SICC Judgment

SICC Judgment: Validity of an arbitration clause - CUG and others v CUH [2022] SGHC(I) 16

The Respondent, CUH, was one of the contractors in a joint venture agreement along with 3 other companies (“JV/ JV Parties”) in a large refinery construction project (“Main Contract”). The term regarding payment of money out from the JV's bank account required the authorization of all the JV Parties. Sometime in 2017, JV Parties engaged services with CUG to collect some outstanding payments under the Main Contract. The parties initially agreed on a commission fee of 1% however it was later increased to 2.2% (“increment”). CUH disagreed with the increment. Nonetheless, agreements were commenced between the JV parties (except CUH) (“Original Parties”) in regard to the increment and other terms including an arbitration clause (“the Agreements”). CUH then continued to refuse JV Parties’ outgoing payments to CUG under the Agreements except for some progress payments some time in February to October 2018 pursuant to CUG’s invoices to JV Parties (“progress payments”). 

Subsequently arbitration proceedings were initiated by CUG against the JV Parties under the Agreements. CUH maintained that since it has never signed/agreed to the Agreements, it is not a party to the same and therefore the arbitral tribunal has no jurisdiction over it. It was the applicants’ case that an inference of agreement can come into existence through a course of conduct, in particular, the progress payments made by or at least on behalf of CUH. This ultimately bound CUH to the Agreements, and thus the arbitration clause. In this regard, the arbitral tribunal held in favour of CUH. An application then was brought before the Singapore International Commercial Court (“SIAC”) to challenge the arbitrator’s decision on the issue of jurisdiction of an arbitral tribunal under s 10(3) of the International Arbitration Act (“the Act”).

The SIAC held that it is not obvious that the progress payments made by JV Parties to CUG necessarily are to be treated as giving rise to unequivocal acceptance by CUH of any arbitration agreement. The SIAC applied the objective test and held that CUH’s position in respect of the Agreements remained unchanged notwithstanding the progress payments made by JV Parties. The Original Parties had ensured CUG that it would make payment to CUG despite CUH's disagreement. CUG could not assume that CUH intended to be bound by the Agreements because CUG was not aware of how the progress payments were made to them in the first place, as it could be by way of an internal procedure that allows the JV Parties to authorize such payment without CUH's approval. Additionally, it can be seen that Original Parties attempted to put “maximum pressure” on CUH to enable the progress payments. Therefore, CUH's authorization for the same was only to facilitate Original Parties’ of its obligations to CUG and out of its commercial interest as JV Parties. It could be concluded that CUH’s conduct in authorizing the progress payments could not unequivocally amount to a legally binding contract to allow the JV Parties to make any future payments, still less to justify a conclusion that CUH thereby became legally bound to the Agreements including the arbitration clause.

Conclusion  
When an arbitration agreement is contained in a contract and the validity of the arbitration agreement is challenged on the basis that no binding contract was concluded, the validity of the arbitration agreement and the existence of the binding contract “stand or fall together” and a court may determine both issues on the basis of full rehearing.