Sabah Shipyard (Pakistan) Ltd v Government of the Islamic Republic of Pakistan

Judith Prakash J:

[1] This is an application under Art 16(3) of the First Schedule of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Model Law”) for a declaration as to the jurisdiction of an arbitral tribunal.

[2] In March 1996, the applicant entered into a contract known as the Implementation Agreement (“IA”) with the respondent. By the IA, the applicant agreed to design, finance, construct and operate a barge-mounted electric power plant for the respondent. The IA contained an arbitration clause providing for arbitration in Singapore under the Rules of Arbitration (“ICC Rules”) of the International Chamber of Commerce (“ICC”). Following the purported termination of the IA by the respondent on two occasions, on 7 December 1998, the applicant commenced arbitration proceedings against the respondent under the auspices of the ICC. These proceedings were known as “ICC Arbitration Reference No 10255/OL/ESR/MS” and for reasons that will become apparent, I will refer to them as “the First Arbitration”. The ICC appointed one Mr Derek S Firth as the arbitral tribunal in the First Arbitration.

[6] In October 2002, the applicant formally challenged the jurisdiction of the arbitral tribunal in the Second Arbitration. The challenge was first considered by the ICC Court. In December 2002, the ICC Court stated that it was prima facie satisfied that “an arbitration agreement under the [ICC] Rules may exist” and therefore the Second Arbitration could proceed and the arbitrator decide whether he had jurisdiction or not. Further submissions were exchanged. On 5 November 2003, the arbitral tribunal delivered its award on the preliminary issue of jurisdiction. The arbitrator held that he had jurisdiction in the Second Arbitration for the reason that:

[7] The applicant was not satisfied with the tribunal’s decision on its jurisdiction. As permitted by Art 16(3), within 30 days of receiving notice of that ruling, the applicant lodged the present originating motion to ask this court to decide the matter of the jurisdiction of the arbitral tribunal.

[8] The originating motion asks for the following reliefs:

(a) That a declaration be made that:

(i) the arbitral tribunal constituted by the sole arbitrator, Mr Firth, in the Second Arbitration has no jurisdiction over the dispute in the Second Arbitration; and

(ii) the arbitral tribunal in the Second Arbitration has no jurisdiction over the disposal of, or to deal with the bank guarantee furnished by the applicant in the First Arbitration; and

(b) That specified portions of the arbitral tribunal’s award dated 5 November 2003 in the Second Arbitration dealing with the jurisdiction of the tribunal be set aside.

[10] It was also common ground that my determination of the main issue would depend on how I construed the arbitration clause in the IA, Art XXI entitled “Resolution of Disputes”. Both parties accepted that the jurisdiction of the arbitral tribunal could only be derived from this clause. The material part of this Article, sub-art 21.2(a), provides:

[12] The principles applicable to the construction of words contained in an arbitration clause are discussed in The Law and Practice of Commercial Practice in England (2nd Ed, 1989) by Mustill and Boyd. At 118 of the book the authors state that courts will make the prima facie assumption that the parties intended all disputes relating to a particular transaction to be resolved by the same tribunal. Secondly, words of broad import such as “in connection with this contract” are to be given their natural meaning in the context in which they are found, and are not to be cut down by reference to earlier decisions giving a narrower meaning to the same or similar expressions in other contexts. Therefore, said the applicant, the court must bear in mind that although earlier decisions may give some guidance as to the ambit of the phrases “in connection with” and “arising out of”, these words must still be construed and given their proper and natural meaning in the circumstances of each case. The applicant went on to submit that the court is not bound by the doctrine of stare decisis in interpreting specific words in an arbitration clause. In support, it quoted the following observation of May LJ in Ashville Investments Ltd v Elmer Contractors Ltd [1989] 1 QB 488 at 495:

Considering the applicant’s reliance on this passage, I was surprised that it criticised the arbitrator for failing to consider prior case law in coming to his decision on the proper construction of the arbitration clause.

The applicant laid emphasis on the Getreide-Import case as it involved a claim which was one that arose out of the arbitration itself and not from the original contract. In the applicant’s submission, Getreide-Import was authority for the proposition that a claim which arises out of an arbitration, such as a claim for the costs of that arbitration, is not a claim which arises out of the underlying contract and therefore the arbitrator would not have the jurisdiction to decide on such a claim.

[15] In response to the foregoing submissions, the respondent, naturally, was at pains to emphasise the width of the words “arising out of or in connection with”. It submitted that the phrase “arising out of” had been held to cover every dispute except a dispute as to whether there was ever a contract at all. It also cited Mustill and Boyd to show the width of the issues covered by the phrase. Further examples were the cases of Empresa Exportadora de Azucar v Industria Azucarera Nacional SA (The Playa Larga) [1983] 2 Lloyd’s Rep 171 and Government of Gibraltar v Kenney [1956] 2 QB 410. The first case showed that a claim in tort could fall within the ambit of an arbitration clause if the contractual and tortious disputes were so closely knitted together on the facts, that the agreement to arbitrate on one could properly be construed as covering the other. In the second, the English High Court held that when the frustration of a contract gave rise to a claim in quantum meruit or to a claim under the UK Law Reform (Frustrated Contracts) Act 1943, such claim was a claim “arising out of” the underlying contract.

[16] Turning to the phrase “in connection with”, the respondent cited numerous cases to establish that those words had also been held to be wide in nature and to cover all disputes other than those entirely unrelated to the transaction covered by the contract in question. In Woolf v Collis Removal Service [1948] 1 KB 11, for example, the English Court of Appeal had held that an alternative claim in negligence fell within the ambit of the words “in connection with”. Russell on Arbitration (22nd Ed, 2003) (at para 2-075) also cited cases showing that “in connection with” and “in relation to” had been held to include claims for rectification of a contract, as well as mistake and misrepresentation. The authors of Russell also considered those phrases sufficient to catch disputes arising under another contract relating to the contract containing the arbitration clause.

[17] The respondent’s concluding submission was that given the very wide interpretation that the authorities had given to the two phrases, the combination of the two could only serve to expand the intended ambit of the arbitration clause in the IA. Any dispute, so long as it was not one that was entirely unrelated to the IA or to the performance of the parties to the IA, would be a dispute falling within the arbitration clause.

[18] Having considered the authorities, I note that the phrase “arising out of” is generally held to have a more limited ambit than “in connection with”. There is, however, high authority for the proposition that “arising out of” may in certain contexts, on the ordinary and natural meaning of the words used, be the equivalent of the expression “connected with”: see The Antonis P Lemos [1985] AC 711 per Lord Brandon of Oakbrook at 727. Our Court of Appeal adopted that approach in The Indriani [1996] 1 SLR 305 and held that the phrase “arising out of” in s 3(1)(h) of the High Court (Admiralty Jurisdiction) Act (Cap 123, 1985 Rev Ed) should be interpreted widely to mean “connected with”. Hirst J in Ethiopian Oilseeds & Pulses Export Corporation v Rio del Mar Foods Inc [1990] 1 Lloyd’s Rep 86 at 97 observed that he found it very difficult to make any distinction between the words “arising out of” and “arising in connection with”, the two phrases to him appearing to be practically synonymous. To me, however, “arising out of” does seem to be the more restrictive phrase in that it would usually seem to require a more direct connection between the dispute and the contract than the phrase “arising in connection with”. An example of this approach is demonstrated by the decision in Getreide-Import ([13] supra). The arbitration clause there was one limited to disputes “arising out of” the relevant contract.