* Kohe Hasan is a Partner in Reed Smith's Singapore office and a Director of Resource Law LLC. Justine Barthe-Dejean is an Associate in Reed Smith's Singapore office.
Speedread
The Singapore High Court has stayed court proceedings in favour of domestic arbitration proceedings.
The court found that there was no reason why the matter should not be arbitrated in accordance with the parties' agreement and found that the applicant was ready and willing to arbitrate.
Although the circumstances in which a stay of court proceedings may be denied are different and far more stringent and limited in relation to international arbitration as compared with domestic arbitration, this decision shows that the Singapore courts are also very wary of denying a stay in favour of domestic arbitration. (Takenaka Corp v Tam Chee Chong and another [2018] SGHC 51.)
Background
The Singapore Arbitration Act (Ch.10) (the “Act”) applies to domestic arbitrations in Singapore – that is, arbitrations that are not considered ‘international’ (for further information, see Article, Arbitration procedures and practice in Singapore: overview – Legislative framework).
Under Section 6(1) of the Act, a party to an arbitration agreement can apply for a stay of court proceedings that have been brought in respect of a matter which is covered by the arbitration agreement.
Under Section 6(2) of the Act, the Court has discretion to stay the court proceedings, if:
“(a) there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and
(b) the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration.”
The decision in Maybank Kim Eng Securities Pte Ltd v Lim Keng Youg [2016] 3 SLR 431 confirmed that a stay will only be denied in exceptional circumstances.
Facts
Takenaka Corporation (“Takenaka”) engaged Acesian Star (S) Pte Ltd (the “Company”) to carry out construction works at Singapore’s Changi Airport under two contracts.
Disputes arose between the parties in respect of sums allegedly due, by Takenaka to the Company (payments for works done), and by the Company to
Takenaka (back charges and liquidated damages). In the event, Takenaka terminated both contracts. In the meantime, the Company faced financial difficulties and entered into judicial management. Takenaka filed a proof of debt against the Company, which was rejected by the Company’s judicial managers. Takenaka commenced proceedings in the Singapore High Court seeking an order to set aside the judicial managers’ decision.
The Company commenced arbitration and applied to the court for a stay of the court proceedings, on the basis that the contracts contained arbitration clauses, providing for arbitration of disputes arising out of the contracts in Singapore and under the Singapore International Arbitration Centre’s (SIAC) Rules.
Takenaka argued that the stay should be denied. The court proceedings, in which it sought an order to set aside the judicial managers’ decision, were closely related to another wider set of court proceedings arising out of the Company’s judicial management. Accordingly, it was necessary for the court to have overall supervision and oversight of all proceedings related to the judicial management, which an arbitration of the parties’ particular dispute precluded.
In addition, Takenaka argued that the evidence showed that the Company was not “ready or willing” to arbitrate the dispute, as it failed to promptly commence arbitration and seek to stay the court proceedings. Moreover, the fact that the judicial managers justified their delay by their difficulty in firming up funds, also went to show that the Company was not ready and willing to arbitrate the dispute.
The Company argued that the parties’ agreement to arbitrate should not be displaced simply because the proof of debt in dispute is linked to the Company’s judicial management as a whole. Further, these court proceedings were for an order to set aside the judicial managers’ decision to reject the proof of debt only, whereas the arbitration would also address the Company’s counterclaims against Takenaka.
Decision
The Court decided to stay the court proceedings in favour of arbitration.
Sufficient reason not to refer to arbitration
The Court agreed with the Company that there was no “sufficient reason” to displace the arbitration agreement. Whilst it may consider a broad range of factors at its discretion under section 6(2)(a) of the Act, these must outweigh the desirability of holding the parties to their agreement.
Importantly, the Court found that it is not a sufficient reason that court proceedings may ultimately lead to the faster resolution of a dispute, or that they are overall more efficient in the context of a judicial management. Fundamentally, the Court noted that “the parties’ choice in agreeing to arbitrate would mean that they would be taken to have considered the possibility that arbitration may not proceed as speedily or as efficiently as court-managed cases.”
Ready and willing to arbitrate
The Court disagreed with Takenaka’s interpretation of section 6(2)(b) of the Act.
Firstly, it found that the requirement that the party seeking a stay should be ready and willing to arbitrate does not impose an obligation to “pursue arbitration immediately and without any time for preparation.” Rather, the Court found that “the objective of the requirement is to ensure that arbitration is not merely a theoretical possibility, and that there is a genuine intention to pursue it.” This sets a much lower bar of expectations on the party seeking a stay.
Secondly, the Court found that the possibility that the Company may not be in a position to pay for the costs of arbitration or an adverse costs order is not a ground in itself to deny the stay.
Here again, the Court noted that upon entering the arbitration agreement, the parties “would have been expected to have factored in the risk of non-reimbursement of costs following arbitration in their choice to arbitrate their disputes."
Comment
This decision clarifies the circumstances in which the Singapore courts may deny a stay of court proceedings in favour of domestic arbitration. These circumstances differ substantially from those applicable to international arbitration in Singapore. Under the International Arbitration Act (Chapter 143A) section 6(2), the Court will stay court proceedings “unless it is satisfied that the arbitration is null and void, inoperative or incapable of being performed.” (see Legal update, Singapore High Court finds arbitration agreement rendered inoperative by repudiatory breach for a recent decision relating to this provision).
The circumstances in which a stay of court proceedings may be denied are far more stringent and limited when relating to international arbitration. However, this decision confirms and exemplifies how Singapore courts are also very wary of denying a stay in favour of domestic arbitration.
The decision reiterates the fundamental contractual principle whereby parties will be taken to their word and held to their agreement. On both limbs of Section 6(2) of the Act, the Court found that negative practical outcomes of arbitration over litigation (such as cost, lesser efficiency, or disunity of insolvency proceedings) are not relevant. Parties are deemed to have factored in the advantages and disadvantages of each dispute resolution method, and all of the consequences of their choice, at the time they entered into the arbitration agreement.
This case reinforces Singapore’s strong policy in favour of arbitration – both domestic and international.
Case: Takenaka Corp v Tam Chee Chong and another [2018] SGHC 51.
