International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Chan Seng Onn J
• Judgment Date: 12 November 2012
• Neutral Citation: [2012] SGHC 226
• Citation: [2012] SGHC 226
• Court: High Court (Singapore)
• Published date: 15 November 2012
• Docket Number: Originating Summons No 636 of 2012
• Plaintiff Counsel: Subramanian Pillai and Jasmin Yek (Colin Ng & Partners LLP)
• Defendant Counsel: Dhillon Dinesh Singh, Tan Xeauwei, Joel Lim and Teh Shi Ying (Allen & Gledhill LLP)
• Subject Matter: Arbitration,Arbitral Tribunal,Jurisdiction
• Hearing Date: 05 September 2012

Chan Seng Onn J: Introduction

This case concerns the challenge of an arbitral tribunal’s (“the Tribunal”) ruling on jurisdiction pursuant to section 10 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”). The gist of the challenge is whether an arbitration clause contained in one contract between two parties binds a third party who subsequently enters into a supplemental agreement with the original two parties.

Background Parties

The plaintiff, International Research Corporation Public Company Ltd (“IRCP”), is a company engaged primarily in the business of providing information and communication technology products and services. The first defendant, Lufthansa Systems Asia Pacific Pte Ltd (“Lufthansa”), is in the business of providing information technology services to companies in the aviation industry. The second defendant, Datamat Public Company Ltd (“Datamat”), provides information and computer technology services, including the distribution of hardware and software maintenance services.

Lufthansa is the claimant and IRCP and Datamat are the respondents in SIAC Arb. No. 061 of 2010 (“the arbitration proceedings”) which was instituted by Lufthansa on 13 May 2010.

Facts The Cooperation Agreement

The dispute in the arbitration proceedings pertains to payments due to Lufthansa under the Cooperation Agreement for Application and Services Implementation SAP R/3 IS A&D Contract No. LSY ASPAC 1ZW-B (“the Cooperation Agreement”) entered into between Lufthansa and Datamat on or about 11 March 2005. Under the Cooperation Agreement, Lufthansa agreed to supply, deliver and commission a new Maintenance, Repair and Overhaul System (“MRO System”). The MRO System was a component of the Electronic Data Protection System (“the EDP System”) which Datamat had agreed to provide to Thai Airways International Public Company Ltd (“Thai Airways”) under an agreement between Datamat and Thai Airways entered into earlier on 12 January 2005 (“the EDP System Agreement”).

IRCP’s initial involvement with Datamat

On or about 14 March 2005, Datamat entered into a Sale and Purchase Agreement (“the S&P Agreement”) with IRCP under which IRCP had three main obligations. First, IRCP would provide a bankers’ guarantee in the name of Datamat in order for Datamat to comply with its obligations under the EDP System Agreement. Second, IRCP would also supply and deliver various hardware and software products for the EDP System. Third, IRCP would pay Lufthansa for the goods and services provided by Lufthansa under the Cooperation Agreement. Datamat assigned its right to receive payment from Thai Airways to the Siam Commercial Bank Public Company Ltd (“SCB”), with which Datamat also opened an account for the said payments to be deposited.

Supplemental Agreements No. 1 and 2

Datamat subsequently ran into financial difficulties and was unable to meet its payment obligations to Lufthansa. In April 2005, Lufthansa informed Datamat that it would cease work unless Datamat could secure another party to pay the outstanding as well as future invoices. On 8 August 2005, Lufthansa, Datamat and IRCP entered into Supplemental Agreement No. 1, though its effective date was backdated to 2 May 2005. Under this agreement, Datamat was obliged to transfer to IRCP monies received from Thai Airways. Upon receiving these monies, IRCP would pay Lufthansa for the works and services rendered by Lufthansa under the Cooperation Agreement.

Supplemental Agreement No. 2 was entered into on 3 May 2006. The reasons for the three parties (ie Lufthansa, Datamat and IRCP) entering into Supplemental Agreement No. 2 are disputed. Nevertheless, it is common ground that under Supplemental Agreement No. 2, IRCP would pay Lufthansa for the sums payable by Datamat under the Cooperation Agreement directly from IRCP’s bank account with SCB. IRCP would only disburse the payments to Lufthansa after payments by Thai Airways to Datamat were received by Datamat and transferred to IRCP’s SCB account. This arrangement was effected by way of a Payment Instruction and Authorisation by IRCP to SCB which was executed on the same day as Supplemental Agreement No. 2.

Clauses 37.2 and 37.3 of the Cooperation Agreement

The Cooperation Agreement contains a multi-tiered dispute resolution mechanism (“the Dispute Resolution Mechanism”). The first part of the Dispute Resolution Mechanism is spelt out in cl 37.2:

Any dispute between the Parties relating to or in connection with this Cooperation Agreement or a Statement of Works shall be referred: 37.2.1 first, to a committee consisting of the Parties’ Contact Persons or their appointed designates for their review and opinion; and (if the matter remains unresolved); 37.2.2 second, to a committee consisting of Datamat’s designee and Lufthansa Systems’ Director Customer Relations; and (if the matter remains unresolved); 37.2.3 third, to a committee consisting of Datamat’s designee and Lufthansa Systems’ Managing Director for resolution by them, and (if the matter remains unresolved); 37.2.4 fourth, the dispute may be referred to arbitration as specified in Clause 36.3 [sic] hereto.

I pause to note that the reference to “clause 36.3” in cl 37.2.4 was a typographical error and actually referred to the arbitration clause in cl 37.3, the second part of the Dispute Resolution Mechanism. Clause 37.3 reads as follows:

All disputes arising out of this Cooperation Agreement, which cannot be settled by mediation pursuant to Clause 37.2, shall be finally settled by arbitration to be held in Singapore in the English language under the Singapore International Arbitration Centre Rules (“SIAC Rules”). The arbitration panel shall consist of three (3) arbitrators, each of the Parties has the right to appoint one (1) arbitrator. The two (2) arbitrators will in turn appoint the third arbitrator. Should either Party fail to appoint its respective arbitrator within thirty (30) days as from the date requested by the other Party, or should the two (2) arbitrators so appointed fail to appoint the third arbitrator within thirty (30) days from the date of the last appointment of the two arbitrators, the arbitrators not so appointed shall be appointed by the chairman of the SIAC Rules within thirty (30) days from a request by either Party.

The arbitration proceedings

Between 2 January 2008 and 17 April 2008, Lufthansa sent letters to IRCP demanding payment of outstanding sums from IRCP (“the Payment Dispute”). IRCP refused payment on several grounds, alleging that: (a) Lufthansa had demanded payment for invoices that were not included in the services specified by the S&P Agreement which IRCP was liable to pay for; (b) Lufthansa had failed to complete certain works and services under the Cooperation Agreement which resulted in Thai Airways and Datamat withholding the issuance of the Certificate of Acceptance, a precondition to the payment of invoices; and (c) Thai Airways had not remitted any payment in respect of the invoices which Lufthansa was seeking payment. These grounds were communicated to Lufthansa in a letter dated 8 October 2008. Numerous meetings were also held from March 2006 to July 2009 to address the Payment Dispute. Nothing happened till 2010.

On 24 February 2010, Lufthansa informed Datamat and IRCP that it was terminating the Cooperation Agreement and Supplemental Agreements No. 1 and 2 (collectively “the Supplemental Agreements”). On 13 May 2010, Lufthansa filed its Notice of Arbitration with the Singapore International Arbitration Centre (SIAC), pursuant to cl 37.3 of the Cooperation Agreement. In its Response to Arbitration dated 14 June 2010, IRCP objected to being joined to the arbitration on the ground that an arbitral tribunal would not have jurisdiction to resolve the Payment Dispute. IRCP argued that it was not a party to the arbitration agreement which was contained in the Cooperation Agreement and even if it were a party, Lufthansa had failed to comply with the preconditions for the commencement of arbitration proceedings contained in cl 37.2. Notwithstanding these objections, Lufthansa and IRCP each proceeded to appoint an arbitrator pursuant to cl 37.3, and the two party-appointed arbitrators in turn appointed a third arbitrator. Datamat informed SIAC that it was undergoing a business rehabilitation petition in Thailand, and it did not participate in the arbitration proceedings.

The Tribunal dismissed IRCP’s objections on jurisdiction. In its decision dated 1 June 2012, the Tribunal held that the Cooperation Agreement and the Supplemental Agreements were to be treated as one composite agreement between Lufthansa, Datamat and IRCP. Accordingly, the arbitration agreement found in cl 37.3 applied to the Supplemental Agreements, which IRCP was indisputably a party to. On whether the preconditions to the commencement of the arbitration proceedings had been fulfilled, the Tribunal held that cl 37.2 was too uncertain to be enforceable. There were therefore no preconditions which barred the commencement of the arbitration proceedings.

Present proceedings

Dissatisfied with the Tribunal’s ruling, IRCP commenced the present proceedings Originating Summons Number 636 of 2012 (“OS 636/2012”) on 29 June 2012 seeking, inter alia: a declaration that the Tribunal does not have jurisdiction to determine the dispute between Lufthansa and IRCP; and an order that the Tribunal’s ruling on jurisdiction be set aside.

It is not disputed that IRCP is entitled to challenge the Tribunal’s decision on jurisdiction pursuant to Art 16(3) of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) read with s 10 of the IAA.

Plaintiff’s case

IRCP canvassed the same line of arguments which it had made before the Tribunal, namely, that it was not a party to the Cooperation Agreement, and even if it were, the preconditions to the commencement of the arbitration...