Arbitration

Citation(2017) 18 SAL Ann Rev 57
Date01 December 2017
Publication Date01 December 2017
AuthorLawrence 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). Chloé TERRAPON BLaw, MLaw, LLM (National University of Singapore); Attorney-at-law (Switzerland).

4.1 In 2017, Singapore courts had to deal with an important number of arbitration cases, the majority of which involved the enforcement of arbitration agreements and setting-aside applications. Based on the decisions reported, Singapore courts have been asked to stay their own court proceedings in favour of arbitration on six occasions.1 The decrease in the number of setting-aside applications observed in 2016 (only four cases down from nine cases in 2015) was not an exception: there were only five applications to set aside arbitral awards, including the first application before Singapore courts to set aside an award on the merits in an investor–state dispute. Two applications to review the arbitral tribunal's jurisdiction under s 10(3) of the International Arbitration Act2 (“IAA”) were reported. An application to stay the arbitral proceedings pending an appeal against a jurisdictional decision was also presented.

Enforcement of arbitration agreements
Stay of court proceedings

4.2 Applications to stay court proceedings may be made under s 6 of the IAA (or s 6 of the Arbitration Act3 (“AA”)). An additional basis to do so had been introduced by the Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd4

(“Tomolugen”) on the basis of the courts' inherent case management powers. This Court of Appeal decision in Tomolugen has been a landmark in more ways than one and has not unexpectedly been cited by all of the six reported decisions on stay of court proceedings in favour of arbitration.
Agreement giving unilateral right to arbitrate

4.3 The underlying basis of arbitration is that it is a consensual process in which parties refer their disputes to a neutral third party to make a binding decision. The requirement for consent in the main implies that parties to such an agreed process grant to each other the mutual right to refer matters to arbitration. The general expectation, therefore, is that an arbitration agreement grants mutuality of right to arbitrate. On the other hand, given its consensual nature and the principle of freedom to contract, such right to arbitrate, if parties so agree, may be given to one party or at one party's election. It could be suggested that such agreement giving only one party the right or power to elect should not be permitted as it would normally be imposed by a stronger party, which then gives rise to the argument whether it should not constitute sufficient consent to arbitrate. At the heart of the discussion is whether mutuality of rights is so sacrosanct that negating it would be contrary to public policy in the same manner as if an arbitration agreement allows only one party the right to appoint the arbitrator.

4.4 The first case which came for consideration up to the Court of Appeal is Wilson Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd.5 Wilson Taylor Asia Pacific Pte Ltd (“Wilson Taylor”) had engaged Dyna-Jet Pte Ltd (“Dyna-Jet”) for the installation of underwater anodes in the island of Diego Garcia in the Indian Ocean. This contract contained a dispute resolution clause, which provided that “at the election of Dyna-Jet, the dispute may be referred to and personally settled by means of arbitration proceedings”.6 After a dispute arose under the contract, Dyna-Jet commenced litigation proceedings in Singapore against Wilson Taylor. Wilson Taylor applied for a stay of the court proceedings under s 6 of the IAA.

4.5 The assistant registrar had held that while there was a valid arbitration agreement, it had become “inoperative or incapable of being performed”. Vinodh Coomaraswamy J took the view that such a clause

(terming it “asymmetrical”)7 was valid, but found that Dyna-Jet's election to commence suit rendered the arbitration agreement “incapable of being performed” within the meaning of s 6(2) of the IAA.8

4.6 Citing its previous decision in Tomolugen, the Court of Appeal reiterated that three requirements must be fulfilled for a stay under s 6 of the IAA. First, there must be a valid arbitration agreement between the parties in the court proceedings; second, the dispute in the court proceedings must fall within the scope of the arbitration agreement; and third, the arbitration agreement must not be null and void, inoperative or incapable of being performed.9 The court also affirmed once again that a prima facie standard of review should be adopted in the context of an application under s 6 of the IAA.10

4.7 The Court of Appeal confirmed that such an arbitration agreement which gave unilateral right to a party to arbitrate was valid:11

It was immaterial for this purpose that the Clause: (a) entitled only the Respondent (but not the Appellant) to compel its counterparty to arbitrate a dispute (the ‘lack of mutuality’ characteristic); and (b) made arbitration of a future dispute entirely optional instead of placing parties under an immediate obligation to arbitrate their disputes (the ‘optionality’ characteristic) …

It pointed out, however, that at the time the stay application was made, the dispute did not fall within the scope of the arbitration agreement because when elected to litigate, the dispute fell outside the scope of the arbitration agreement.12 The Court of Appeal did not, therefore, proceed to consider the third step of whether the arbitration agreement was “incapable of being performed” (as the judge so held) or was “inoperative” (as held by the asst registrar).13

4.8 It is interesting that the asst registrar, High Court judge and the Court of Appeal all used different bases in refusing the grant of stay. While the asst registrar and the High Court's findings would render the arbitration agreement “inoperative” or “incapable of being performed”, the Court of Appeal's approach that the dispute did not fall within the scope of the arbitration agreement did no violence to the arbitration

clause. In choosing not to comment on the asst registrar or the High Court's approach, the suggestion could well be that the term “null and void, inoperative or incapable of being performed” connotes a situation that suggests that an otherwise valid arbitration agreement could under certain circumstances be impeached and rendered unenforceable by either party in respect of all matters under the contract. The Court of Appeal's approach and silence preserves the arbitration agreement as remaining capable of resolving such other disputes that could arise under the contract and which Dyna-Jet could then elect to arbitrate.

4.9 Another observation to be made in respect of the Court of Appeal's decision is that while it makes clear that a prima facie approach is to be adopted when considering the enforceability of arbitration agreements in stay applications, it does not mean that the court hearing such an application would not in clear cases, such as this one, defer the matter of the tribunal and decide for itself that a matter falls outside the scope of the clause.

Inherent power to stay court proceedings in the interests of case management

4.10 The statutory structure of the IAA permits only parties to the arbitration agreement to invoke the right to arbitrate and, as such, only they could seek a stay of court proceedings commenced in breach of the arbitration agreement. This limitation has since been expanded by the use of the court's case management power as introduced by the Court of Appeal in Tomolugen in 2016 as an additional basis to stay pending court proceedings in favour of arbitration notwithstanding that the arbitration commenced or to be commenced may not implead all the parties in the litigation.14 Since then, this ground has been invoked by parties to support their applications. A party who is not a party to the relevant arbitration agreement may also apply for a stay of court proceedings in favour of arbitration. In such a case, the basis for the stay is not strictly under s 6 of the IAA, but under the court's inherent case management powers.

4.11 In Gulf Hibiscus Ltd v Rex International Holding Ltd15 (“Gulf Hibiscus”), the High Court confirmed that a case management stay in favour of arbitration may be ordered when the party applying for stay is not a party to the arbitration agreement, and even when arbitration proceedings have not yet been initiated against the party to the arbitration agreement. However, in Gulf Hibiscus, the stay was ordered

under conditions, in particular that the arbitration proceedings be commenced within a certain deadline.16

4.12 The plaintiff, Gulf Hibiscus Limited (“Gulf Hibiscus”), as well as Rex Middle East Limited (“RME”) and Schroder & Co Banque SA (“Schroder”) were shareholders in Lime Petroleum PLC (“Lime PLC”), an Isle of Man company. The first and second defendants, Rex International Holding Limited and Rex International Investments Pte Ltd, were respectively the ultimate and the intermediate holding companies of RME. Gulf Hibiscus, RME, Schroder and Lime PLC – but not the two defendants – were parties to a shareholders' agreement (“SHA”) which contained an arbitration clause.17 Disputes arose in this context and several court proceedings were initiated in Singapore, the Isle of Man and Norway against various defendants. In particular, Gulf Hibiscus commenced court proceedings in Singapore against the defendants.18

4.13 Aedit Abdullah JC (as his Honour then was) allowed the stay requested by the defendants, and noted that the basis for the exercise of case management powers is “the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice”.19 This power turns on the balance between a plaintiff's right to choose the party it wants to sue and the court's desire to prevent a plaintiff from avoiding an arbitration clause and the court's inherent power to manage its processes to prevent abuses of process and ensure the efficient and fair resolution of disputes. In the present case, “the ends of justice would be better served” by...

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