Case Update: Singapore High Court exercises discretion not to grant stay in domestic arbitration

In a previous post, we discussed Singapore’s dual arbitration regime and, in particular, whether a reference that a domestic arbitration will be governed by the ICC rules sufficed to exclude the parties’ right of appeal on a question of law to the Singapore courts pursuant to section 49 of the Arbitration Act (Cap. 10).

The recent case of Hua Xin Innovation Incubator Pte Ltd v IPCO International Ltd, [2012] SGHCR 18 deals with another difference between the international and domestic arbitration regimes. The case helpfully examines (i) the level of court scrutiny involved in deciding whether a dispute between the parties warrants a stay of court proceedings so that the dispute is resolved by the arbitration agreement between the parties; and (ii) the court’s exercise of its discretion not to refer a dispute to arbitration.

The defendant, IPCO International Ltd (“IPCO“), applied to stay the court proceedings commenced against it by the Plaintiff, Hua Xin Innovation Incubator Pte Ltd (“HXI“). The parties had entered into an agreement which would form the basis for the negotiation of a joint development agreement in relation to property development in the USA (the “Agreement“) (see paragraph [3]).

Pursuant to the Agreement, HXI made an advance payment to IPCO for the right to participate in the joint development of the project. In the event that the Agreement lapsed or terminated, the advance would be repaid to IPCO. Specifically, the Agreement would terminate if the envisaged joint development agreement was not executed within 2 months from the date of the Agreement and IPCO would be obligated to return the advance within 5 working days (see paragraph [4]).

As the joint development agreement was never executed, the Agreement lapsed and ceased to have effect. HXI then commenced court proceedings against IPCO to obtain a refund of the advance payment.

The wrinkle in this case was that IPCO alleged that it had concluded a global settlement agreement pursuant to a separate set of court proceedings which also settled the issue of the advance payment. However, neither IPCO nor HXI were parties to those court proceedings or the global settlement agreement. Instead, Ms Quah Su-Ling (“Ms Quah”), a director and CEO of IPCO who filed the affidavits in support of the stay application, was one of the plaintiffs to the other suit. Concurrently, the 2nd defendant in that suit, Mr. Li Hua, was the deponent of the only affidavit made on behalf of HXI in the stay application. IPCO asserted that Li Hua was a shadow or de facto director of HXI, as he was the husband of one of the plaintiff’s director, with the other director being his relative (see paragraphs [7] to [9]).

The Agreement had an arbitration clause which read,

Dispute resolution

Any dispute arising out of or in connection with this Agreement including any question regarding its existence, validity or termination shall be referred to and finally resolved by arbitration in Singapore according to the Arbitration rules of the Singapore International Arbitration Centre for the time being in force which rules are deemed to be incorporated by reference into this Clause. The Tribunal shall consist of one (1) arbitrator. All arbitration proceedings shall be in the English language. The decision of the arbitrator shall be final and binding on all the Parties”.

The High Court decided that there were three issues for determination:

(a)     whether the International Arbitration Act (“IAA“) or the Arbitration Act (“AA“) governed the stay proceedings;

(b)    whether a valid dispute existed between the parties; and

(c)     if so, whether the proceedings ought to be stayed in favour of arbitration.

(a) whether the IAA or AA governed

The High Court held that the AA governed the stay proceedings.

First, the reference to the arbitration being governed by the SIAC Rules no longer automatically made the IAA the applicable governing law of the arbitration (lex arbitri)This was due to the changes to the SIAC Rules in its latest 2010 version (see paragraphs [14] to [16]). Rule 32 of the previous SIAC Rules 2007 provided that:

“Where the seat of arbitration is Singapore, the law of the arbitration under these Rules [ie, the SIAC Rules 2007] shall be the [IAA] or its modification or re-enactment thereof”.

In the Singapore Court of Appeal case of Navigator Investment Services Ltd v Acclaim Insurance Brokers Pte Ltd [2010] 1 SLR 25, [2009] SGCA 45, it was held at paragraph [35] that this reference to the SIAC Rules was sufficient for the lex arbitri to be the IAA.

However, the SIAC Rules 2010 deleted Rule 32 of the SIAC Rules 2007 and the new Rule 18 did not stipulate that the IAA would automatically be the lex arbitri. Hence, whether the IAA is the lex arbitri depends on the factors set out in section 5(2) of the IAA i.e. whether an arbitration is an international arbitration (see paragraph [16]).

Sections 5(1) and (2) of the IAA read as follows:

“5.

—(1) This Part and the Model Law shall not apply to an arbitration which is not an international arbitration unless the parties agree in writing that this Part or the Model Law shall apply to that arbitration.

(2) Notwithstanding Article 1(3) of the Model Law, an arbitration is international if —

(a) at least one of the parties to an arbitration agreement, at the time of the conclusion of the agreement, has its place of business in any State other than Singapore; or

(b) one of the following places is situated outside the State in which the parties have their places of business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.”

The parties’ argument revolved around section 5(2)(b)(ii) i.e. whether a “substantial part of the obligations of the commercial relationship” or “the place with which the subject-matter of the dispute is most closely connected with”, can be said to be outside of Singapore (see paragraph [18]).

The High Court took the view that the Agreement was “subject to contract” and that no binding legal obligation arose in respect of the property development project in the USA. Accordingly, the obligations under the Agreement and the joint development agreement (which in any event was never executed) were separate and distinct (see paragraph [24]).

The obligations under the Agreement were narrow: HXI would pay the advance to IPCO in return for IPCO granting them the right to participate in the joint development of the project. In the event the Agreement lapsed, the advance would be repaid in 5 days (see paragraph [26]).

Accordingly, given that parties had their place of business in Singapore and the obligations were all to be performed in Singapore, section 5(2)(b)(ii) of the IAA was not satisfied and therefore the AA was the governing statute.

(b) whether there was a dispute and if so, (c) whether the court should stay its proceedings under the AA

The Court decided that even though there was a dispute between the parties, it would exercise its discretion and not to grant the stay due to the risk of a multiplicity of proceedings (see paragraph [42] and [50]).

Section 6(2) of the AA provides that,

“(2) The court to which an application has been made in accordance with subsection (1) may, if the court is satisfied that —

(a) there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and

(b) the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration,

make an order, upon such terms as the court thinks fit, staying the proceedings so far as the proceedings relate to that matter.”

For comparison, section 6(1) and 6(2) of the IAA provide that,

6.

—(1)  Notwithstanding Article 8 of the Model Law, where any party to an arbitration agreement to which this Act applies institutes any proceedings in any 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, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.

(2)  The court to which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.”

In the case of Dalian Hualiang Enterprise Group Co Ltd v Louis Dreyfus Asia Pte Ltd [2005] 4 SLR(R) 646, [2005] SGHC 161 (“Dalian”), the High Court held at [74] that under s 6(2) of the AA:

“…the court may determine if there is in fact a dispute before deciding to order a stay, although the court should not examine the validity of the dispute as though the stay application is an application for summary judgment. Accordingly, as I have said, the position under Singapore domestic Arbitration Act is similar to the pre-1996 position in England.”

The same High Court held at [75] that under the IAA’s different scheme of a mandatory stay that if there is a dispute, the court ought not to consider if there is in fact a dispute or genuine dispute before entering the stay. See also, the Singapore Court of Appeal case of Tjong Very Sumito and Others v Antig Investments Pte Ltd, [2009] 4 SLR 732; [2009] SGCA 41 and the robust approach that the Singapore courts will take to decide whether there is a dispute for the purposes of a stay application under the IAA.

The court considered that there was a dispute that fell within the arbitration agreement. Parties did not dispute that the main issue in the court proceedings was whether the advance had been dealt with in the global settlement agreement and the only question was this was an issue that fell within the arbitration agreemeent (see paragraph [34]).

In this respect, the court should adopt “a holistic and commonsense sense approach to see if there is a dispute…it is important to hold a party to his agreement and avoid double and split hearing of matters…” The onus is on the party resisting the stay to show that there is no dispute, see Uni-Navigation Pte Ltd v Wei Loong Shipping Pte Ltd 1992] 3 SLR(R) 595 at [16] and [17] as adopted by the Court of Appeal in Kwan Im Tong Chinese Temple and anor v Fong Choon Hung Construction Pte Ltd [1998] 1 SLR(R) 401 (see paragraph [35] and [36]).

The court also distinguished the case of Dalian where a party was denied its stay application on the basis that a set off entitlement under a second agreement (which was disputed) could not overcome its admission of liability under the first agreement. The High Court in Dalianfound that the set off issue was not a dispute falling within the arbitration clause in the first agreement. It took the view that the two contracts and the disputes were unrelated (see paragraphs [37] to [39]).

The court considered that Dalian was distinguishable because the terms of the purported global settlement agreement encompassed, amongst others, the settlement of the issue of the advance payment. In the court’s view, there was “at least a nexus” between the two disputes based not simply on the assertions of IPCO, but also documentary and circumstantial evidence (see paragraph [40]). The court noted that Ms Quah’s affidavit, filed in the other proceedings, contained a table prepared by Mr Li Hua which had set out the salient terms and parties in the global settlement agreement. IPCO was listed in that table with the sum of $1,350,000.00 next to it.

In respect of the argument that there was no identity of parties in this case and the global settlement agreement, the court noted that the relevant company searches showed that Mr Li Hua was involved in both court proceedings and was related to both directors of HXI i.e. the husband of one and the relative of another. The court also acknowledged the point that Mr Li Hua had filed the sole affidavit on behalf of HXI despite not being either a director or shareholder of HXI (see paragraph [41])

Accordingly, in adopting a “holistic and commonsense approach” and a wide view of the phrase “any dispute“, the court took the view that the closely intertwined parties and issues meant that there existed a dispute in the proceedings which fell within the arbitration agreement (see paragraph [42])

However, the risk of a multiplicity of proceedings meant that there was “sufficient reason” within the meaning of section 6(2)(a) of the AA to justify why the court ought not to refer the matter to arbitration. In the High Court case of Cars & Cars Pte Ltd v Volkswagen AG and anor [2010] 1 SLR 625, it was held at [48] that such a risk of multiplicity of proceedings was a strong factor militating against a stay, albeit not a determinative one (see paragraph [44]).

However, the same considerations in Cars & Cars which led the High Court in that case to reject this risk as a basis for denying a stay did not apply to these proceedings.

(1)     Parties in Cars & Cars had consciously and contemporaneously entered into 4 separate written agreements. Parties must have foreseen the risk of a multiplicity of proceedings and should therefore be held to their contractual bargain. There was only the Agreement here and the subsequent global settlement agreement. The court considered that it could not be said that parties could have foreseen the situation and “ought not to be straitjacketed to their contractual bargain” (see paragraph [47])

(2)     It was IPCO, as the applicant, who sought to tie the present proceedings with yet another court proceeding. It was not a case where HXI, in resisting the stay, who sought to conjure the risk of multiplicity in order to prevent the stay (see paragraph [48]).

(3)     In a similar vein, insofar as Ms. Quah had been one of the plaintiffs in the other court proceedings, “it may at least be suggested that the risk of multiplicity was, in the present proceedings, brought about by the actions of the stay applicant itself…it cannot be said that injustice would be caused to [IPCO] if the court refuses to grant a stay” (see paragraph [50]).

Conclusion

Parties should be aware that there are differences between domestic arbitration under the AA and international arbitration under the IAA.

In the appropriate circumstances, parties may prefer a domestic arbitration governed by the AA and for the Singapore courts to adopt a greater supervisory role over the conduct of the arbitration and the award. For example under the AA, aside from the courts’ discretion not to stay court proceedings even where there is a valid arbitration agreement between parties, there is also a (limited) right of appeal.

Domestic arbitration is traditionally seen to warrant more judicial supervision and intervention. So where parties do not wish to have a domestic arbitration, it would be advisable for them to make their desire clear by stipulating that the IAA or the Model Law applies.

About Shaun Lee

International Dispute Resolution and Arbitration lawyer. Fellow of the Chartered Institute of Arbitration. Panel of Arbitrators and Panelist for Domain Name Dispute Resolution at the KLRCA.
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One Response to Case Update: Singapore High Court exercises discretion not to grant stay in domestic arbitration

  1. Pingback: Case Update: Singapore High Court gives effect to pathological arbitration clause | Singapore International Arbitration Blog

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