Arbitration

• Citation: (2010) 11 SAL Ann Rev 74
• Date: 01 December 2010
• 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); District Judge, Singapore; Adjunct Professor, Faculty of Law, National University of Singapore, Adjunct Professor, Faculty of Law, Bond University (Australia), Visiting Professor, School of Law, Wuhan University (China).
• Published date: 01 December 2010

Enforcement of arbitration agreements

Stay of court proceedings - Incorporation by reference; conflicting jurisdiction and arbitration clause

4.1 An arbitration agreement may be in the form of a separate agreement or embedded in a clause within the underlying commercial contract. A reference in a contract to a document containing an arbitration clause could also constitute an arbitration agreement between the parties to the contract if the reference is such as to make that arbitration clause part of the contract. Singapore courts have been quite consistent in adhering to a strict requirement that to incorporate such arbitration clauses, the incorporating words must be specific and sufficiently clear (see, for example, Star-Trans Far East Pte Ltd v Norske-Tech Ltd [1996] 2 SLR(R) 196; Concordia Agritrading Pte Ltd v Cornelder Hoogewerff (Singapore) Pte Ltd [1999] 3 SLR(R) 618; L & M Concrete Specialists Pte Ltd v United Eng Contractors Pte Ltd [2000] 2 SLR(R) 852). There have also been situations where there were competing arbitration clauses in different but related documents as well as conflicting of choice of jurisdiction and arbitration clauses. In each of such situations, the court always had to decide which of these should prevail.

4.2 In Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] 2 SLR 821, the plaintiff and defendant were parties to a drilling contract under which the plaintiff had undertaken to supply a drilling vessel and related drilling services to the defendant. A condition of the drilling contract required the parties to establish an escrow account into which the defendant was to deposit funds prior to mobilisation of work. The defendant failed to deposit the required funds into the escrow account whereupon the plaintiff treated the failure as a repudiatory breach and terminated the drilling contract. The drilling contract contained an arbitration clause for the resolution of:

[a]ny dispute, controversy or claim arising out of or in relation to or in connection with this Contract, including without limitation any dispute as to the construction, validity, interpretation, enforceability, performance, expiry, termination or breach of this Contract …

4.3 The escrow agreement, on the other hand, had a clause providing that:

6(1) Each of the Parties irrevocably submits to and accepts generally and unconditionally the non-exclusive jurisdiction of the courts and appellate courts of Singapore with respect to any legal action or proceedings which may be brought at any time relating in any way to this Agreement.

6(2) Each of the Parties irrevocably waives any objection it may now or in the future have to the venue of any action or proceedings, and any claim it may now or in the future have that the action or proceeding has been brought in an inconvenient forum.

4.4 The plaintiff commenced action in the High Court claiming damages for breach of the escrow agreement. The defendant applied to stay the action on the basis of the arbitration clause in the drilling contract. A stay was initially granted by the assistant registrar but was set aside by Andrew Ang J. The plaintiff had also argued that the defendant must show exceptional circumstances amounting to a strong cause why the defendant need not be held to the jurisdictional agreement. Quite rightly, the court distinguished those cases involving competing jurisdictions and instead took the approach to see if the arbitration clause in the drilling contract applied to the subject matter in the pending action. Ang J held that specific incorporation of the arbitration clause from the drilling contract would be required to anchor such an argument. The learned judge took the view that in this instance, the parties had intentionally carved the escrow agreement from the drilling contract and expressly subjected the escrow agreement to a nonexclusive jurisdiction clause rather than an arbitration clause and thereby evinced a clear intention to subject claims arising from the escrow agreement to the dispute resolution clause found within that particular agreement and not the arbitration clause in the drilling contract. As the subject matter in the action arose out of the escrow agreement, and not under the drilling contract, the arbitration clause in the drilling contract had no application and thus no stay ought to be ordered.

4.5 Ang J“s reasons for his decision are consistent with the usual tenets of interpretation adopted by the courts. There was a hint (Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] 2 SLR 821 at [16]-[20]), however, that the court appeared to have also been persuaded by the plaintiff “s argument that a chosen jurisdiction must not be departed from unless there are

‘exceptional circumstances amounting to a strong cause’ with the burden of showing such exceptional circumstances thereby lying with the defendant. Such an argument may be appropriate in a situation where there are competing competent jurisdictions with no interposing of an arbitration clause but where the contest is between choice of jurisdiction clause and an arbitration clause, no such issue should arise. In such situations, the court“s primary consideration should be to ascertain whether the parties had intended arbitration or litigation at the named jurisdiction. If the arbitration clause is upheld as applicable to the parties and the subject matter before the court, the court is bound to stay the action pending before it unless the arbitration clause is ‘null and void, inoperative or incapable of being performed’ (an obligation imposed under Art II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 June 1958) (330 UNTS 38; entered into force 7 June 1959) (‘the New York Convention’).

Stay of court proceedings - In rem and in personam actions

4.6 Section 7 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (‘IAA’) gives the court the power to order that property previously arrested be retained as security for the satisfaction of an arbitral award. Commencement of an action in rem in Singapore to arrest a ship of itself would not constitute a waiver or repudiation of the right to arbitrate but would instead enable the plaintiff to obtain security for an eventual arbitral award to be made. The parties to a court action would normally be the persons named in the proceedings. In admiralty in rem actions, however, the action is commenced not normally against a named entity but against an unnamed owner of the res. The traditional understanding of such actions is that they operate in rem against the res and in personam against the defendant owner of the vessel if and when it enters an appearance in the action. Vessel“s ownership could change over time and it is not unusual that an in rem action may have been commenced after a change of ownership leading to the usual issues of whether the action was properly against the res of the ship and her new owners.

4.7 A slightly more complex situation occurs in The Engedi [2010] 3 SLR 409. The plaintiff as the disponent owner had let on charter the vessel TS Bangkok to the defendant. The charterparty provided for arbitration in London. A grounding incident occurred and the TS Bangkok was damaged. The registered owners of the TS Bangkok claimed against the plaintiff for damages and the plaintiff sought an indemnity from the defendant, EP Carriers Ltd. The plaintiff commenced an admiralty in rem action against the Eagle Prestige (then owned by the defendant). However before the writ was served, the Eagle Prestige was sold to Capital Gate Holding Pte Ltd (the ‘interveners’). The defendant went into liquidation and the plaintiff caused the vessel

Eagle Prestige (since renamed Engedi) to be arrested. The defendant entered appearance to the in rem action. The vessel was later sold and the proceeds held in court pending determination of priorities amongst various creditors, including the mortgagees and the plaintiff. The plaintiff then applied for a stay of the action, which it had earlier commenced on the basis of the arbitration clause in the charterparty. The interveners objected to the stay but the assistant registrar granted a stay in favour of arbitration. Judith Prakash J, however, reversed the assistant registrar“s decision.

4.8 Her Honour was careful to point out that the court“s obligation to grant stay of a pending action must be exercised only to the extent that the proceedings relate to the matter in the arbitration. In most instances where the owner of the res and the party liable in personam in the action are one and the same person, the court would normally grant a stay as the parties to the arbitration agreement and the action are the same. In the instant case, however, the person liable in personam (the defendant) was no longer the owner of the res (now owned by the interveners), and as such it could not be said that the action in rem against the res was a matter subject to the arbitration agreement. Simply put, the interveners as the new owner of the res was not a party to the arbitration agreement between the plaintiff and the defendant under the charterparty and could not be forced to arbitrate with the plaintiff.

4.9 Prakash J“s decision makes clear that the right to arbitrate can only be exercised by and against parties to the arbitration agreement. Such rights must not be exercised in any manner that would impinge on the rights of any legitimate third party. The solution she had crafted balances the right of a claimant to proceed to secure its claim in appropriate cases by way of in rem actions at the same time ensures that third parties whose property may become embroiled in the action by virtue of the court“s exercise of its admiralty jurisdiction against its property retains the avenue to defend its interest before the court.

Subject matter arbitrability

4.10...