Arbitration

• Date: 01 December 2014
• Author: Lawrence BOO LLB (University of Singapore), LLM (National University of Singapore); FSIArb, FCIArb, FAMINZ, Chartered Arbitrator; Solicitor (England and Wales), Advocate and Solicitor (Singapore); Adjunct Professor, Faculty of Law, National University of Singapore; Adjunct Professor, Faculty of Law, Bond University (Australia). Earl J Rivera-DOLERA BSc (Philippines), LLB (Philippines), LLM (National University of Singapore); FSIArb, MCIArb, MPIArb; Attorney-at-law (Philippines).
• Published date: 01 December 2014
• Citation: (2014) 15 SAL Ann Rev 47

Enforcement of arbitration agreements

Stayofcourtproceedings-Multiplejurisdictionclauses

4.1 Parties who have dealings with each other do often have their relationships governed by more than one contractual arrangement. At times, these contractual arrangements overlap each other. Should differences arise, the individual contracts could provide for different methods of dispute resolution. There would then be a need to reconcile them to determine the proper forum for the resolution of such disputes. Even where the relationships are overlaid by a master or overarching agreement, the need for reconciling competing dispute resolution could still arise. Where an action commenced in court is said to be made in breach of an arbitration agreement, the court is then required to consider these issues in an application for stay of the action.

4.2 In Oei Hong Leong v Goldman Sachs International[2014] 3 SLR 1217 (Oei Hong Leong), the plaintiff, a customer of the defendant, commenced action claiming that he had incurred losses on foreign exchange option trades as a result of the fraudulent misrepresentations made to him by the defendant's employees. The plaintiff's relationship with the defendant was set out in a private wealth management client agreement pack (Account Agreement Pack) containing an arbitration agreement, as well as the terms of the International Swap Dealers Association Inc Master Agreement (ISDA Agreement) with a non-exclusive jurisdiction clause in favour of English courts. The defendant applied for stay of proceedings pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (IAA) on the basis of an arbitration agreement set out in the Account Agreement Pack. The assistant registrar granted a stay ruling that the agreement which was at the commercial centre of the transaction ought to be the Account Agreement Pack.

4.3 Lee Seiu Kin J heard the plaintiff's appeal and addressed two questions:

1. (a) As a preliminary issue, what is the applicable threshold for ordering a stay of court proceedings?

2. (b) Where there are two competing modes of dispute resolution mechanism, which mechanism should be applied?

The defendant submitted that there is a low threshold for ordering a stay of proceedings and proffered that it should be at least arguable that the plaintiff's claims are the subject of an arbitration agreement and a stay must be granted (the arguable test). To this, Lee J took the view that in cases where the disputes are referable to a single contract containing an arbitration clause, the principles of kompetenz-kompetenz and judicial non-intervention are undoubtedly made applicable. Where, however, there are two competing modes of dispute resolution and the parties cannot agree on which one to apply, there is a separate question of which dispute resolution clause the parties objectively intended to apply [emphasis in original; other emphasis added] (the objective intention test): at [25]. Citing Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp[2010] 2 SLR 821 (transocean), the court held that the parties must have intended to apply the dispute resolution clause in the contract out of which the claim arose or that which has a closer connection to the claim [emphasis in original]: oei hong leong at [26]. The court also noted that Transocean was followed by the English case of PT Thiess Contractors Indonesia v PT Kaltim Prima Coal[2011] EWHC 1842 which approved of the approach of ascertaining the objective intention of the parties (Oei Hong Leong at [27]) and other similar approaches adopted where the courts sought to find the agreement which was the centre of gravity of the dispute (see Sebastian Holdings Inc v Deutsche Bank AG[2010] EWCA Civ 998; [2011] 1 Lloyd's Rep 106) or the agreements which [were] at the commercial centre of the transaction (see UBS AG v HSH Nordbank AG[2009] EWCA Civ 585; [2009] 2 Lloyd's Rep 272]): oei hong leong at [30].

4.4 Applying this approach, Lee J agreed with the AR's decision that the Account Agreement Pack was the only contractual arrangement which tie[d] the defendant and the services it provided pursuant to that relationship whereas the ISDA Agreement governed the specific operation of derivative transactions which the dispute therein was not concerned with: oei hong leong at [16]. He found the allegation of fraudulent misrepresentation of the employees of the defendant in the course of the banking relationship of the plaintiff with the defendant'sgroup of companies as the pith and substance of the dispute, and thus held that the Account Agreement Pack ought to apply: Oei Hong Leong at [37].

4.5 This case also brings forth the tension between the role of the tribunal and the courts in determining the applicability of the arbitration clause, in particular in cases where there are two agreed but competing dispute resolution processes. The tension was apparent when Lee J posed the question (oei hong leong at [27]):

[W]hy should the courts not be allowed to decide which dispute resolution clause parties intend to apply to a dispute. The courts are in no worse position than the arbitrators to decide. [emphasis in original]

The more challenging questions for the practitioner, however, are: Is such a decision final and determinative of the tribunal's decision? Could not the subsequent tribunal disagree with or take a different view from the court? Is it not equally the duty of the tribunal under the principle of kompetenz-kompetenz to decide for itself if the arbitration clause supersedes or is subject to the exclusive jurisdiction clause? Would it have made a difference if the jurisdiction clause is an exclusive one? Is the court decision on this aspect binding on the tribunal? While some of these questions remain unanswered, this case once again affirms Singapore courts' support for arbitration when confronted with multiple jurisdiction clauses setting out conflicting and competing dispute resolution mechanisms.

4.6 Another case of overlapping dispute resolution processes came before the Court of Appeal in Burgundy Global Exploration Corp v Transocean Offshore International Ventures Ltd[2014] 3 SLR 381 (burgundy). The exploration company, Burgundy Global Exploration Corp (Burgundy) engaged Transocean Offshore International Ventures Ltd (Transocean) under an offshore drilling contract (the Drilling Contract) to supply a semi-submersible drilling rig and provide offshore drilling services to Burgundy. Article XI of the Drilling Contract sets out the parties' obligation to enter into an escrow agreement (the Escrow Agreement) where Burgundy was to deposit funds as security for payment to Transocean. Failure to deposit such funds entitled Transocean to exercise its right to terminate the Drilling Contract. The Drilling Contract had an arbitration greement. The Escrow Agreement, on the other hand, provided that disputes the reunder be referred to the Singapore courts. Burgundy having failed to deposit moneys into an escrow account, Transocean terminated the Drilling Contract and commenced court proceedings claiming, inter alia, damages for loss of profits under the Drilling Contract against Burgundy and for breach of the Escrow Agreement. Burgundy applied for stay of proceedings in favour of arbitration, relying on the arbitrationclause in the Drilling Contract. The stay application was granted by the assistant registrar but that decision was reversed on appeal in transocean where Andrew Ang J held (at [39]) that the dispute resolution mechanism in the Drilling Contract did not extend to claims arising from breach of the Escrow Agreement, the latter being governed by the jurisdiction clause of Singapore courts. That decision was affirmed by the Court of Appeal.

4.7 Transocean applied for and obtained summary judgment granted by the assistant registrar whose decision was upheld by Quentin Loh J. Transocean was awarded damages being the net profit it would have earned under the Drilling Contract. Burgundy appealed but the same was dismissed by the High Court in Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp[2013] 3 SLR 1017.

4.8 Burgundy's appeal against the decision granting summary judgment was allowed by the Court of Appeal. Disagreeing with Loh J, the Court of Appeal ruled that this was a case where the parties entered into two contracts to give effect to a single transaction. While the Drilling Contract set out the parties' rights and obligations, the Escrow Agreement set out the manner on how Burgundy ought to make payment for Transocean's services, with each of these contracts having different dispute resolution mechanisms. The Court of Appeal, however, found that despite the close link, the parties in each contract had clearly set out provisions that governed the separate interests of the parties, that is, the Drilling Contract protected Transocean's interest to make profits from the contracted services whereas the Escrow Agreement provided security for Burgundy's performance of its payment obligations under the Drilling Contract: burgundy at [44].

4.9 Sundaresh Menon CJ said that Burgundy's breach of the Escrow Agreement to provide security by way of opening the escrow account did not necessarily translate into the fact that burgundy had also breached the Drilling Contract and that Transocean would be entitled to damages: Burgundy at [45][46]. Any claim for breach and loss under the Drilling Contract must as such be resolved in accordance with arbitration as provided in the Drilling Contract.

Stay of court proceedings under the Arbitration Act Standard of proof

4.10 Stay of court proceedings commenced in breach of an arbitration agreement is also available under s 6 of the Arbitration Act (Cap 10, 2002 Rev Ed) (AA). The power to do so is, however, discretionary. A question of the standard of the existence of dispute was raised for consideration...