the Court Analyse the Issues?
The Court's analysis began with an examination of the statutory framework. It was undisputed that the arbitration was "international" under Section 5(2) of the IAA. Therefore, the IAA and the Model Law (which is given the force of law by Section 3 of the IAA) would apply unless excluded by Section 15.
The Interpretation of Section 15
At the time the Agreement was signed and the arbitration commenced, Section 15 of the IAA stated:
"If the parties to an arbitration agreement have... agreed that any dispute that has arisen or may arise between them is to be settled or resolved otherwise than in accordance with this Part or the Model Law, this Part and the Model Law shall not apply in relation to the settlement or resolution of that dispute." (at [14])
The Claimant argued that the parties had "agreed" to resolve the dispute "otherwise than in accordance with" the Model Law by choosing the UNCITRAL Rules. They relied on the decision in Coop International Pte Ltd v Ebel SA [1998] 3 SLR 670, where Chan Seng Onn JC had suggested that choosing the Geneva Rules (which were incompatible with the Model Law) amounted to an opting out under Section 15.
Woo Bih Li JC, however, took a more restrictive view of Section 15. He noted that the IAA was intended to create a specialized regime for international commercial arbitrations. He examined the legislative history, citing the speech of Associate Professor Ho Peng Kee during the 1994 Bill reading, which emphasized that the IAA was based on the Model Law to provide a "modern and efficient framework" (at [15]).
Incompatibility vs. Exclusion
The Claimant's strongest argument was that the UNCITRAL Rules were incompatible with the Model Law in several respects, such as the default number of arbitrators and the appointment procedure. They argued that because the parties could not follow both the UNCITRAL Rules and the Model Law simultaneously, they must have intended to exclude the latter.
The Court rejected this logic. Woo Bih Li JC reasoned that the Model Law itself is designed to be flexible and often yields to the agreement of the parties. He noted that many provisions of the Model Law begin with the phrase "unless otherwise agreed by the parties." Therefore, adopting a set of rules that provides for a different procedure is not necessarily "otherwise than in accordance with" the Model Law; rather, it is an exercise of the autonomy granted by the Model Law.
The Court distinguished Coop International. In that case, the parties had not only chosen the Geneva Rules but had also arguably chosen the law of Geneva as the curial law. In the present case, the seat was expressly Singapore. The Court also considered John Holland Pty Ltd v Toyo Engineering Corp (Japan) [2001] 2 SLR 262, where Choo Han Teck JC had held that the adoption of ICC Rules did not exclude the IAA. Woo Bih Li JC agreed with the sentiment in John Holland, stating:
"I am of the view that the requirement for parties to agree to exclude the Model Law or Part II was and is a requirement for an express opting out in that the mere adoption of the rules of an arbitral institution would not be sufficient to constitute such an exclusion." (at [68])
The 2001 Amendments as Clarification
The Court then addressed the Arbitration Act 2001, which amended Section 15 of the IAA to state explicitly that the adoption of arbitral rules does not exclude the IAA. The Claimant argued this was a change in the law, implying that before the amendment, such adoption did exclude the IAA. The Respondents argued it was merely a clarification.
Woo Bih Li JC looked to Section 9A of the Interpretation Act (Cap 1) to consider the parliamentary debates. He noted that the Minister had stated the amendment was to "clarify its scope" and was "for the avoidance of doubt" (at [43]). This supported the conclusion that even under the old Section 15, an express opting out was required.
Power to Order Security for Costs
Having decided that the IAA applied, the Court turned to Section 12(1)(a) of the IAA, which grants an arbitral tribunal the power to make orders for "security for costs." The Claimant argued that this power should be limited to the legal costs of the parties and should not include the arbitrator's fees or SIAC costs. They argued that the UNCITRAL Rules already provided for "deposits" for such costs, and therefore Section 12 should not be used to bypass those rules.
The Court disagreed, holding that "costs" in the context of an arbitration includes the fees and expenses of the arbitrators and the institution. The Court found no reason to limit the plain meaning of Section 12. If the arbitrator felt it was appropriate to secure his own fees as part of the security for costs award, he had the jurisdiction to do so.
What Was the Outcome?
The High Court dismissed the Claimant's appeal in its entirety. The Court affirmed the arbitrator's interim award and confirmed that he possessed the requisite jurisdiction under the IAA to order security for costs.
The Court's formal orders were as follows:
"I hold that the Model Law and Part II apply to the arbitration in question. The inclusion of the UNCITRAL rules in the Agreement does not oust their application... the appeal is dismissed with costs to be paid by the Claimant to both the Respondents." (at [87] and [93])
The Court specifically found that:
- The arbitration was governed by the IAA and the Model Law, not the domestic Arbitration Act (Cap 10).
- The parties had not "opted out" of the IAA under Section 15 by merely selecting the UNCITRAL Rules.
- The arbitrator's power under Section 12 of the IAA to order security for costs was validly exercised.
- The quantum of S$200,000 and the inclusion of arbitrator's fees and SIAC costs within that security were within the arbitrator's jurisdiction.
Costs of the appeal were awarded to the Respondents, to be paid by the Claimant. The Court did not interfere with the arbitrator's exercise of discretion regarding the amount of security, as the challenge was limited to the arbitrator's jurisdiction to make the order rather than the merits of the amount itself.
Why Does This Case Matter?
This case is a cornerstone of Singapore's "pro-arbitration" stance and its commitment to the Model Law framework. Its significance can be analyzed across several dimensions:
1. Affirmation of the IAA as the Default Regime
The judgment established a high threshold for opting out of the IAA. By ruling that the mere adoption of institutional rules is insufficient to exclude the IAA, the Court ensured that international arbitrations seated in Singapore benefit from the modern, supportive provisions of the IAA (such as the arbitrator's power to order interim measures) unless the parties make a conscious and express decision to use the domestic regime. This prevents parties from inadvertently losing the benefits of the international framework through standard drafting choices.
2. Clarification of "Incompatibility"
The Court provided a sophisticated analysis of how institutional rules interact with the Model Law. It clarified that the Model Law is not a rigid code but a framework that facilitates party autonomy. Therefore, procedural differences between the Model Law and chosen rules (like UNCITRAL or ICC) are not "incompatibilities" that trigger an exclusion of the statute; they are simply the parties exercising the choices the statute allows them to make.
3. Judicial Support for Arbitral Powers
By upholding the arbitrator's power to order security for costs—including for his own fees—the Court reinforced the authority of the arbitral tribunal. This is particularly important in international cases where a claimant may be a foreign entity with no assets in the jurisdiction of the seat. The decision ensures that the power granted by Section 12 of the IAA is robust and effective.
4. Interpretive Approach to Legislative Amendments
The case is an excellent example of the Court using legislative history (via the Interpretation Act) to determine whether an amendment was intended to change the law or clarify it. This approach has been followed in many subsequent cases involving the evolution of Singapore's arbitration statutes.
5. Impact on Legal Drafting
For practitioners, this case served as a warning: if you truly intend to exclude the IAA and apply the domestic Arbitration Act to an international dispute, you must say so expressly. Following this judgment, and the subsequent 2001 amendments, the "implied opt-out" argument became virtually untenable in Singapore.
Practice Pointers
- Express Exclusion Required: If parties wish to opt out of the International Arbitration Act or the Model Law, they must include an express and clear statement to that effect in the arbitration agreement. Mere reference to institutional rules (UNCITRAL, ICC, SIAC) will not suffice.
- Understand the Default: Practitioners must assume that any arbitration meeting the "international" criteria in Section 5(2) of the IAA will be governed by the IAA if the seat is Singapore. This includes the tribunal's powers under Section 12.
- Security for Costs Strategy: Respondents in international arbitrations should be aware that they can apply directly to the tribunal for security for costs under Section 12 of the IAA. They do not need to apply to the High Court, and the security can cover arbitrator fees and institutional costs.
- Drafting for Certainty: When drafting arbitration clauses, clearly specify the seat (e.g., "The seat of arbitration shall be Singapore") and the procedural rules. Avoid ambiguous language that could be interpreted as choosing a foreign curial law unless that is the specific intent.
- Check the Version of the Act: While this case dealt with the pre-2001 version of Section 15, the principles regarding "clarification vs. change" remain relevant for interpreting subsequent amendments to the IAA.
- Tribunal's Jurisdiction: Always check whether the chosen rules or the governing statute provide the tribunal with the specific power sought (e.g., security for costs). In Singapore, the IAA provides a broad suite of powers that supplement the chosen rules.
Subsequent Treatment
The principles in Dermajaya were largely codified by the 2001 amendments to the IAA. Section 15(2) of the current IAA now explicitly states that a provision referring to or adopting any rules of arbitration shall not of itself be sufficient to exclude the Model Law or Part II of the Act. Later cases have consistently followed the "express opting out" requirement, and the distinction between the "seat" (legal place) and the "venue" (physical place) of arbitration, discussed briefly in this judgment via Naviera Amazonica Peruana S.A., has become a fundamental tenet of Singapore arbitration law.
Legislation Referenced
- International Arbitration Act (Cap 143A, 1995 Ed), Sections 3, 5, 12, 15, and Part II
- Arbitration Act (Cap 10), Sections 2, 5(2), 5(4)
- Arbitration Act 2001
- Interpretation Act (Cap 1), Section 9A
- UNCITRAL Model Law on International Commercial Arbitration
Cases Cited
- Considered: Coop International Pte Ltd v Ebel SA [1998] 3 SLR 670
- Considered: John Holland Pty Ltd (fka John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan) [2001] 2 SLR 262
- Referred to: Naviera Amazonica Peruana S.A. v Compania Internacional De Seguros Del Peru [1988] 1 Lloyd’s Rep 116