Subject Matter Arbitrability: Obstacles in using the Composite Approach
Khushboo Sharma & Dalima Pushkarna (*)
Recently, the Singapore Court of Appeal (“CA”) in Anupam Mittal v. Westbridge Ventures II Investment Holdings (“Westbridge case”), via judgement dated January 6, 2023, clarified that subject matter arbitrability at the pre-award stage is to be determined by a composite approach. The composite approach entails a two-stage process. Initially, the law of the arbitration agreement is examined. Once this stage is complied with, the next step involves examining the law of the seat. This approach requires the dispute to be arbitrable by both the law of the arbitration agreement and the law of the seat.
The CA overruled the Singapore High Court, which held that the question of subject matter arbitrability should be settled using the law of the seat. This practice, adopted by the CA, contradicts the approach taken by the national courts of the U.S. and several European nations, which, when determining subject matter arbitrability at the pre-award stage, employ the lex fori (usually the law of the seat).
Exploring the Legal Territory: Composite Approach v. Law of the Seat
The Singapore High Court held that the question of subject matter arbitrability should be decided using the law of the seat. This High Court judgement was rejected by the CA. It was decided that the parties’ intended subject matter arbitrability must be ascertained from the arbitration agreement and the applicable law. The CA thus developed a “composite approach” to determine the arbitrability of a dispute at the pre-award stage.
According to this approach, the arbitrability of a dispute is initially determined by the law that governs the arbitration agreement. If the law governing the arbitration agreement is foreign law (i.e., not Singapore law) and that law provides that the subject matter of the dispute cannot be arbitrated, the Singapore court will not allow the arbitration to proceed. This is because such a dispute is deemed to be non-arbitrable for public policy reasons.
Even if the dispute is considered arbitrable under the law of the arbitration agreement, and Singapore law (i.e., the law of the seat) considers the dispute to be non-arbitrable, the arbitration cannot proceed due to public policy considerations. In other words, the court will prevent the arbitration from proceeding if it goes against the fundamental public policy of Singapore.
This approach of deciding subject matter arbitrability through the law of the arbitration agreement along with the law of the seat contradicts the approach taken by the majority of other national courts, which uses the law of the seat to determine arbitrability. Countries like the UK, US, France, Switzerland, Holland, Belgium, Italy, Austria, and Sweden follow the lex fori.
In a recent case of Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb, the UK Supreme Court found it unreasonable to have different laws governing arbitrability based on the timing of challenges to the validity of an arbitration agreement.
In Consultant v. Egyptian Local Authority,[i]the arbitration was to be held in Geneva, Switzerland, in accordance with ICC Rules, and under the Egyptian law. The defendant challenged the tribunal’s authority because the arbitration clause was invalid under Egyptian law, which states that parties may only submit a dispute to arbitration if specifically authorised by legislation. After applying the law of the seat, which in this case was Switzerland, the arbitral tribunal determined that the matter was arbitrable under Swiss law.
A similar dispute was found to be arbitrable under the law of the seat of arbitration. In Fincantieri-Cantieri Navali Italiani SpA ET OTO Melara Spa v. ATF, two Italian companies argued that the dispute was non-arbitrable under a public policy exception due to a trade embargo against Iraq. The tribunal followed domestic rules (law of the seat) and determined that the dispute could be resolved under Swiss law.
Similarly, in the Serbian Case, where one of the parties argued that the arbitral tribunal's award should be set aside because none of the parties belonged to Switzerland, which was decided as the seat of arbitration, the Swiss Federal Supreme Court ruled that taking into account foreign mandatory laws was outside the purview of the arbitral tribunal and that arbitral tribunals with seats in Switzerland are not required to render awards that are enforceable in all the jurisdictions where the enforcement may be attempted. Also, in the Bulgarian case, the arbitral tribunal held that considering foreign mandatory laws was beyond the scope of the arbitral tribunal's mandate and hence was not required give an award which was enforceable in all the jurisdictions where the enforcement may be sought.
Furthermore, according to Article 177(1) of the Swiss Private International Law Act, arbitrability must be determined in accordance with the law of the seat of the arbitration, and any provisions of foreign law governing the issues are irrelevant, with the exception of ensuing discordancy with public policy. After noting that arbitrability is primarily a question of jurisdiction, Julian D M Lew et al. in the book Comparative International Commercial Arbitration,[ii] commented that “the better view is that the law applicable to the question of arbitrability in court proceedings should be governed exclusively by the provisions of the law of the national court which determines the case.”
Hurdles in applying the Composite Approach to subject matter arbitrability
The composite approach is inflexible and does not take into account the nuances of each case. The approach is often focused on the law governing the arbitration agreement and the law of the seat and may not adequately consider the specific facts and circumstances of the dispute.
The composite approach may result in conflicting decisions between different jurisdictions. This can create uncertainty and undermine the effectiveness of arbitration as a dispute resolution mechanism. If different jurisdictions apply different standards for determining subject matter arbitrability, it can be difficult for parties to anticipate the outcome of disputes and may lead to lengthy and costly proceedings.
Furthermore, using this composite approach to decide the arbitrability of the subject matter at the pre award stage will lead to a stance which will be against arbitration. This view is further supported by Associate Professor Darius Chan, who was acting as an amicus curiae in the Westbridge case. He also believes that adopting the composite approach to determine the subject matter arbitrability has drawbacks from both the lex fori and ‘proper law’ approaches and does not provide any clear advantages. His opinion is that it is too strict and does not align with the usual trend of favouring arbitration.
The rigid application of the composite approach may also result in injustices where the outcome is not aligned with the parties’ intentions. For instance, in some cases, the parties may have intended to resolve a particular dispute through arbitration, but the composite approach may prevent them from doing so due to the subject matter being outside the scope of arbitrability in one of the conflicting laws.
Moreover, this judgement also tries to deviate from the general practice of law by trying to apply the law of the arbitration agreement instead of just applying the law of the seat while deciding subject matter arbitrability at the pre-award stage. Therefore, this judgment can be said to be going against the public policy in some cases. This view finds support from Article V (2)(b) of the New York Convention which empowers a Contracting State's court to refuse recognition and enforcement of an award if such recognition or enforcement would be contrary to its public policy.
In conclusion, the recent decision by the Singapore Court of Appeal in Anupam Mittal has clarified that subject matter arbitrability at the pre-award stage is to be determined by a composite approach which takes into account both the law of the arbitration agreement and the law of the seat. This approach differs from the majority of national courts, which typically use the law of the seat to determine arbitrability.
The use of this composite approach is complicated and will produce varying results since conflicting laws are utilized to address the same problem. This will also result in higher expenses and longer waiting times as uncertainty will arise for those involved in determining if their disagreement is eligible for arbitration. Moreover, strictly implementing this approach contradicts the favourable view towards arbitration.
[i]Consultant v. Egyptian local authority, ICC Case No. 6162. [ii]Julian D M Lew, Loukas A Mistelis and Stefan M Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003).
* Khushboo Sharma is a third-year law student at Dr Ram Manohar Lohiya National Law University, Lucknow. Dalima Pushkarna is a second-year law student at Dr Ram Manohar Lohiya National Law University, Lucknow.