* Kohe Hasan is a Partner in Reed Smith's Singapore office and a Director of Resource Law LLC. Nikisha Mirpuri is an Associate in Reed Smith's Singapore office.
Speedread:
The Singapore High Court has refused to exercise its inherent jurisdiction to stay court proceedings commenced under the Singapore Companies Act (Cap 50) in favour of arbitration.
The plaintiffs were various related companies of which the defendants were directors and / or alleged de facto directors. A joint venture investment agreement (IA), containing an arbitration clause, was entered into by some of the plaintiffs, but the defendants were not parties to the IA.
The plaintiffs brought court proceedings against the defendants in the Singapore courts. The defendants applied to stay the proceedings in favour of arbitration pursuant to section 6 of the International Arbitration Act (Cap 143A) (IAA), or alternatively pursuant to the court’s inherent jurisdiction.
The court held that the defendants were neither parties to the arbitration agreement, nor could they compel a party to the arbitration agreement to arbitrate a dispute, and therefore, they were not able to avail themselves of section 6 of the IAA, for a stay of proceedings.
Further, the court refused to exercise its inherent powers of case management to order a stay in favour of arbitration, finding that there had been no attempt to circumvent the operation of an arbitration clause and there was separately no abuse of process.
The case contains interesting commentary on the “agency principle” (which would allow non-signatory directors to compel companies to arbitrate), and confirms that it does not apply in Singapore. There is, therefore, no Singapore precedent for agent beneficiaries of a party to an arbitration clause to compel parties to that clause to arbitrate. The case also shows that despite the general "pro-arbitration” stance of the Singapore courts, the courts will refuse to exercise their inherent powers of case management in circumstances where doing so will only cause delay and no fruitful gain, in particular, where the party seeking a stay has taken inconsistent positions before it. Case: A co and others v D and another [2018] SGHCR 9 (20 June 2018).
Background
Section 6(1) of the International Arbitration Act (Cap 143A) ('IAA') states:
"… where any party to an arbitration agreement to which this Act applies institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter."
In "Titan Unity" [2014] SGHCR 4, the Singapore High Court held that parties can be found to have impliedly consented to form an agreement to arbitrate where this has been clearly and unequivocally shown to be the parties' objective intention. For further discussion, see Legal update, Singapore High Court confirms application of kompetenz-kompetenz.
In Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373, the Singapore Court of Appeal set out the principles which guide the court's decision whether to grant a stay pursuant to its inherent powers. The court must, in every case, seek to strike a balance between three "higher-order" concerns to serve the ends of justice:
- 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.
For further discussion of the Tomolugen case generally, see Legal update, Setting the stage: selecting suitable stadia for shareholder battles (Singapore Court of Appeal).
Facts
The plaintiffs were various related companies of which the defendants were directors and/or alleged de facto directors.
A joint venture investment agreement (IA), containing an arbitration clause, was entered into in December 2009 by, amongst others, some of the plaintiffs, which governed the relationship of those particular companies. The defendants were not parties to the IA.
The parties were involved in various ongoing and concurrent legal proceedings.
The present proceedings were commenced in the Singapore courts against the defendants in January 2018 for breaches of fiduciary duties under the Singapore Companies Act (Cap 50). The defendants applied to stay the proceedings in favour of arbitration pursuant to section 6 of the IAA, or alternatively pursuant to the court's inherent jurisdiction.
The defendants' position
The defendants contended that they were parties to the arbitration agreement contained in the IA, despite not being signatories of the IA, and could therefore avail themselves of section 6 of the IAA. In that regard, the defendants contended that:
- It was the intention of the parties (based on the wording of the clauses in the IA) that the defendants be allowed to invoke the arbitration agreement in the IA.
- Even though the defendants were non-parties, they could compel the plaintiffs to arbitrate the dispute under the arbitration agreement based on an "agency principle" referred to in the US case of Kiskadee Communications v Philip Father 2011 US Dist. Lexis 34974, which provides for certain circumstances in which a non-signatory to an arbitration clause may compel a signatory to arbitrate.
Alternatively, the defendants argued that the court should exercise its inherent jurisdiction to grant a stay, in order to prevent a plaintiff from circumventing the operation of an arbitration clause or prevent an abuse of process (limbs two and three of Tomolugen).
The plaintiffs' position
The plaintiffs disagreed with the defendants' contention that they were parties to the arbitration agreement and instead contended that:
- The parties did not intend the arbitration agreement to apply to the defendants, and would have stated so expressly if they did.
- The "agency principle" relied on by the defendants, derived from the US case, has not been accepted in Singapore, and in any event could be distinguished on the facts.
The plaintiffs also disagreed that this was a case in which the court should exercise its inherent jurisdiction to grant a stay.
The key questions for the court to consider were:
- Whether the defendants were parties to the arbitration agreement and therefore entitled to seek a stay of proceedings pursuant to section 6 of the IAA.
- If the defendants were not parties to the arbitration agreement, whether the defendants were still able to compel the plaintiffs to arbitrate the issues in the proceedings and therefore were entitled to seek a stay pursuant to section 6 of the IAA.
- Alternatively, whether the court proceedings should be stayed pursuant to the court's inherent powers of case management.
Decision
The court, in refusing the application for stay, held that the defendants were neither parties to the arbitration agreement, nor could they compel a party to the arbitration agreement to arbitrate a dispute, and therefore were not able to avail themselves of section 6 of the IAA.
Further, the court refused to exercise its inherent powers of case management to order a stay in favour of arbitration, finding that:
- That the defendants were not parties to the arbitration agreement.
- There was no attempt by the plaintiffs to circumvent the operation of the arbitration clause and there was separately found to have been no abuse of process.
- There would have been a number of issues with granting a stay, particularly in light of the court's finding that the defendants were not parties to the arbitration agreement.
Whether the defendants were parties to the arbitration agreement
The court first considered whether, based on the decision in the Titan Unity, there was any objective circumstance and conduct which showed that the parties to the arbitration agreement in the IA had consented to extend it to the defendants.
The court found the defendant’s submissions “totally unmeritorious” in this regard, and held that nothing in the clause cited by the defendants (which provided which members of the Board of Directors had control over proceedings by one of the companies to the IA) in any way indicated that the signatories consented to extend the arbitration agreement to the defendants.
The court also found that the wording “arising out of or in connection with” contained in the IA’s arbitration agreement was not sufficient to imply that there was an intention by the parties to the IA for the arbitration agreement to apply to the defendants. The court held that based on the objective circumstances and the parties’ conduct, if parties had wished to extend the arbitration agreement to the defendants, they would have expressly done so (as they had done in other parts of the IA).
Whether the defendants could compel a party to the arbitration agreement to arbitrate
The court held that the “agency principle” (as set out in US Kiskadee case) did not apply in Singapore. The court also noted in its judgment that the “agency principle” has not even been unanimously accepted by the US Courts. On that basis, the defendants, as non-parties to the arbitration agreement, could not compel the plaintiffs to arbitrate the issues in these proceedings.
As the defendants were not parties to the arbitration agreement, one of the conditions in section 6 of the IAA had not been satisfied and no stay of the arbitration pursuant to this section could be granted.
Whether the court should exercise its inherent powers of case management to stay the suit
The court concluded that as the defendants were not parties to any arbitration agreement with the plaintiff companies, there could not be said to be any circumvention of any arbitration clause by commencing the action. The second order concern in Tomolugen therefore, could not be a basis to grant a case management stay in this case.
As to the third order concern in Tomolugen as raised by the defendants, the court found that the defendants had taken an inconsistent position by filing this application for a stay, as it had also argued, through one of the companies to which they were officers, that the tribunal in the ongoing arbitration had no jurisdiction in respect of the claims before it.
The court found there were a number of issues in respect of the defendants' proposal for a conditional stay (i.e. a stay on the condition that if dispute resolution or arbitration was not commenced within three months from the judgment, parties would be at liberty to apply to the court to lift the stay). These issues included:
- It would serve no purpose for the matter to be included in an arbitration in which the tribunal’s jurisdiction was being challenged.
- A stay would be an indirect acknowledgement that the defendants were parties to the arbitration agreement.
Further, the court foresaw issues in determining who would be the appropriate party to commence arbitration proceedings against the defendants in respect of the alleged breach of fiduciary duties, in light of the fact that they were not parties to the arbitration agreement.
Comment
This case confirms that the "agency principle" (which would allow non-signatory directors to compel companies to arbitrate), does not apply in Singapore, and that there is, therefore, no Singapore precedent for agent beneficiaries of a party to an arbitration clause to compel parties to that clause to arbitrate. The case also shows that despite the Singapore courts generally taking a "pro-arbitration" stance, a court will refuse to exercise its inherent powers of case management in circumstances where doing so will only cause delay and no fruitful gain, in particular, where the party seeking a stay has taken inconsistent positions before it.
Case
A co and others v D and another [2018] SGHCR 9 (20 June 2018) Tan Teck Ping Karen AR.
