This case is about a distributorship agreement between two companies that didn’t include a clear and practical arbitration clause in the contract they signed

1. +
How to avoid conflicts by
always including
arbitration clauses
By Shahram Shirkhani
Image courtesy of Michael Simmons at Flickr.com

2. + Coop International Pte Ltd v Ebel SA is a very appropriate
case for studying, on the one hand, the frequent conflict of
omitting the arbitration clause in an international trade contract,
and, on the other hand, its problematic effects. Not so many
cases involving its provisions have turn up for consideration since
the International Arbitration Act was applied in 1995. This case is
about a distributorship agreement between two companies
that didn’t include a clear and practical arbitration clause in
the contract they signed. The arbitration clause was so far-
reaching, that it produced several misunderstandings when
disputes finally arose, and the settlement agreement was already
executed.
Analyzing conflicts is important and interesting: there is no better
way to learn, and maybe there is no other way to learn. As
William Blake quoted: “Without contraries is no progression”.
Let’s study this famous case of the Commerce Arbitration world.

3. + The appellant was a Singapore company who hired a Swiss firm (the
respondent) for distribution of Ebel watches in Thailand, Malaysia, Brunei,
Singapore and Indonesia. The signed period was five years from April 1995.
The parties signed that arbitration would be the means for resolving any
dispute between them. In the twelfth clause it’s written:
Applicable Law and Arbitration
The present out of or in connection with the present agreement shall be
agreement shall be governed by the laws of Switzerland.
Any disputes arising finally settled by one arbitrator in accordance with
the Rules of Arbitration of the Chamber of Commerce and Industry of
Geneva, Switzerland, in particular its art 31 providing for an expedited
procedure. The arbitral tribunal shall have its seat in Geneva, but may
choose to hold its session at any other place.
Both parties agreed to terminate their contract in July 1996 (their motivations
were not specified in the Arbitration Award), but the termination clause in the
distributorship contract they signed was not adhered to. They applied, in its
place, a separate termination agreement, with different terms than the
original one. The real issue was that this new agreement had provisions of
all kind: responsibilities of promotion and advertising, a collection of
outstanding debts, payment terms, prices… but there were simply no
arbitration clauses. In addition, the agreement stated that the distributorship
contract would lapse after the respondent had hired a new distributor.

4. +
Two months later, a third agreement were signed by the parties: it
was called the “4 September agreement” by the judge Chan Seng
Onn, a settlement one; and by that time, the distributorship
agreement had already lapsed. One of the provisions of the 4
September agreement was about the payment of $3,911,596.5
Singapore dollars (net) to the appellant from the respondent by
October of that year, and the respondent submitted an amount of
3,100,000 Swiss Francs for paying their debt. When converted, the
amount only came to $3,489,050 (because of the prevailing
exchange rate of 1.1225, at October 1996), so the appellant claimed
for this shortfall. Moreover, the appellant claimed an 8%
contractual interest (per year) on the remaining amount, and
then applied for summary judgment. On the other hand, the
respondent party applied for staying the proceedings on the ground
that they had already agreed to submit any dispute to arbitration.
Image courtesy of David
Russo at Flickr.com

5. + However, on the following grounds, the appellants opposed the
application of the respondent party (it is worth noting that each of
which they contended, would be just enough for a refusal of
stay). In first place, there was no disputes arising out of or
related to the distributorship agreement. In second place, the
rights of each party had been compromised under a new
agreement and the original agreement had been previously
terminated. Finally, about arbitration, there was no dispute to be
referred to.
So the judge, on appeal, believed that the agreement had lapsed
and, consequently, the disputes arose out of the settlement
agreement (the 4 September agreement); and, since that
agreement did not include arbitration clauses of any kind (and
there were neither any triable issued), in favor of the plaintiff was
entered the summary judgement.

6. + The mandatory nature of the provision was affirmed by the judge
in Section 6, which reads as follows:
The court to which an application has been made in
accordance with subsection (1) shall make an order, upon
such terms or conditions as it may think fit, staying the
proceedings unless it is satisfied that the arbitration
agreement is null and void, inoperative or incapable of being
performed.
Nevertheless, he considered that, when the parties decided the
procedures included in the Geneva Rules, clearly incompatible
with the Model Law –regarding the appointment of sole
arbitrators–, by implication, they had opted out the way to resolve
their disputes.
So, what’s the lesson to learn from this case? When it comes to
the choice of arbitration procedures to incorporate in any
agreement, a draftsman cannot be too careful through an
arbitration clause.