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This article was originally published in Practical Law Arbitration. Reproduced with permission. This article is co-written by Reed Smith Pte Ltd and Resource law LLC who together form the Reed Smith Resource Law Alliance in Singapore. Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.

In BTY v BUA and other matters [2018] SGHC 213, the Singapore High Court held that a company's articles of association and a shareholders' agreement create two separate legal relationships between the parties, and therefore, operate on two separate legal planes. Therefore, an arbitration agreement contained in a shareholders' agreement will not extend to disputes arising between the same parties under the articles of association.

Authors: Kohe Hasan Justine Barthe-Dejean

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A shareholder commenced court proceedings against its company for breach of the company's articles of association. The company obtained a stay of the proceedings on the basis that the alleged breach of the articles of association also constituted a breach of the shareholders' agreement, which contained an arbitration agreement. The Singapore High Court allowed the plaintiff's appeal against the assistant registrar's decision to stay the court proceedings, on the basis that:

  • On its proper construction, the arbitration agreement applied only to the legal relationship between the parties arising out of the shareholders' agreement itself. The articles of association created a separate legal relationship between the parties which operated on a separate legal plane.
  • The dispute arose under the articles of association only. The dispute was not within the scope of the arbitration agreement and was governed by recourse to the Singapore courts in accordance with ordinary principles of company law.

The decision further clarifies the Singapore courts' approach to section 6 of the International Arbitration Act, and their interpretation of the criteria set out in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373, by which the Singapore courts decide on a stay of litigation in favour of arbitration. In particular, this decision emphasises the fundamental difference between the private nature of arbitration, in so far as it only binds the parties to the agreement, and the public nature of litigation, which may bind or affect third parties. (BTY v BUA and other matters [2018] SGHC 213 (15 October 2018).)