In Dyna-Jet Pte Ltd v Wilson Pte Ltd [2016] SGHC 238 (Dyna-Jet), it was recognised that an arbitration agreement is inoperative, at the very least, when it ceases to have  effect  as a binding contract. That can occur as a consequence of various contractual doctrines, such as discharge by breach, by reason of waiver, estoppel, election or abandonment. More specifically, an arbitration agreement will be inoperative where a party has committed a repudiatory breach of that agreement and the repudiation has been accepted by the innocent counterparty (see Legal update, Singapore High Court holds that asymmetric arbitration agreements are valid and binding). 

The phrase "incapable of being performed" was interpreted by the court in Dyna-Jet as being a situation where a contingency prevents the arbitration from being set in motion, whether or not that contingency is foreseen and bargained for.

Facts

The relevant clauses in the two contracts between the plaintiff and the first defendant (ADR Clauses) required the parties to proceed to mediation-arbitration (med-arb) in the event of a dispute. This was a procedure jointly promulgated by the Singapore Mediation Centre (SMC) and the Singapore International Arbitration Centre (SIAC) (SMC-SIAC Med-Arb Procedure).

A dispute arose between the parties. Despite the plaintiff's attempts to trigger the Med-Arb Procedure provided for in the contract, the first defendant over a sustained period of about one year, consistently refused to agree on a date for mediation to take place or make any payment of the requisite fees. It also suggested methods of dispute resolution which had not been agreed on, indicated that mediation could not take place until some later date and eventually stopped responding to the plaintiff's solicitors' letters.

The plaintiff then commenced Singapore court proceedings against four defendants (including the first defendant) seeking damages and rescission of two contracts with the first defendant. The plaintiff claimed that it was induced to enter into these agreements on the basis of various misrepresentations made by one or more of the defendants and it had, as a result, suffered loss and damage.

The first defendant resisted the action and sought a stay of the court proceedings, relying on section 6 of the IAA, whereas the rest of the defendants sought a stay of proceedings under the court's inherent case management powers, subject to the action being stayed against the first defendant.

The main issue that the court had to consider was whether the arbitration agreements contained in the ADR Clauses were null and void, inoperative or incapable of being performed.

Decision

The Singapore High Court, dismissing the defendants' applications for a stay of proceedings, held that the arbitration agreements were inoperative due to repudiatory breach by  the first defendant.

Arbitration agreements

The court first identified what constituted the arbitration agreement for the purpose of section 6 of the IAA. The plaintiff argued that the arbitration agreement constituted  each ADR Clause construed as a unitary dispute resolution mechanism, while the first defendant's position was that there were two separate dispute resolution agreements, comprising an agreement to mediate and a separate agreement to arbitrate (after any  failed mediation).

In this instance, there were no express references in the ADR Clauses themselves to separate mediation and arbitration proceedings. The only references were to the SMC-SIAC Med-Arb Procedure. Having regard to the provisions of the SMC-SIAC Med-Arb Procedure, the court was of the view that mediation and arbitration proceedings commenced under this med-arb procedure are closely intertwined. Therefore, the appropriate interpretation was to construe the clause as a unitary arbitration agreement, and this was consistent with the commercial intentions of the parties who expressly agreed to this hybrid dispute resolution mechanism.

Were the arbitration agreements inoperative?

The court then considered whether the first defendant's actions in response to the plaintiff's attempts to commence med-arb should be regarded as repudiatory breaches of the ADR Clauses.

On the facts of this case, the court was of the view that the first defendant's actions amounted to breaches of the applicable arbitration agreements, substantially depriving the plaintiff of the whole benefit which the plaintiff should have derived from those agreements. In this regard, the court found that an obligation to mediate in good faith was imported into the agreed dispute resolution procedure between the plaintiff and the first defendant by virtue of the SMC-SIAC Med-Arb Procedure, and the first defendant's actions fell short of what was required for it to participate in good faith.

Further, the court found that the first defendant had, through its conduct, clearly conveyed to the plaintiff that it had no interest in performing its obligations under the ADR Clauses at all. Therefore, the court accepted, on the facts, that the first defendant had committed a repudiatory breach of the arbitration agreements between the parties, and that the plaintiff had accepted this repudiatory breach, rendering the arbitration agreements inoperative within the meaning of section 6(2) of the IAA.

Were the arbitration agreements incapable of being performed?

The plaintiff argued that the arbitration agreements were incapable of being performed because the first defendant, by its own admission, had ceased operations and had been dormant since 2015.

However, the court did not accept this argument, and was of the view that an arbitration should only be deemed incapable of being performed (for the purposes of section 6(2) of the IAA) when the contingency in question renders its permanently impossible for the arbitration to be set in motion; mere difficulty, inconvenience or delay would not be sufficient.

On the facts, there was insufficient evidence to show that the first defendant would be unable to take such steps as may be necessary to set med-arb proceedings in motion.

Court's conclusion

The court dismissed the first defendant's application for a stay of proceedings.

As for the other defendants' applications for a stay of proceedings on the ground of case management, the court, in considering the principles in Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373, discussed in Legal update, Setting the stage: selecting suitable stadia for shareholder battles (Singapore Court of Appeal), came to the conclusion that there was no basis for such a stay as no part of the dispute needed to be referred to arbitration (as a consequence of the court's findings on the first defendant's application).

Comment

This decision provides useful guidance on the court's treatment of med-arb clauses, as well as the scope of section 6(2) of the IAA. The court's comments are also a reminder that contracting parties must act fairly and observe the standards of fair commercial dealing when they undertake to act in good faith for the resolution of their disputes.

Case

Heartronics Corp v EPI Life Pte Ltd and others [2017] SGHCR 17.