Notes from the bar: should you agree to a one-sided arbitration clause?
In this update, we look at the recent High Court and Court of Appeal case of Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd ;  and Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd  (“the case”). Both the High Court and Court of Appeal concurred that one-sided arbitration clauses are enforceable and fall within the meaning of an arbitration agreement under s.2 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”). On the particular facts of the case, the arbitration agreement clause was not invoked.
What a one-sided or asymmetric arbitration agreement is
A typical arbitration agreement will provide that all disputes between parties to an agreement are to be resolved by arbitration. Such a clause is said to be “symmetrical” because the parties on both sides of the contract are bound to arbitrate all disputes that arises within the scope of the arbitration agreement.
In contrast, a one-sided or asymmetric arbitration agreement contains an element of optionality, to the benefit of one party. In other words, one party has the option to choose the method of resolving disputes between the parties, with arbitration being one of them.
One-sided or asymmetric arbitration agreements are often utilised as it provides one party (usually, the party with the stronger bargaining power) with the flexibility to resolve the dispute through whichever medium they believe can best solve the issue. Therefore, parties are not confined to arbitration.
The Appellant (“Dyna-Jet”) engaged the Respondent (“WTAP”) to install underwater anodes on the island of Diego Garcia in the Indian Ocean. Amongst the terms of the contract (“the “Contract”), was a dispute-resolution agreement (“the Clause”), granting WTAP the right to elect to arbitrate a dispute arising in connection with the Contract.
The Clause reads as follows:
Any claim or dispute or breach of terms of the Contract shall be settled amicably between the parties by mutual consultation. If no amicable settlement is reached through discussions, at the election of Dyna-Jet, the dispute may be referred to and personally settled by means of arbitration proceedings (emphasis added), which will be conducted under English Law; and held in Singapore.
A dispute arose between the parties, and Dyna-Jet chose to resolve the dispute via litigation, rather than arbitration. WTAP then applied for a stay of proceedings. The overarching submissions by both parties were as follows:
- WTAP, as the applicant for stay, submitted that the Clause does not constitute an arbitration agreement under the meaning of s.2 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”).
- Dyna-Jet, as the party resisting the stay, then submitted that even if the Clause constituted an arbitration agreement, the courts should not be compelled to enforce this arbitration agreement because the agreement is null and void, or inoperative or incapable of being performed (s.6 (2) of the IAA).
The Court of Appeal concurred with the High Court’s decision on the enforceability of a one-sided arbitration clause. The differences in reasoning will be brought to bear in the following paragraphs.
The judgments contained discussions on defences raised against a claim for a one-sided arbitration clause, and the following points are particularly noteworthy.
Preliminary issue: burden of proof
A preliminary note before discussing the reasoning behind the conclusions of the main issues is that of burden of proof. It was enunciated by Justice Coomaraswamy in the High Court, and endorsed by Menon CJ in the Court of Appeal that:
- To grant a stay of proceedings under s6 of the IAA, the applicant for stay (WTAP) has to establish that the parties’ dispute resolution agreement is an “arbitration agreement”. The High Court followed the Court of Appeal case of Tomulgen Holdings Ltd v Silica Investors Ltd (2015) SGCA 57, which held that the burden is a relatively light one since the applicant only needs to establish that there is a prima facie valid arbitration agreement.
- If the above burden is discharged, then the applicant resisting the stay (Dyna-Jet) has the higher burden of establishing that the agreement is null and void, or inoperative, or incapable of being performed. In other words, the defendant has to show that no other conclusion on this issue is arguable before the Court (Justice Coomaraswamy affirming the decision in Tjong Very Sumito v Antig Investments Pte Ltd (2009) 4 SLR(R) 73).
The High Court (Justice Coomaraswamy)
Issue One: Is a one-sided arbitration clause a valid arbitration agreement?
The first issue the High Court considered is in relation to whether the parties’ dispute resolution agreement is an “arbitration agreement”. The courts merely have to be satisfied that there is a prima facie valid arbitration agreement, with the burden of proof falling on WTAP, as mentioned in the preceding paragraph.
WTAP’s submissions are as follows:
First, the Clause makes a clear reference to refer future disputes to arbitration and it is thus an arbitration agreement. Justice Coomaraswamy dismissed this submission and held that a mere reference to an arbitration agreement is not enough to constitute an arbitration agreement. Rather, a validly constructed arbitration agreement requires: (1) the consent of both parties to be bound to arbitrate and (2) a conditional or unconditional contractual agreement, as opposed to the mere meeting of the minds.
Second, that both parties should be allowed to elect to arbitrate. Justice Coomaraswamy held that it is clear from the construction of the Clause that it is confined to only election on Dyna-Jet. WTAP’s interpretation is a wholly
uncommercial construction of the Clause; should WTAP have elected not to reach an amicable settlement, the parties’ dispute would have to be litigated because there would be no basis on which either party would have a right to elect arbitration.
Third, that a dispute resolution which confers on only one party a right to elect to arbitrate is nevertheless an arbitration agreement. Dyna-Jet rebutted this submission with discrete mutuality and optionality arguments. However, both arguments were discredited by Justice Coomaraswamy.
The mutuality argument posits that the clause is not an arbitration agreement because of the lack of mutuality, while the optionality argument posits that a dispute resolution agreement which makes arbitration of a future dispute entirely optional is not an arbitration argument.
Justice Coomaraswamy held that both a contractual dispute resolution agreement which operates asymmetrically (the mutuality argument) and one which grants a right to elect whether to arbitrate a future dispute (the optionality argument) is nonetheless an arbitration argument. The differences of expression make no difference in principle, because all these dispute resolution agreements manifest a mutual intent to proceed with arbitration.
Ultimately, Justice Coomaraswamy held that the one sided arbitration agreement (the Clause) fell within the meaning of an arbitration agreement under s.2 of the IAA.
Issue Two: Are the courts compelled to enforce the arbitration agreement on the facts of this case?
In general, if one party subject to an arbitration agreement to which the IAA applies institutes any proceedings in court, the other party can apply to the court to stay any proceedings that relate to the matter (s.6 (1) of the IAA).
Nonetheless, courts can decide against the grant of a stay of proceedings if the arbitration agreement is (1) null and void or (2) inoperative or (3) incapable of being performed. (s6 (2) of the IAA). The higher burden of proof falls on Dyna-Jet for this issue.
Justice Coomaraswamy held that the arbitration agreement is incapable of being performed because it is subject to a contingency which can now never be fulfilled, since Dyna-jet has already elected not to proceed with arbitration. This necessarily means that the stay of proceedings was declined and Dyna-Jet could proceed with the court proceedings.
The Court of Appeal (Sundaresh Menon CJ delivering the grounds of judgment of the court)
Issue One: Is a one-sided arbitration clause a valid arbitration agreement?
WTAP addressed the issue of whether the phrase in the Clause, “at the election of Dyna-Jet” (“the phrase”), meant that arbitration, as a dispute resolution method, was something that existed only as an option that Dyna-Jet alone could choose to invoke, or whether it means something else.
WTAP submitted that the Clause meant that there is an obligation to arbitrate, which either party could invoke against the other. Menon CJ held that this is an “implausible submission”. Rather, the only plausible way to construe the phrase is that it gave Dyna-Jet alone the option to choose whether any disputes arising in connection with the Contract, whether initiated by WTAP or Dyna-Jet were to be resolved either by arbitration or by litigation.
Menon CJ further held that the case authorities WTAP utilised in his defence (Pittalis v Sherefettin (1986) 1 QB 868; China Merchants Heavy Industry Co Ltd v JGC Corp (2001) 3 HKC 580) were cases involving one party making a decision affecting its counterparty, and the only dispute that would arise would be one where the plaintiff wished to challenge that decision. The authorities cited were not analogous to the current case and thus, Menon CJ dismissed the submission.
On another note, Menon CJ concurred with Justice Coomaraswamy that the mutuality and optionality argument is not effective in precluding a one-sided arbitration clause from being recognised as an arbitration agreement.
Hence, Menon CJ upheld ultimately Justice Coomaraswamy’s holding that the Clause is an arbitration agreement.
Disagreement with the Judgment below:
However, Menon CJ disagreed with Justice Coomaraswamy on the point of whether this particular dispute fell within the ambit of the arbitration agreement in the Clause.
Justice Coomaraswamy proceeded with his judgment on the basis that this dispute fell within the ambit of the arbitration agreement.
In contrast, Menon CJ held that even on a prima facie standard of review, at the time the stay application was filed, the dispute could not have been said to fall within the scope of the arbitration agreement contained within the Clause since Dyna-Jet has already elected to initiate court proceedings.
As such, since it is clear that Dyna-Jet is allowed to commence court proceedings, the Court of Appeal held that there was no need to delve into the second issue, and the appeal was dismissed.
- A one-sided or asymmetric arbitration agreement is one which allows one party the option to choose the method of resolving disputes between the parties.
- Be aware that a one-sided or asymmetric arbitration clause is legally enforceable.
- Allowing a one-sided clause to be legally enforceable is an approach that promotes both certainty and flexibility. Certainty has been achieved because the freedom to contract is respected, and flexibility has been achieved since parties have the power to elect in a one-sided arbitration clause.
- As such, a one-sided arbitration agreement is to the advantage of the party with the power to select the method of dispute resolution. However, we caution against entering into a one-sided arbitration clause if you are the party without the power to elect the method of dispute resolution, unless the mode of dispute resolution is not of paramount concern.