AN ASSIGNEE'S OBLIGATION TO ARBITRATE AND THE PRINCIPLE OF CONDITIONAL BENEFIT

Date01 December 2016
AuthorNelson GOH Adjunct Research Fellow, National University of Singapore.
Published date01 December 2016
Case Note

Cassa di Risparmio di Parma e Piacenze SpA v Rals International Pte Ltd [2016] 1 SLR 79

Under the general law of assignment, only benefits of a contract may be transferred from assignor to assignee; burdens do not pass. In Cassa di Risparmio di Parma e Piacenze SpA v Rals International Pte Ltd (“Cariparma v Rals”), the High Court applied the principle of conditional benefit to hold that an assignee is bound to arbitrate a dispute arising from the underlying contract which falls within the scope of the relevant arbitration clause. Cariparma v Rals is significant for a few reasons: it is likely to be the first case in which such an analysis has been applied to an arbitration agreement. Further, this analysis is likely to be adopted by arbitral tribunals in the face of jurisdictional challenges brought by assignees. This note discusses the principle of conditional benefit, its application to arbitration agreements, and its general implications.

Introduction

1 In Cassa di Risparmio di Parma e Piacenze SpA v Rals International Pte Ltd1 (“Cariparma v Rals”), the High Court considered whether a duly-assigned arbitration agreement bound an assignee to submit its dispute with the other contracting party to arbitration. If so, a stay of court proceedings would be granted under s 6 of the International Arbitration Act2 (“IAA”). In applying s 6, the court found that an assignee was bound to arbitrate its claim and would be claiming “through or under”3 a party to the arbitration agreement (that is, the

assignor). On the facts, however, the court found that the claim by the claimant-assignee in respect of dishonoured promissory notes, was not the “subject”4 of the arbitration agreement and the court declined the grant of a stay.

2 Of significance is the court's reasoning on why an assignee who under the law of assignment typically only receives the benefits of a contract additionally bore the burden of submitting its dispute to arbitration. In arriving at this position, the judge applied the principle of conditional benefit. This principle is an exception to the general rule in the law of assignment that only benefits pass to an assignee while burdens remain with the assignor. The result of the conditional benefit analysis is that the assignee's entitlement to sue under the main contract is annexed with the burden of the assignee being compelled to submit any disputes to arbitration. Cariparma v Rals is likely to be the first judgment to deal specifically with the obligations of an assignee vis-à-vis an arbitration agreement.5 The decision is also significant because arbitral tribunals who face a jurisdictional challenge by an assignee are likely to look to the decision for guidance. Likewise, the same reasoning could be applied to jurisdictional clauses.

II. Facts

3 Cariparma v Rals concerned a claim brought by an assignee, Cassa di Risparmio di Parma e Piacenze SpA (“Cariparma”), over unpaid promissory notes. These notes were the payment mechanism in an underlying contract for the supply of equipment to shell and process raw cashew nuts (“the Supply Agreement”).6 The contracting parties to the Supply Agreement were Oltremare, the supplier, and Rals, the buyer. As consideration for the equipment, Rals undertook to pay the purchase price of €1,950,185 in ten instalments. The last eight of these instalments were to be paid by way of promissory notes, to be presented at specified time intervals.7

4 Clause 9 of the Supply Agreement provided that all disputes in connection with the Supply Agreement shall be settled by arbitration under the Rules of the International Chamber of Commerce in Singapore, should a prior obligatory attempt at conciliation fail.8

5 All eight promissory notes were delivered by Rals to Oltremare's banks, Unicredit Banca, on 23 December 2010. These were to be held and released only upon Oltremare's presentation of certain documents.9

6 In July 2011, Oltremare and Cariparma entered into a discount contract whereby Oltremare would assign the eight promissory notes to Cariparma without recourse and Cariparma would pay Oltremare the value of the eight notes at a discount (“the Discount Contract”).10 The assignment of the eight notes was accompanied by an assignment of Oltremare's right to receive payment of €1,804,000.11 In tandem with the assignment, Oltremare made declarations that the receivable was in existence, valid and unencumbered, and assignable, and that the notes were autonomous from the receivable. Rals was notified of the assignment. On 5 August 2011, Oltremare negotiated the notes to Cariparma, and on 12 August 2011, Cariparma duly paid Oltremare a discounted sum of €1,657,105.11.12

7 Subsequently, Cariparma presented the notes for payment on their maturity dates of 6 January 2012, 6 July 2013, 6 January 2013 and 6 July 2013, and all of them were dishonoured.13 Consequently, Cariparma sued in the Singapore High Court to recover the sum of €902,000 on the four dishonoured notes.

8 In response to the court proceedings, Rals applied for a stay under s 6 of the IAA. The relevant parts of s 6 read:

6. — (1) where any party to an arbitration agreement … institutes any proceedings in court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may … apply to that court to stay the proceedings …

(5) For the purpose of this section …

(a) a reference to a party shall include a reference to any person claiming through or under such party.

[emphasis added]

9 The questions before the court, so far as relevant here, were:

(a) whether Cariparma was a “person claiming through or under such party”;14 and

(b) if the action was a matter which is the subject of the agreement.

10 The judge found that even though an assignment typically transfers only the benefits and not the burdens of a contract, the principle of conditional benefit applied such that the assignee was bound to arbitrate disputes arising from the assigned contract.15 Thus, Cariparma, as assignee, was a person “claiming through or under” Oltremare, the assignor, for purposes of s 6(5) of the IAA. However, the judge declined a stay of court proceedings in favour of arbitration as he found that the claim, brought in respect of dishonoured promissory notes, was not a “matter subject of the agreement”. He found that Cariparma's statutory claim under the Bills of Exchange Act16 was “narrowly confined” and that “the rights and obligations arising under [the Supply Agreement] are separate and independent from the statutory contract represented by the notes”.17

III. Discussion
A. The intersection of the law of assignment and the law of arbitration

11 Cariparma v Rals is likely to be the first decision analysing the basis of an assignee's obligation to arbitrate. The preponderance of decisions on the relationship between the law of assignment and its

effects on an arbitration agreement deal mainly with the assignee's right to compel arbitration or whether the assignor or assignee is the proper party to bring proceedings in the context of the tribunal's jurisdiction. Some basic principles have emerged from the cases. First, it has been long recognised that an arbitration agreement is a right which may be assigned.18 Where the assignment is absolute, it is likely that an assignor no longer retains a right to arbitrate.19 Further, where the assignment occurs midway through ongoing arbitration proceedings, it is possible for the assignee to continue the proceedings20 provided it gives notice within a reasonable time.21

12 Only a handful of cases have discussed the esoteric question of whether an assignee is bound to arbitrate its claim. In these decisions, however, the nature of an assigned arbitration agreement was not the focal point, though a conditional benefit-type analysis may have been alluded to. In Schiffahrtsgesellschaft Detlev von Appel GmbH v Voest Alpine Intertrading GmbH22 (“The Jay Bola”), the English Court of Appeal granted an anti-suit injunction preventing the insurer from suing in Brazil, in breach of an English arbitration clause in the main contract. Hobhouse LJ explained:23

The insurance company has the right to refer the claim to arbitration, obtain if it can an award in its favour from the arbitrators, and enforce the obligations of the time charterer to pay that award. Likewise the insurance company is not entitled to assert its claim inconsistently with the terms of the contract. One of the terms of the contract is that, in the event of dispute, the claim must be referred to arbitration. The insurance company is not entitled to enforce its right without also recognising the obligation to arbitrate. [emphasis added]

13 In West Tankers Inc v Ras Riunione Adriatica di Sicurta24 (“The Front Comor”), in analysing the law governing the issue of transfer by subrogation, Colman J explained, obiter, that it would be inconsistent for an assignee to enforce contractual rights without accepting the obligation to arbitrate.25 Finally, in STX Pan Ocean Co Ltd v Woori Bank,26 again, by way of obiter dicta, Flaux J endorsed the view that an insurer was not entitled to assert its claim inconsistently with the terms of the contract, which included that the claim must be referred to arbitration.27 In these cases, the courts found that it would be inconsistent for the assignee to avoid the obligation to arbitrate but stopped short of explaining why.

14 It should be noted that The Jay Bola and The Front Comor involved insurers suing under their right of subrogation. Technically, a subrogated claim is brought in the name of the insured, while in the context of an assignment, the claim is brought by the assignee in its own name. It is therefore clearer that a subrogated insurer suing in the name of the insured, and stepping in its shoes, takes its rights subject to the dispute resolution clause. By comparison, it is less...

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