Arbitration Clause in Settlement Agreement Triggers a Stay of Court Proceedings on Case Management Grounds

In the case of PUBG Corp v Garena International I Pte Ltd and others [2020] SGCA 51 (“PUBG”), the Singapore Court of Appeal had to decide whether or not to grant a stay of the parties’ ongoing court proceedings (“Court Proceedings”) in favour of a subsequent arbitration arising out of a settlement agreement that was entered into between the parties in the midst of the Court Proceedings (“Settlement Agreement”). In the arbitration proceedings, the validity of the Settlement Agreement was the main issue to be determined by the tribunal.

In particular, the Court of Appeal had to decide whether or not to stay the Court Proceedings on “case management” grounds – a ground that was first recognised and developed in Singapore by Tomolugen Holdings Ltd and anor v Silica Investors Ltd and or appeals [2016] 1 SLR 373 (the “Tomolugen”). In essence, a “case management stay” was developed under case law whereas a “mandatory stay” is based on statute at Section 6(1) of the International Arbitration Act. A “mandatory stay” is granted where an arbitration is the proper forum to resolve the parties dispute and not the court (i.e. where the same issue that has been brought under court proceedings is in fact subject to an arbitration). In contrast, a “case management stay” is applicable to the situation where the particular issue to be resolved under the arbitration proceedings is different from that raised in the court proceedings. If the court is of the view that determination of the arbitrable issue would supersede or compromise the existing issues under the court proceedings, the court can grant a stay of the court proceedings albeit there being no overlapping issue between the arbitration and the court proceedings.

The Court of Appeal in PUBG found that the validity issue of the Settlement Agreement had to be resolved first by way of arbitration proceedings before proceeding with the Court Proceedings because a valid settlement between the parties would have the effect of dispensing the existing Court Proceedings – i.e. the arbitral tribunal’s ruling on the Settlement Agreement would have the effect of superseding or compromising the parties’ original claims under the Court Proceedings. Accordingly, in PUBG,a stay of the Court Proceedings was granted on case management grounds in favour of the arbitration proceedings arising from the Settlement Agreement. We discuss the Court of Appeal’s reasoning in detail and the implications of the decision in PUBG below.

Factual Background of PUBG

The Appellant initially commenced the Court Proceedings against the five Respondents alleging copyright infringement. Subsequently, the Court Proceedings were suspended in light of the Appellant’s proposal for the Settlement Agreement. After delaying the execution of the Settlement Agreement for a considerable amount of time, the Respondents finally accepted the settlement terms. However, the Claimant protested that it could no longer accept the Settlement Agreement, and argued that the Settlement Agreement was no longer valid.

The Settlement Agreement contained an arbitration clause which provided for “any dispute, controversy, claim or difference of any kind” arising in connection with the Settlement Agreement to be resolved by arbitration (the “Arbitration Clause”). The Respondents commenced an arbitration proceeding against the Appellant (the “Arbitration”), contending that the Appellant had acted in breach of the terms of the Settlement Agreement by alleging that the Settlement Agreement was not valid. The Respondents also applied for a stay of the Court Proceedings on case management grounds, pending the resolution of the Arbitration.

The High Court Judge granted a stay of the Court Proceedings on case management grounds in favour of the Arbitration. When the Appellant appealed against the decision, the Court of Appeal upheld the High Court’s decision and held that the Court Proceedings had to be stayed until the issue relating to the validity of the Settlement Agreement was resolved by the Arbitration.

Court of Appeal’s Decision in PUBG

In reaching its decision, the Court of Appeal recognised that there essentially existed two seemingly distinct disputes, (i) the dispute on infringement of intellectual property rights (i.e. the “primary” dispute under the Court Proceedings), and (ii) the dispute onthe validity of the Settlement Agreement (i.e. a “secondary” dispute under the Arbitration). However, the Court of Appeal ultimately took the view that such analysis of the parties’ dispute would not capture the “real essence” of the situation. The Court of Appeal was of the opinion that if there was a valid settlement that would effectively compromise the underlying claims of the parties, then the Court Proceedings could not proceed. Accordingly, the Court of Appeal held that the validity of the Settlement Agreement had to be resolved first. The Court of Appeal noted that, if the Settlement Agreement were held to be valid, this would supersede the original cause of action altogether. Hence, the question of whether the settlement exists between the parties had to be tried as a preliminary issue.

The Court of Appeal also held that the correct forum to determine the validity of the Settlement Agreement would be the Arbitration pursuant to the Arbitration Clause contained in the Settlement Agreement. The Court of Appeal stated that as long as the court is presented with what appears on its face to be a valid arbitration agreement, the court should allow any dispute that falls within such arbitration agreement to be determined by the arbitral tribunal.

In coming to its decision, the Court of Appeal also considered the following points relating to granting a stay of court proceedings on case management grounds.

First, the Court of Appeal cautioned that the Appellant could not seek to improve its own position by disregarding the Settlement Agreement and seeking to continue with the Court Proceedings on the ground that the issues that were being dealt with under the Court Proceedings and the Arbitration did not overlap. Even in such a case, the court could still exercise its inherent discretion to stay the court proceedings on case management grounds, as long as the issues that are being dealt with under the arbitration proceedings have a superseding effect on the issues of the original court proceedings. In this case, since a finding that the Settlement Agreement was valid under the Arbitration would have the effect of dispensing with the need to continue with the Court Proceedings, the Court of Appeal granted the stay.

Second, the Court of Appeal noted that the validity of the Settlement Agreement was not raised by the Appellant in the Court Proceedings. If the Appellant had raised the validity issue of the Settlement Agreement in the Court Proceedings, the Respondents could have applied for a mandatory stay under s 6 of the International Arbitration Act (rather than a case management stay). This is because in such a scenario, the issue to be determined under the Arbitration and the Court Proceedings would be identical, and resolution of that issue pursuant to the Arbitration would be mandatory pursuant to the parties’ Arbitration Clause. As discussed above, a mandatory stay is granted when the parties’ dispute, which was supposed to be subjected to the arbitration agreement, has instead been brought under court proceedings. On the other hand, a case management stay could be granted even when the issues that are being determined by the court do not overlap with the issues that are being handled by the arbitration tribunal. The purpose of a mandatory stay is to uphold the parties’ agreement to arbitrate their dispute, while the purpose of a case management stay is to ensure that the fair and efficient resolution of the parties’ dispute as a whole is achieved. However, as the subject matter of the Arbitration Clause (i.e. the validity of the Settlement Agreement) was only raised in the Arbitration and not in the Court Proceedings, the more appropriate stay that the Respondents could apply for was a stay on case management grounds.

Third, where the court is tasked with exercising its inherent power to grant a stay on case management grounds, the Court of Appeal found that the principles laid out in Tomolugen were relevant. In Tomolugen, it was held that the court should “take the lead in facilitating the fair and efficient resolution of the dispute as a whole”. Therefore, when granting a stay on case management grounds, the courts would have to balance three “higher-order concerns”: (1) preserving the plaintiff’s right to choose whom to sue and where, (2) upholding agreements to arbitrate, and (3) preventing an abuse of process. However, the Court of Appeal cautioned against applying the principles laid out in Tomolugen in a “mechanical” way. Instead, the court’s inherent power to grant a case management stay of court proceedings should be “exercised with due sensitivity and regard to the facts and in particular, the nature of the overlapping issues”.

Implications

The decision in PUBG has implications that parties must consider carefully. Namely, if two parties are engaged in a Singapore court proceedings but later execute a settlement agreement midway through the court proceedings, one party may invoke the arbitration clause contained in the settlement agreement and seek a stay of the original court proceedings on case management grounds.

Therefore, the parties should be wary of the effect that their settlement agreement (in particular, the arbitration clause contained therein) might have on their original court proceedings. If the arbitral tribunal’s ruling on the settlement agreement has the effect of superseding or compromising the parties’ original claims, then the Singapore courts are likely to grant a stay of the original court proceedings in favour of the pending arbitration for case management grounds. Hence, parties should be alert to the fact that their rights to resolve their original dispute under the court proceedings can be held in abeyance pursuant to a “case management stay” until their dispute on the settlement agreement (reached midway through the court proceedings) is resolved by way of an arbitration, even if the issue to be arbitrated was never raised in the court proceedings.

* This article may be cited as Dami Cha, “Arbitration Clause in Settlement Agreement Triggers a Stay of Court Proceedings on Case Management Grounds” (10 June 2020)

+Also published on CMS Law-Now.

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SGCA clarifies applicable standard of review in dismissal of winding-up proceedings in favour of arbitration

The coronavirus pandemic has left companies increasingly concerned about the possibility of winding-up as a result of a failure to pay debts. In a situation where a party’s disputed debt is subject to an arbitration clause, the debtor may wish to seek a stay or dismissal of any winding-up applications commenced against it before the court in favour of arbitration.

This issue came to the fore in the decision by the Singapore Court of Appeal (the “CA”) in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33. In particular, the CA examined the applicable standard of review that a debtor needs to satisfy in order for the court to order a stay or dismissal of winding-up proceedings.

Decided by a coram of five Court of Appeal judges, the CA resolved an apparent inconsistency in the applicable standard of review, concluding that in the situation where the debt was subject to an arbitration clause, the debtor only needs to meet the lower prima facie standard as opposed to the triable issue standard.

Background facts

The appellant, AnAn Group (Singapore) Pte Ltd (“AnAn”), entered into a global master repurchase agreement (the “Agreement”) with the respondent, VTB Bank (Public Joint Stock Company) (“VTB”). Under the Agreement, AnAn was required to maintain sufficient collateral for VTB. The Agreement also contained an arbitration clause to the effect that any dispute arising out of or in connection with the Agreement would be referred to arbitration.

AnAn failed to meet its obligations under the Agreement and VTB initiated winding-up proceedings against AnAn on the basis of a statutory demand for a debt of approximately USD 170 million.

In the High Court, AnAn argued that the winding-up proceedings should be stayed in favour of arbitration in accordance with the parties’ arbitration agreement. AnAn also argued that there was an event of frustration or force majeure and that the amount claimed was overstated.

Holding himself bound by the CA’s decision in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268 (albeit reluctantly), the High Court Judge ruled in favour of VTB and ordered the winding-up of AnAn.

AnAn appealed against the High Court’s decision on the basis that:

  1. the appropriate standard of review where a dispute is governed by an arbitration agreement is the prima facie standard of review; and
  2. the threshold had been crossed in the current case.

The applicable standard

It is well established that a debtor “need only raise triable issues in order to obtain a stay or dismissal of [a] winding-up application” in litigation proceedings. The CA was faced with the issue of whether this same standard, i.e. the “triable issue” standard, would apply where the debt in question was subject to an arbitration agreement. After conducting a comprehensive survey of developments across a multitude of jurisdictions including England, Hong Kong and Malaysia, the CA clarified the applicable standard in Singapore.

In holding that the applicable standard of review was the prima facie standard, the CA pronounced that winding-up proceedings will ordinarily be stayed or dismissed as long as:

  1. there is a valid arbitration agreement between the parties, and
  2. the dispute falls within the scope of the arbitration agreement, provided that the dispute is not being raised by the debtor in abuse of the court’s process.

The CA reasoned as follows:

  1. Coherence in law

The CA concluded that adopting the prima facie standard, which is a “lower standard of review” in a situation where the dispute or the debt is subject to arbitration would promote coherence in the law.

In particular, the CA shared the view expressed by the English Court of Appeal in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 (“Salford”) that parties to an arbitration agreement should not be encouraged to present a winding-up application as a tactic to pressure the alleged debtor to make payment on a debt that is disputed or which may be extinguished by a legitimate cross-claim.

Therefore, in resisting a winding-up application, the debtor would simply have to demonstrate on a prima facie basis that there is an arbitration clause, and that the dispute is caught in that clause. If the higher triable issue standard was to be applied, this would encourage the abuse of the winding-up jurisdiction of the court, which would not be the appropriate forum to adjudicate on disputed claims that are subject to arbitration.

  1. Party autonomy

The CA also opined that the triable issue standard when applied in the context of arbitrable disputes would offend against the principle of party autonomy, which is the “cornerstone underlying judicial non-intervention in arbitration”.

This was because the triable issue standard is one that requires a thorough examination of evidence, which would require the court to consider the merits of the defences. This would inevitably lead to displacement of the decision-making capacity of the arbitral tribunal in respect of the dispute. Hence, substantive prejudice may be caused to the parties if their choice of dispute resolution is not strictly adhered to.

The CA also noted that a party does not lose his genuine desire for recourse to arbitration just because his case may appear weak, and the courts should not undercut the bargain of the parties by examining the merits of the debtor’s defences irrespective of whether the debt is pursued by way of a court action or a winding-up application.

Exception to the prima facie standard

The CA observed that the prima facie standard would be subject to an overarching restriction – namely, that the court will not grant a stay of the winding-up proceedings notwithstanding that the prima facie standard has been met if the application for a stay amounts to an abuse of process.

The CA emphasised that the threshold for abusive conduct is “very high” and provided the following non-exhaustive examples:

  1. Where the debt is admitted as regards both liability and quantum;
  2. Where the debtor has waived or may be estopped from asserting his rights to insist on arbitration, such as where the parties have agreed subsequently that disputes may be resolved by litigation; and
  3. Where the debtor company is seeking to stave off substantiated concerns which justify the invocation of the insolvency regime. Examples include instances when assets have gone missing and there is an urgent need to appoint independent persons to investigate with a view of recovering the company’s assets, or when there is a proper basis to conclude that there had been fraudulent preferences or the need to engage the avoidance provisions in the Bankruptcy Act.

The CA also added that in cases where the applicant creditor can demonstrate legitimate concerns about the solvency of the debtor company as a going concern, and no triable issues are raised by the debtor-company, the court would be prepared to grant a stay of the winding-up proceedings. The creditor will then be given liberty to apply to the court to proceed with the winding up if, for example, it can be shown that the debtor company has no genuine desire to arbitrate the dispute and is taking active steps to stifle the arbitration.

Application

Having determined the applicable standard of review, the CA held that there was clearly a prima facie dispute in this case. It was uncontroversial that AnAn had disputed the debt amount that was due and owing, and that this dispute was governed by the arbitration clause in the Agreement.

The CA was also satisfied that there was no abuse of process on AnAn’s part. While AnAn’s arguments on frustration and force majeure (which were not pursued in the CA proceedings) were “misconceived or legally unsustainable”, that did not mean that AnAn made such arguments in bad faith. Further, while AnAn could have raised its objections earlier in the proceedings and could have fleshed out its case on the quantification of the debt amount in greater detail before the High Court Judge, this delay was not sufficient to show an abuse of process. The CA also considered it crucial that AnAn did not at any time expressly admit to its liability for the debt amount.

Accordingly, the CA reversed the High Court’s decision and dismissed the winding-up application. The CA considered ordering a stay inadequate, as a stay of the winding-up application would in itself carry severe consequences for AnAn (e.g. stifling critical capital injections into the company).

Takeaways

Following the CA’s decision, debtor companies (faced with a default on debts due to a force majeure event or otherwise) now have greater clarity on their rights in seeking a stay or dismissal of winding-up proceedings commenced against them based on a disputed debt that is subject to an arbitration clause. Conversely, creditors are now likely to be more circumspect in commencing winding-up proceedings in the face of an arbitration clause so as to avoid having their application stayed or dismissed.

The CA had to exercise a fine balance between any misuse by debtors of the prima facie standard to stay or dismiss winding-up proceedings on the one hand, and the possibility of abuse by creditors unliterally choosing the insolvency route to bypass their obligation to refer the dispute to arbitration on the other.

In deciding that the prima facie standard was the applicable standard of review, the CA took an arbitration-friendly approach in holding that any potential misuse by the debtor of the prima facie standard can be addressed by the abuse of process control mechanism. This would ensure that party autonomy is respected and preserved, and that the courts do not run the risk of displacing the arbitral tribunal’s role in adjudicating disputes that should have been subject to arbitration.

The CA decision is likely to have major implications for many companies in the face of the coronavirus pandemic, which has had a debilitating effect on the global economy. The decision safeguards against “trigger-happy” creditors who may attempt to use the commencement of winding-up proceedings to pressure debtor companies into unfavourable settlement agreements. At the same time, creditors pursuing legitimate debts have the assurance that debtor companies without a bona fide case would be caught by the abuse of process mechanism.

* This article may be cited as Wei Ming Tan, Dami Cha and Pradeep Nair, “ASGCA clarifies applicable standard of review in dismissal of winding-up proceedings in favour of arbitration” (30 April 2020)

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The SIAC Annual Report 2019: Findings and Takeaways in the light of COVID-19

In its recently released Annual Report 2019 (the “Report”), the Singapore International Arbitration Centre (“SIAC”) continues to report strong growth and positive numbers. We provide a summary of the Report’s findings and a few key takeaways, particularly in light of the COVID-19 pandemic and the unique challenges it is likely to present.

Record case filings and sum in dispute

2019 has been another watershed year for SIAC, with the arbitral institution reporting a record 479 new case filings in the past year. This was a significant increase from 2018, which had a total of 402 new case filings. Of the new cases filed, 87% (416) were international in nature; 13% (63) were domestic cases.

The total sum in dispute also rose by 14.6% to USD 8.09 billion from 2018. The average value of the new cases filed was USD 30.99 million, with new SIAC-administered cases valued at an average of USD 27.86 million. The highest sum in dispute for a single administered case was USD 1.41 billion.

Top users of SIAC

India emerged as the top foreign user of SIAC in 2019, contributing 485 cases to SIAC’s existing caseload. Whilst China (76) and the United States (65) remained in the ranks of top foreign users, countries like the Philippines (122), Brunei (49) and Thailand (39) joined these rankings for the first time, demonstrating SIAC’s growing appeal in the Asia Pacific region. SIAC’s top foreign users came from a mix of common and civil law traditions, belying Singapore’s status as a common law jurisdiction.

The geographical origin of parties for new cases remained extremely diverse, with parties coming from 59 jurisdictions ranging across the Americas, Africa, Europe, Asia Pacific and the Middle East.

Parties also filed their claims across a wide range of sectors, including corporate, trade, commercial, construction / engineering, maritime / shipping, banking / financial services (including cryptocurrency and blockchain), employment, insurance / reinsurance, IP / IT, media / broadcasting and real estate, to name a few. Corporate (140) and trade (100) accounted for the most cases, with the construction / engineering (76) and commercial (77) sectors following closely behind.

Arbitrator appointments

SIAC made a total of 159 arbitrator appointments in 2019. 145 of these appointments were for sole arbitrators and the other 14 were three-member tribunals. The majority of arbitrator appointments (138) were made under the SIAC Rules. The rest of the arbitrators were appointed for ad hoc arbitrations or under other Rules.

Another 138 arbitrators were nominated by parties in 2019 and confirmed by SIAC.

The arbitrators appointed by SIAC were geographically diverse and came from 25 different countries. SIAC is a strong proponent of gender diversity and female arbitrators accounted for 36.5% of the total appointed arbitrators. 30.3% of SIAC’s Court of Arbitration members are women, and women constitute 60% of SIAC’s Management and Secretariat.

Usage of procedural rules

Over the past decade, SIAC has introduced a number of innovative procedures designed to facilitate increased efficiency and flexibility in the resolution of disputes. Unsurprisingly, these have been widely adopted by users. Some highlights from the Report as follows:

  • The Emergency Arbitrator (“EA”) provisions have proved very popular since their introduction in the SIAC Rules 2010. In 2019, 10 EA applications were received and all 10 were accepted by SIAC. 94 EA applications have been made by parties since its introduction in 2010.
  • The Expedited Procedure (“EP”) was likewise introduced in 2010 as a time and costs-saving measure for parties. In 2019, 61 such requests were received out of which 32 were accepted. SIAC has received 534 EP applications since its introduction in 2010.
  • SIAC was one of the world’s first major arbitral institutions to introduce an Early Dismissal (“ED”) procedure in 2016. 8 ED applications were received in 2019. 5 ED applications were allowed to proceed – 1 application was granted, 2 rejected, and the other 2 are pending. Since its introduction in 2016, 30 ED applications have been filed, 18 allowed to proceed and 9 granted. The limited number of ED applications granted reflect the stringent threshold requirements that need to be met in order for a claim or defence to be dismissed at an early stage of the proceedings.
  • SIAC also introduced its consolidation and joinder provisions in 2016. In 2019, 53 applications for consolidation were received and 31 applications were granted by end 2019. 10 applications for joinder were received and 4 have been granted as at the end of 2019.

Governing laws

The governing laws of 20 jurisdictions were applied in disputes referred to SIAC in 2019. Of these, Singapore law (41%) was the most commonly applied, followed by that of India (24%) and the United Kingdom (16%).

Interestingly, the governing laws of a number of civil law and mixed law jurisdictions were also applied, including China, France, Indonesia, the Netherlands, the Philippines, Thailand and Vietnam.

Key takeaways

SIAC has enjoyed another bumper year in 2019, particularly with respect to the number of new cases filed and the value of the disputes being heard. The impressive numbers from the Report demonstrate a consolidation of SIAC’s position as one of the top arbitral institutions globally.

While there are many encouraging signs, the COVID-19 pandemic threatens to herald in a new economic downturn, not to mention creating new challenges on how disputes are to be adjudicated under the ‘new normal’. As the pandemic evolves, so have the measures taken by SIAC to adapt to these changes.

Although SIAC’s offices have been closed from 7 April 2020, it remains fully operational with all staff telecommuting in accordance with the Singapore government’s enhanced ‘circuit-breaker’ measures. Parties who wish to commence proceedings been requested to file their Notices of Arbitration via email; applications for emergency interim relief are likewise to be filed via email. All payments to SIAC are to be made via electronic bank transfers only. The Maxwell Chambers, SIAC’s usual venue for oral hearings, have also set up Virtual ADR Hearing solutions to replace in-person hearings.

Depending on the duration of the global pandemic, SIAC’s continued success in 2020 and beyond may depend largely on how the institution continues to innovate in respect to the conduct of its procedural hearings. The more successful SIAC is in implementing hearing procedures that are conducive to users kept apart by ‘safe distancing’ rules, the more confidence users are likely to have in referring their disputes to SIAC.

Given the agility with which SIAC has responded to users’ needs and concerns over the years, it would be interesting to see how the institution further innovates and responds to the challenges presented by the current crisis.

* This article may be cited as Wei Ming Tan, “The SIAC Annual Report 2019: Findings and Takeaways in the light of COVID-19” (15 April 2020) (https://singaporeinternationalarbitration.com/2020/04/15/the-siac-annual-report-2019-findings-and-takeaways-in-the-light-of-covid-19/).

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Arbitrability of IP disputes in Singapore – recent amendments to the AA and the IAA

Pursuant to the passing of the Intellectual Property (Dispute Resolution) Bill in August 2019, amendments have been made to, amongst others, the Singapore Arbitration Act (“AA”) and the International Arbitration Act (“IAA”) to clarify the arbitrability of intellectual property rights (“IPR”) disputes in Singapore. These changes came into effect on 21 November 2019.

The Key Amendments

By way of section 52B of the AA and section 26B of the IAA, both statutes now expressly stipulate that the subject matter of an IPR dispute is capable of settlement by arbitration.

Under the newly amended AA and IAA, “IPR” is defined to cover various IP-related rights, including patents, trade marks, registered designs and copyrights, amongst others. The list was deliberately kept non-exhaustive so as to allow for the flexibility of including new kinds of IPRs that may arise in future.

An IPR dispute is defined to include:

  • a dispute over the enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of an IPR;
  • a dispute over a transaction in respect of an IPR; and
  • a dispute over any compensation payable for an IPR.

Significantly, the arbitrability of IPR disputes under the amended AA and IAA will not be forfeited simply because a law of Singapore or elsewhere: (i) gives jurisdiction to a specific entity to decide the IPR dispute; and (ii) does not mention possible settlement by arbitration.

In relation to enforcement of arbitral awards, however, the amended AA and IAA do not consider a third-party licensee or third-party holder of a security interest in respect of the IPR (or any person claiming through or under the same) as a party to the arbitral proceedings. Therefore, such parties are not entitled to rely on the judgment enforcing the award and only the parties themselves or any persons claiming through or under them would be able to rely on the same. In other words, the judgment only has effect on the parties (in personam), and is not enforceable against the whole world (in rem).

Impact of the Amendments

With the amendments to the AA and IAA, the arbitrability of IPR disputes is now statutorily recognised in Singapore. This is a notable shift away from the past misconception that IPR disputes can only be adjudicated by national authorities or national courts. This serves to make arbitration a more attractive option for IP disputes users and will invariably enhance Singapore’s reputation as an arbitration hub of choice for savvy users.

Notwithstanding the statutory amendments, however, there still exists a limitation to the arbitrability of IPR disputes – namely, that arbitral awards obtained under the same will remain binding only on parties, and not third parties.

Despite the aforesaid limitations, the clarifications made to the arbitrability of IPR disputes are a welcome development. In particular, the amendments to the AA and IAA will provide the flexibility to accommodate different types of IPRs in various jurisdictions and new types of IPRs / IP-related disputes that may arise in the future.

* This article may be cited as Lakshanthi Fernando, Wei Ming Tan and Dami Cha, “Arbitrability of IP disputes in Singapore – recent amendments to the AA and the IAA” (30 December 2019)

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‘Creative’ attempts to challenge an award given short shrift – BTN v BTP [2019] SGHC 212

Introduction

We consider why a recent decision of the Singapore High Court – BTN and another v BTP and another [2019] SGHC 212 – should be seen as further proof of Singapore’s commitment to respecting the binding nature of international arbitral awards.

What are the practical implications for international arbitration practitioners?

This case is a cautionary tale against parties disguising a challenge on the substantive merits of an award behind arguments alleging breach of natural justice or a jurisdictional challenge. The Singapore courts are particularly robust about respecting the limited grounds for judicial review and/or setting aside an award under the International Arbitration Act (“IAA“) and the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (“Model Law“) and disapprove of such ‘creative’ attempts to seek a de novo review.

The court’s reluctance to intervene in the tribunal’s substantive findings demonstrates the judiciary’s intent to respect party autonomy and the final and binding nature of arbitral awards. This can only further enhance Singapore’s reputation as a key international arbitration hub both in the region and globally.

What was the background?

The parties and their agreements

The defendants were the owners of a group of companies (“the group“) which entered into a share and purchase agreement (“SPA“) with the first plaintiff, BTN, a publicly listed company incorporated in Mauritius. Pursuant to the SPA, BTN acquired 100% ownership and control of the group. The second plaintiff, BTO, was the principal holding company of the group (BTO and BTN hereinafter referred to as “the companies“).

The SPA provided that the first defendant, BTP, and the second defendant, BTQ, were to be employed as the chief executive officer and chief technical officer of BTO, respectively. The employment of the defendants (hereinafter “the employees“) was governed by promotor employment agreements (“PEAs“). The SPA and PEAs contained materially identical provisions relating to the employees’ ‘with cause’ and ‘without cause’ termination.

If the employees were dismissed without cause, they would be entitled to an earn out consideration (“EOC“) of US$35m, subject to the financial performance of the group in 2013–15. If their dismissals were with cause, they would not be entitled to any EOC.

The employees’ dismissals

On 8 January 2014, BTO gave notices summarily dismissing the employees, citing various grounds of with-cause termination, namely the employees’ failure to achieve positive earnings before interest, taxes, depreciation, and amortization for 2013 and their alleged detrimental behaviour to the group.

The Malaysian Industrial Court (MIC) proceedings

In response, the employees commenced proceedings under section 20 of the Malaysian Industrial Relations Act 1967. The employees and BTO attended a mandatory conciliation meeting but could not reach settlement.

The cases were referred to the MIC which adjourned the hearings multiple times because of BTO’s failure to attend. Due to BTO’s absence, the MIC proceeded to hear the employees’ claims. The MIC found that the employees were dismissed without just cause as BTO had failed to prove that the employees committed the alleged wrongs justifying
their dismissals (“the MIC awards“).

BTO did not deny that MIC’s notices were properly served but claimed that the notices were concealed by an employee. BTO only resurfaced when the employees commenced non-compliance proceedings, seven months after the MIC awards were issued and after the expiry of the three-month period for judicial review. Initially wanting to challenge the MIC awards, BTO eventually decided to make full compensation.

The arbitration

In July 2016, the employees commenced arbitration under the SPA (pursuant to the Arbitration Rules of the Singapore International Arbitration Centre), claiming their entitlement to US$35m. The companies countered that the dismissals were with cause.

The employees claimed that the issues regarding their dismissals were res judicata by virtue of the MIC awards (“the res judicata issue“) and that as a matter of construction of the SPA and PEAs, a determination that the dismissals were without just cause under the PEAs was binding on the SPA (“the construction issue“).

The partial award

The arbitral tribunal unanimously held in a partial award dated 30 April 2018 (“partial award“) addressing a list of agreed legal issues that:

  • the determinations by the MIC that the employees were terminated without just cause or excuse is binding and conclusive under the SPA and PEAs;
  • the companies are prevented from arguing that the employees were terminated ‘with cause’ under the SPAs and PEAs by virtue of issue estoppel under Singapore law;
  • a valid termination under the SPA requires the existence of audited accounts at the time of termination, which accounts must comply strictly with the SPA definition (“the audited accounts issue“).

What did the court decide?

Originating Summons No 683/2019 (OS 683)

In OS 683, the companies sought a judicial review by the Singapore High Court of the partial award as a negative jurisdictional decision pursuant to IAA, s 10(3).

Alternatively, the companies applied to set aside the partial award pursuant to IAA, s 24(b) and Article 34(2) of the Model Law. The companies cited various grounds such as:

  • the tribunal made findings on disputed facts despite the parties’ agreement to reserve such issues to subsequent hearings;
  • the tribunal decided on an issue that was not pleaded or argued;
  • the tribunal failed to consider the companies’ argument against giving the MIC awards res judicata effect;
  • the tribunal failed to decide on the substantive merits of the dispute by regarding itself bound by the MIC awards; and
  • the partial award was in conflict with Singapore’s public policy.

Review under IAA, s 10(3)

The court declined to review the partial award pursuant to IAA, s 10(3).

The court held that the partial award was not a ruling on jurisdiction, because neither the construction issue nor the res judicata issue were jurisdictional issues. The court found that res judicata was a doctrine that goes to the issue of the admissibility of a claim, and not the jurisdiction of a tribunal. In any event, the partial award ruled on the audited accounts issue, which was a decision on the substantive merits of the case.

The court had strong words on the companies’ jurisdictional challenge, describing it as a ‘clever argument to mask a challenge on the substantive decision by the tribunal’. The court cited the warning by the Court of Appeal in AKN v ALC [2015] 3 SLR 488 that:

‘The courts must resist the temptation to engage with what is substantially an appeal on the legal merits of an arbitral award, but which, through the ingenuity of counsel, may be disguised and presented as a challenge to process failures during the arbitration.’

Application to set aside under IAA, s 24(b) and Article 34(2) of the Model Law

The court declined to set aside the partial award as there was no breach of natural justice.

Dismissing the multiple grounds raised by the companies, the court found that:

  • a tribunal was not obliged to deal with every argument;
  • natural justice does not require that the parties be given responses on all submissions made; and
  • the tribunal was keenly aware that BTO was absent from the MIC proceedings, albeit as a result of the companies’ own internal failings.

The court found no reason to set aside the partial award since the tribunal was tasked precisely with determining whether the MIC findings were contractually binding and had res judicata effect.

The court also found that the partial award did not offend Singapore’s public policy as the companies were given full opportunity to present their case on the legal issues before the tribunal and cannot now complain against the outcome.

Whether the partial award should be set aside as against BTN

Finally, the court declined to set aside the partial award as against BTN. The tribunal clearly determined that the MIC awards were binding on both BTO and BTN based on its construction of the SPA and PEAs. Since the MIC proceedings applied to BTN by way of issue estoppel, this is neither a shock to the public conscience nor wholly offensive to a reasonable and informed member of the public.

* Originally published by LexisNexis; with thanks to Jenny Rayner.

This article may be cited as Wei Ming Tan, ‘Singapore — ‘creative’ attempts to challenge an award given short shrift’ (BTN v BTP)‘ (15 October 2019).

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Singapore’s MinLaw launches Public Consultation on Amendments to International Arbitration Act

In June 2019, Singapore’s Ministry of Law (“MinLaw”) announced that it will be holding a public consultation on certain proposed amendments to the International Arbitration Act (Cap. 143A) (the “IAA”). This follows a written response provided on 1 April 2019 to a parliamentary question on whether MinLaw would consider reviewing the IAA to provide an avenue of appeal in relation to errors of law in arbitral awards.

We summarise the proposed amendments to the IAA – including 2 proposals from third parties – and provide brief comments.

1. Introducing a default mode of appointment of arbitrators in multi-party situations

Under the current IAA, the mode of appointment of arbitrators only applies to situations where there are two parties to the arbitration agreement. As multi-party arbitrations become increasingly more common, the proposed amendment provides for guidance under the IAA on the mode of appointment of arbitrators in multi-party cases.

2. Allowing parties to, by agreement, request the arbitral tribunal to decide on jurisdiction at a preliminary stage

At present, the IAA permits the arbitral tribunal to decide on the issue of jurisdiction either at a preliminary stage or when making the final award. The proposed amendment enables parties to jointly request the tribunal to decide on the issue of jurisdiction at a preliminary stage so that parties can enjoy savings in time and costs.

3. Recognising that an arbitral tribunal and the High Court have powers to enforce obligations of confidentiality in an arbitration

Confidentiality is one of the key features of arbitration. At present, parties and the tribunal have a duty of confidentiality under common law not to disclose confidential information obtained in the course of proceedings or to use them for any purpose other than in respect of the dispute. Most major arbitral institutions also have rules expressly providing for confidentiality in relation to all matters surrounding an arbitration. The proposed amendment to the IAA gives explicit recognition to the powers of the Court and the arbitral tribunal to enforce these duties of confidentiality.

4. Allowing parties to appeal to the High Court on a question of law in an award based on an opt-in mechanism

Currently, parties may only apply to the High Court to set aside an arbitral award on relatively limited grounds only – that is, on the grounds of fraud or corruption in the making of the award, or where there is a breach of the rules of natural justice, or where an award is in contravention of Singapore’s public policy.

The proposed amendment introduces an opt-in mechanism for parties to incorporate a right for them to appeal to the High Court on a question of law arising out of an arbitral award. This allows parties who prefer greater court supervision on issues of law to make a deliberate choice for curial supervision of such a nature. Parties who prefer the arbitral tribunal to have the final say on matters of law will remain unaffected as they can simply elect not to opt in to this new mechanism.

Apart from the 4 amendments proposed by MinLaw, 2 other third party proposals are up for consideration.

5. Allowing parties to agree to waive or limit the annulment grounds under the Model Law and the IAA

This is the mirror image of the 4th proposal above. Instead of broadening the grounds for setting aside an award, it seeks to further limit these grounds by giving parties the option to limit or waive, by agreement, the annulment grounds set out in section 24(b) of the IAA and article 34(2)(a) of the UNCITRAL Model Law (“Model Law”). Such an agreement can only be made after the award has been rendered.

6. Allowing the Court to have the power to order costs in certain arbitral proceedings

Presently, the High Court has no power to make an order on costs in respect of arbitral proceedings where an award has been set aside. This is problematic because the tribunal would usually be functus officio in such cases and will not be able to make any further orders on costs.

The proposal considers whether legislative amendments should be introduced to empower the High Court to make an order on costs after a successful application to set aside an award. The proposal also considers whether similar amendments should be made to the domestic Arbitration Act (Cap. 10).

Comment

  • In the past decade, Singapore’s popularity as an arbitral seat has gone from strength to strength. The authoritative Queen Mary University of London’s 2018 International Arbitration Survey ranked Singapore as the third most preferred seat and the Singapore International Arbitration Centre as the third most preferred arbitral institution in the world. The proposed IAA amendments represent MinLaw’s continued efforts to promote Singapore as a global dispute resolution hub of choice for savvy and well-connected commercial parties.
  • The proposal to give parties the power to appeal to the High Court against errors of law in an award is eye-catching. The opt-in mechanism is an important touch as it mitigates against potential criticism that the Singapore courts are seeking greater curial intervention in arbitral proceedings. Party autonomy is preserved as parties are at liberty not to incorporate this option to their arbitral proceedings if preferred.
  • Conversely, parties that prefer minimal curial intervention to arbitral proceedings will welcome the proposal to limit the grounds for annulling an award under section 24(b) of the IAA and article 34(2)(a) of the Model Law.
  • The proposal to allow the Court to make an order on costs in respect of arbitral proceedings where there has been a successful setting aside application is sensible and timely. Section 10(7) of the IAA already empowers the Court to make orders as to costs in respect of jurisdictional challenges, so there is no reason why such powers should not be extended to cases where the Court set asides an arbitral award.
  • The public consultation is being held from 26 June to 21 August 2019. All feedback is to be submitted to MinLaw by post or email on 21 August.

* This article may be cited as Wei Ming Tan and Pradeep Nair, “Singapore’s MinLaw launches Public Consultation on Amendments to International Arbitration Act”  (6 August 2019) (https://singaporeinternationalarbitration.com/2019/08/14/singapores-minlaw-launches-public-consultation-on-amendments-to-international-arbitration-act/)

+Also published on CMS Law-Now.

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Singapore High Court refuses to set aside arbitral award for alleged suppression of evidence

Introduction

Can an arbitral award be set aside on the grounds of fraud or breach of public policy on the basis that a successful party failed to call certain witnesses and/or failed disclose certain internal documents it did not consider relevant to the arbitration? This was the issue that confronted the Singapore High Court (the “Court”) in BVU v BVX [2019] SGHC 69.

Background

In response to spiralling food prices and growing concerns about scarcity, the South Korean government embarked on a project to secure long-term lines of food supply from international sources to supplement domestic food supply (the “Project”). The Defendant, a state-owned company, was appointed to spearhead the Project (the “Purchaser”). The Purchaser was introduced to the Plaintiff (the “Supplier”) which recommended that the Purchaser procure food from South America (the “Products”). After governmental approval was obtained, the Purchaser and Supplier formally entered into an agreement (the “Agreement”).

The material terms of the Agreement were as follows:

  1. The Supplier shall be the Purchaser’s “most preferred Supplier”;
  1. The Agreement would commence on 1 October 2012 for a period of 20 years (or until terminated in accordance with the termination clause);
  1. The Purchaser would use its “best commercially reasonable effort to order and purchase” the Products during the course of the Agreement in accordance with the forecast range which was defined to be a “[m]inimum of 1,000,000 tons in total per annum”;
  1. The Agreement was to be governed by the “rules of the Vienna Convention on Contracts for the International Sale of Goods” and that disputes arising out of or in connection with the Agreement were to be finally settled by Singapore-seated arbitration in accordance with the ICC Rules.

A few months after the Agreement was signed, the Purchaser informed the Supplier that it had entered into a Memorandum of Understanding with one of the Supplier’s competitors. Subsequently the Purchaser provided the Supplier with a forecasted range that was well below the forecast range in the Agreement and began a public tender process for the supply of Products (which it invited the Supplier to take part in).

The arbitration

The Supplier commenced arbitration against the Purchaser claiming USD 2.25m in damages plus interest for various breaches of the Agreement among other requests for relief. Before the oral hearings for the arbitration took place, the Purchaser indicated that it would only call one factual witness and not three other individuals who the Supplier had identified in its Statement of Claim as being involved in the negotiations for the Agreement. The Supplier applied to the arbitral tribunal for an order that the Purchaser procure the attendance of these three individuals as witnesses in the arbitration but this application was not successful.

The hearing proceeded with the Purchaser calling its sole factual witness, who was not involved in negotiations leading to the Agreement but who was, at the time of the arbitration, responsible for the purchase and sale of the Products and for monitoring the performance of the Agreement with the Supplier. The Purchaser also called on two expert witnesses to give their opinions on comparative and Korean Law.

The award was subsequently issued in favour of the Purchaser by the majority of the tribunal with one dissenting opinion.

On the balance of the parties’ arguments, the majority concluded, amongst other things, that a reasonable person in the same circumstances as the parties would not expect that the Purchaser’s obligation to use “best commercially reasonable effort” to purchase Products under the Agreement would require the Purchaser to act in contravention of Korean public procurement law. The majority further considered that the Purchaser had satisfactorily discharged its obligations under the Agreement by calling a public tender and inviting the Supplier to participate.

While the majority found that the Purchaser was not in breach of the Agreement, the dissenting arbitrator held that adverse inferences ought to be drawn in respect of the Purchaser’s decision not to produce its employees who were involved in the contractual negotiations of the Agreement and that the Purchaser was in breach of the Agreement because the parties had not anticipated that purchases under the Agreement would only be made by way of conducting public tenders.

Post-award applications before the Singapore High Court

After the award was issued, the Supplier’s Korean solicitors were able to reach out to one of the three witnesses who the Purchaser declined to call as a witness in the arbitration to give evidence in favour of the Supplier for the purpose of setting aside the Award (the “Witness”). The Supplier subsequently applied to the Court to set aside the award on the basis that as a result of the Purchaser’s failure to call the Witness to give evidence in the arbitration: (1) The award was induced or affected by fraud or corruption; and (2) The award is in conflict with the public policy of Singapore.

The Supplier then procured the issuance of a subpoena to the Witness to disclose certain categories of documents, which were all essentially the Purchaser’s internal documents (the Witness was unable to disclose these documents without a subpoena as he was subject to confidentiality obligations as an employee of the Purchaser). The Purchaser applied for the subpoena to be set aside. The Court then directed that the applications for setting aside the Award and the subpoena be heard together.

Decision

The Supplier’s application to set aside the Award

After a review of local cases, the Court observed that a high threshold had to be met for an award to be set aside for fraud or a contravention of public policy and that in order for the non-disclosure or suppression of evidence to warrant the setting aside of an award, three requirements have to be satisfied:

  1. It must be shown that there is deliberate concealment aimed at deceiving the arbitral tribunal;
  1. There must be a causative link between the deliberate concealment and the decision in favour of the concealing party; and
  1. There must not have been a good reason for the non-disclosure.

The Court ultimately found that the Supplier failed to make out all of the requirements above. We highlight the following key observations of the Court:

  • The disclosure obligations of a party in an arbitration are not as wide as those in common law jurisdiction court proceedings. In the latter case, there is a continuing obligation to disclose documents relevant and material to the case, including documents which have the potential to adversely affect the party’s own case or support the counterparty’s case.
  • Under the IBA Rules on the Taking of Evidence in International Arbitration (which governed the procedural aspects of the arbitration), the Purchaser was not under a general obligation to produce all documents that could be relevant and material to its case or to call particular witnesses unless it was seeking to rely on his or her testimony.
  • The Tribunal had already thoroughly considered the question of whether the Witness should be called to give evidence in the arbitration. By the Purchaser’s own admission, the Witness’s purpose was “to further corroborate” factual allegations – suggesting that the Witness’s testimony was not material but at best cumulative.
  • In any event, it appeared to the Court that the Tribunal had invited submissions from the parties on whether certain witnesses (including the Witness) should be called to give evidence and ultimately decided that it would not direct the witnesses to give evidence. In the circumstances, it seemed to the Court that the Supplier had simply been unable to persuade the Tribunal to secure the attendance of the Witness, as opposed to a case where the Purchaser had fraudulently suppressed the Witness’s evidence.
  • There is no obligation to call a particular witness in international arbitration and the decision to take the risk of having an adverse inference drawn (in the event the decision is made not to call a witness) is part of the adversarial process and not unconscionable conduct.

The Purchaser’s application to set aside the subpoena

The Court noted that the threshold for setting aside a subpoena, which is not easily surmountable, was crossed in the present case. Given the Court’s observations on the setting aside application, it concluded that the documents sought via the subpoena were legally irrelevant and/or unnecessary for the determination of the setting aside application. The Court also held that the subpoena was an abuse of process as it was an attempt by the Supplier to reopen the arbitrated dispute though a backdoor appeal on the merits.

Comment

  • In reiterating the high threshold for the setting aside of an arbitral award, the Singapore Courts are once again reaffirming its support of party autonomy and finality in international arbitration.
  • This case highlights the different disclosure regimes under common law litigation and international arbitration and the different disclosure obligations a party is subject to under each adjudication mechanism.
  • Parties should be mindful of their potential future disclosure obligations when deciding on a particular dispute resolution mechanism in their contracts. Had this dispute been subject to the exclusive jurisdiction of the Singapore Courts, both parties would have been obliged to disclose all relevant and material documents, even documents detrimental to their case and helpful to their counterparty’s case.
  • If the parties to a Singapore seated arbitration have concerns about the production of documents, they should seek curial assistance as soon as possible and while the arbitration is ongoing (under section 13 of the International Arbitration Act) as opposed to waiting until the outcome of the arbitration. The latter approach is likely to be perceived – as it was in this case – as an attempt to re-arbitrate the merits of the substantive dispute.

* This article may be cited as Pradeep Nair and Wei Ming Tan, “Singapore High Court refuses to set aside arbitral award for alleged suppression of evidence”  (30 July 2019) (https://singaporeinternationalarbitration.com/2019/08/13/singapore-high-court-refuses-to-set-aside-arbitral-award-for-alleged-suppression-of-evidence)

** Originally published on CMS Law-Now.

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Between a rock and a hard place: Singapore High Court lifts stay of court proceedings on non-commencement of arbitration

Introduction

Is a court entitled to lift a stay of proceedings in favour of arbitration if the conditions for lifting the stay have not been met? This is what the Singapore High Court (the “Court”) had to consider in Gulf Hibiscus Ltd v Rex International Holding Ltd and anor [2019] SGHC 15.

In a follow up to an earlier, related decision in 2017 (where the court gave its reasons for ordering a stay – discussed here), we examine the Court’s reasoning for lifting the stay and provide some key takeaways.

The parties

The plaintiff, Gulf Hibiscus Ltd (“Plaintiff”), is one of 3 shareholders of Lime Petroleum PLC (“Lime PLC”). The other shareholders are Rex Middle East Limited (“RME”) and Schroder & Co Banque SA (“Schroder”).

The first defendant, Rex International Holding Limited, is the ultimate holding company of RME. The second defendant, Rex International Investments Pte Ltd, is the intermediate holding company of RME, and a wholly owned subsidiary of the first defendant (the two defendants are collectively referred to as the “Defendants”).

Background

The Plaintiff commenced Suit No. 412/2016 (the “Suit”) against the Defendants in respect of alleged wrongs committed by the Defendants and their associated companies in relation to a joint venture.

The dispute concerns a Shareholders’ Agreement (the “SHA”) which governed the relationship between the Plaintiff, RME, Schroder and Lime PLC. Clause 25.2 of the SHA provides a tiered dispute resolution mechanism, (1) starting with amicable resolution, (2) followed by negotiations between the principal officers of each shareholder, and (3) finally arbitration under the existing Rules of International Arbitration of the International Chamber of Commerce (the “ICC Rules”).

The Defendants sought a stay of the Suit, which the Assistant Registrar (“AR”) granted on the basis of the court’s inherent jurisdiction to stay proceedings in the interest of case management. The Plaintiff appealed but the Court affirmed the AR’s decision and allowed the stay on (among other things) the condition(s) that:

If the tiered dispute resolution under cl. 25.2 of the SHA is not triggered by any of the parties to the SHA within three months from the date of this judgment and an arbitration is not commenced within five months from the date of this judgment, the parties shall be at liberty to apply to the court to lift the stay.

The Plaintiff’s case

In April 2018, the Plaintiff applied to lift the stay based on the non-satisfaction of the events specified in the condition(s) of stay.

First, the Plaintiff argued that RME had failed to take “all reasonable endeavours to resolve the matter amicably” and had in fact obstructed its resolution. The Plaintiff alleged that RME failed to take the negotiations seriously, and foreclosed the amicable settlement of the dispute before changing its position subsequently, showing a lack of sincerity. The Plaintiff further alleged that the Defendants had breached cl. 25.2 of the SHA by nominating someone other than the Chairman of RME to attend the negotiations between the principal officers of the parties.

Second, the Plaintiff argued that since arbitration had not commenced within five months from the date of judgment, the stay ought to be lifted.

The Defendants’ case

The Defendants argued that the stay should not be lifted as the conditions for lifting the stay were not met.

First, the Defendants emphasised that RME had issued a notice under cl. 25.2 of the SHA on 23 November 2017 (i.e. within 3 months of the date of the judgment) inviting the Plaintiff to attend a meeting to resolve the dispute. As such, since the first of the two contemplated events had occurred, the Plaintiff was not entitled to apply to lift the stay.

Second, the Defendants argued that the Court should not exercise its discretion to lift the stay as this would effectively permit the Plaintiff to circumvent the arbitration agreement in cl. 25.2 of the SHA. The Defendants submitted that the stay was granted on the basis that the Plaintiff’s right to choose whom to sue and where was a first order concern subject to two other higher-order concerns as identified in the case of Tomolugen Holdings Ltd and anor v Silica Investors Ltd and other appeals [2016] 1 SLR 373. The two higher-order concerns are the (1) prevention of the Plaintiff’s circumvention of the arbitration agreement and (2) the court’s inherent jurisdiction over case management.

The Defendants argued that their submission to arbitration did not require them to commence the arbitration. It would not make commercial sense for the Defendants to commence the arbitration when they sought no positive relief. Pursuing a negative claim under the ICC Rules would be “onerous” as the Defendants would be required to pay a non-refundable filing fee and the attendant arbitration costs.

The Court’s decision

The Court concluded that both parties had not moved the case along through arbitration as expeditiously as possible. As such, on 30 April 2018, the Court gave the parties notice that the stay would be lifted on 31 May 2018, unless arbitration was commenced by then or another order of court was granted.

The Court’s reasoning

The Court recognised that the present case was different from the run-of-the-mill case management stays, in that if the Defendants – who desired for the stay to continue – had to initiate arbitration, they would have to pursue a negative case.

That being said, the case management stay could not continue indefinitely. The court was entitled to exercise its discretion to lift the stay where there has been “undue delay”. Granting liberty to the parties to apply to the court to lift the stay did not preclude the court from exercising its inherent power to manage its processes to “ensure the efficient and fair resolution of disputes”. The court could exercise its discretion even if the conditions of the stay were not met – though this would be the exception rather than the norm.

In particular, where the resolution of the dispute is in fact stymied by the continuation of the stay, the court can and should reconsider the terms of the stay. It is not in the interests of justice that case management stays remain indefinitely or for prolonged periods.

Takeaways

  • This is an interesting case study in which the court has been asked to make a difficult choice between “permitting” a plaintiff to circumvent an arbitration agreement, or to allow a longstanding dispute to remain unresolved as a result of an existing stay.
  • As the Court repeatedly emphasised, it is the exception rather than the norm for the court to lift a stay where the conditions of the stay have not been met. This decision should not be taken as the court exercising its discretion carte blanche to lift a case management stay. Each case should and will be considered by its particular facts.
  • In lifting the stay, the Court considered that the “overriding objective was one of ensuring the resolution of an extant dispute”. The Court’s primary concern was that an existing dispute which has “ground to a halt” should not “remain hanging”.
  • The Defendants have been given leave to appeal to the Court of Appeal. It remains to be seen if the Court of Appeal will take a similar approach as the High Court in this instance.

* This article may be cited as Wei Ming Tan, “Between a rock and a hard place: Singapore High Court lifts stay of court proceedings on non-commencement of arbitration” (15 February 2019) (https://singaporeinternationalarbitration.com/2019/02/15/between-a-rock-and-a-hard-place-sghc-lifts-stay-of-court-proceedings-on-non-commencement-of-arbitration/)

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The Hong Kong International Arbitration Centre reveals its new rules for 2018

by Nicolas Wiegand, Mariel Dimsey and Sherlin Tung*

On 1 November 2018, the Hong Kong International Arbitration Centre’s (hereafter, “HKIAC”) new arbitration rules (hereafter, “2018 Rules”) came into effect. The 2018 Rules apply to all arbitrations in which: (i) a Notice of Arbitration is submitted on or after 1 November 2018; and (ii) where the arbitration agreement provides for the 2018 rules to apply or for arbitration “administered by HKIAC” or words to similar effect, unless the parties explicitly agree otherwise.

Key changes

The 2018 Rules contain a number of changes, primarily implemented to enhance the efficiency of arbitral proceedings and, at the same time, provide for greater flexibility in order to better address parties’ needs and react to the complexity of modern disputes that can result from multi-contract and multi-party situations.

Streamlining of the arbitral procedure through early determination

The 2018 Rules introduce an early determination procedure. The purpose of this procedure is to ensure the efficiency and expeditiousness of the arbitral proceedings.

The early determination procedure empowers the arbitral tribunal, upon a party’s motion, to decide cases in a summary manner on the basis that such point is manifestly without merit or manifestly outside the arbitral tribunal’s jurisdiction, or on the assumption that even if submitted points of law or fact are assumed to be correct, no award could be rendered in favour of the submitting party (Article 43). The procedure is similar to initiatives in other Rules (e.g. Article 41(5) of the ICSID Rules, Article 29 of the SIAC Rules or Article 39 of the SCC Rules). The early determination procedure helps to streamline arbitration proceedings in order to promote efficiency of time and costs as the arbitral tribunal has the ability to decide on an issue that can either end an arbitration early or help speed up the rest of the arbitration by narrowing the list of issues in dispute.

Disclosure of third party funding

The 2018 Rules reflect the recent legislative changes in Hong Kong clarifying that parties are permitted to seek third party funding to fund their claims and implementing conditions to promote the transparency of proceedings and avoid potential conflicts of interest.

The 2018 Rules require all parties to an arbitration to disclose any third party funder’s identity (Article 44.1). This disclosure is important because the third party funder’s identity can be a relevant concern in determining whether an arbitral tribunal is impartial and independent. For example, if an arbitrator is repeatedly appointed by (different) parties funded by the same third party funder, or if an arbitrator has acted as counsel in another dispute whereby its client is funded by the same third party funder, these factors could be relevant in assessing the existence of bias. By requiring parties to disclose the use of third party funding, the 2018 Rules not only expressly recognize the permissibility of third party funders in arbitration proceedings but also ensure transparency in the proceedings and help to ensure that the described conflicts of interest are avoided.

Promotion of settlements through alternative dispute resolution

Recognizing parties’ needs for fast and sustainable resolution of disputes, Article 13.8 of the 2018 Rules gives the arbitral tribunal express authority to suspend the arbitration proceedings if the parties agree to attempt resolution through alternative settlement methods such as mediation.

By formalizing the arbitral tribunal’s ability to suspend arbitration proceedings while the parties attempt to settle, the 2018 Rules emphasize the importance of alternative dispute resolution methods. With the promotion of these methods, parties are encouraged to find a flexible solution for their dispute at lower costs even after the commencement of the arbitration. Article 13.8 also allows the parties to resume the arbitration proceeding at a later stage upon one party’s request.

Addressing multi-party and multi-contract disputes

Following the trend of other arbitral institutions, the HKIAC has addressed the rising complexity of international arbitration proceedings by including improvements on how to deal with multi-party and multi-contract situations.

The 2018 Rules allow a party to commence one single arbitration based on multiple agreements between multiple parties. Article 29 allows for a party to commence one single arbitration even if such arbitration agreements were entered into between different parties if the issues in dispute arise out of the same questions of law or fact, claimant’s relief sought against the multiple respondents relates to the same transaction or series of transactions, and the respective arbitration agreements are compatible. This new rule promotes efficiency of time and costs by removing the additional step of requiring a party to commence multiple arbitrations and then having to file an application for consolidation.

The 2018 Rules also introduce the mechanism of concurrent proceedings as another option – with less restrictive requirements – available to parties. For multiple arbitrations where: (i) the composition of the arbitral tribunal is the same; and (ii) a common question of law or fact exists; the arbitral tribunal is given the discretion and power to decide how to deal with related arbitration proceedings, such as holding the hearings concurrently, holding the hearings consecutively, or suspending one (or more) arbitration proceedings until another proceeding is decided. This new mechanism can lead to substantial cost savings, for example by lower travel expenses, legal costs, and experts’ costs as well as by reducing administrative work and coordination efforts for hearings.

Effective legal protection by faster emergency procedures

While the emergency arbitration procedure was introduced with the 2013 Rules, the 2018 Rules expand the availability of the emergency arbitrator process to the parties while at the same time shortening the entire process. These amendments to the emergency arbitrator procedure support the urgent nature of such proceedings while at the same time enhance the legal protections afforded to parties who have agreed to resolve their disputes under the HKIAC Rules.

The 2018 Rules allow for a party to file an application for emergency relief up to seven (7) days before a Notice for Arbitration is submitted. This affords a party legal protection under arbitration even before a formal Notice of Arbitration is filed to address situations when the status quo is imminently threatened or has unexpectedly deteriorated. However, the requirement to submit a formal Notice of Arbitration within seven (7) days thereafter emphasizes the provisional nature of such procedure.

The 2018 Rules now also require the HKIAC to appoint an emergency arbitrator within 24 hours after receipt of both the application and the application deposit (para 4 of Sch. 4). This shortening of the deadline to appoint an emergency arbitrator is also in line with the urgent nature of the need for emergency arbitrator proceedings.

The 2018 Rules also set a cap on the emergency arbitrator’s fees in an effort to lower costs and promote efficiency of emergency arbitrator proceedings.

Efficiency by technology

The 2018 Rules expressly recognize the evolution of technology and its impact on the time and costs of arbitral proceedings. With the rise in cross-border disputes, arbitrations are becoming more “international” with parties and evidence based in locations worldwide. The geographic locations of such parties and evidence often result in an increase in costs and time in arbitration proceedings.

Article 13.1 of the 2018 Rules expressly requires the arbitral tribunal to consider an effective use of technology (such as skype video conferencing) when adopting suitable procedures for the conduct of arbitration. Article 3.1 of the 2018 Rules introduces an option for parties to communicate by uploading communications to a secured online repository, making communication safer and more efficient.

Formal deadlines for rendering awards

Taking time-effectiveness one step further, the HKIAC has introduced a default three-month time limit from the closure of arbitral proceedings for the arbitral tribunal to render its arbitral award. The time limit can only be extended by agreement of the parties or, in appropriate circumstances, by the HKIAC (Article 31.2).

By establishing a deadline for the arbitral tribunal to render an award, the 2018 Rules give the parties certainty on when they can expect to receive an award since, subject to party agreement or extraordinary circumstances, the arbitral tribunal is obligated to render such award within a set period of time.

Comment

The 2018 Rules reaffirm the HKIAC’s status as one of the world’s leading arbitral institutions, and in particular, in Asia, with its innovative developments addressing not only international standards but also key market trends. The amendments and improvements ensure that the HKIAC rules remain state-of-the-art and reinforce Hong Kong’s status as an arbitration-friendly jurisdiction and an arbitration hub in the region.

The full text of the 2018 Rules is available on the HKIAC website: www.hkiac.org.

*Originally published on CMS-Law Now.

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Singapore High Court rejects application to adjourn enforcement of foreign arbitral award

by Wei Ming Tan, Aaron Yoong and Chen Lixin*

Introduction

In the recent decision of Man Diesel & Turbo SE v I.M. Skaugen Marine Services Pte Ltd [2018] SGHC 132, the Singapore High Court (“HC”) rejected an application to adjourn the enforcement of an arbitral award that was also the subject of a setting aside application in Denmark, the seat of the arbitration.

This case is the first of its kind in Singapore and provides clarity as to when litigants can seek an adjournment of proceedings to enforce a foreign arbitral award.

Background of the case

The dispute arose out of two agreements governed by Danish law for the supply of engine-propeller shipsets by Man Diesel & Turbo SE (“Plaintiff”) to I.M. Skaugen Marine Services Pte Ltd (“Defendant”).

Following technical issues with two engine shipsets delivered by the Plaintiff, the Defendant refused to pay for the remaining two propeller shipsets. The Plaintiff thus commenced arbitration proceedings in Denmark, claiming damages and specific performance. The Defendant counterclaimed for damages and restitution of sums paid out as down-payment.

The final award (“the DIA Award”) was decided mostly in favour of the Plaintiff by a majority of a three-member tribunal in the Danish Institute of Arbitration (“DIA”). The Plaintiff then obtained ex parte leave of court to enforce the DIA Award in Singapore pursuant to section 29 of the International Arbitration Act (Cap. 143A) (“IAA”) and Order 69A of the Rules of Court (“the ex parte Leave Order”).

Unfortunately, further disputes arose regarding the expected performance of the DIA award. This resulted in the Defendant filing an application with the Danish Court to set aside the part of the DIA Award in the Plaintiff’s favour, and also commencing a new arbitration against the Plaintiff in the DIA.

Shortly after, the Defendant filed an application in the HC seeking to:

  1. Primarily, challenge the enforcement of the Award on the grounds that:
    1. the Defendant was unable to present its case (s 31(2)(c) IAA); and
    2. the DIA Award was contrary to the public policy of Singapore (s 31(4)(b) IAA); and
  2. Alternatively, stay and/or adjourn the enforcement of the Award pending the determination of the Defendant’s setting aside application in the Danish Court (s 31(5) IAA).

In response, the Plaintiff filed a cross-application for an order for security amounting to the sums due under the Award should an adjournment of the enforcement proceedings be granted.

The decision of the HC

Framing of prayers

As a preliminary point, the HC took issue with the manner in which the Defendant had framed its alternative prayer. In its view, to seek a stay and/or adjournment only upon failure of a challenge to enforcement “ignores the language” and “gives no regard” to the two-stage regime required under s 31(5) IAA.

Section 31(5) of the IAA provides:

Where, in any proceedings in which the enforcement of a foreign award is sought by virtue of this Part, the court is satisfied that an application for the setting or the suspension of the award has been made to a competent authority of the country in which, or under the law of which, the award was made, the court may –

(a) if the court considers it proper to do so, adjourn the proceedings or, as the case may be, so much of the proceedings as relates to the award; and

(b) on application of the party seeking to enforce the award, order the other party to give suitable security.

Specifically, the two-stage regime entailed:

  • First, an application by the award-creditor for leave to enforce the award, following which, the leave order is served on the award-debtor.
  • Secondly, an option for the award-debtor to resist the award enforcement. This stage effectively ends if the court rejects the challenge and enters judgment on the foreign award.

As enumerated by the wording of s 31(5) IAA, the court only has the power to adjourn the case at the second stage of the enforcement, i.e. before judgment is entered on the foreign award. Beyond that, the award debtor can only seek a stay of the execution order.

This crucial distinction meant that notwithstanding the structure of the Defendant’s prayers, the HC proceeded to examine the adjournment issue.

Adjournment of proceedings

Undertaking an extensive review of s 31(5) IAA, the HC concluded that its “permissive nature” accorded the court with “wide statutory discretion” in deciding an adjournment application. In particular, the court considers pertinent factors such as:

  • The bona fides of the application to set aside or whether it is simply a delaying tactic; and
  • The length of adjournment and the resulting consequences or prejudice likely to occur.

The HC also noted that the provision of security often dovetails with the issue of adjournment and should be considered together. Unsurprisingly, the factors to be considered for an application for security are related to those for adjournment, including:

  • The strength of the argument on the invalidity of the award, “as perceived on a brief consideration by the enforcing court”; and
  • The ease of enforcement of the award.

It bears mentioning that the approach as to assessment on strength eschews determinative threshold tests such as “a serious issue to be tried” and “real prospect of success”. It is instead decided on a sliding scale as between “manifest validity” and “manifest invalidity” of the award.

Applying its framework as above, the HC ultimately declined to grant the Defendant’s application for adjournment, affirming the ex parte Leave Order.

This was because:

  • The Defendant failed to demonstrate that the setting aside application in Denmark was meritorious on any of the three grounds raised;
    • In particular, the HC rejected a key argument raised by the Defendant, namely, that the Tribunal had violated the procedural rules in the Rules of Arbitration Procedure of the DIA by disallowing the Defendant’s counterclaim and related evidence. The HC was not satisfied that the Tribunal’s decision amounted to “a denial of procedural justice”, as it was within the Tribunal’s discretion to reject additional materials that were produced at the last minute and would have delayed the progress of the arbitration.
  • Given that the Danish proceedings would only be completed in 2019/2020, the delay would be too long and cause prejudice to the Plaintiff; and
  • There was evidence demonstrating that the Defendant’s assets could be dissipated upon further delay.

Key takeaways

Lessons for future litigants: As the first case in Singapore to consider the merits of an application to adjourn enforcement proceedings pursuant to s 31(5) IAA, this decision illustrates the importance of an awareness of the appropriate stage at which an adjournment can and should be sought.

In particular, the HC showed that it would be robust in ensuring that unmeritorious adjournment applications are not being taken out as a delay tactic against the enforcement of an arbitral award.

The court’s methodology: Despite the HC’s willingness to oversee the enforcement process in limited circumstances, implicit in the judgment is the importance of promoting the enforceability of awards. Indeed, the HC’s attitude of striking a careful balance is reflected through:

  • The HC’s repeated emphasis to focus on the circumstances for an adjournment of proceedings, and a brief consideration on the strength of the argument on invalidity; and
  • The reliance on a sliding scale and “practical justice” as indicative of a refusal to undertake an overly-punctilious examination of issues.

Degree of proof for dissipation of assets: Interestingly, the HC noted that a party seeking provision of security need not show that the risk of dissipation of assets is of the same degree as that required under a Mareva injunction.

  • The HC’s preference for a lower standard is certainly correct when viewed in light of the more severe consequences of granting a Mareva injunction.
  • This lower threshold promotes the enforceability of awards and is consistent with Singapore’s pro-arbitration stance.

+This article may be cited as Wei Ming Tan, Aaron Yoong and Chen Lixin, “Singapore High Court rejects application to adjourn enforcement of foreign arbitral award” (31 July 2018) (https://singaporeinternationalarbitration.com/2018/07/31/singapore-high-court-rejects-application-to-adjourn-enforcement-of-foreign-arbitral-award/)

*This article is part of a joint initiative by CMS Holborn Asia and the Society of International Law (Singapore) based at Singapore Management University (SMU) School of Law.

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