Article: June 2019: International Arbitration Update

Most arbitration-friendly jurisdictions, including those in the United States, restrict the rights of parties to appeal an arbitral award to the domestic courts to narrow, carefully prescribed grounds. One of those arbitration-friendly jurisdictions – Singapore – announced recently that parties might be allowed to appeal to the local courts on questions of law arising out of an arbitral award.  At present, the Singaporean International Arbitration Act (the IAA) only permits an application to set aside on classically narrow grounds (jurisdiction; procedural irregularity; fraud, corruption or public policy; cf section 24 of the IAA).  A consultation exercise will be launched shortly, given the need to amend the nation state’s arbitration law.

Many participants in arbitration consider the finality of an arbitral award to be a principal advantage of arbitration. Had the parties wanted to be tied-up in the local courts, they would have chosen to have their disputes resolved there in the first place.  As such, the proposal by the Singaporean Ministry of Law appears to sail against the prevailing currents by expanding, rather than narrowing, the rights to appeal.  Most systems of law do not provide for such a right, and the UNCITRAL Model Law (which is adopted in numerous states, and formed the basis of the IAA) equally makes no such provision.

In a written response to the topic by the Minister for Law in Singapore, K. Shanmugam, it appears that the Ministry drew inspiration from other jurisdictions on this issue:

[A]s part of my Ministry’s efforts to update the legal framework, my Ministry has noted that in certain other jurisdictions, parties to an arbitration may appeal against an award on a question of law... [In Singapore there] is no avenue for parties who wish to appeal to our Courts on a point of law in the award in international arbitrations. 

 

Written answer by Minister for Law, K Shanmugam, to Parliamentary Question on the International Arbitration Act, 1 April 2019, § 4.

One of those jurisdictions is likely to be England & Wales, given its close historic relationship with Singapore and its role as a major seat of arbitration.  (The arbitration law of Hong Kong also includes such a right, perhaps pointing to an interest in its principal competitor seat in Asia.)

            Under English law, a party is given the right to appeal to the court on questions of law:

Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.

 

English Arbitration Act 1996, § 69(1).

However, the “right” is neither absolute nor mandatory.  Although the right to appeal is a default provision, parties may opt out of it.  More often than not, the parties do so impliedly by choosing popular institutional arbitration rules, such as the ICC or the LCIA (which confirm in express and sufficiently comprehensive terms the finality of the Award).  Given the prevalence of institutional arbitration, it is not surprising that few appeals on a point of law ever arise in England.

An English court’s power to grant leave to appeal is narrowed further by section 69(3) of the 1996 Act.  To some extent, this also seeks to prevent parties from characterizing questions of fact as questions of law, which otherwise would not be able to be referred to the Courts.  As such, the determination by the Court of the question of law must (amongst other things) “substantially affect the rights of one or more of the parties,” and require that it be “just and proper in all the circumstances for the court to determine the question.”  It also requires the Court to conclude either that “the decision of the tribunal on the question is obviously wrong,” or that “the question is one of general public importance and the decision of the tribunal is at least open to serious doubt.”

The first of those two tests (“obviously wrong”) has been described in various ways by the English Courts.  Some have observed “that the error should normally be demonstrable on the face of the award itself and . . . not require too close a scrutiny to expose it.”  Others have held that the error should be a “major intellectual aberration.”  In any case, the Courts are expected to address the law and take at least a prima facie view on the correct conclusion.  Whether they consider that the decision is wrong is not determinative by itself – it needs to be “obviously” so.

How might the Singaporean proposal differ from this approach in England & Wales?  At this early stage, it is difficult to say with certainty.  However, it seems likely there will be one material point of distinction between the two schemes.  Unlike under English law, it appears that Singapore might only be considering an opt-in mechanism:

One of the amendments we are considering will allow parties to appeal to the courts on a question of law arising out of an arbitration award, provided that they have agreed to contract in or opt in to this mechanism. Such appeals could be heard in the High Court, with safeguards to prevent frivolous or vexatious appeals.

 

Written answer by Minister for Law, K Shanmugam, to Parliamentary Question on the International Arbitration Act, 1 April 2019, § 5.

On this, it is worth recalling that Singapore already permits an appeal on issues of law for domestic arbitration (under section 49 of the IAA, which is similar to section 69 of the English Arbitration Act 1996).  That scheme applies as a default mechanism, but with the possibility (as with England) for the parties to opt out.  Read together with the Minister’s written responses, it would appear that Singapore may change the opt-out nature of the domestic provision into one which is opt-in for international arbitrations.  Equally, it is interesting that the proposal anticipates the Singaporean Courts adopting “safeguards to prevent frivolous appeals,” which may well evoke echoes of section 69(3) and the attempts by the English statute to narrow the scope of any appeal.

Where does this leave us?  From a classical arbitration view point, it is a concern.  State courts should have a narrow role when it comes to the review of an arbitral award, and this proposal would extend that role.  However, to the extent that arbitration is about party autonomy, it represents the possibility of the parties agreeing to a further safeguard should things go wrong.  Provided that appropriate “safeguards” are incorporated in the amended statute, perhaps along the lines of the English Act, this could be seen as adding an additional right, rather than diluting existing ones.  In that scenario, the remaining risk is a party “agreeing” to opt-in to the scheme only because they have no leverage when the arbitration clause was negotiated.  At the very least, anyone anticipating negotiating a Singapore-seated arbitration clause in the future needs to be aware of this potential change, and the importance of ensuring that their preference is clear from the outset.