CSY v CSZ
|Sundaresh Menon CJ
|19 May 2022
| SGCA 43
|Court of Appeal (Singapore)
|11 April 2022
|Civil Appeal No 67 of 2021
|Cavinder Bull SC, Chia Voon Jiet, Sim Bing Wen, Tan Shihao Sean and Benjamin Tan Zhi Xiong (Drew & Napier LLC)
|Lin Weiqi Wendy, Monica Chong Wan Yee, Leow Jiamin and Wong Chun Mun (WongPartnership LLP)
|Arbitration,Stay of court proceedings,Court's discretion under Arbitration Act
|24 May 2022
There is an important difference in the legislative schemes governing domestic and international arbitration with regard to a stay of court proceedings brought in breach of an arbitration agreement. In the case of international arbitration, the court is
CA/CA 67/2021 (“CA 67”) is an appeal by the appellant, CSY, against the decision of the High Court judge (“the Judge”) granting the application of the respondent, CSZ, in HC/SUM 2888/2021 (“SUM 2888”) to stay part of HC/S 237/2021 (“S 237”) in favour of a domestic arbitration and to stay the remaining part of S 237 on case management grounds pending the resolution of the putative arbitration.
We heard the parties on 11 April 2022 and reserved judgment. As we explain below, this is an exceptional case and we are satisfied that there is sufficient reason
The appellant is an exempt private company limited by shares. It was placed first under
The respondent is a limited liability partnership incorporated in Singapore and was engaged as the appellant’s external auditor since at least 2003 until it resigned on 17 September 2020. The respondent audited the appellant’s financial statements and issued opinions for each of the financial years (“FYs”) ending 31 October 2014 through to 31 October 2019. After the former managing director of the appellant admitted in April 2020 that there were various irregularities in the appellant’s affairs, including material misstatements in its financial statements, the respondent withdrew its audit report for FY2019.
The investigations conducted by the JMs revealed several serious irregularities in the appellant’s affairs since at least 2010. These appeared not to have been reflected or captured in the appellant’s audited financial statements and consequently also in the respondent’s audit opinions. As a result of these irregularities, the appellant’s audited financial statements from FY2014 to FY2019 were materially misstated and/or did not give a true and fair view of the financial position and/or performance of the appellant. It also appeared in the audited financial statements that the value of the appellant’s total assets had been overstated from as early as FY2010 and as a result, the audited financial statements grossly misrepresented the financial position and performance of the appellant. The JMs set out their findings in two reports dated 22 June 2020 (predominantly on FY2019) (“JMs’ First Report”) and 6 November 2020 (predominantly on FY2018 and FY2017) (“JMs’ Second Report”).
On 5 March 2021, the appellant filed its Statement of Claim (later amended on 13 October 2021) in S 237 claiming that the respondent had failed to detect material misstatements in its audited financial statements for FY2014 to FY2019 and that this was in breach of the respondent’s contractual duties to audit the financial statements with reasonable care and skill; and further and alternatively, that the respondent had breached its tortious duty of care.
The respondent’s engagement with the appellant was set out in separate engagement letters. An engagement letter was issued for each FY and executed at the beginning of the audit for each FY. The engagement letters varied in its provision for dispute resolution as follows:
The Tiered Arbitration Agreement states as follows:
In the event of any difference or dispute arising between the parties relating to the validity, interpretation, construction or performance of this engagement letter, the parties shall use their best endeavours to settle amicably such difference or dispute by consultation and negotiation.
If the matter is not resolved through negotiation, then the parties shall refer the matter to mediation in accordance with the rules and procedures of the Singapore Mediation Centre.
If, and to the extent that, any dispute has not been settled through negotiation and mediation, then the dispute shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (‘SIAC’) for the time being in force, which rules are deemed to be incorporated herein. The Tribunal shall consist of three (3) arbitrators. The seat and venue of the arbitration shall be Singapore and the language of the arbitration shall be English. Any award made hereunder shall be final and binding upon the parties hereto and judgment on such award may be entered into any court or tribunal having jurisdiction thereof.
Before the filing of S 237, the respondent proposed that all the claims relating to the audits for FY2014 to FY2019 be referred to arbitration. However, the appellant did not agree to this.
On 18 June 2021, the respondent filed SUM 2888 seeking an order to stay the dispute pertaining to the audits for FY2018 and FY2019 (“FY2018 and FY2019 Dispute”) in favour of arbitration pursuant to s 6 of the AA and/or the court’s inherent jurisdiction and an order that the dispute pertaining to the audits for FY2014 to FY2017 (“FY2014 to FY2017 Dispute”) be stayed pending the completion of the steps in the Tiered Arbitration Agreement. On 3 November 2021, the Judge allowed SUM 2888.
On 30 November 2021, the appellant appealed against the decision of the Judge staying that part of S 237 concerning the FY2018 and FY2019 Dispute in favour of arbitration, imposing a case management stay on the remainder of S 237, specifically concerning the FY2014 to FY2017 Dispute and ordering costs of $15,000 plus reasonable disbursements in favour of respondent.Decision below
In her brief grounds of decision given on 3 November 2021 (“GD”), the Judge considered that where some of the matters in S 237 fell within the Tiered Arbitration Agreement, the burden was on the party who wished to proceed in court to show sufficient reason why those matters should not be referred to arbitration: GD at .
The Judge was satisfied that the FY2018 and FY2019 Dispute should be stayed in favour of arbitration and the FY2014 to FY2017 Dispute should also be stayed but on case management grounds pending the resolution of the putative arbitration: GD at .
In relation to the FY2018 and FY2019 Dispute, the Judge ordered a stay in favour of arbitration for the following reasons:
In relation to the FY2014 to FY2017 Dispute, the Judge ordered a case management stay for the following...
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