3 November, 2012

 

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

 

Quarella Spa V Scelta Marble Australia PTY Ltd (2012) SGHC 166
 
Given the prevalence of choice of law clauses in arbitration agreements, parties who are unsuccessful in an arbitration may attempt to set aside the arbitral award (“Award”) on the basis that the arbitral tribunal (“Tribunal”) applied the wrong law in rendering its Award. 
 
In the recent decision of Quarella SpA v Scelta Marble Australia Pty Ltd [2012] SGHC 166, the Singapore High Court rejected just such an argument made by Quarella SpA (“Quarella”), the plaintiff in this case, thereby upholding the Award which had been successfully obtained by Scelta Marble Australia Pty Ltd (“Scelta”), the Defendant in this case  
 
Cavinder Bull, SC, Woo Shu Yan and Colin Liew represented Scelta. 
 
BACKGROUND
 
The dispute arose out of the termination of an exclusive distribution agreement (“Agreement”) entered into by Quarella, an Italian manufacturer of composite stone products, and Quarella’s Australian distributor, Scelta.  
 
Clause 25 of the Agreement (“Clause 25”) stated that the Agreement was to be governed by the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) and where not applicable by Italian law. The Agreement also provided that any dispute which arose should be decided by arbitration in Singapore according to the International Chamber of Commerce (“ICC”) Rules of Arbitration.  
 
Scelta commenced arbitration proceedings against Quarella claiming that Quarella had breached the Agreement. Scelta was represented by Australian solicitors and Cavinder Bull SC appeared as counsel. Quarella was represented by an international firm and David O’Çallaghan SC appeared as counsel. The week-long hearing of the arbitration was conducted in Milan. 
 
Quarella argued as a preliminary issue that the Agreement was governed by the CISG, and not Italian law. The basis of Quarella’s argument was that Clause 25 amounted to a direct choice by the parties of the CISG as the applicable law, notwithstanding that the CISG, under its own internal rules of applicability, did not apply to distribution agreements such as the Agreement.  
 
In the Award, the Tribunal disagreed with Quarella’s submission, ruling that the CISG was inapplicable and that the Agreement was therefore governed by Italian law. Applying Italian law, the Tribunal went on to rule in favour of Scelta on the merits and ordered Quarella to pay damages and costs to Scelta. 
 
Dissatisfied with the Award, Quarella commenced an action in Singapore under the International Arbitration Act (Cap 143A) to set aside the Award. Quarella argued that the Tribunal had wrongly interpreted Clause 25 of the Agreement, which according to Quarella was on its true construction a direct choice by the parties of the CISG as the applicable law, and that the Tribunal should therefore have applied the CISG to the merits of the dispute. Quarella contended that the Award should consequently be set aside under Articles 34(2)(a)(iii) and 34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). 
 
Article 34(2)(a)(iii) of the Model Law provides that a court may set aside an Award if, among other things, the Award “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. Quarella argued that, by applying Italian law rather than the CISG (which had allegedly been expressly chosen by the parties in Clause 25 as the applicable law), the Tribunal had exceeded the scope of submission to arbitration. 
 
Article 34(2)(a)(iv) of the Model Law provides that a court may set aside an Award if, amongst other things, “the arbitral procedure was not in accordance with the agreement of the parties”. Quarella argued that, by failing to apply the CISG, the Tribunal had failed to comply with Article 17 of the ICC Rules of Arbitration, which provides, in relevant part, that the parties are free to agree upon the rules of law to be applied by the Tribunal to the merits of the dispute. According to Quarella, the arbitral procedure was therefore not in accordance with the agreement of the parties. 
 
THE SINGAPORE HIGH COURT’S DECISION
 
The High Court rejected Quarella’s arguments, thereby upholding the Award in Scelta’s favour. 
 
In relation to Article 34(2)(a)(iii) of the Model Law, the High Court observed that Article 34(2)(a)(iii) applies where the Tribunal improperly decided matters that had not been submitted to it, or failed to decide matters that had been submitted to it. In the instant case, the High Court noted that the issue of the applicable law was submitted to the Tribunal, and that the Tribunal therefore did decide matters that were submitted to it. Furthermore, the High Court underscored that errors of law or even errors of fact were insufficient to warrant setting aside an Award under Article 34(2)(a)(iii) of the Model Law, and therefore an argument that the Tribunal applied the wrong governing law did not constitute a ground for setting aside the Award under Article 34(2)(a)(iii). 
 
In relation to Article 34(2)(a)(iv) of the Model Law, the High Court noted that, where a Tribunal fails to apply the law chosen by the parties, there may be a risk in some jurisdictions that the Award will be set aside. This occurred in an arbitration in Egypt, where an Egyptian court set aside an Award on the basis that the Award failed to apply the law agreed by the parties, as required by Egyptian arbitration law. However, in the present case, the High Court held that, unlike Egypt, Singapore’s arbitration law contained no express provision allowing an Award to be set aside where the Tribunal fails to apply the law chosen by the parties. In addition, the High Court pointed out that, in the present case, the Tribunal had not failed or expressly refused to apply the parties’ choice of law clause (ie Clause 25). Instead, the Tribunal had “respected the choice of law clause…, interpreted the law so chosen and came to the conclusion that the CISG did not apply”. Therefore, Article 34(2)(a)(iv) of the Model Law was not engaged and the Award could not be set aside on that ground. 
 
COMMENT
 
The High Court’s decision in the instant case is consistent with the general policy of minimal curial intervention in international arbitration proceedings adopted by the Singapore courts. It is also consistent with the case law of most other jurisdictions, under which Awards cannot be set aside on the basis that the Tribunal allegedly applied the wrong law to the merits of the dispute.  
 
It is important to note, however, that the High Court in the present case emphasised that, pursuant to Article 17 of the ICC Rules of Arbitration, the Tribunal must respect the choice of law made by the parties. This suggests that, where a Tribunal simply fails or refuses to apply the chosen law, there may be scope to argue that the resulting Award may be set aside under Article 34(2)(a)(iv) of the Model Law. However, the tenor of the decision in the present case suggests that it would take a fairly extreme case for this argument to be successful, especially as long as the policy of minimal curial intervention holds sway.
 
 
For further information, please contact:
 
Woo Shu Yan, Drew & Napier
shuyan.woo@drewnapier.com
 
Colin Liew, Drew & Napier
colin.liew@drewnapier.com

 

Drew & Napier Dispute Resolution Practice Profile in Singapore

 

 

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