* Kohe Hasan is a Partner in Reed Smith's Singapore office and a Director of Resource Law LLC. Joyce Fong is an Associate in Reed Smith's Singapore office.
Speedread
In exercising its inherent case management jurisdiction, the Singapore High Court has conditionally stayed court proceedings in favour of arbitration, even though the applicant was not a party to the arbitration agreement and no arbitration proceedings had been commenced.
In granting a conditional stay, the court confirmed that a stay can be granted even if the applicant is not a party to the arbitration agreement. The absence of an arbitration agreement between the parties to the court proceedings is irrelevant because the court's power to order a case management stay does not arise from an arbitration agreement, but is instead part of its inherent power to control and manage proceedings for the fair and efficient administration of justice.
This decision provides a useful insight into the balancing act which the court must undertake when considering whether to exercise its inherent case management powers to grant a stay of court proceedings in favour of existing (or potential) arbitrations. (Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210.)
Background
In Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373 (Tomolugen), the Singapore Court of Appeal set out three (sometimes conflicting) higher-order concerns to be balanced by the court in exercising its jurisdiction to grant a case management stay:
- A plaintiff's right to choose whom he wants to sue and where.
- The court's desire to prevent a plaintiff from circumventing the operation of an arbitration clause.
- The court's inherent power to manage its processes to prevent an abuse of process and ensure the efficient and fair resolution of disputes.
(See Legal update, Setting the stage: selecting suitable stadia for shareholder battles (Singapore Court of Appeal).)
The Court of Appeal in Tomolugen also endorsed the following criteria adopted by the New Zealand High Court in Danone Asia Pacific Holdings v Fonterra Co-operative Group [2014] NZHC 1681(Danone), which are relevant in considering whether a stay should be ordered:
- Whether the claims in the court proceedings were derived from the claims subject to arbitration.
- Whether there was any overlap between the claims in the court and the arbitration proceedings.
- Whether there was anything to bar claims in the court proceedings from being pursued in the arbitration.
- Whether the findings made in the arbitration would bind the parties to the court proceedings.
- The risk of inconsistent findings between the arbitral tribunal and the court.
- Duplication of witnesses and evidence.
- Whether there was agreement between the parties to resolve disputes by arbitration.
Facts
The plaintiff was one of three shareholders in Lime Petroleum PLC (Lime). On 24 October 2011, Lime and its three shareholders entered into a shareholders' agreement which contained an arbitration clause (SHA). The first and second defendants were respectively the ultimate and intermediate holding companies of one of the other shareholders of Lime.
The plaintiff commenced Singapore court proceedings against the defendants, alleging, among other things, unlawful and lawful means conspiracy in relation to Lime's subsidiaries, unjust enrichment and wrongful interference in Lime's affairs.
The defendants then applied to have the court proceedings stayed on the basis of the arbitration clause in the SHA.
Decision
Affirming the first instance decision of the Assistant Registrar, the Singapore High Court granted a stay based on its inherent case management powers subject to the following conditions:
- If the dispute resolution mechanism under the SHA is not triggered within three months or an arbitration is not commenced within five months, the parties shall be at liberty to apply to lift the stay.
- The defendants (who were not parties to the SHA and therefore the arbitration agreement) are to be bound by the findings of fact made by the putative arbitral tribunal.
- The parties shall be at liberty to pursue the court proceedings and apply to lift the stay if the putative arbitration is unduly delayed.
- Following the conclusion of the arbitration proceedings, subject to any res judicata issues, the plaintiff is entitled to resume the existing court proceedings against the defendants.
In granting the conditional stay, the court confirmed that a stay can be granted even if the applicant is not a party to the arbitration agreement. The absence of an arbitration agreement between the parties to the court proceedings is irrelevant because the court's power to order a case management stay does not arise from an arbitration agreement, but is instead part of its inherent power to control and manage proceedings for the fair and efficient administration of justice.
Having regard to the three higher-order concerns identified in Tomolugen and the Danone criteria, the court considered that the issue before it was essentially whether the court proceedings were so connected with the SHA that a stay should be granted; in other words, whether the dispute before the court fell within the scope of the arbitration agreement. The court, in assessing the nature of the claims pursued by the plaintiff, looked at the substance or underlying basis and true nature of the issue or claim, rather than limiting itself to the manner in which the issues were presented in pleadings. The fact that the plaintiff's Statement of Claim did not directly engage or rely on the SHA therefore did not deter the court from finding that the claims fell within the scope of the arbitration agreement.
On the facts of the case, the court found that the arbitration agreement was very broad and not restricted to disputes concerning the parties to the SHA. Since the SHA itself dealt with matters such as the control exerted by Lime's shareholders over Lime's subsidiaries, disputes arising from the control exerted by any of the shareholders fell within the ambit of the arbitration agreement.
Having considered each of the plaintiff's claims in a holistic manner, the court found that factors similar to those in Danone pointed towards a stay being the appropriate conclusion in this case. The ends of justice would be better served by upholding the arbitration agreement (to which the plaintiff was a party) and eliminating the procedural complexities that accompany parallel proceedings. At the same time, the conditional nature of the stay ensured that the plaintiff's right to proceed in the courts was not unduly prejudiced. The financial consequences of any resulting delay could be addressed by an adequate award of interest.
Finally, the court confirmed that there is no prerequisite for there to be existing proceedings between parties to the arbitration agreement before a case management stay can be ordered.
Comment
This decision provides a useful insight into the balancing act which the court undertakes when considering whether to exercise its inherent case management powers to grant a stay of court proceedings in favour of existing (or potential) arbitrations.
On the facts of this case, it appears that the court was keen to prevent the plaintiff from circumventing the arbitration agreement by commencing proceedings against entities related to the defendants (but which were not parties to the SHA and therefore the arbitration agreement) and by artificially drafting its pleadings so as to not engage the SHA. This is consistent with Singapore's well established pro-arbitration outlook.
Case
Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210 (Singapore High Court).
