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Determining the governing law of arbitration agreements: the Singapore High Court rejects the English courts' approach

04 August 2014
In FirstLink Investments Corp Ltd v GT Payment Pte Ltd the Singapore High Court held that where no national law is expressly stated to govern an arbitration agreement and it falls to the courts to determine the issue, the courts' key consideration is likely to be the parties' choice of seat for the arbitration, rather than the stated governing law of the contract.

In this case, the court considered the claimant's submissions that the respondent's application for a stay in favour of arbitration should not be granted on the grounds that the arbitration agreement (which provided that all disputes be settled before the Arbitration Institute of the Stockholm Chamber of Commerce) had been rendered invalid by the contract's unusual governing law provision (which stated that the contract was to be "governed by and interpreted under the laws of Arbitration Institute of the Stockholm Chamber of Commerce [..].").  The court rejected those submissions finding that the contract's governing law provision was not relevant for the purposes of determining the arbitration agreement's validity, as the implied governing law of the arbitration agreement was the law of the seat (in this case, the laws of Sweden).

The court reached this conclusion applying the three-stage enquiry adopted by the English Court of Appeal in SulAmerica Cia Nacional De Seguros S.A. and others v Enesa Engenharia S.A., into (i) an express choice of governing law; (ii) an implied choice of governing law in the absence of an express choice; and (iii) where the parties had not made any choice, the law with the closest and most real connection to the arbitration agreement.  However, in its consideration of the arbitration agreement's implied choice of governing law, the Singapore court's approach differed from that of the English court, which has held that where no governing law for the arbitration agreement has been expressed, it will usually be regarded as governed by the expressed governing law of the substantive contract.  By contrast, the Singapore court reasoned that the desire for neutrality in the dispute resolution process and the need for the arbitration agreement to be enforceable in the seat in which the award is made (to prevent any later award being set aside as unenforceable), were more relevant considerations.

This case serves as another reminder of the importance of parties being well advised in the drafting of arbitration agreements so as to avoid the risk of subsequent jurisdictional challenges.  For the avoidance of doubt, parties would be best advised to expressly include the governing law when drafting the arbitration agreement.  The decision is also another example of the Singapore courts' willingness to depart from the position under English common law where they consider appropriate.

*A version of this article was originally published by Practical Law Arbitration http://uk.practicallaw.com/country/arbitration

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