Can a non-party to an arbitration agreement apply to stay court proceedings in favour of arbitration? Would it make a difference if arbitration proceedings had not yet commenced?
These were some of the questions before the Singapore High Court in the recent case of Gulf Hibiscus Ltd v Rex International Holding Ltd and another  SGHC 210.
In short, the Singapore High Court reaffirmed its inherent power to stay proceedings in favour of arbitration on the basis of case management and in doing so, observed that the exercise of such power is premised on the wider need to facilitate the fair and efficient administration of justice.
Gulf Hibiscus Limited (the “Plaintiff”), Rex Middle East Limited (“RME”) and Schroder & Co Banque S.A. (“Schroder”) were shareholders of Lime Petroleum PLC (“Lime PLC”) and parties to a Shareholder’s Agreement (“SHA”).
The SHA provided that the parties had entered into the agreement to “regulate the affairs of” Lime PLC and “their respective rights and obligations as shareholders of” Lime PLC.
The SHA further provided for a dispute resolution procedure with an arbitration mechanism (the “arbitration clause”). The arbitration clause expressly stated that “any dispute, controversy or claim arising under, out of or relating to” the SHA must be arbitrated under the Rules of International Arbitration of the International Chamber of Commerce.
Disputes arose between the parties in relation to the management and operations of Lime PLC and some of its subsidiaries. The Plaintiff commenced court proceedings in the Singapore High Court for conspiracy, wrongful interference and unjust enrichment against:
(1) Rex International Holding Ltd, the ultimate holding company of RME; and
(2) Rex International Investments Pte Ltd, an intermediate holding company of RME, and a wholly owned subsidiary of Rex International Holding Ltd.
(collectively, the “Defendants”).
The Defendants applied to stay the court proceedings relying on the arbitration clause in the SHA – despite the fact that they were not parties to the SHA.
At first instance, the learned Assistant Registrar granted the stay on the basis that the legal and factual disputes in the Plaintiff’s claims overlapped and were intertwined with those concerning breaches of the SHA. The Plaintiff appealed the decision.
The Plaintiff’s Case
On appeal, the Plaintiff amended its case against the Defendants. The Plaintiff argued that:
(1) it did not rely on breaches of the SHA and thus, there was no basis for ordering a stay of court proceedings in favour of arbitration pursuant to the arbitration clause; and
(2) it could not be compelled to commence arbitration proceedings against a party it did not intend to sue (in this case, RME).
The Defendants’ Case
The Defendants argued that the substance of the Plaintiff’s claims (notwithstanding amendments to its pleadings) was still premised on breaches of the SHA. Thus, the Defendants submitted that the dispute fell within, and should be resolved in accordance with, the arbitration clause in the SHA which was wide enough to cover a broad range of disputes.
On this basis, the Court should stay the current proceedings and refer the disputes to arbitration.
The Court’s Decision
The appeal was heard by the Honourable Judicial Commissioner Aedit Abdullah (as he then was) (“Abdullah JC”). In upholding the stay granted by the Assistant Registrar before him, Abdullah JC observed that:
- It is well established that the Singapore courts have the power to stay court proceedings in favour of arbitration under section 6 of the International Arbitration Act (Cap. 143A, 2002 Rev. Ed.) and section 6 of the Arbitration Act (Cap. 10, 2002 Rev. Ed.).
- Whilst these provisions apply to cases involving parties to the same arbitration agreement and the Defendants could not rely on these provisions as they were not parties to the SHA containing the arbitration clause, it was still possible for a non-party to an arbitration agreement to apply for a stay by invoking the inherent case management powers of the court.
- The basis for the court’s power in this regard was not predicated on holding parties to any agreement but “the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice”.
- While the Defendants in this case were not parties to the arbitration agreement, they could seek a stay of proceedings on the basis of case management if it was established that it would be necessary to “serve the ends of justice” (citing the Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals  1 SLR 373 (“Tomolugen”)).
In short, the absence of an arbitration agreement between the Plaintiff and the Defendants did not preclude Abdullah JC from deciding that a stay could be awarded, notwithstanding the fact that arbitration had not commenced.
The key questions for Abdullah JC were:
(1) Did the scope of the arbitration clause cover the dispute between the Plaintiff and Defendants?;
(2) Were the Plaintiff’s claims premised, in substance, on the SHA?; and
(3) Would it be appropriate to order a stay of proceedings?
With respect to the first question, Abdullah JC found that the phrase “arising under, out of or relating to” the SHA in the arbitration clause was very wide. Various other terms of the SHA also showed that the scope of the arbitration clause was intended to extend beyond the specific parties to the SHA to include matters relating to their subsidiaries (such as the Defendants). As such, the court found that the arbitration agreement did not only cover disputes concerning the specific parties to the SHA, but also the dispute between the Plaintiff and Defendants.
With respect to the second question, whilst the Plaintiff had not expressly pleaded any breach of the SHA, Abdullah JC held that considered holistically, the substance of the Plaintiff’s primary claims against the Defendants were in the nature of disputes between the shareholders under the SHA and related to alleged improper actions taken at the Lime PLC level. Abdullah JC viewed these disputes as arising out of the SHA, given the SHA regulated the business of Lime PLC.
With respect to the third question, Abdullah JC held that it was appropriate to stay the Singapore court proceedings as (amongst other things):-
- There was a significant overlap between the factual and other issues in the prospective arbitration with those in the court proceedings.
- There was sufficient risk of inconsistent findings of fact between the court proceedings and any prospective arbitration given these overlapping issues.
- There was likely to be duplication of witnesses and evidence in both forums.
- There was nothing to bar the claims made in relation to the activities of the shareholders and directors in the court proceedings from being pursued in the prospective arbitration. The arbitration clause was broad enough to encompass claims arising out of the SHA and associated tortious claims.
However, Abdullah JC did amend the terms of the order for stay of proceedings granted in the first instance to impose certain conditions:
(1) if arbitration proceedings are not commenced within five months from the date of the court’s judgment, the parties would be at liberty to apply for the stay to be lifted by the court; and
(2) the Defendants would be bound by the findings of fact made by the arbitral tribunal.
Comment / Practical Implications
- This decision confirms that the Singapore courts’ power to stay proceedings in favour of arbitration is not merely limited to the circumstances spelt out in Singapore’s arbitration legislation. The Singapore courts have the power to order a stay of proceedings by exercising their inherent case management powers to facilitate and support the fair and efficient administration of justice.
- While a plaintiff’s right to sue is a fundamental one, that right is not absolute (per Tomolugen).
- Abdullah JC’s decision in this case reinforces the balance the court must strike between:
- a plaintiff’s right to choose the party it wishes to sue and where to sue such a party;
- the court’s desire to prevent a party from circumventing the operation of an arbitration clause; and
- the court’s inherent power to manage case to prevent an abuse of process and to ensure the efficient and fair resolution of disputes.
* This article may be cited as Pradeep Nair, “Singapore High Court reaffirms its power to stay court proceedings in favour of arbitration” (8 November 2017) (https://singaporeinternationalarbitration.com/2017/11/08/singapore-high-court-reaffirms-its-power-to-stay-court-proceedings-in-favour-of-arbitration/)