Background

Section 6(1) of the International Arbitration Act (Cap 143A) (IAA) provides:

"(1) Notwithstanding Article 8 of the Model Law, 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 Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373 (Tomolugen), the Singapore Court of Appeal held that a prima facie standard of review is applicable when the court hears a stay application under section 6 of the IAA. In particular, a court should grant a stay in favour of arbitration if the applicant is able to establish a prima facie case that:

• There is a valid arbitration agreement between the parties to the court proceedings.
• The dispute in the court proceedings (or any part thereof) falls within the scope of the arbitration agreement.
• The arbitration agreement is not null and void, inoperative or incapable of being performed.

The Court of Appeal in Tomolugen also set out the considerations to be balanced in deciding whether to exercise the court's inherent case management powers to grant a stay where a dispute falls to be resolved in part by arbitration and by court proceedings, namely:

• 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).)

In Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong [2016] 3 SLR 431 (Maybank), the court identified the following factors in favour of granting a stay of proceedings:

• The factual bases underlying the claims in the two proceedings are essentially the same.
• There are common issues in both claims.
• There is a practical risk of inconsistent findings of fact and law given these overlapping issues.
• There would be a duplication of witnesses and evidence between the arbitration and the court proceedings.

Facts

The underlying dispute arose out of two groups of contracts between the plaintiff and the defendant, referred to as "Category 1 Agreements" and "Category 2 Agreements". The Category 1 Agreements comprised a series of Sale Contracts and Purchase Contracts in respect of Benzene or Toulene, together with related Wash-Out and Circle-Out Agreements. The Category 2 Agreements comprised solely of Sale Contracts and Purchase Contracts in respect of Benzene.

The defendant brought an application for a stay of the court proceedings based on section 6 of the IAA and the court's inherent powers of case management.

The following issues were considered by the court:

• Whether the defendant's standard terms, which included an arbitration clause, were incorporated into the Sale Contracts and Purchase Contracts which comprised the Category 2 Agreements such that the suit should be stayed under section 6 of the IAA.
• If the arbitration clause applied to the Sale Contracts and Purchase Contracts, whether it extended to the Wash-Out and Circle-Out Agreements which comprised the Category 1 Agreements.
• Whether the suit in respect of the Category 1 Agreements should, in any event, be stayed under the court's inherent powers of case management.

Decision

The Singapore High Court stayed the court proceedings concerning the Category 2 Agreements in favour of arbitration under section 6 of the IAA and used its inherent powers of case management to stay the court proceedings relating to the Category 1 Agreements.

Did the Sale Contracts and Purchase Contracts incorporate the defendant's standard terms?

Applying the prima facie standard of review set out in Tomolugen, the court found that the defendant's standard terms, including the arbitration clause, were incorporated into the Sale Contracts and Purchase Contracts by the parties' course of conduct.

Should the court proceedings in respect of the Category 2 Agreements be stayed under section 6 of the IAA?

Having found that the arbitration clause applied to the Category 2 Agreements, the court held that the dispute would fall within the scope of the arbitration agreement. No argument was raised by the plaintiff that the arbitration clause was null, void, inoperative or incapable of being performed. In the circumstances, the court found that the court proceedings in respect of the Category 2 Agreements were subject to a mandatory stay under section 6 of the IAA.

Did the arbitration clause under the Sale Contracts and Purchase Contracts extend to the Wash-Out and Circle-Out Agreements which comprised part of the Category 1 Agreements?

The court followed the test set out in the English case of Kianta Osakeyhtio v Britain & Overseas Trading Company, Ltd [1954] 1 Lloyd's Rep 247 to determine whether the arbitration clause of the Sales Contracts and the Purchase Contracts was applicable to the dispute in respect of the Wash-Out and Circle-Out Agreements, namely whether the dispute was one which had arisen out of the interpretation or fulfilment of the underlying Sales Contracts and Purchase Contracts.

On the facts of the case, the court held that the dispute related to the payment of the price agreed under the Wash-Out and Circle-Out Agreements and had nothing to do with the parties' rights and obligations under the underlying Sale Contracts and Purchase Contracts. Further, the parties had intended for the Wash-Out and Circle-Out Agreements to extinguish all but certain specific rights and obligations under the Sales Contracts and Purchase Contracts. In the circumstances, the court found that the Wash-Out and Circle-Out Agreements were separate and independent from the underlying Sales Contracts and Purchase Contracts. Therefore, the arbitration clauses in the latter set of contracts did not extend to the former.

Should the court exercise its inherent powers of case management to stay the court proceedings in respect of the Category 1 Agreements?

Since the arbitration clause did not extend to the Wash-Out and Circle-Out Agreements, the mandatory stay under section 6 of the IAA was not applicable.

However, after considering the facts of the case in light of the principles in Tomolugen and Maybank, the court decided to exercise its inherent powers of case management to stay the proceedings in respect of the Category 1 Agreements. In so doing, the court rejected the plaintiff's argument that the arbitrations should await the outcome of the court proceedings and not the other way round. The fact that the jurisdiction of the arbitral tribunal was challenged by the plaintiff was not per se a bar to granting a case management stay and the plaintiff's right to proceed in court was not absolute and was not unduly prejudiced by the temporary nature of the stay. Further, the facts underlying the two proceedings were essentially the same, there was a significant overlap between the issues before the arbitral tribunal and the court proceedings and all the witnesses and evidence before the court and the arbitral tribunal would be identical.

Comment

This case appears to be yet another reassuring affirmation of the pro-arbitration stance adopted by Singapore's judiciary. It is particularly noteworthy that the court was willing to stay court proceedings in favour of arbitration where there was significant overlap between the issues to be decided, rather than require the arbitral tribunal to await the outcome of the court's findings on the overlapping issues. It remains to be seen whether the court would be willing to adopt this deferential approach in overlapping cases as a matter of norm, or if this decision was a one-off merited by the particular underlying facts.