What The Singapore Court Of Appeals Ruling In Westbridge Means For Transactions With Indian Parties? - Arbitration & Dispute Resolution

Introduction

In its judgement on 6 January 2023 in Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 ("Mittal v Westbridge"), the Singapore Court of Appeal ("SGCA") considered the question of which system of law governs the issue of subject matter arbitrability at the pre-award stage in a Singapore-seated arbitration.¹

In this case of first impression, the SGCA held that a dispute would be considered arbitrable by a Singapore court only if it were so under both the law applicable the arbitration agreement and the law of the seat. Further, the SGCA also applied the well-known three-stage test laid down in BCY v BCZ [2017] 3 SLR 357 ("BCY") to determine the law applicable to the arbitration agreement. While this test itself is not novel under Singapore law, the SGCA's observations (as explained below) on the impact of non-arbitrability towards applying the test are noteworthy.

In this case comment, we critically analyse the SGCA's reasoning on the above issues and consider practical implications on drafting arbitration clauses, which stipulate for a Singapore seat.

Background

Facts

The parties in this case are shareholders of an Indian company that operates a popular matrimonial services website in India called shaadi.com ("Company"). The appellant, Anupam Mittal ("Mittal"), was a co-founder of the Company, and the respondent, Westbridge Ventures II Investment Holdings, is a Mauritius-incorporated PE fund ("Westbridge").

Notably, Mittal and Westbridge were parties to a shareholders' agreement ("SHA"), which provided for disputes "relating to the management of the Company" to be resolved through Singapore-seated arbitration under the ICC Rules. The arbitration agreement in the SHA did not expressly stipulate what law was applicable to the arbitration agreement.

In 2017, differences between the parties over management of the Company arose, which were in particular, triggered by Westbridge's intention to exit from the Company. Pursuant to these differences, on 3 March 2021, Mittal initiated proceedings before the Mumbai Bench of the National Company Law Tribunal ("NCLT Proceedings") alleging minority oppression and mismanagement against Westbridge, its nominee director to the Company and two other co-founders.

First Instance Decision

Reacting to the commencement of the NCLT Proceedings, Westbridge approached the Singapore High Court ("SGHC") on 15 March 2021 seeking an anti-suit injunction against Mittal from continuing the NCLT Proceedings. The primary basis for seeking the injunction was that the SHA stipulated for Singapore-seated arbitration to resolve the issues that were being litigated in the NCLT Proceedings. The SGHC granted the injunction on the same day.

The question of what law governs the issue of subject-matter arbitrability at the pre-award stage emerged from Mittal's arguments against the injunction. In particular, Mittal argued that this question fell to be determined according to the law applicable to the arbitration agreement, which was Indian law in the present case. As a result, the parties cannot have intended for such disputes to be within the scope of the arbitration agreement as oppression and mismanagement claims are non-arbitrable under Indian law.

The SGHC rejected Mittal's submissions and held that the law of the seat was the relevant system of law to determine subject matter arbitrability. Mittal appealed this decision before the SGCA, which led to the judgement in Mittal v Westbridge.

SGCA Judgement

Determining subject matter arbitrability at the pre-award stage

The SGCA held that subject matter arbitrability at the pre-award stage fell to be determined, in the first instance, by the law applicable to the arbitration agreement. Thereafter, if a dispute is found to be arbitrable under that system of law, then it would be necessary to examine if the dispute was also arbitrable under the law of the seat.

Put simply, for a Singapore court to allow an arbitration to proceed, the disputes sought to be arbitrated would have to be arbitrable under both the law applicable to the arbitration agreement and the law of the seat. In holding so, the SGCA overruled the SGHC's decision, which took a view that the issue was to be solely determined by applying the law of the seat.

The SGCA's reasons for reaching this conclusion were largely motivated by the relationship between public policy and arbitrability and revolved around its interpretation of Section 11(1) of the International Arbitration Act 1994 ("IAA"). In particular, Section 11(1) of the IAA stipulates that an arbitration agreement must be given effect to unless it is contrary to public policy to do so. Notably, the SGCA clarified that the term public policy in Section 11(1) of the IAA does not only refer to Singapore public policy but also to the public policy of any system of law relevant to the arbitration (such as the system of law applicable to the arbitration agreement).

Corollary to this interpretation of Section 11(1) of the IAA, the SGCA held that a Singapore court will not allow an arbitration to proceed if it is contrary to determine disputes of a particular subject matter according to: (a) the public policy of the system of law to which the arbitration agreement is subject; and (b) the public policy of the seat.

The proper law of the arbitration agreement

Given its findings on the issue discussed above, it was then necessary for the SGCA to determine what law was applicable to the arbitration agreement in the SHA. To do so, it applied the three-stage test in BCY. Briefly, this test involves:

examining if the parties had expressly designated the law applicable to the arbitration agreement;
if no express choice is apparent, examining whether there was any implied choice made by the parties in this regard; and
if neither an express nor an implied choice is apparent, examining which system of law the arbitration agreement is most closely connected with.

The SGCA noted that the first stage of the test would not apply as the SHA does not contain any express stipulation on the law applicable to the arbitration agreement.

As to the second stage, the SGCA referred to the famous English law case of Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 20 ("Sulamérica"), which held that an express choice of law governing the contract would be indicative of an implied choice as to the law applicable to the arbitration agreement, unless a contrary intention appears.

In line with Sulamérica, Mittal argued that Indian law applied to the arbitration agreement as this was the substantive governing law of the SHA. The SGCA rejected this submission on the ground that a contrary intention was apparent. The SGCA observed that the parties to the SHA would have known that oppression and mismanagement were non-arbitrable under Indian law. And as a result, the parties could not have intended Indian law to apply to an arbitration agreement that was specifically contemplated for resolving disputes "relating to the management of the Company". For these reasons, the SGCA found that there was no implied choice as to law applicable to the arbitration agreement either.

Given this finding, the SGCA then moved to the third stage of the BCY test and held that Singapore law was most closely connected with the arbitration agreement as the parties stipulated for Singapore-seated arbitration.

The end result was that the dispute between Mittal and Westbridge was held to be arbitrable as oppression and mismanagement claims are arbitrable under Singapore law, which was both the law of the seat and the law found to be applicable to the arbitration agreement.

Implications for transactions with Indian Parties

Mittal v Westbridge does not impact those arbitrations which are seated in India and only has ramifications when an Indian party is considering arbitrating in Singapore. In fact, this judgement is particularly noteworthy for Indian parties as Singapore is an increasingly popular seat for disputes with an India element (as in the present case, for example). This is more so given that the Supreme Court of India, in PASL Wind Solutions Pvt Ltd v GE Power Conversion India Pvt Ltd (2021) 7 SCC 1, affirmed that even disputes involving only Indian parties can be resolved through foreign-seated arbitration.

In our experience, most India parties commonly approach arbitration clauses as 'midnight' clauses in pre-contract negotiations. However, this judgement goes to show that carelessness while drafting an arbitration clause (such as by not expressly designating a particular law to be applicable to an arbitration agreement) can lead to non-arbitrability of claims.

In light of Mittal v Westbridge, Indian parties agreeing on a Singapore seat should carefully consider two elements while negotiating an arbitration clause. One, parties should expressly stipulate the law applicable to the arbitration agreement to avoid uncertainty over what a tribunal / court might determine it to be. Two, parties should ensure that anticipated disputes that could arise are of a subject matter that is arbitrable both under the law applicable to the arbitration agreement and the law of the seat. This would certainly save time and costs arising from applications and / or satellite litigation dealing with arbitrability of claims and which forum might be the appropriate forum to deal with the dispute between the parties. Conversely, clear drafting will also take away one of the very few defences for a party that intends to defeat the arbitration clause when it doesn't have tenable defences on merits.

Additionally, parties should be especially mindful of whether disputes are arbitrable under the law of potential enforcement fora. This is because—in practical terms—an award is only as good as its enforceability. While the judgement notes that non-arbitrability at the enforcement jurisdiction cannot mean that the arbitration was a "fruitless endeavour", this could be the case where the award sought to be enforced is against a party that is recalcitrant and only has assets in a jurisdiction which doesn't consider the underlying claims to be arbitrable. As such, agreeing to arbitration of oppression and mismanagement claims by subjecting them to Singapore-seated arbitration and with Singapore law applicable to the arbitration agreement only makes sense when the Indian counterparty also has assets outside India in jurisdictions like Singapore where such claims are arbitrable.

Footnote

1. Three systems of law are at play in any arbitration: (a) law of the seat; (b) law governing the arbitration agreement; and (c) law governing the substantive contract. The law of the seat deals with matters of procedure but the law of the arbitration agreement deals with matters of the validity of the arbitration agreement. The substantive law of the contract deals with the substantive rights and obligations of the parties.

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India: What The Singapore Court Of Appeals Ruling In Westbridge Means For Transactions With Indian Parties?