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Singapore court rules that commencement of litigation was correct, even though policy contained an arbitration clause

  • Legal Development 2 December 2020 2 December 2020
  • Asia Pacific

Comparatively little attention is often paid to the proposed jurisdiction / arbitration clauses in a policy during its placement or renewal. If a dispute arises, the parties have to fully consider the application of such clauses. The recent Singapore law case of Silverlink Resorts v MS First Capital Insurance Ltd [2020] SGHC 151 provides a useful reminder that a failure to sufficiently consider these clauses during placement or renewal can lead to further dispute following an insurance claim and additional legal costs in trying to resolve satellite litigation. 

Facts

The plaintiff owns and operates the Amanpuri resort in Phuket, Thailand. The resort was insured for property damage and business interruption losses by the defendant (the "Policy"). On 2 April 2020, all hotels in Phuket were closed by order of the Provincial Government, and the Civil Aviation Authority of Thailand banned all international flights into Thailand. As a result, the plaintiff claimed under the Business Interruption section of the Policy. The defendant rejected the claim and on 29 May 2020, the plaintiff commenced proceedings in the Singapore Supreme Court for a declaration that the defendant was liable under the Policy. On 2 July the Defendant filed a summons seeking a stay of the proceedings in favour of arbitration.

The Policy Wording

General Conditions 10, 11 and 13 of the Policy provided a multi-tiered dispute resolution regime, relevantly set out below:

10. Mediation

(a) In the event of any dispute, controversy or claim arising out of or relating to this Policy or the breach, termination or invalidity thereof ('the dispute"), arising between the two parties in connection with this Policy, the parties agree to meet in good faith to resolve the dispute before commencing any arbitration proceedings.

(b) If the dispute is not resolved within twenty one (21) days of commencement of the discussions described in (a) above, the parties agree to attempt to settle the dispute by mediation …

11. Arbitration

Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, which is not settled pursuant to the Mediation General Condition within sixty (60) days of commencement of the discussions described in the Mediation General Condition (a) above, shall be referred to arbitration and the parties shall unless otherwise mutually agreed, use the best practice within the jurisdiction of this Policy to have the dispute arbitrated before legal action is commenced.

[]

13. Jurisdiction

Should any dispute arise between the Insured and the Insurers regarding the interpretation or the application of this Policy the Insurers will, at the request of the Insured, submit to the jurisdiction of any competent Court in Singapore. Such a dispute shall be determined in accordance with the practical applicable to such Court and in accordance with the laws of Singapore. [our emphasis]

The Renewal Certificate attaching to the Policy relevantly stated (with our emphasis below):  

Choice of Law and Jurisdiction: In the event of any dispute over interpretation of this Policy:

Law : Singapore

Jurisdiction : Courts of Singapore

The issue before the Court was whether the Arbitration Clause (GC 11) or the Jurisdiction Clause (GC13) prevailed in this instance.

Parties' Submissions

The defendant argued that the Arbitration Clause should be given primacy. The purpose of the Jurisdiction Clause, it argued, was to confirm that the Court had supervisory jurisdiction over any arbitration. The defendant submitted that the parties could not have intended the Jurisdiction Clause to carve out disputes relating to the interpretation or application of the Policy, as that would be commercially illogical and would leave the Arbitration Clause with a very narrow scope. Further, the defendant highlighted that the phrase "the parties shall unless otherwise mutually agreed, use the best practice within the jurisdiction of this Policy to have the dispute arbitrated before legal action is commenced" in the Arbitration Clause invoked the Court's supervisory jurisdiction, as it would not be possible to commence legal proceedings over a dispute that had been arbitrated.

In contrast, the plaintiff submitted that the Jurisdiction Clause acted to carve out (from the Arbitration Clause) any dispute regarding the interpretation or application of the Policy. The plaintiff argued that the Arbitration Clause still had a purpose, on its case, because it would still capture disputes regarding the assessment of quantum or the validity of the Policy. The plaintiff submitted that if the Jurisdiction Clause only indicated the Court's supervisory jurisdiction (as the defendant argued), then the clause would be largely superfluous and would be inconsistent with the canon of construction that the Court should give effect to all clauses in a contract.

Court's Determination

The judge agreed with the plaintiff and determined that the parties' intention, objectively ascertained, was for the Jurisdiction Clause to carve out disputes regarding the interpretation or application of the Policy, for the following reasons:

  1. The Jurisdiction Clause did not apply to all disputes, and its scope was narrower than that in the Arbitration Clause. This indicated that the parties intended to carve out specific disputes from the Arbitration Clause.
  2. The Renewal Certificate confirmed that the parties intended to resolve interpretation disputes through court proceedings rather than arbitration
  3. The carve out made commercial sense. The Court provided an effective, efficacious and efficient mechanism to resolve interpretation disputes by way of original summons, which is generally more efficient than arbitration proceedings.
  4. The defendant's interpretation could lead to further confusion of having different supervisory courts having jurisdiction over whether a dispute fell within the Jurisdiction Clause or not, which would be inconsistent with the presumption that parties intend their disputes to be decided by the same tribunal.

Analysis

In our experience, it can be common for commercial insurance to provide that liability disputes are to be determined by a court and for quantum disputes to be resolved by arbitration. The effect of this is that, in common law jurisdictions, a better body of case law can be developed and, perhaps, future disputes regarding previously litigated wordings might be avoided. The confidentiality of arbitration proceedings prevents this.

If, however, confidentiality over the determination of any dispute is preferred, parties should look to incorporate a suitable (and valid) model arbitration clause (such as one provided by the key regional arbitral institutions (e.g. SIAC or HKIAC) or a professional body (e.g. ARIAS UK)). Arbitration clauses can, if appropriately worded, be subject to prior commercial negotiations or mediation having been attempted (and failed). Such multi-tiered dispute clauses should be carefully drafted to ensure that there is no ambiguity in the parties' intention.

Nicholas Sykes is a partner at Clyde & Co and has significant experience in conducting portfolio policy reviews and advising on dispute resolution clauses. If you wish to speak to him about undertaking a portfolio review, please contact him at Nicholas.Sykes@clydeco.com

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Additional authors:

Joel Harris (Professional Support Lawyer)

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