High Court · Decided 12 November 2012

International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another

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[2012] SGHC 226Case no. Originating Summons No 636 of 2012

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International Arbitration Act 1994

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Chan Seng Onn J:
Introduction
[1] This case concerns the challenge of an arbitral tribunal’s (“the Tribunal”) ruling on jurisdiction pursuant to section 10 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”). The gist of the challenge is whether an arbitration clause contained in one contract between two parties binds a third party who subsequently enters into a supplemental agreement with the original two parties.
Background
Parties
[2] The plaintiff, International Research Corporation Public Company Ltd (“IRCP”), is a company engaged primarily in the business of providing information and communication technology products and services. The first defendant, Lufthansa Systems Asia Pacific Pte Ltd (“Lufthansa”), is in the business of providing information technology services to companies in the aviation industry. The second defendant, Datamat Public Company Ltd (“Datamat”), provides information and computer technology services, including the distribution of hardware and software maintenance services.
[3] Lufthansa is the claimant and IRCP and Datamat are the respondents in SIAC Arb. No. 061 of 2010 (“the arbitration proceedings”) which was instituted by Lufthansa on 13 May 2010.
Facts
The Cooperation Agreement
[4] The dispute in the arbitration proceedings pertains to payments due to Lufthansa under the Cooperation Agreement for Application and Services Implementation SAP R/3 IS A&D Contract No. LSY ASPAC 1ZW-B (“the Cooperation Agreement”) entered into between Lufthansa and Datamat on or about 11 March 2005. Under the Cooperation Agreement, Lufthansa agreed to supply, deliver and commission a new Maintenance, Repair and Overhaul System (“MRO System”). The MRO System was a component of the Electronic Data Protection System (“the EDP System”) which Datamat had agreed to provide to Thai Airways International Public Company Ltd (“Thai Airways”) under an agreement between Datamat and Thai Airways entered into earlier on 12 January 2005 (“the EDP System Agreement”).
IRCP’s initial involvement with Datamat
[5] On or about 14 March 2005, Datamat entered into a Sale and Purchase Agreement (“the S&P Agreement”) with IRCP under which IRCP had three main obligations. First, IRCP would provide a bankers’ guarantee in the name of Datamat in order for Datamat to comply with its obligations under the EDP System Agreement. Second, IRCP would also supply and deliver various hardware and software products for the EDP System. Third, IRCP would pay Lufthansa for the goods and services provided by Lufthansa under the Cooperation Agreement. Datamat assigned its right to receive payment from Thai Airways to the Siam Commercial Bank Public Company Ltd (“SCB”), with which Datamat also opened an account for the said payments to be deposited.
Supplemental Agreements No. 1 and 2
[6] Datamat subsequently ran into financial difficulties and was unable to meet its payment obligations to Lufthansa. In April 2005, Lufthansa informed Datamat that it would cease work unless Datamat could secure another party to pay the outstanding as well as future invoices. On 8 August 2005, Lufthansa, Datamat and IRCP entered into Supplemental Agreement No. 1, though its effective date was backdated to 2 May 2005. Under this agreement, Datamat was obliged to transfer to IRCP monies received from Thai Airways. Upon receiving these monies, IRCP would pay Lufthansa for the works and services rendered by Lufthansa under the Cooperation Agreement.
[7] Supplemental Agreement No. 2 was entered into on 3 May 2006. The reasons for the three parties (ie Lufthansa, Datamat and IRCP) entering into Supplemental Agreement No. 2 are disputed. Nevertheless, it is common ground that under Supplemental Agreement No. 2, IRCP would pay Lufthansa for the sums payable by Datamat under the Cooperation Agreement directly from IRCP’s bank account with SCB. IRCP would only disburse the payments to Lufthansa after payments by Thai Airways to Datamat were received by Datamat and transferred to IRCP’s SCB account. This arrangement was effected by way of a Payment Instruction and Authorisation by IRCP to SCB which was executed on the same day as Supplemental Agreement No. 2.
Clauses 37.2 and 37.3 of the Cooperation Agreement
[8] The Cooperation Agreement contains a multi-tiered dispute resolution mechanism (“the Dispute Resolution Mechanism”). The first part of the Dispute Resolution Mechanism is spelt out in cl 37.2:
[9] I pause to note that the reference to “clause 36.3” in cl 37.2.4 was a typographical error and actually referred to the arbitration clause in cl 37.3, the second part of the Dispute Resolution Mechanism. Clause 37.3 reads as follows:
The arbitration proceedings
[10] Between 2 January 2008 and 17 April 2008, Lufthansa sent letters to IRCP demanding payment of outstanding sums from IRCP (“the Payment Dispute”). IRCP refused payment on several grounds, alleging that: (a) Lufthansa had demanded payment for invoices that were not included in the services specified by the S&P Agreement which IRCP was liable to pay for; (b) Lufthansa had failed to complete certain works and services under the Cooperation Agreement which resulted in Thai Airways and Datamat withholding the issuance of the Certificate of Acceptance, a precondition to the payment of invoices; and (c) Thai Airways had not remitted any payment in respect of the invoices which Lufthansa was seeking payment. These grounds were communicated to Lufthansa in a letter dated 8 October 2008. Numerous meetings were also held from March 2006 to July 2009 to address the Payment Dispute. Nothing happened till 2010.
[11] On 24 February 2010, Lufthansa informed Datamat and IRCP that it was terminating the Cooperation Agreement and Supplemental Agreements No. 1 and 2 (collectively “the Supplemental Agreements”). On 13 May 2010, Lufthansa filed its Notice of Arbitration with the Singapore International Arbitration Centre (SIAC), pursuant to cl 37.3 of the Cooperation Agreement. In its Response to Arbitration dated 14 June 2010, IRCP objected to being joined to the arbitration on the ground that an arbitral tribunal would not have jurisdiction to resolve the Payment Dispute. IRCP argued that it was not a party to the arbitration agreement which was contained in the Cooperation Agreement and even if it were a party, Lufthansa had failed to comply with the preconditions for the commencement of arbitration proceedings contained in cl 37.2. Notwithstanding these objections, Lufthansa and IRCP each proceeded to appoint an arbitrator pursuant to cl 37.3, and the two party-appointed arbitrators in turn appointed a third arbitrator. Datamat informed SIAC that it was undergoing a business rehabilitation petition in Thailand, and it did not participate in the arbitration proceedings.
[12] The Tribunal dismissed IRCP’s objections on jurisdiction. In its decision dated 1 June 2012, the Tribunal held that the Cooperation Agreement and the Supplemental Agreements were to be treated as one composite agreement between Lufthansa, Datamat and IRCP. Accordingly, the arbitration agreement found in cl 37.3 applied to the Supplemental Agreements, which IRCP was indisputably a party to. On whether the preconditions to the commencement of the arbitration proceedings had been fulfilled, the Tribunal held that cl 37.2 was too uncertain to be enforceable. There were therefore no preconditions which barred the commencement of the arbitration proceedings.
Present proceedings
[13] Dissatisfied with the Tribunal’s ruling, IRCP commenced the present proceedings Originating Summons Number 636 of 2012 (“OS 636/2012”) on 29 June 2012 seeking, inter alia:
(a) a declaration that the Tribunal does not have jurisdiction to determine the dispute between Lufthansa and IRCP; and
(b) an order that the Tribunal’s ruling on jurisdiction be set aside.
[14] It is not disputed that IRCP is entitled to challenge the Tribunal’s decision on jurisdiction pursuant to Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) read with s 10 of the IAA.
Plaintiff’s case
[15] IRCP canvassed the same line of arguments which it had made before the Tribunal, namely, that it was not a party to the Cooperation Agreement, and even if it were, the preconditions to the commencement of the arbitration proceedings were not satisfied.
[16] On the first point, IRCP argued that the Cooperation Agreement and the Supplemental Agreements could not be read together as one composite agreement as the parties to the Cooperation Agreement were not the same as the parties to the subsequent Supplemental Agreements. Instead, IRCP characterised the present case as a “two-contract case” as it involved multiple agreements with different parties. Unlike the “single contract case”, there must be an express reference in the subsequent contract to the arbitration agreement in the first contract for the arbitration agreement to be binding in a “two-contract case”. Emphasis was placed by IRCP on the fact that the parties never discussed the incorporation of the arbitration agreement found in the Cooperation Agreement when entering into the Supplemental Agreements.
[17] On the second point, IRCP contended that the mediation procedure set out in cl 37.2 is clear and unambiguous, and is expressed in unqualified and mandatory terms. It states that before any dispute may be referred to arbitration, it must first be referred for resolution to a committee consisting of the Parties’ Contact Persons or their appointed designates for their review and opinion, and if the matter is unresolved, to a committee consisting of Datamat’s designee and Lufthansa Systems’ Director Customer Relations. If the matter still remains unresolved, the dispute must be referred to a third committee consisting of Datamat’s designee and Lufthansa Systems’ Managing Director. IRCP alleged that as the dispute was never put before any of these committees for mediation, the preconditions to the commencement of the arbitration proceedings were not satisfied. The Tribunal therefore lacked jurisdiction to resolve the dispute.
Defendant’s case
[18] Lufthansa put up a straightforward case: IRCP is bound by the arbitration agreement as Lufthansa, Datamat and IRCP had intended the Supplemental Agreements to be an extension of the Cooperation Agreement. This intention is manifested in the preamble and cl 6 of Supplemental Agreement No. 1, and cll 1 and 8 of Supplemental Agreement No. 2. Lufthansa also submitted that the Supplemental Agreements cannot be read as standalone agreements. They would only make sense when read together with the Cooperation Agreement. In short, Lufthansa adopted the finding of the Tribunal that the three agreements were in fact one composite agreement.
[19] On whether the preconditions to the commencement of the arbitration proceedings had been satisfied, Lufthansa’s primary case was that cl 37.2 was too vague and imprecise to be enforceable. The main thrust of its attack on cl 37.2 was that no particular procedure was prescribed for the parties to follow. Consequently, it was not possible to determine whether the preconditions were fulfilled.
[20] Lufthansa’s secondary case was that even if cl 37.2 was sufficiently certain and thus enforceable, Lufthansa had complied, in substance, with the conditions in cl 37.2. It pointed to the fact that there had been at least 24 meetings involving the three parties from March 2006 to July 2009 in an attempt to resolve the various disputes. These meetings involved various management personnel, including some from senior management. There had also been extensive correspondence between the parties on the disputed issues. Hence, the substance of the mediation procedure as envisaged in cl 37.2 had already taken place. Further negotiations would likely be futile and the Tribunal was right to have assumed jurisdiction.
Issues
[21] The two main issues raised by the parties are:
(a) whether IRCP is bound by the Dispute Resolution Mechanism, in particular the arbitration agreement in cl 37.3; and
(b) if IRCP is bound by the Dispute Resolution Mechanism, whether the preconditions in cl 37.2 for the commencement of arbitration proceedings have been satisfied.
Decision
Whether IRCP is bound by the arbitration agreement
[22] Whether IRCP is bound by the arbitration agreement in the Dispute Resolution Mechanism depends entirely on the parties’ intentions, which are to be objectively ascertained.
Incorporation of Clause 37.3 into the Supplemental Agreements
[23] Lufthansa’s case is that the Supplemental Agreements should be construed as extensions of the Cooperation Agreement as this comports with the parties’ intentions. Conversely, IRCP’s position is that the Supplemental Agreements are separate and distinct from the Cooperation Agreement. There is, however, one common ground. Lufthansa and IRCP both accept that if the agreements are distinct and separate, clear and express words are required to incorporate cl 37.3 into the Supplemental Agreements. This follows from the established rule that clear and express reference to the arbitration agreement is required for its incorporation in a “two-contract case”: Star-Trans Far East Pte Ltd v Norske-Tech Ltd and others [1996] 2 SLR(R) 196; Sea Trade Maritime Corporation v Hellenic Mutual War Risks Association (Bermuda) Ltd (The “Athena”) (No 2) [2007] 1 Lloyd’s Rep 280 (“The Athena (No 2)”) at [81]; Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v Sometal SAL [2010] EWHC 29 (Comm) at [49].
[24] The facts of Star-Trans are instructive. Star-Trans, a freight forwarder, had entered into a contract with Norske-Tech and Speditor. The purpose of the contract was for Star-Trans and Speditor to organise ocean carriage of plant and equipment from various parts of the world to a proposed construction site in Riau, Indonesia for Norse-Tech who had undertaken the construction project. There was an arbitration clause in this contract. Separately, another company, PT Riau, had furnished a performance guarantee to secure Norske-Tech’s performance of its obligations under the contract. The performance guarantee bore the signatures of Star-Trans, Norske-Tech and PT Riau. Disputes later arose between Star-Trans, Norske-Tech and PT Riau, and Star-Trans commenced court proceedings. Norske-Tech and PT Riau applied for a stay of the court proceedings on the ground that Star-Trans had agreed to submit disputes between the parties to arbitration.
[25] An issue which the court had to address was whether PT Riau was a party to the contract as a consequence of the performance guarantee. Clause 3 of the performance guarantee provided inter alia that “all the rights of Norske-Tech under the contract may be exercised by PT Riau ... and the rights of Norske-Tech under the contract may at any time be assigned to PT Riau [emphasis added by Star-Trans]”. The Court of Appeal held (at [21]–[22]) that cl 3 was insufficient to bring PT Riau in as an additional party to the contract as cl 3 did not oblige PT Riau to assume all of Norse-Tech’s liabilities; PT Riau had the liberty to choose which obligation it wished to discharge. There was no novation or express assignment of Norske-Tech’s rights to PT Riau. The court further noted that Speditor never signed the performance guarantee and thus never agreed to PT Riau being added as a party to the contract. Unless PT Riau was a party to the contract, it could not invoke the arbitration agreement.
[26] An alternative argument raised by Norske-Tech and PT Riau was that the arbitration agreement in the contract had been incorporated into the performance guarantee by cl 3. The Court of Appeal held (at [34]–[35]) that although the boundaries between the contract and the performance guarantee were not entirely clear, the performance guarantee was still a separate and distinct contractual undertaking vis-à-vis the contract. Hence, the use of general words such as “all rights” was not sufficiently clear to permit the incorporation of the arbitration clause by reference into the performance guarantee.
[27] The views of Mr Robert Merkin in Arbitration Law (Lloyd’s, 1991) at para 4.22, which were cited by the Court of Appeal in Star-Trans, are apposite:
[28] The policy behind requiring clear and express words of incorporation for an arbitration agreement was summarised by Sir John Megaw in Aughton Ltd v MF Kent Services Ltd (1991) 57 BLR 1 at 31–32:
[29] Thus, the approach towards incorporating an arbitration clause in one contract into another is extremely strict. In fact, the court in L&M Concrete Specialists Pte Ltd v United Eng Contractors Pte Ltd [2000] 2 SLR(R) 852 at [18] held that for an arbitration agreement in one contract to be incorporated into another, it must be brought to the attention of the other contracting party with a “red hand pointing to it”, borrowing the phrase used by Lord Denning in Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. In this regard, I note that Lufthansa has not advanced any argument along the lines that clear words of incorporation have been used in the Supplemental Agreements. Looking at the Supplemental Agreements, it is evident that there are no clear words which expressly refer to cl 37.3.
[30] The only clause in Supplemental Agreement No. 1 which may be construed as a reference to cl 37.3 is cl 6. Clause 6 provides:
[31] A similar clause in Supplemental Agreement No. 2, cl 8, states:
[32] As the Court of Appeal in Star-Trans held, a general reference to “all rights” is insufficient to incorporate an arbitration agreement found in a separate contract. There are no clear words referring to cl 37.3. If I were to apply the strict rule that clear words are required to incorporate an arbitration agreement (the “strict rule”), it must follow that cl 37.3 was not incorporated into the Supplemental Agreements.
Composite, or separate and distinct agreements
[33] The question, however, is whether the strict rule is applicable in every circumstance, particularly in the present case. Lufthansa’s case rests entirely on the proposition that because the Supplemental Agreements “have been made part of the Cooperation Agreement”, cl 37.3 is therefore applicable to IRCP. Lufthansa argues that the parties intended the Cooperation Agreement and the Supplemental Agreements to be read as one composite agreement. In other words, the agreement between Lufthansa, Datamat and IRCP comprised the Cooperation Agreement and the Supplemental Agreements (“the Composite Agreement”). On this analysis, there is nothing to “incorporate” into the Supplemental Agreements. Clause 37.3 binds IRCP because it is an integral part of the Composite Agreement and all three are parties to the Composite Agreement.
[34] Several instruments made to effect one object may be construed as one instrument and read together: Chitty on Contracts vol 1 (Sweet & Maxwell, 30th Ed, 2008) (“Chitty”) at para 12-067. Documents executed at different times may be regarded as part of the same agreement if the documents in substance represent a single transaction between the parties. Although it may be possible for parties to hive off parts of their arrangements into separate and distinct contracts (see Tootal Clothing Ltd v Guinea Properties Ltd Management Ltd [1992] EGLR 80), the court should be wary of artificially dividing what is in truth a composite transaction: Grossman v Hooper [2001] EGLR 82.
[35] In Smith v Chadwick (1882) 20 Ch D 27, Jessel MR said (at 62–63):
[36] In the present case however, I have to consider the fact that the parties to the Cooperation Agreement and the Supplemental Agreements are not the same. IRCP is not a party to the Cooperation Agreement. For this reason, I do not find Lufthansa’s reliance on Emmott v Michael Wilson (No. 2) [2009] EWHC 1 (Comm) to be of assistance to its position, notwithstanding Lufthansa’s position that the difference in identity of the parties is “irrelevant”. In Emmott, the parties, Mr Emmott and Michael Wilson Partners Limited (“MWP”) entered into an agreement in 2001 to operate a quasi-partnership to provide legal services in Kazakhstan (“the 2001 Agreement”). The 2001 Agreement provided for disputes to be resolved by arbitration in London. In 2005, Mr Emmott, MWP, and Mr Wilson, who was a director and shareholder of MWP, agreed to transfer shares in another company to Mr Emmott as payment for work done by him (“the 2005 Agreement”). The 2005 Agreement did not contain an arbitration clause. Disputes then arose with regard to the transfer of those shares and the court had to deal with a preliminary issue as to whether the arbitral tribunal had jurisdiction to deal with the 2005 Agreement. MWP tried to argue that the dispute was not subject to arbitration because it did not fall within the 2005 Agreement. This was rejected by Teare J, who held that the 2001 Agreement was part of the background factual matrix which was relevant to the construction of the 2005 Agreement. He referred (at [36]) to Fiona Trust v Privalov [2008] 1 Lloyd’s Rep 254 (“Fiona Trust”), where the now oft-cited presumption was enunciated by Lord Hoffman (at [13]):
Applying this presumption, Teare J held that disputes under the 2005 Agreement were likely to have been intended to be determined by the same arbitral tribunal as provided for in the arbitration clause in the 2001 Agreement.
[37] Emmott does not assist Lufthansa for two reasons. First, the party which was resisting arbitration—MWP—was itself a party to the 2001 Agreement, which contained the arbitration agreement. This fact alone renders Emmott distinguishable from the present case. IRCP, which is seeking to resist arbitration, was not a party to the Cooperation Agreement which contained the arbitration agreement and Dispute Resolution Mechanism. Second, and more significantly, the critical issue in Emmott was whether the dispute over the transfer of shares which arose out of the 2005 Agreement fell within the scope of the arbitration agreement in the 2001 Agreement. That was why the Fiona Trust presumption was applied. The issue in Emmott was effectively a question of the scope of the disputes covered under the arbitration agreement. The same approach cannot be applied to the present case. IRCP’s objection is not that the scope of cl 37.2 does not extend to the Supplemental Agreements; its objection is that it did not even agree to cl 37.2 as it was not even a party to the Cooperation Agreement.
[38] Likewise, the Court of Appeal case of Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 does not advance Lufthansa’s case. In that case, the appellants and the respondent entered into a shares sale and purchase agreement (“SPA”) which contained a clause providing for disputes to be resolved by arbitration. Crucially, the same parties subsequently entered into four further supplemental agreements. Each supplemental agreement was expressed to be supplemental to the SPA. A dispute arose as to whether a payment arrangement under the fourth supplemental agreement was subject to the arbitration clause in the SPA. The Court of Appeal held (at [67]) that it was, on the basis that the fourth supplemental agreement “could not exist independently without the SPA; nor would it make sense on its own. Like the first three supplemental agreements, its purpose was to supplement and/or modify certain terms of the SPA.” The dispute therefore arose in connection with the SPA. Unlike the present case, the Court of Appeal was not concerned with a situation where a non-party to the SPA became a party to the four supplemental agreements. Indeed, it specifically highlighted (at [7]) that the appellants and respondent “were the only parties to the SPA and the four supplemental agreements”. In that regard, there was no difficulty in construing that the intention to be bound by the arbitration clause in the SPA extended to the four supplemental agreements.
[39] Counsel for IRCP, Mr Subramaniam s/o Ayasamy Pillai (“Mr Pillai”), latched onto the difference in the identity of the parties in his submissions. He drew attention to the fact that in the authorities which considered several agreements as one composite agreement, the parties to the various agreements were the same throughout: see Faghirzadeh v Rudolf Wolff (SffA) (Pty) Ltd [1977] 1 Lloyd’s Rep 630; and Fletamentos Maritimos SA v Effjohn International BV [1996] 2 Lloyd’s Rep 304.
[40] Mr Pillai also referred to Coop International Pte Ltd v Ebel SA [1998] 1 SLR(R) 615, a previous decision of mine which appears to support IRCP’s position. Although the propositions of law stated in Coop are relevant, the facts there were very different. I am not persuaded that Coop is of much assistance to IRCP. In that case, the parties had entered into a distributorship agreement which contained an arbitration clause. Subsequently, the parties terminated the distributorship agreement by entering into a termination agreement. There was no arbitration clause in this new termination agreement. They then entered into a third agreement, a settlement agreement, sometime later. A dispute arose as to the payment of sums under the settlement agreement, and Coop commenced proceedings for the disputed sum in the Singapore courts. Ebel applied for a stay of proceedings on the basis of the arbitration agreement in the distributorship agreement. Coop argued that the dispute did not arise out of the distributorship agreement which had been terminated. Instead, the parties’ respective rights were now governed by the settlement agreement. Save for one development, I regard my observations then to be equally applicable now (at [26], and [30]–[31]):
[41] An important development which has occurred since I decided Coop is the presumption in Fiona Trust that in the absence of clear language which illuminates the parties’ contrary objective intentions, rational businessmen can be assumed to have intended to resolve disputes arising from their relationship through the same dispute resolution mechanism. I accept this general proposition, but I find that it has no bearing on the present case. The issue before me is not one of the scope of cl. 37.3, but whether IRCP has agreed to be bound by it.
[42] Coming back to the decision in Coop, I found that the settlement agreement was not a variation of the distributorship agreement particularly because it did not make any sense to vary or supplement an agreement which had been terminated. At the time the settlement agreement was entered into, it was clear that the parties considered the distributorship agreement “dead”. I went on and noted that if the parties had wanted disputes arising under the settlement agreement to be decided by arbitration, the simplest thing to do was to include an arbitration clause as they had done for the distributorship agreement. I held that the absence of a new arbitration clause or any reference to the arbitration clause in the distributorship agreement was an indication that the parties did not intend to resolve disputes under the settlement agreement by arbitration.
[43] The first and most obvious difference between Coop and the present situation is that the Cooperation Agreement in this case was not terminated, unlike the distributorship agreement in Coop. Lufthansa, Datamat and IRCP had plainly not contemplated an entirely new agreement to govern their respective rights and obligations. Second, the Payment Dispute is not one which arises entirely under the Supplemental Agreements, independent from the Cooperation Agreement. Whether Lufthansa is entitled to payments from IRCP is connected to both the Supplemental Agreements as well as the Cooperation Agreement. The fact that there was no arbitration clause or a specific reference to cl 37.3 in the Supplemental Agreements is not conclusive. It begs the question whether by entering into the Supplemental Agreements and having regard to the factual matrix where the Supplemental Agreements are not only supplemental to but are annexed to and form an integral part of the Cooperation Agreement, the three parties had intended the terms of the Cooperation Agreement, and in particular the Dispute Resolution Mechanism, to be binding on all three parties.
[44] In this regard, I found the Court of Appeal’s decision in Astrata (Singapore) Pte Ltd v Portcullis Escrow Pte Ltd and another and other matters [2011] 3 SLR 386 to be of some relevance. The facts of Astrata are complex. Astrata had entered into a supply agreement with Tridex to develop and supply an electronic plate system to Tridex. Pursuant to the supply agreement, Astrata, Tridex and a third entity, PEPL, entered into an escrow agreement. Under this escrow agreement, PEPL was to hold in escrow certain property. PEPL was obliged to deliver the escrow property to Tridex if a stipulated triggering event occurred. The supply agreement contained an arbitration clause while the escrow agreement contained a non-exclusive jurisdiction clause in favour of the Singapore courts. Subsequently, Astrata’s holding company underwent reorganisation in the United States pursuant to Chapter 11 of Title 11 of the United States Code (“Chapter 11 reorganisation”) and this prompted Tridex to terminate the supply agreement on the ground that Astrata had breached its obligations under the same. Tridex also wrote to PEPL on the same day stating that it was invoking its rights under the escrow agreement as Astrata’s holding company’s Chapter 11 reorganisation constituted a stipulated triggering event. Astrata disputed this and instructed PEPL not to release the escrow property to Tridex.
[45] PEPL sought a declaration from the Singapore court as to whether any triggering event had occurred and Astrata applied to stay the proceedings on the ground that its dispute with Tridex on whether there was a triggering event was a matter for arbitration. Astrata’s case was that the arbitration clause in the supply agreement covered any bilaterial dispute between Astrata and Tridex in relation to the escrow property. The non-exclusive jurisdiction clause in the escrow agreement only covered trilateral disputes between Astrata, Tridex and PEPL. Alternatively, the non-exclusive jurisdiction clause should be construed as an agreement that parties may seek curial assistance from the Singapore courts. Tridex’s position was that the dispute over escrow property had been carved out from the supply agreement and was to be dealt with exclusively under the non-exclusive jurisdiction clause in the escrow agreement.
[46] The Court of Appeal agreed with Tridex. It observed that the logical implication of Astrata’s argument was that a dispute with only Tridex over whether a triggering event had taken place under the escrow agreement would be determined by arbitration, but the same dispute with only PEPL would be determined by the Singapore court. This, the court held (at [28]–[29]), was not rational. Further, the entire agreement clause in the subsequent escrow agreement suggested to the court that the escrow agreement and supply agreement were intended to apply to their respective spheres of issues. It therefore held that the dispute over whether a trigger event had occurred was a matter under the escrow agreement and on that basis, the non-exclusive jurisdiction agreement, not the arbitration agreement, applied.
[47] Astrata is helpful to a certain extent because it also involves the interpretation of a subsequent agreement entered into by two parties to a prior agreement, and a new third party. It demonstrates that the two original contracting parties may agree to a new method of dispute resolution for a specific dispute which differs from the dispute resolution mechanism under the prior agreement. Although Astrata illustrates how the court may infer the parties’ objective intentions when a third party enters into an agreement with two original contracting parties, the facts of Astrata are nevertheless different from the present case. Unlike Astrata, the Supplemental Agreements do not contain an independent, and more importantly, different dispute resolution mechanism. Second, the escrow agreement in Astrata, which was entered into more than six months after the supply agreement, contained an entire agreement clause which is not present in the Supplemental Agreements before me. By agreeing subsequently to the entire agreement clause, the parties in Astrata, and in particular Astrata and Tridex, had evinced their intention that the matters under the escrow agreement were to be independent from the supply agreement. On the contrary, both Supplemental Agreements clearly stipulate that the Supplemental Agreements are to be “annexed to and made a part of the [Cooperation Agreement]”.
[48] In the end, I found the approaches taken by both parties to be of little help in addressing the one true issue: what were Lufthansa, Datamat and IRCP’s common intentions, if any, when objectively ascertained, as to the applicability of the Dispute Resolution Mechanism to resolve their disputes (be they bilateral or trilateral in nature, which of course cannot be predicted) at the time when all of them entered into the Supplemental Agreements? An assertion that the Dispute Resolution Mechanism was incorporated into the Supplemental Agreements or the various agreements between the parties were in essence one Composite Agreement, are two ways of saying the same thing viz that the three parties, from an objective perspective, intended to be bound by the Dispute Resolution Mechanism. Be it incorporation or construction, the court is always seeking to ascertain the parties’ objective intentions: Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (“Zurich Insurance”) at [125].
[49] In Svenska Petroleum Exploration AB v Government of the Republic of Lithuania (No 2) [2007] 1 QB 886, the Government of Lithuania (“Lithuania”) signed an oil exploration joint venture agreement together with the plaintiff, Svenska, and the other defendant, Geonafta. Lithuania, however, was not expressed to be a party to the joint venture agreement, even though some of the terms of the agreement dealt with the rights and obligations of the Lithuania. However, over the signatures of the representatives signing on behalf of Lithuania was a rubric in the follow terms: “[t]he Government of Lithuania hereby approves the above agreement and acknowledges itself to be legally and contractually bound as if the Government were a signatory to the Agreement.” The joint venture agreement also contained an arbitration agreement. The joint venture agreement was further expressed to be governed by the laws of Lithuania, supplemented where required by rules of international business activities generally accepted in the petroleum industry so long as they did not contradict the laws of Lithuania. The parties accepted (see [24]) that under Lithuanian law the court had to ascertain the parties’ real intentions, ie their common intentions, by reference not only to the language of the document in which their agreement was expressed but also by reference to such other evidence as might be of assistance, including pre-contractual negotiations and post-contractual conduct as well as the surrounding circumstances, existing usages and any communications between them. The exercise was essentially objective in nature.
[50] A dispute later arose and Svenska brought claims in an arbitration in Denmark against Lithuania and succeeded. Lithuania resisted the enforcement of the award in England, arguing that it was not a party to the arbitration agreement. Lithuania stressed that it was not named as a party to the joint venture agreement. The English Court of Appeal rejected this argument. Moore-Bick LJ held (at [26]–[28]) that whether Lithuania “signed” the joint venture agreement or “became a party” to it was “immaterial”. What mattered was whether by signing on the joint venture agreement with the attached explanation of its purpose in so doing, Lithuania intended to undertake legally binding obligations towards Svenska, and this was “essentially a question of construction”.
[51] I fully concur with Moore-Bick LJ’s general approach which focuses on the ascertainment of the parties’ objective intentions. The use of legal constructs such as “one composite agreement” or “incorporation” may be helpful in most cases, but it is not dispositive in the present case. I will therefore start from the first principles of contractual interpretation.
Parties’ objective intention
The modern contextual approach to interpretation
[52] The purpose of interpretation is to give effect to the intention of the parties objectively ascertained. This objective ascertainment of the parties’ intentions is the cornerstone of the theory of contract and permeates our entire approach to contractual interpretation: Zurich Insurance at [125]. In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (“ICS”), Lord Hoffmann restated the principles of contractual interpretation (at 912–913):
[53] This modern contextual approach to interpretation was held by the Court of Appeal in the landmark decision of Zurich Insurance (at [109], [114] and [132(c)]) as representing the state of the law in Singapore, though a clear and obvious context is required to justify the court’s adoption of a different interpretation from that suggested by the plain language of the contract: Zurich Insurance at [129]. It is important to remember that the contextual approach is not a usurpation of the plain-meaning rule in interpretation. There is no gainsaying that the language in the agreement is an important starting point: Re Sigma Finance Corporation (in administrative receivership) [2008] EWCA Civ 1303 at [98]. It may even be paramount in certain instances: Re Sigma Finance Corporation (in administrative receivership) [2009] UKSC 2 (“Re Sigma Finance (SC))” at [37]. However, as Professor Catherine Mitchell explained in her book, Interpretation of Contracts: Current controversies in law (Routledge-Cavendish, 2007) (cited with approval in Zurich Insurance at [61]), the plain meaning of the language alone is insufficient (at p 60):
[54] Professor Mitchell’s observation of the interaction between the plain meaning rule and reference to the background context is illuminating. Lord Nicholls, writing extra-judicially in “My Kingdom for a Horse: The Meaning of Words” (2005) 121 LQR 577, echoed the same point (at 579):
[55] In Singapore, the contextual approach was also helpfully elaborated upon by V K Rajah JA, writing extra-judicially after Zurich Insurance (V K Rajah, “Redrawing Boundaries of Contractual Interpretation” (2012) 22 SAcLJ 513 at [16]):
[56] It is trite law that the court does not inquire into the parties’ subjective states of mind: Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251 at [8]. Instead, the courts are concerned with the parties’ intentions as objectively ascertained from the agreement and the background matrix of facts known to the parties which would affect the way a reasonable person would understand the language used in the agreement.
[57] The final point worth highlighting is the Court of Appeal’s endorsement in Zurich Insurance (at [131]) of Professor McMeel’s summary of principles and techniques of contractual interpretation in his treatise, The Construction of Contracts: Interpretation, Implication and Rectification (OUP, 2007) at paras 1.124–1.133. The principles endorsed include:
Applying the contextual approach to the Supplemental Agreements
(i) Object and purpose of the Supplemental Agreements
[58] Before considering the plain language in the Supplemental Agreements, it is vital to understand the context which influenced the language used.
[59] Supplemental Agreement No. 1 was entered into as a result of Lufthansa’s concern that Datamat was unable to pay for works and services provided by Lufthansa under the Cooperation Agreement. IRCP was brought into the transaction by Datamat to satisfy the latter’s payment obligations to Lufthansa under the Cooperation Agreement. IRCP would also provide a letter of credit in favour of Lufthansa which Lufthansa may draw upon if payments were not made. However, this did not resolve the payment issues. Lufthansa told Datamat and IRCP that it would cease work unless a better arrangement for ensuring payment was arrived at. This culminated in Supplemental Agreement No. 2, which provided, inter alia, that payments to Lufthansa by IRCP would now be deducted directly from IRCP’s SCB account. To enforce the direct deduction, IRCP would execute a Payment Instruction and Authorisation letter to SCB.
[60] Evidently, the object and purpose of the Supplemental Agreements was to enforce Lufthansa’s right to payments under the Cooperation Agreement. The Supplemental Agreements transferred Datamat’s payment obligations under the Cooperation Agreement to IRCP. This is borne out by cll 1 and 3 in Supplemental Agreement No. 1:
[61] The relevant clauses in Supplemental Agreement No. 2 likewise show that all three parties understood that Datamat’s payment obligations under the Cooperation Agreement were now to be borne by IRCP:
[62] From these clauses in the Supplemental Agreements, it is clear that IRCP’s payment obligations to Lufthansa are inextricably tied to Datamat’s obligations under the Cooperation Agreement. A dispute over an invoice issued under the Cooperation Agreement would invariably affect IRCP’s payment obligations under the Supplemental Agreements. IRCP’s payment obligations are not free-standing and unconnected to the terms of the Cooperation Agreement. After all, the object and purpose of the Supplemental Agreements was to ensure that Lufthansa would be paid for its work and services done under the Cooperation Agreement. The close association between the Supplemental Agreements and the Cooperation Agreement is further reflected in the preambles to both Supplemental Agreements. The preamble to Supplemental Agreement No. 1 and cl 1 of Supplemental Agreement No. 2 both provide that the respective Supplemental Agreements are “annexed to and made a part of” the Cooperation Agreement, and in the event of inconsistency, the terms in the Supplemental Agreements shall prevail over those in the Cooperation Agreement. Thus, there is no doubt that the Supplemental Agreements can only be understood in connection with the Cooperation Agreement. They serve to modify the original payment obligations and mode of payment under the Cooperation Agreement with the participation of IRCP in the amended payment framework within the Cooperation Agreement. Their titles, “Supplemental Agreements”, mean precisely what they say—agreements which are to be supplemental to the main agreement viz the Cooperation Agreement.
(ii) Plain language in the Supplemental Agreements
[63] With the background context in mind, I turn now to the language used in the Supplemental Agreements. The key aspects of the Supplemental Agreements which may shed light on the parties’ expressed intentions are:
[64] Mr Pillai relied on cl 5 of Supplemental Agreement No. 1 to support his argument that the parties did not intend that IRCP was to be bound by the Dispute Resolution Mechanism. Mr Pillai proffered a plain reading of cl 5. IRCP was only obliged to make payments in accordance with the relevant provisions relating to payments in the Supplemental Agreements. Through cl 5, the parties expressly intended to limit IRCP’s obligations to those in the Supplemental Agreements. There was no intention for IRCP to be bound by any other obligation in the Cooperation Agreement, not least one as onerous as the Dispute Resolution Mechanism. Counsel for Lufthansa, Mr Dhillon Dinesh Singh (“Mr Singh”), responded by referring to cl 6 of Supplemental Agreement No. 1, as well as the preamble of Supplemental Agreement No. 1 and cl 1 of Supplemental Agreement No. 2. He argued that these clauses manifested the parties’ unequivocal intention for the Supplemental Agreements “to be governed by and made part of the Cooperation Agreement”. Mr Singh did not address cl 5 specifically.
[65] At first blush, Mr Pillai’s construction of cl 5 is attractive. The plain reading of cl 5 does lead to the conclusion that the parties only intended that IRCP was to be bound by one major obligation viz the obligation to pay Lufthansa sums payable under the Cooperation Agreement. However, this must be seen in the context in which the Supplemental Agreements were entered into. As Rajah JA observed in Redrawing the boundaries of Contractual Interpretation, “the process of interpreting the text is necessarily incomplete until the entire relevant context has been considered”: see [55] above.
[66] Bearing in mind the object and purpose of the Supplemental Agreements, I do not accept Mr Pillai’s construction of cl 5. I agree that cl 5 was intended to delineate IRCP’s limited role as a “payment conduit”. However, it must be remembered that apart from its payment obligations to Lufthansa, Datamat had other obligations under the Cooperation Agreement. Hence, there was a strong commercial impetus for IRCP to want to ensure that its substantive obligations—and by extension its liability—to both Lufthansa and Datamat were restricted. Clause 5 was inserted precisely to erase any doubts in the Supplemental Agreements as to IRCP’s limited role. It was not a reflection of the parties’ objective intention that the Dispute Resolution Mechanism would only bind Lufthansa and Datamat, but not IRCP.
[67] A reading of cl 5 in its proper context does not justify a conclusion that the parties did not intend for IRCP to be bound by the Dispute Resolution Mechanism. For completeness, I did not find cl 6 to be of any help to Lufthansa’s position either. Clause 6 simply provides “[a]ll other provisions of the [Cooperation] Agreement shall remain effective and enforceable.” It does not state against whom the provisions in the Cooperation Agreement shall remain effective and enforceable. On its own, cl 6 does not shed any light on the parties’ objective intentions with respect to the Dispute Resolution Mechanism.
[68] The remaining question therefore is this: when the parties used the phrase that Supplemental Agreement No. 1 “is hereby annexed to and made a part of the [Cooperation] Agreement”, what does this phrase mean and what was it intended to achieve?
(iii) Contextual interpretation
[69] In my view, the proper contextual interpretation, which gives adequate regard to the plain language of the Supplemental Agreements and its background context, yields the conclusion that the parties had intended the same Dispute Resolution Mechanism in the Cooperation Agreement to bind all three parties to the Supplemental Agreements.
[70] First, the Supplemental Agreements were entered into as a consequence of Datamat’s non-performance of its payment obligations to Lufthansa for work and services done under the Cooperation Agreement. Supplemental Agreement No. 1 and Supplemental Agreement No. 2 were literally intended to supplement Datamat and IRCP’s respective shortcomings in the performance of their payment obligations to Lufthansa. All three parties were fully aware of this context.
[71] Second, there is no denying the interdependence between the obligations in the Supplemental Agreements and the obligations in the Cooperation Agreement. The former obligations were premised on and were an extension of the latter. Thus, the language chosen by the parties to describe the purpose and effect of the Supplemental Agreements, namely, that the Supplemental Agreements were “annexed to and made a part of” the Cooperation Agreement, makes complete sense. The three parties had agreed to make the Supplemental Agreements an integral part of the Cooperation Agreement, with the appropriate terms as modified or varied by the Supplemental Agreements. Thus the three agreements were intended by the parties to function essentially as one agreement and should be read as a whole.
[72] Third, IRCP does not dispute that it was aware of the terms of the Cooperation Agreement when it entered into the Supplemental Agreements. Indeed, given the background events leading up to the Supplemental Agreements, in particular the disputes over the payments due from Datamat to Lufthansa under the Cooperation Agreement, IRCP must have been aware, when entering into the Supplemental Agreements, of both the terms of the Cooperation Agreement and the reasons for the amendments made to the payment obligations and mode of payment in the Supplemental Agreements. Furthermore, on top of the preamble which makes explicit reference to the Cooperation Agreement, IRCP was obliged under cl 3 of Supplemental Agreement No. 1 to pay Lufthansa in accordance with the Cooperation Agreement. Under these circumstances, IRCP must have been fully aware of the terms of the Cooperation Agreement, including the Dispute Resolution Mechanism adopted therein. Tellingly, there is no suggestion by IRCP to the contrary.
[73] Fourth, if a similar dispute over payment had been between Lufthansa and Datamat only, there would be no allegation that the dispute would not be subject to the Dispute Resolution Mechanism. This is so whether the dispute is characterised as one arising under the Cooperation Agreement, or one which arises under the Supplemental Agreements. Thus, such a dispute between Lufthansa and Datamat may ultimately be referred to arbitration in accordance with cl 37.3. Against this backdrop, it must have been within Lufthansa, Datamat and IRCP’s contemplation that a dispute over payment between either Lufthansa or IRCP, Datamat or IRCP, or all three parties, would be resolved by the dispute resolution method already agreed to by Lufthansa and Datamat. It makes little commercial sense for Lufthansa, Datamat and IRCP to have a payment dispute between Lufthansa and Datamat made subject to the Dispute Resolution Mechanism, but for that same dispute involving Lufthansa and IRCP, Datamat and IRCP, or all three of them, to be made subject to court proceedings. Having different dispute resolution mechanisms—the applicability of which depends on the identity of the parties—to resolve the same issue in dispute is not only commercially impracticable, but may also yield unreasonable results. Such an arrangement is necessarily more expensive since the parties may be forced to resolve the same dispute in different fora. It may also give rise to inconsistent results, potentially leaving parties uncertain as to their rights and obligations vis-à-vis the other two parties in the tripartite relationship.
[74] It bears repeating that courts must have regard to the commercial purpose of the contract in the construction of contractual terms: Yamashita Tetsuo v See Hup Seng Ltd [2009] 2 SLR(R) 265 at [64]. There can be no serious objections to the court’s preference for a more commercially sensible interpretation. As Lord Steyn justified in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at 771:
[75] A High Court decision, Econ Piling Pte Ltd v NCC International AB [2007] SGHC 17 (“Econ Piling”), fortifies my conclusion that a contextual interpretation of the Supplemental Agreements entails a finding that the parties must have intended for a common dispute resolution mechanism to govern all their disputes arising out of the Cooperation Agreement read with the Supplemental Agreements, which had been made an integral part of the former. In Econ Piling, the two parties had entered into a joint venture agreement which contained, inter alia, an arbitration agreement. Less than a year later, Econ Piling Pte Ltd (“Econ”) faced financial difficulties and the two parties then entered into a variation agreement which contained an exclusive jurisdiction agreement in favour of the Singapore courts. A dispute subsequently arose and the issue before the court was which of the two dispute resolution clauses was operative.
[76] After deciding that the purpose of the variation agreement was to “reconstitute, in very significant ways, the commercial relationship between the parties” following Econ’s financial woes, Menon JC (as he then was) held (at [16]–[17]):
[77] Consequently, Menon JC held that the exclusive jurisdiction agreement in the variation agreement applied to all disputes arising under both the joint venture agreement and the variation agreement. I am cognisant that the parties in the two agreements in Econ Piling were identical, and that unlike the present case, there was a dispute resolution mechanism in the latter agreement in Econ Piling. Notwithstanding, it is noteworthy that the approach of Menon JC was to ascertain the parties’ intention in light of the context in which the variation agreement was entered into. He, too, recognised that in the absence of clear language, the consequence of having different dispute resolution mechanisms governing the same disputed issue would not make commercial sense at all. That is precisely the situation which will result if the Dispute Resolution Mechanism does not similarly bind IRCP. Such an outcome is certainly not one which the parties could reasonably have intended when entering into the Supplemental Agreements.
[78] For the reasons given above, the notion that the applicable dispute resolution mechanism depends on which parties are disputing the issue simply does not accord with commercial sense. Indeed, such a notion is not just commercially insensible, but in the words of the Court of Appeal in Astrata, not rational. On the whole, I find that by using language which stressed that the Supplemental Agreements were annexed to and made a part of the Cooperation Agreement, the parties’ objective intention, at least in respect of the Dispute Resolution Mechanism, was for the latter to be binding on all three parties to the Supplemental Agreements. That is the only commercially sensible and rational conclusion and there is no language in the Supplemental Agreements nor in the Dispute Resolution Mechanism which opposes this.
[79] In fact, I can see no undue stretching of the natural meaning of the operative words in the arbitration agreement found in cl 37.3 that “[a]ll disputes arising out of this Cooperation Agreement, ... shall be finally settled by arbitration ...”. Those words can be read consistently to apply to disputes arising under any subsequent agreements made “supplemental” to the Cooperation Agreement itself. In other words, the ambit of the arbitration clause as worded may reasonably be construed to apply to disputes arising out of any subsequent Supplemental Agreements that are mandated by the parties to be treated as part and parcel of the Cooperation Agreement by virtue of the words “annexed to and made a part of” the Cooperation Agreement. This is unlike those cases where the arbitration clause in a charter party is expressly stated to govern the settlement of disputes arising only out of the charter party, but a bill of lading through general words of incorporation purports to incorporate that arbitration clause to govern disputes arising not out of the charter party, but out of the bill of lading itself. Understandably, it will be difficult in these cases, where no distinct and specific words of incorporation of the arbitration clause exist, to construe a bill of lading as an agreement that is supplemental to the charter party, such that both can be regarded substantively as one charter party contract to enable that arbitration clause to apply without any change to its wording. By contrast, in the present case, the arbitration clause in the Cooperation Agreement is not being made to apply beyond its expressed scope of application when applied to disputes arising out of the provisions in the Supplemental Agreements. The arbitration clause as worded can still be read sensibly without any need for modification.
[80] There will no doubt be some query whether my conclusion entails reading into the words of the Supplemental Agreements an intention which is not apparent on its face. While I am aware that the contextual approach to interpretation is not a carte blanche for “creative interpretation” (Master Marine AS v Labroy Offhsore Ltd and others [2012] 3 SLR 125 at [42]), interpretation of express words in a manner that would either frustrate the commercial purpose behind the agreement or make no commercial sense for the contracting parties should be avoided, unless there is some special reason for doing so. As Lord Collins in Re Sigma Finance (SC) observed (at [35]):
[81] An overly literal interpretation which distorts or frustrates the commercial purpose of the contract is most unlikely to be the agreed contractual position intended or meant by the parties as understood by a reasonable person circumstanced in the same position as the actual parties. To borrow the words of Lord Hoffmann again, this time in Chartbrook Ltd and another v Persimmon Homes Ltd and another [2009] 3 WLR 267 (at [25]–[26]):
Practical ramifications
[82] I am acutely aware of the potential practical ramifications of the approach that I have taken. The strict rule mentioned earlier (at [26]–[32]) that express words are required to incorporate an arbitration agreement into another may be undermined by my approach. There may also be concerns of certainty. However, one cannot look at the strict rule for incorporation of arbitration agreements without considering the underlying rationale for the rule. Whether an arbitration agreement is incorporated is effectively a function of the parties’ intentions objectively ascertained. If specific words are used, it simply means that the parties’ intentions are unambiguously expressed: see Concordia Agritrading Pte Ltd v Cornelder Hoogewerff (Singapore) Pte Ltd [1999] 3 SLR(R) 618 at [16]. The absence of specific words, however, should not be conclusive evidence that the parties did not intend to be bound by the arbitration agreement contained in a different contract, even though it usually is a strong indicator that the parties did not intend to be bound by arbitration. As David Joseph QC explained in his treatise, Jurisdiction and Arbitration Agreements and their Enforcement (Sweet & Maxwell, 2nd Ed, 2010) at para 5.15:
[83] Fundamentally, determining whether an arbitration agreement contained in one contract binds the parties to another contract is an objective inquiry into the parties’ intentions. This was recognised by Langley J in The Athena (No 2) at [66]–[68], albeit understandably tentatively given that the House of Lords had endorsed the strict rule in Thomas (T W & Co) Ltd v Portsea Steamship Co Ltd [1912] AC 1. The holding of Clarke J in Africa Express Line Ltd v Socofi SA and another [2010] 2 Lloyd’s Rep 181 at [30]–[31] is directly on point:
[84] I do not see the strict rule as circumscribing the court’s power to give effect to the parties’ true intentions objectively ascertained. Indeed, the court is permitted, even obliged, to distil the parties’ objective intentions, having regard to the relevant contextual circumstances. In each case, the court must construe the language of the contract using the modern contextual approach to interpretation and ask itself whether a consensus on the applicability of the arbitration agreement is clearly and precisely demonstrated: see AIG Europe SA v QBE International Insurance Ltd [2001] 2 Lloyd’s Rep 268 at [26]. Nevertheless, for the avoidance of doubt, the strict rule still retains its utility. It will and should apply in the majority of circumstances. In most cases, whether the parties can be said to have intended that an arbitration agreement in a separate agreement applies to a dispute arising from a supplemental agreement depends on whether express reference was made to that arbitration agreement. It is generally difficult to demonstrate that the parties intended to incorporate the arbitration agreement contained in the separate agreement in the absence of clear words.
[85] Turning finally to the concern of uncertainty, there is undoubtedly a strong policy justification to uphold the strict rule, particularly from the perspective of third parties. This was explained by Bingham LJ in The Federal Bulker [1989] 1 Lloyd’s Rep 103 at 105:
[86] Nevertheless, the underlying rationale for the strict rule ostensibly loses much of its force if the third party contracted with knowledge of the arbitration agreement, as in the present case. As the cornerstone of contractual interpretation, the search for parties’ objective intentions should not be surrendered simply because of potential uncertainty. The concern over uncertainty, whilst legitimate, should not be overstated. In this regard, Rajah JA’s perceptive observation in “Redrawing Boundaries of Contractual Interpretation” (at [39]) is apt:
Operation of the Dispute Resolution Mechanism
[87] There is one last point which neither party has raised, but is relevant. The Dispute Resolution Mechanism in the Cooperation Agreement is worded in such a way that it would not be possible to apply to IRCP if interpreted literally. For instance, the mediation procedure in cl 37.2 expressly refers to committees comprising personnel from Lufthansa and Datamat only. It does not contemplate personnel from IRCP forming part of the committees. Similarly, the arbitration agreement in cl 37.3 provides that “each of the Parties has the right to appoint one (1) arbitrator”, and the two party-appointed arbitrators will in turn appoint the third arbitrator. Clause 1.13 defines “Parties” as the parties to the Cooperation Agreement, while cl 2.1 states that the Cooperation Agreement was entered into between Lufthansa and Datamat. Thus, on a strict interpretation of cl 37.2 read with cll 1.13 and 2.1, Lufthansa and Datamat are the only Parties to the Cooperation Agreement and only the two of them have a right to appoint an arbitrator. IRCP does not have any corresponding right. The Tribunal dealt with this by referring to Rule 8 of the SIAC Rules which provides that where there are more than two parties in the arbitration, the parties may agree on the procedure for appointment of arbitrators. The Tribunal noted that the appointment procedure in the present case had been confirmed by the Chairman whose decision is not subject to appeal. Moreover, IRCP had not objected to the appointment procedure.
[88] At this juncture, I pause to clarify that IRCP has not contended that cll 37.2 and 37.3 are unworkable either in a tripartite or bilateral context. There is therefore strictly no need for me to decide on this point. Nevertheless, for completeness, I am inclined to the view that cll 37.2 and 37.3, when construed in light of the parties’ objective intention that IRCP is bound by the Dispute Resolution Mechanism, can operate in both a bilateral and trilateral context. In a trilateral dispute, the Tribunal’s reference to the SIAC Rules in its construction of cl 37.3 is reasonable, and gives effect to the parties’ intention that all disputes involving any or all of the three parties to the Supplemental Agreement shall be resolved in accordance with the Dispute Resolution Mechanism. If the dispute were bilateral, the two parties would appoint their own arbitrator who would then jointly appoint the third arbitrator.
[89] The literal wording of the mediation procedure in cl 37.2 may also be overcome by construction. The substance of cl 37.2 is to bring together personnel from various tiers of management from each party to mediate an amicable resolution of the dispute. This underlying rationale can be easily applied to IRCP. A two-party dispute involving IRCP and Lufthansa, for instance, shall first be referred to a committee comprising the relevant personnel from IRCP and Lufthansa. A dispute involving all three parties shall be referred to a committee comprising the relevant personnel from all three parties. This construction of cl 37.2, taking into account the contractual re-arrangements arising from the Supplemental Agreements that followed, coheres with the intention of the parties to resolve all their disputes in accordance with the Dispute Resolution Mechanism.
Whether the preconditions for the commencement of arbitration in Clause 37.2 have been satisfied
Enforceability of Clause 37.2
[90] Clause 37.3 provides that the parties shall commence arbitration if the disputes “cannot be settled by mediation pursuant to Clause 37.2”. Although cl 37.3 refers to the procedure in cl 37.2 as a mediation, the parties appear to have used the term mediation and negotiation interchangeably to describe the procedure cl 37.2. As nothing turns on whether the procedure in cl 37.2 is in fact a procedure setting out negotiation and not mediation or vice versa, I shall for convenience retain the nomenclature in cl 37.3 and simply refer to the procedure in cl 37.2 as “the mediation procedure”.
[91] Mr Pillai argued that cl 37.2 is clear and unambiguous. The Tribunal was therefore wrong to hold that cl 37.2 was too uncertain to be enforceable. Mr Singh’s response was that the principles of law governing agreements to negotiate or mediate are clear: a bare agreement to negotiate or mediate is unenforceable. In support of his argument, Mr Singh cited the House of Lords decision in Walford v Miles [1992] 2 AC 128 (“Walford”). In Walford, the buyers and sellers of a company entered into an oral agreement under which the sellers agreed to deal with the buyers exclusively and to terminate any negotiations between them and any other competing buyer. The sellers subsequently decided not to proceed with their negotiations with the buyers and eventually sold the company to another party. The buyers sued for breach of the oral agreement. The sellers’ defence was that the parties were still in negotiations and the oral agreement was an agreement to negotiate in good faith. The House of Lords held that the oral agreement was unenforceable. It observed (at 138) that an agreement to negotiate in good faith was unworkable in practice because while negotiations were in existence, either party was entitled to withdraw from those negotiations at any time and for any reason. Such an agreement was uncertain and had no legal content.
[92] Walford must now be read in light of HSBC Institutional Trust Services (Singapore) Ltd v Toshin Development Singapore Pte Ltd [2012] SGCA 48 (“Toshin”), a very recent decision of the Singapore Court of Appeal. One of the issues in Toshin was whether an express term in a contract which obliges the parties to endeavour, in good faith, to agree on a new rent was valid and enforceable. The court answered this issue in the affirmative. It distinguished Walford on the basis that the oral agreement in the latter was a standalone agreement; there was no other overarching contractual framework which governed the parties’ relationship. The agreement to negotiate in Toshin was part of a Rent Review Mechanism which was in turn part of the Lease Agreement which the parties had entered into. The Court of Appeal’s holding and observations are directly on point and merits quotation in extenso (at [39]–[40]):
[93] The Court of Appeal also opined (at [43]) that in principle, “there is no difference between an agreement to negotiate in good faith and an agreement to submit a dispute to mediation”, and that “[e]ven though agreement cannot be guaranteed, it does not mean that the parties concerned should not try as far as reasonably possible to reach an agreement”. Highlighting the approach which should be taken towards negotiation and mediation dispute resolution clauses, the Court of Appeal stated (at [45]):
Given the Court of Appeal’s attitude towards mediation clauses, any doubts about an obligation to negotiate in good faith under a multi-tiered dispute resolution clause should be laid to rest. If an obligation to negotiate in good faith which is part of a broader contractual framework such as a rent review mechanism under a lease agreement is enfo rceable, the obligation to refer a dispute to various specifically constituted panels pursuant to cl 37.2 should also be enforceable. They are, after all, essential steps stipulated in the Dispute Resolution Mechanism and expressly made condition precedents to resolution of a dispute by arbitration.
[94] In any event, I disagree that the mediation procedure in cl 37.2 is uncertain. Mr Singh submitted that Insigma Technology Co Ltd v Alstom Technology Ltd [2009] 1 SLR(R) 23 (“Insigma (HC)”) is instructive. The relevant dispute resolution clause in Insigma (HC) states:
[95] Prakash J opined (Insigma at [50]), albeit obiter, that the clause was unenforceable because it was vague and subjective, “especially in relation to the meaning of the words ‘friendly’ and ‘consultations’”. Arguably, the phrase “friendly consultations” does lend itself to some uncertainty as to the nature of the exercise and the extent of the parties’ obligations. Prakash J was thus understandably concerned that such an exercise was not of a mandatory character. The significance of the mandatory character of a dispute resolution procedure was highlighted by Colman J in Cable & Wireless Plc v IBM United Kingdom Ltd [2002] CLC 1319 (“Cable & Wireless”), which Prakash J had taken note of (also at [50]). Colman J cautioned (at 1327):
[96] Colman J held that the relevant clause was enforceable because it did not merely require an attempt in good faith to achieve resolution of a dispute. The parties were obliged to participate in a procedure as recommended to the parties by the Centre for Dispute Resolution. Reference to the Centre for Dispute Resolution and participation in its recommended procedure were, in Colman J’s view, sufficient indicia of certainty as the court may look at these indicia to determine if the clause was complied with.

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International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another

Laws this judgment relies on

Grounds of decision

Introduction

Background

Parties

Facts

The Cooperation Agreement

IRCP’s initial involvement with Datamat

Supplemental Agreements No. 1 and 2

Clauses 37.2 and 37.3 of the Cooperation Agreement

The arbitration proceedings

Present proceedings

Plaintiff’s case

Defendant’s case

Issues

Decision

Whether IRCP is bound by the arbitration agreement

Incorporation of Clause 37.3 into the Supplemental Agreements

Composite, or separate and distinct agreements

Parties’ objective intention

The modern contextual approach to interpretation

Applying the contextual approach to the Supplemental Agreements

(i) Object and purpose of the Supplemental Agreements

(ii) Plain language in the Supplemental Agreements

(iii) Contextual interpretation

Practical ramifications

Operation of the Dispute Resolution Mechanism

Whether the preconditions for the commencement of arbitration in Clause 37.2 have been satisfied

Enforceability of Clause 37.2