Court of Appeal clarifies when an arbitration agreement can be deemed to exist

29 November 2021

Cheung Teck Cheong Richard & Ors v LVND Investments Pte Ltd [2021] SGCA 77

The Singapore Court of Appeal in Cheung Teck Cheong Richard & Ors v LVND Investments Pte Ltd clarified section 4(6) of the Arbitration Act (“Act”) in relation to the court’s discretion to deem the existence of an arbitration agreement.

Facts 

The respondent was the developer of a shopping mall (“Developer”) and the 16 plaintiffs were the owners of 12 shop units (“Purchasers”) pursuant to 12 separate sale and purchase agreements (“SPAs”).

Each SPA included the following clause (“Clause 20A.1”):

“20A. Mediation

The Vendor and Purchaser agree that before they refer any dispute or difference relating to this Agreement to arbitration or court proceedings, they shall consider resolving the dispute or difference through mediation at the Singapore Mediation Centre in accordance with its prevailing prescribed forms, rules and procedures.” 

When disputes arose, the Purchasers’ lawyers at the time (“former solicitors”) took the view that Clause 20A.1 was an arbitration agreement and issued a Notice of Arbitration (“first NOA”) against the Developer to commence arbitration under the auspices of the Singapore International Arbitration Centre (“SIAC”). The Developer issued 12 responses objecting to the proposed arbitration because the Developer did not agree (a) that the arbitration should be administered by the SIAC, (b) that the arbitration should be conducted according to SIAC Rules, and (c) that the disputes should be consolidated in a single arbitration. The Court of Arbitration of the SIAC found that it was not prima facie satisfied that the parties had agreed that the SIAC should administer the arbitrations, or on the application of the SIAC Rules. The SIAC accordingly terminated the arbitrations commenced by the first NOA.

The former solicitors subsequently issued a second Notice of Arbitration (“second NOA”) for the disputes to be referred to ad hoc arbitration in Singapore and nominated a sole arbitrator. The Developer argued that no ad hoc arbitration had been validly commenced as it was a defective attempt to institute a single arbitration for disputes relating to the Purchasers’ 12 SPAs. The Purchasers discontinued the arbitration and discharged their former solicitors.

The Purchasers filed a suit claiming rescission of the SPAs or damages in lieu of rescission, as well as damages for losses, costs and expenses suffered as a result of entering into the SPAs. The Developer sought a stay on the basis that the parties were bound by an arbitration agreement in Clause 20A.1 of the SPAs or, in the alternative, that the parties had entered into an arbitration agreement by their conduct. The Assistant Registrar (“AR”) held that Clause 20A.1 was not an arbitration clause but found that the parties had entered into an arbitration agreement by their conduct. She therefore ordered a stay of the suit under section 6 of the Act. The parties appealed, with the Developer’s appeal being against the AR’s finding that Clause 20A.1 was not an arbitration agreement and the Purchasers’ appeal appealing against the decision to stay the suit.

High Court decision

The High Court affirmed the decision of the AR to stay proceedings in favour of arbitration. The court dismissed both the Developer’s and the Purchasers’ appeals and found that Clause 20A.1 was not an arbitration agreement and that the parties had concluded an ad hoc arbitration agreement. The High Court Judge also expressed the view, obiter, that section 4(6) of the Act could operate to deem the formation of an arbitration agreement even if there was no such pre-existing arbitration agreement.

The Purchasers appealed arguing that the Judge had erred in finding that they had entered into a separate arbitration agreement and in finding that an arbitration agreement was deemed to have arisen by virtue of section 4(6) of the Act.

Court of Appeal decision

Was Clause 20A.1 an arbitration agreement? 

The Court of Appeal agreed that Clause 20A.1 was not an arbitration agreement. There was no agreement to submit the dispute to arbitration, the hallmark of an arbitration agreement. The clear purpose of Clause 20A.1 was to require the parties to “consider resolving the dispute or difference through mediation” before referring any dispute to arbitration or court proceedings. Indeed, even the obligation to consider mediation did not rise to the level of an obligation to mediate.

Clause 20A.1 in itself does not require the parties to submit the dispute to arbitration. It merely provides that the parties are at liberty to refer the dispute to either arbitration or court proceedings after considering mediation.

Was there an ad hoc arbitration agreement?  

The court noted that before it could determine whether an agreement was an “arbitration agreement” it must first determine whether there is an agreement at all, a question of contract formation. The court phrased this consideration as being if the parties had believed that they were acting in accordance with an existing contractual obligation, could the parties be taken to intend to enter into a separate contract to arbitrate by that same conduct? As a general principle, the answer should be in the negative, unless the evidence disclosed an intention by the parties to be bound by a separate and independent agreement. The court found the evidence did not support this option.

The court found that, based on the first NOA and the second NOA and the correspondence between the parties in regard to both NOAs, the parties had at all times acted exclusively on the assumption that Clause 20A.1 was an arbitration agreement. While the Purchasers could be considered to have offered to arbitrate on terms additional to Clause 20A.1 by issuing the first NOA and the second NOA, no separate arbitration agreement was formed as the Developer rejected these offers.

Application of section 4(6) of the Act 

Section 4(6) of the Act, which is in pari materia with section 2A(6) of the International Arbitration Act, provides as follows:

“Where in any arbitral or legal proceedings, a party asserts the existence of an arbitration agreement in a pleading, statement of case or any other document in circumstances in which the assertion calls for a reply and the assertion is not denied, there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings”.

The court noted that section 4(6) would only apply:

• in the context of any arbitral or legal requirements (“threshold requirement”); 
• where there was an assertion of the existence of an arbitration agreement in a pleading, statement of case, or any other document in circumstances where the assertion would call for a reply; and 
• where the assertion must not be denied by the other party.

If these three requirements are met then, in the words of section 4(6), “there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings”.

The court went on to find that these requirements were not fulfilled in the present circumstances as the threshold requirement had not been met - there were no arbitration proceedings. Despite the issuance of the first NOA and the second NOA, no substantive steps were taken. There was also no assertion of an arbitration agreement, given that Clause 20A.1 was not an arbitration agreement. The court stated that the fact that the parties had referred to Clause 20A.1 as though it was an arbitration agreement was irrelevant.

The court opined that, if there had been arbitral proceedings and an assertion of an arbitration agreement apart from Clause 20A.1, assertions in notices of arbitrations would generally be sufficient for section 4(6) to apply, falling into the category of “any other document”.

Ability to deem an arbitration agreement

The central issue concerning section 4(6) as argued before the court turned on the interpretation of its last clause: “there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings”. As Clause 20A.1 of the SPAs was not an arbitration agreement and there was no arbitration agreement independent of the clause, section 4(6) should be examined on the basis that there was neither a valid arbitration clause in Clause 20A.1 nor an ad hoc arbitration agreement independent of Clause 20A.1. The question was whether section 4(6) could nonetheless deem an effective arbitration agreement to be in existence notwithstanding this finding. The High Court Judge in obiter observed that it could.

The Court of Appeal disagreed, finding as follows:

• Section 4(6) of the AA is found in a series of subsections of the Act that deal only with the issue of whether an agreement is in writing. The words “effective arbitration agreement” in section 4(6) should likewise be interpreted in a manner consistent with those subsections, that is, the word “effective” in section 4(6) appears to be limited to the writing requirement.
•  It was significant that section 4(6) is situated in section 4 of the Act, which is a definition provision and opens with the heading, “Definition and form of arbitration agreement”. It would be surprising if a definition provision should be interpreted to create substantive rights, which would be the consequence if the court found that section 4(6) can be used to deem the existence of an arbitration agreement notwithstanding the court’s finding that none exists as a matter of fact.

The specific purpose of section 4(6) is to ensure that an arbitration agreement would be treated as effective for the purposes of the Act even if the writing requirement is not met. In other words, the specific purpose of section 4(6) is to prevent a party who has not denied the existence of the arbitration agreement in circumstances in which the assertion of the existence of an arbitration agreement in a pleading, statement of case or any other document calls for a reply, from arguing that the agreement (whether pre-existing or arising in the course of the assertion and non-denial) is not in writing and is hence formally invalid in order to escape the consequences of that agreement.

Section 4(6) only serves to deem an arbitration agreement that is separately found to exist between the parties to be valid even if it is not in writing. Where section 4(6) applies, it only has the effect of deeming an existing arbitration agreement to be formally valid and therefore effective despite not being in writing. It does not have the effect of deeming there to be an agreement between the parties when such an agreement does not otherwise exist, nor does it deem any such agreement to meet the definition of section 4(1) of the Act if it does not otherwise satisfy the requirements stated therein.