Insigma Technology Co Ltd v Alstom Technology Ltd

Chan Sek Keong CJ (delivering the grounds of decision of the court):

[1] This was an appeal against the decision of the High Court in Originating Summons No 13 of 2008 on the novel and important legal issue of whether an arbitration agreement may validly provide for one arbitral institution to administer an arbitration under the rules of another arbitral institution (see Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 1 SLR 23 (“the Judgment”)).

[3] Insigma and Alstom were parties to a licence agreement dated 8 December 2004 (“the Licence Agreement”). The Licence Agreement was governed by Singapore law. Under the Licence Agreement, Insigma was granted a limited licence to use Alstom’s “wet flue gas desulfurisation” technology in China.

[4] The Licence Agreement provided for the arbitration of any disputes between the parties in Art 18(c) (“the Arbitration Agreement”) which read as follows:

[5] Sometime between late 2005 and early 2006, a dispute arose between Insigma and Alstom over the proper basis of calculating the annual royalties payable by Insigma to Alstom under the Licence Agreement. Alstom attempted to resolve the dispute by amicable means but failed. Alstom then sought to refer the dispute to arbitration.

[6] On 1 August 2006, Alstom filed a request for arbitration (“Request”) with the International Chamber of Commerce (“ICC”) in Paris, under the ICC Rules of Arbitration (1 January 1998) (“the ICC Rules”). Alstom claimed, inter alia, unpaid royalties and damages for breach of the Licence Agreement by Insigma. Alstom requested that the arbitral proceedings (“the ICC Arbitration”) be conducted in Singapore, under the ICC Rules, at the premises of the SIAC.

[8] On 13 November 2006, before the Tribunal was constituted but after each party had nominated an arbitrator and agreed that the two nominated arbitrators would subsequently nominate a third arbitrator to preside at the hearing of the ICC Arbitration, Alstom wrote to the SIAC and requested the SIAC to confirm whether it would accept jurisdiction over the dispute, and, if so, how the SIAC would administer the arbitration pursuant to the Arbitration Agreement if the dispute was submitted to it. This letter was not copied to Insigma.

[9] On 17 November 2006, the SIAC replied to Alstom as follows:

[10] On receipt of this reply, Alstom wrote to inform Insigma of the SIAC’s confirmation on the same day:

In that same letter, Alstom also informed Insigma that it would request the ICC to put the ICC Arbitration in abeyance.

[11] Insigma, however, replied to object to Alstom’s request to put the ICC Arbitration in abeyance and stated that if Alstom were minded to have the dispute submitted to the SIAC, it should first withdraw the ICC Arbitration from the ICC and then commence arbitration proceedings before the SIAC. Following this objection, Alstom wrote to the ICC on 11 December 2006 to withdraw the ICC Arbitration, reserving its right to bring proceedings before the ICC again if the SIAC or the Tribunal declined jurisdiction. The ICC Arbitration was eventually withdrawn by consent of the parties on 2 February 2007.

[12] On 23 November 2006, Alstom commenced the arbitration at the SIAC. On the same day, Alstom also notified Prof Michael Pryles (“Prof Pryles”) and Mr Michael Hwang SC (“Mr Hwang”) (ie, the arbitrators nominated by Alstom and Insigma, respectively, under the Arbitration Agreement: see [8] above) of the transfer of the arbitration proceedings from the ICC to the SIAC. Alstom also informed Prof Pryles and Mr Hwang that their nominations as arbitrators would now be subject to the confirmation of the SIAC.

[13] On 13 December 2006, the SIAC wrote to Insigma and Alstom confirming Alstom’s commencement of arbitration proceedings under r 3 of the Arbitration Rules of the SIAC (2nd Ed, 22 October 1997) (“the SIAC Rules”). The SIAC also called the parties’ attention to, inter alia, the appointment of the members of the Tribunal. On 18 December 2006, the SIAC then wrote separately to Alstom and Insigma, requesting confirmation of their respective nominations of Prof Pryles and Mr Hwang as co-arbitrators. Alstom and Insigma confirmed their respective nominations with the SIAC on 21 December 2006.

[14] On 10 January 2007, the SIAC wrote to both parties confirming their appointments of Prof Pryles and Mr Hwang as co-arbitrators. The SIAC then invited the co-arbitrators to choose the third and presiding arbitrator pursuant to r 8 of the SIAC Rules. Insigma, however, replied on 11 January 2007, stating that, contrary to the SIAC’s letter of 10 January 2007, the applicable rules were the ICC Rules, and not the SIAC Rules, as provided under the Arbitration Agreement. On 23 January 2007, Alstom wrote to the SIAC stating that it would agree to the appointment of the third arbitrator being determined in accordance with the manner envisaged in the ICC Rules. Alstom’s letter further noted that:

[15] On 24 January 2007, Insigma wrote to the SIAC stating:

Despite this letter, neither party raised any objections to the subsequent nomination by Prof Pryles and Mr Hwang of Dr Michael Moser (“Dr Moser”) as the third arbitrator. Significantly, Insigma wrote to the SIAC on 6 February 2007 to confirm that it had no objection to Dr Moser acting as the third arbitrator, although it repeated its “serious concerns” about the SIAC constituting the Tribunal in accordance with r 8 of the SIAC Rules.

[16] Finally, on 14 February 2007, Insigma, in a letter to Alstom, confirmed its agreement to the appointment of Dr Moser under the ICC Rules:

[17] On 23 February 2007, the SIAC confirmed the constitution of the Tribunal comprising Dr Moser as the presiding arbitrator, and Prof Pryles and Mr Hwang as co-arbitrators.

[18] After the Tribunal was duly constituted, it heard arguments on 11 September 2007 on the preliminary issues relating to its jurisdiction and the fatal uncertainty alleged by the appellant as to the operation of the Arbitration Agreement. After hearing Insigma’s objections, the Tribunal wrote to the SIAC on 22 October 2007 to ask if it “would be prepared to administer the arbitration in accordance with the ICC Rules to the exclusion of the SIAC Rules” and, if the SIAC were indeed prepared to do so, to then confirm which bodies within the SIAC would perform the functions assigned under the ICC Rules to:

[19] On 25 October 2007, the SIAC confirmed it would be prepared to administer the arbitration on the following terms:

It may be noted that the SIAC had, by this letter, modified its earlier stance on 17 November 2006 that “the arbitration will be administered under the SIAC Rules with the ICC Rules to be applied as a guide to the essential features the parties would like to see in the conduct of the arbitration” (see [9] above).

[20] At the hearing before the Tribunal on the preliminary issues, Insigma raised, inter alia, the following issues:

(a) whether the Arbitration Agreement was valid or void for uncertainty; and

(b) whether the Tribunal had been validly constituted under the Arbitration Agreement when it was constituted by the SIAC under the SIAC Rules and not the ICC Rules.

On 10 December 2007, the Tribunal rendered the Decision.

[21] On the issue of the uncertainty of the Arbitration Agreement, the Tribunal held as follows:

(a) In view of the “strong international public policy … in favour of the arbitration of international commercial disputes” (at [87] of the Decision), the Tribunal must make every reasonable effort to give effect to the Arbitration Agreement.

(b) The Arbitration Agreement was not contrary to the law as “the rules of an arbitral institution can be legally divorced from the administration of an arbitration by that institution” (at [104]) (citing Bovis Lend Lease Pte Ltd v Jay-Tech Marine & Projects Pte Ltd [2005] SGHC 91 (“Bovis Lend Lease”)).

(c) The Arbitration Agreement was not inoperable due to a lack of capacity on the part of the SIAC to administer an arbitration conducted under the ICC Rules, and the SIAC was capable of administering the arbitration in accordance with the Arbitration Agreement, performing mutatis mutandis the functions assigned by the ICC Rules to the ICC by the various institutions it had proposed, viz, the SIAC Secretariat, the SIAC Registrar and the SIAC Board of Directors, in place of, respectively, the ICC Secretariat, the ICC Secretary General and the ICC Court (at [111]).

(d) Accordingly, “the [Arbitration Agreement] is valid, enforceable and capable of being performed” (at [86]).

[22] On the issue of whether the Tribunal had been validly constituted, the Tribunal decided in the affirmative that: (a) it had been appointed in accordance with the Arbitration Agreement; and (b) whether the confirmation of the appointment of the Tribunal by the ICC or the SIAC was made with reference to the ICC Rules or the SIAC Rules “would have made no difference at all to the outcome” (at [116] of the Decision).

[23] Dissatisfied with the Tribunal’s decision, Insigma appealed to the High Court and raised the same issues on the same grounds. On the issue of the uncertainty of the Arbitration Agreement, Insigma argued that:

(a) The agreement was that the arbitration would be administered by the SIAC, using the ICC Rules. This could not be done as the ICC Rules had many unique features which could not be administered by an institution other than the ICC.

(b) An arbitration without the involvement of the ICC Secretariat and the ICC Court would not bear the “ICC’s hallmark of quality”, which was what Insigma had bargained for, and the Tribunal, in construing the Arbitration Agreement to provide for an SIAC-administered arbitration under the ICC Rules with the relevant SIAC bodies substituting the roles of the corresponding ICC bodies, had rewritten the Arbitration Agreement.

[24] On the issue of whether the Tribunal was validly constituted, Insigma argued that it was not, as it had been originally constituted under the SIAC Rules whereas the Arbitration Agreement required the Tribunal to be constituted under the ICC Rules.

[25] The High Court rejected Insigma’s arguments on both issues and dismissed its application. The holding of the High Court is summarised below.

[26] On the issue of the uncertainty of the Arbitration Agreement, the High Court held as follows:

(a) The parties had not bargained for an ICC institutional arbitration but for a hybrid ad hoc arbitration to be administered by the SIAC, applying the ICC Rules only and not the SIAC Rules.

(b) In principle, so long as no significant inconsistency arose, there was no problem with parties agreeing to an arbitration agreement providing for one arbitral institution to administer an ad hoc arbitration under the procedural rules of another arbitral institution.

(c) The substitution by the SIAC of the various actors (ie, the ICC Secretariat, the ICC Secretary General and the ICC Court) designated under the ICC Rules with the appropriate corresponding actors in the SIAC to perform their respective functions was within the degree of flexibility allowed by the ICC Rules which respected party autonomy. Party autonomy also meant that the parties were free to decide the conduct of the arbitration and the constitution of the arbitral tribunal and such freedom was an inherent feature of arbitration, especially ad hoc arbitration.

(d) Insigma’s earlier position that the SIAC and not the ICC should administer the arbitration contradicted its present position that the ICC and not the SIAC should administer the arbitration (see [7] above).

(e) Since it was clear and undisputed that the parties intended to resolve their disputes by arbitration and not litigation, all reasonable effort should be made to give effect to the parties’ intention to arbitrate in an ad hoc arbitration. Party autonomy should trump institutional self-interest.

(f) While it was generally not advisable or efficient to adopt or adapt institutional rules such as the ICC Rules for use in an ad hoc arbitration because of the need for an administering body, there was no practical problem nor objection in principle if the parties to the ad hoc arbitration nominated a substitute institution (the SIAC in this case) to administer the arbitration and substituted various organs to carry out similar functions to those carried out by the different parts of the ICC apparatus.

[27] On the issue of the validity of the constitution of the Tribunal, the High Court held that the Tribunal was validly constituted for the following reasons:

(a) Insigma had acknowledged that the Tribunal was properly constituted under Art 8(4) of the ICC Rules (see [16] above).

(b) Article 8(4) of the ICC Rules provided that where the parties had agreed upon the appointment procedure of the three arbitrators, the nomination of these three arbitrators would only be subject to the confirmation of either the ICC Court or the ICC Secretary General pursuant to Art 9 of the ICC Rules. Here, Insigma (through its appointed arbitrator, Mr Hwang) and Alstom (through its appointed arbitrator, Prof Pryles) had already agreed to the appointment of Dr Moser as the third arbitrator. Hence, their appointments need only be confirmed pursuant to Art 9 of the ICC Rules.

(c) To determine whether the Tribunal had been validly constituted under the Arbitration Agreement, the court had to look at what the substantive appointment procedure was. Since the appointment procedures under the SIAC Rules and the ICC Rules were the same in effect and agreed to by the parties, whether the subsequent confirmation of the appointments by the SIAC was made with reference to the SIAC Rules or to the ICC Rules would have made no difference at all to the outcome. Hence, the Tribunal was actually constituted by the SIAC in accordance with (albeit without express reference to) the ICC Rules, and it was therefore validly constituted under the Arbitration Agreement.

[28] We should also mention that, as the High Court noted (at [29]–[30] of the Judgment), Insigma did advance an alternative argument that the Arbitration Agreement was a “pathological clause” (see the explanation of a “pathological clause” at [37] below) when it responded to Alstom’s Request (see [6] above). However, this was merely a “cursory and alternative submission”, as the “main position taken [by Insigma in objecting to the ICC Arbitration] was for an SIAC-administered arbitration in accordance with [the] ICC Rules” (at [30] of the Judgment).

[29] Insigma obtained leave of the High Court, under s 10 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), to appeal against the decision of the High Court. Before us, Insigma raised the same two issues it had raised before the Tribunal and the High Court (see [20] above). As we had mentioned earlier (at [2] above), we dismissed the appeal at the conclusion of the hearing as we agreed entirely with the reasons given by the High Court in dismissing Insigma’s application. However, we wish to make some observations on certain aspects of this case because, as we have mentioned at [1] above, this is the first occasion this court has had to consider the legal validity of a hybrid form of international arbitration.

[30] Our first observation is that an arbitration agreement (such as the Arbitration Agreement) should be construed like any other form of commercial agreement (see Julian D M Lew QC, Loukas A Mistelis & Stefan M Kröll, Comparative International Commercial Arbitration (Kluwer Law International, 2003) at para 7-60). The fundamental principle of documentary interpretation is to give effect to the intention of the parties as expressed in the document.

[31] Our second observation is that, where the parties have evinced a clear intention to settle any dispute by arbitration, the court should give effect to such intention, even if certain aspects of the agreement may be ambiguous, inconsistent, incomplete or lacking in certain particulars (see Halsbury’s Laws of Singapore, vol 2 (LexisNexis, 2003 Reissue, 2003) at para 20.017) so long as the arbitration can be carried out without prejudice to the rights of either party and so long as giving effect to such intention does not result in an arbitration that is not within the contemplation of either party. This approach is similar to the “principle of effective interpretation” in international arbitration law, which was described in Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999) (Emmanuel Gaillard & John Savage eds) (“Fouchard”) at p 258 as follows:

[32] A subsidiary principle to the principle of effective interpretation is the principle that an arbitration agreement should also not be interpreted restrictively or strictly. An arbitration agreement is not a statute. This was noted in Fouchard at pp 260–261:

[33] Another subsidiary principle is that, as far as possible, a commercially logical and sensible construction is to be preferred over another that is commercially illogical (see Law Debenture Trust Corporation Plc v Elektrim Finance BV [2005] 2 Lloyd’s Rep 755 at [39]). In the present case, the Judge applied this principle at [33]–[34] of the Judgment:

[34] This approach to the interpretation of an arbitration agreement is necessary to uphold the underlying and fundamental principle of party autonomy as far as possible in the selection of the kind of arbitration and the terms of the arbitration. Given the inherently private and consensual nature of arbitration, our courts will ordinarily respect the principle of party autonomy and give effect to (workable) agreed arbitration arrangements in international arbitration, subject only to any public policy considerations to the contrary.

[35] Our third observation is that, in this appeal, Insigma did not argue that:

(a) in international arbitration, parties must opt either for an institutional arbitration (where the rules of that institution apply) or a non-institutional arbitration (where the parties make their own rules or, in the absence of such rules, the arbitrators make their own rules); or

(b) it is inherent in the nature of arbitration that one institution (such as the SIAC or the ICC) may not administer an arbitration applying the rules of another institution.

Rather, Insigma’s argument was that, at an operational level, the Arbitration Agreement was too uncertain to be given effect to. However, Insigma was unable to explain or to convince us where the uncertainty lay, and why the Arbitration Agreement could not or did not work in the manner explained by the Tribunal or the High Court. All that Insigma could contend in support of its argument was that the root of uncertainty arose because the ICC Rules were procedural rules drafted for an arbitration to be administered by the ICC and not by any other arbitral institution (such as the SIAC). In this respect, we agreed with the views of the High Court at [35] of the Judgment:

[37] Our fifth observation relates to Insigma’s argument that the Arbitration Agreement should not be given effect to because it was a “pathological clause” as the hybrid form of arbitration contemplated in the Arbitration Agreement was uncertain or unworkable. Calling the Arbitration Agreement “pathological” does not, of course, change its legal character or its substance. The idea of a pathological clause is derived from the civil law. That expression is defined in Fouchard ([31] supra) at p 262 as follows:

[38] A defect in an arbitration clause does not necessarily negate the agreement thereby constituted. It depends on the nature or the substance of the defect, or whether the defect is curable. The concept of a pathological clause fulfils a descriptive function rather than a prescriptive function and labelling or describing a clause as “pathological” does not automatically invalidate it as an agreement. In Benjamin G Davis, “Pathological Clauses: Frédéric Eisemann’s Still Vital Criteria” (1991) 7 Arb Int 365 at 379, the author noted:

[39] The acceptance by arbitration practitioners that a pathological clause is not void ab initio is also expressed in Fouchard at pp 262–263 in the following terms:

Fouchard also noted at p 266 that:

[40] In our view, the Arbitration Agreement does not satisfy the qualifying conditions of a pathological clause as understood in Fouchard and by Davis (see [38] above), but whatever it is, it was rendered certain and workable in the present case by the SIAC agreeing to administer the arbitration in accordance with the ICC Rules, and to nominate appropriate functional bodies that correspond to the bodies required under the ICC Rules to, inter alia, supervise the arbitration. In our view, the only aspect of uncertainty or inoperability with regard to the Arbitration Agreement was the contingency of the SIAC declining to administer the arbitration according to the ICC Rules, a position it appeared to have taken originally (see [9] above), but one which it sensibly abandoned subsequently (see [19] above). If the SIAC had so declined, then it could be said that neither Insigma nor Alstom got what they had bargained for in the Arbitration Agreement. That, however, was not the case here, and Insigma’s argument that the clause was pathological had no factual or legal basis.

[41] Our final observation pertains to the question of whether there are policy considerations to bar the SIAC, as a matter of jurisdiction or power, from agreeing to administer the arbitration of the kind agreed to by the parties in the Arbitration Agreement. In this connection, it is useful to refer to Singapore’s policy on the role of international commercial arbitration in resolving commercial disputes in Singapore. This is set out in s 15A of the IAA, which provides as follows:

[42] At the second reading in Parliament of the International Arbitration (Amendment) Bill (Bill 28 of 2002) to amend the IAA by enacting s 15A of the IAA, the Senior Minister of State for Law, Assoc Prof Ho Peng Kee, explained Singapore’s policy with regard to party autonomy in the choice of arbitration rules to govern the parties’ arbitration (see Singapore Parliamentary Debates, Official Report (1 October 2002) vol 75 at cols 1107–1109):

In this connection, counsel for Insigma did not advance any argument to suggest that the ICC Rules are inconsistent with any mandatory provision of the IAA or the Model Law.

[43] Section 15A implicitly recognises that an arbitral institution may play or be asked to play many roles in a particular arbitration, depending on the parties. David St John Sutton, Judith Gill & Matthew Gearing, Russell on Arbitration (Sweet & Maxwell, 23rd Ed, 2007) at para 3-052 also comments on this industry practice:

The role of the SIAC in the present case is precisely that of an administrator of arbitration proceedings to be conducted under the ICC Rules. The choice of a hybrid form of arbitration is a matter of agreement between the parties and is wholly consistent with the policy considerations we have noted at [41]–[42] above.

(a) it approbated the Arbitration Agreement when it objected to the ICC Arbitration initiated by Alstom, but subsequently (and unreasonably) reprobated the Arbitration Agreement when it objected to Alstom initiating the SIAC-administered arbitration; and

(b) having already lost two rounds on arguments which both the Tribunal and the High Court had demonstrated to be unmeritorious, it nevertheless persisted with an appeal to this court, and thereby wasted judicial time and made Alstom incur unnecessary costs in this appeal.