* 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 confirmed its power to lift a stay of proceedings in favour of arbitration, pursuant to its inherent case management powers. In a previous decision, the court had granted a stay of court proceedings in favour of arbitration. The plaintiff had commenced proceedings against the shareholders of a party with which it had entered into an arbitration agreement. The stay was granted pursuant to the court’s case management powers and to “ensure the efficient and fair resolution of disputes". The stay was subject to several conditions which, if not satisfied, would entitle either party to apply for the stay to be lifted.
The plaintiff subsequently applied to lift the stay, on the basis that certain conditions were no longer satisfied. The court found that in “exceptional circumstances", as was the case here, it would lift the stay, regardless of whether the conditions were satisfied. Conscious that the stay should not continue indefinitely, the court’s discretion was grounded in its need to ensure the fair and efficient resolution of disputes.
This decision clarifies the Singapore courts’ case management powers in the context of stays of litigation in favour of arbitration. In particular, it illustrates that where the court can exercise its discretion to order a stay, it has a ‘mirror’ discretion to lift that stay. Further, in exceptional cases such as this one, the court can do so even where a number of conditions were associated with the stay, and regardless of whether those conditions were satisfied. The defendants have obtained leave to appeal to the Singapore Court of Appeal. (Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2019] SGHC 15 (24 January 2019).)
Facts:
The plaintiff had entered into a shareholders’ agreement (SHA) with Rex Middle East Limited (RME). RME is a subsidiary of the defendants. The SHA provided for a tiered dispute resolution procedure, involving amicable resolution, negotiations between principal officers from each shareholder, and arbitration under the ICC Rules (Arbitration Agreement).
The plaintiff commenced court proceedings against the defendants, alleging their and RME’s misconduct. The defendants applied for a stay of the proceedings, on the basis that the allegations involved issues relating to the SHA, and that accordingly, the dispute was governed by the Arbitration Agreement.
The defendants were not parties to the Arbitration Agreement. Nevertheless, in 2017, the Singapore High Court granted a stay of the court proceedings in favour of arbitration (see Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210, discussed in Legal update, Singapore High Court exercises inherent case management jurisdiction to stay court proceedings). The court grounded the stay on “the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice", in line with the principles established in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57 (Tomolugen) (see Legal update, Setting the stage: selecting suitable stadia for shareholder battles (Singapore Court of Appeal)). The court noted significant overlaps between the issues in dispute in the court proceedings and the scope of the Arbitration Agreement, which justified the stay.
The 2017 stay decision imposed several conditions on the parties. Importantly, it stated:
"if the tiered dispute resolution [in the Arbitration Agreement] is not triggered by any of the parties to the [SA] within three months from the date of this judgment or an arbitration is not commenced within five months from the date of this judgment, the parties shall be at liberty to apply to the court to lift the stay."
After the abovementioned time-frame had expired, the plaintiff obtained an order for the stay to be lifted. The defendants were granted leave to appeal to the Singapore High Court.
Decision:
The Singapore High Court confirmed that the stay should be lifted. Just as it could, pursuant to its inherent case management powers, stay the court proceedings, the court also had the power to lift the stay, pursuant to the same case management powers.
Importantly, the court noted that it could exercise its discretion regardless of whether the conditions for lifting the stay had been met. These were conditions for the parties to apply to the court to lift the stay. Ultimately, the court retained the discretion to decide whether it was appropriate for the stay to remain in place.
The court’s reasoning:
The plaintiff argued that the stay should be lifted, given that the conditions for keeping it in place were no longer met. Among other things, the plaintiff argued that the defendants and RME had failed to take all reasonable endeavours to resolve the dispute amicably with the plaintiff following the stay, and neither party had commenced arbitration within five months of the 2017 stay decision.
Conversely, the defendants argued that the conditions for lifting the stay were not met. In particular, the defendants noted that the condition that the parties commence arbitration within five months from the 2017 stay decision should not require the defendants to actually commence arbitration. Rather, it would suffice that the defendants submit to arbitration (relying on Hermes One Ltd v Everbread Holdings Ltd and Ors [2016] 1 WLR 4098). They argued that it would not make commercial sense for the defendants to be required to commence arbitration, where they would seek no positive relief, but only a declaration of non-liability.
The court’s discretion to lift the stay
The court noted that the parties had not moved the case through arbitration since the 2017 stay decision. In addition, it noted that its discretion to lift the stay was not constrained by or contingent upon the conditions of the stay, although it did note that "one would expect that the circumstances in such a situation would be rather exceptional". As a general rule, the parties’ compliance with the stipulated conditions should remain a material consideration for the court.
The court grounded its discretion on its inherent case management powers. The court relied on the principles established in Tomolugen, and the recognition that “the court, as the final arbiter, should take the lead in ensuring the efficient and fair resolution of the dispute as a whole”. The inherent powers of the court are determined by the factual circumstances of each case, and there are no hard and fast rules on how the court should exercise its discretion to lift a stay.
The exercise of the court’s discretion
The court noted the risk that the stay could continue indefinitely. For this reason, it found that it would need to assess whether the stay continues to achieve its purpose of ensuring that a dispute is resolved efficiently and fairly. Further, where the resolution of the dispute is blocked by the continuation of the stay, the court can and should reconsider the terms of the stay.
The court agreed that, from the defendants’ perspective, satisfying the conditions for the stay would require that they procure that their subsidiary, RME commence arbitration against the plaintiff in pursuit of a negative case. The court expressed its sympathy for the defendants’ arguments, given that it would not generally wish to compel a party to pursue dispute resolution proceedings. Nevertheless, the court noted the particular circumstances of this case, in that the defendants were not party to the Arbitration Agreement. Leaving the stay indefinitely in place would leave the plaintiff with no choice but to commence proceedings against RME, given that the defendants would have little incentive to procure that RME commences arbitration.
In view of the resulting deadlock, and considering the overriding objective of ensuring the efficient and fair resolution of disputes, the court ordered the lift of the stay.
Comments:
This decision further clarifies the Singapore Courts’ case management powers, in the context of stays of litigation in favour of arbitration. In particular, it illustrates that where the court can exercise a discretion to order a stay, it has a ‘mirror’ discretion to lift that stay. Further, in exceptional cases like this one, the court can lift the stay even where many conditions that were associated with the stay were satisfied.
It remains to be seen whether the court would exercise its discretion to lift a stay of litigation in favour of arbitration which was ordered on statutory grounds, rather than pursuant to the court’s case management powers.
The defendants have obtained leave to appeal to the Singapore Court of Appeal.
Case:
Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2019] SGHC 15 (24 January 2019) Aedit Abdullah J.
