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Silverlink Resorts Ltd v MS First Capital Insurance Ltd [2020] SGHC 251: Photo of Silverlink Resorts Ltd (Credits: Remote Land)

FACTS

We acted for MS First Capital Insurance Ltd (“MSFCI“), the Defendant in OS 496. OS 496 was a claim brought by Silverlink Resorts Ltd (“Silverlink“), the ultimate holding company of the Aman Group hotel chain, against our client. Silverlink sought declarations relating to MSFCI’s liability under an all risks insurance policy for business interruption losses allegedly incurred during the Covid-19 pandemic. The declarations sought would engage issues relating to the interpretation of the policy.

This decision arose because MSFCI applied to stay the proceedings in favour of arbitration, under Section 6 of the International Arbitration Act. Under Section 6, MSFCI had to show that there was a valid arbitration agreement which the dispute fell within.

The insurance policy contained the following clauses:

10.    Mediation

(a)    In the event of any dispute, controversy or claim arising out of or relating to this Policy or the breach, termination or invalidity thereof (‘the dispute”), arising between the two parties in connection with this Policy, the parties agree to meet in good faith to resolve the dispute before commencing any Arbitration proceedings.

(b)    If the dispute is not resolved within twenty one (21) days of commencement of the discussions described in (a) above, the parties agree to attempt to settle the dispute by mediation and to comply with the provisions outlined in (c) below.

(c)    The parties will commence the mediation process by agreeing a mediator. Should they be unable to agree the identity of a mediator within fourteen (14) days, or if the mediator agreed upon is unable or unwilling to act, the parties shall unless mutually agreed, use the best practice within the jurisdiction of this Policy to mediate the dispute.

11.    Arbitration

Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, which is not settled pursuant to the Mediation General Condition within sixty (60) days of commencement of the discussions described in the Mediation General Condition (a) above, shall be referred to arbitration and the parties shall unless otherwise mutually agreed, use the best practice within the jurisdiction of this Policy to have the dispute arbitrated before legal action is commenced.

13.    Jurisdiction

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. Such a dispute shall be determined in accordance with the practical applicable to such Court and in accordance with the laws of Singapore.

Further, the Renewal Certificate for the policy provided that in the event of any dispute over interpretation of the policy, the parties’ choice of law and jurisdiction would be Singapore law and the courts of Singapore respectively.

THE ARGUMENTS

The main issue on appeal was whether Clause 13, the jurisdiction clause, carved out the issues of interpretation and application from the arbitration clause, such that a stay should not be granted.

On MSFCI’s behalf, we argued that Clauses 11 and 13 were inconsistent, and the court should apply the approach in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127, which was recently affirmed by the Singapore courts in BXH v BXI [2020] 1 SLR 1043.

The Paul Smith approach is: where there are conflicting jurisdiction and arbitration clauses in a contract, the jurisdiction clause would be read as a reference to supervisory jurisdiction, and the arbitration clause would be given full effect. This approach might appear somewhat fictitious, but the courts have justified it on the basis that it gives effect to both the jurisdiction and arbitration clauses, and this is preferable to excluding either clause entirely (see Silverlink at [29]).

Silverlink argued that the jurisdiction clause should instead be seen as a carve-out from the arbitration clause, with the effect that disputes relating to interpretation and application would be “carved out” of the arbitration clause and sent to Court.

The Court preferred to view the jurisdiction clause in this policy as a carve-out, following prior authority where courts have given effect to specific carve-outs from an arbitration clause e.g. Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] SLR 821. (see Silverlink at [34]-[46]).

The Court held that the carve-out approach makes commercial sense (Silverlink at [47]), as applying the Paul Smith approach to such cases could mean that a supervisory jurisdiction had been identified for only the specific disputes carved out of the arbitration clause. This might give rise to a possibility of two different supervisory jurisdictions for arbitration – something parties could not possibly have intended. (Silverlink at [47]-[48])

The Court further held that the exercise was ultimately one of ascertaining parties’ intention (Silverlink at [51]) – the question was whether parties had intended to create a carve-out. On this, the Court found that the language in Clause 13 “did not reduce the scope of the [arbitration clause] to such an extent” as to justify concluding that parties could not have intended a carve-out. The Court was also not persuaded that the language of the arbitration clause, which stated that parties would arbitrate before Court action was commenced, was clear enough to limit the jurisdiction clause to a supervisory function (Silverlink at [52]).

TAKEAWAYS

Neither the Paul Smith approach nor the Transocean-style acceptance of carve-outs to arbitration clauses are entirely new to the Singapore courts. But this case provides three useful learning points.

First, it is possible to interpret conflicting arbitration and jurisdiction clauses by applying either the Paul Smith approach or the Transocean approach. Obviously, clauses that completely conflict with each other will fall under Paul Smith. The question is how wide a carve-out can be before it attracts the Paul Smith approach rather than the Transocean approach – this was alluded to by the judge at [51], where he held that the carve-out was insufficiently wide to suggest that parties did not intend a carve-out at all.

Secondly, parties’ intentions remain the touchstone of the Court’s inquiry. As we saw in this case, the Court’s main focus was what parties intended to achieve, with the clause having been drafted the way it was. There may be some artificiality there, insofar as arbitration clauses tend to be “midnight” clauses – but that is nonetheless the inquiry the Courts will undertake.

Finally, this all means that careful drafting of dispute resolution clauses is paramount. A failure to clearly specify what parties intend by way of dispute resolution could result in unintended and unwieldy consequences for parties, such as having half a dispute subject to arbitration and the other half fought in the courts.

If parties intend to introduce carve-outs for an arbitration clause, arbitrate before going to Court, specify a supervisory jurisdiction for an arbitration or tailor their dispute resolution mechanisms in any other way, they would be well-advised to engage the help of a disputes specialist to advise on the proper drafting of the clause.

For the full judgment, click here.