Singapore High Court: Stay of Court Proceedings when there is no ‘sufficient reason not to refer to arbitration’

 

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In Takenaka Corporation v Tam Chee Chong and another [2018] SGHC 51, the issue before the High Court of Singapore was whether or not the stay on Court proceedings should be granted under Section 6 of the Singapore Arbitration Act (Ch.10) (the “Act”) and whether or not there is sufficient reason why the dispute should not be referred to arbitration in accordance with the arbitration agreement agreed between parties.

Law on Stay of Court Proceedings in a matter covered by the arbitration agreement

Section 6 deals with stay of court proceedings in a matter which is covered by the arbitration agreement. Under Section 6(2), the Court may stay proceedings if the Court is satisfied both that:

  1. There is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and
  2. 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

Thus the power under Section is discretionary and not compulsory and the stay can only be denied in ‘exceptional circumstances’. It is interesting to know what covers ‘sufficient reason’ under Section 6.

‘Sufficient Reason’

The proper interpretation of ‘sufficient reason’ was provided by High Court of Singapore in Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong [2016] 3 SLR 431 (at [23]) as follows:

[I]t must be kept in mind that even though the court’s power to  grant a stay in favour of domestic arbitration under s 6 of the AA is discretionary, the burden is on the party who wishes to proceed in court to “show sufficient reason why the matter  should not be referred to arbitration”. Assuming the applicant is ready and willing to arbitrate, the court will only refuse a stay in exceptional cases … This is in line with the desirability of holding the parties to their agreement, as well as Singapore’s strong policy in favour of arbitration … Hence, the courts should be slow to exercise the option of allowing all the claims to proceed in court, including those governed by the arbitration agreement. Certainly, the fact that there are related actions, some governed by arbitration agreements and some not, is not in itself a sufficient reason to sanction a breach of an arbitration clause and depart from the policy in favour of arbitration

Factual Matrix of the Case

The dispute arose between the company (‘the Company’) providing services to a contractor (‘the Contractor’) for construction projects in respect of payments due for construction projects. An adjudication determination was made under the Building and Construction Industry Security of Payment Act (Cap 30B, 2006 Rev Ed) under  which the Contractor was  to  pay  a  sum  of  about  $7.9  million  to  the  Company. Subsequently, the Contractor sought partial review of the sum, which led to a determination reducing the sum awarded to the Company to about $7 million. The Contractor however asserted that it was entitled to refuse further payments as it had a counterclaim for back charges and liquidated damages.

Thereafter, the Contractor terminated some contracts with the Company. The Company then applied for Judicial Management and the same was granted. The Contractor filed a proof of debt for an amount of about $27.8 million under the terminated contracts against the Company which was rejected by the Judicial Managers. The Contractor filed an application seeking an order for the setting aside of the rejection of the proof of debt and for the claim set out in its proof of debt to be accepted by the Judicial Managers.

The terminated contracts had arbitration clauses and therefore the Judicial Managers argued for a stay of this application of the Contractor relying on the arbitration agreement between the Company and the Contractor.

Held

The High Court of Singapore granted the stay on court proceedings as the requirements of Section 6 of the Act were made out: there was no sufficient reason why the dispute should not be referred to arbitration in accordance with the arbitration agreement terminated contracts, and the Company, through the Judicial Managers, was ready and willing at the time of the commencement of the proceedings to do all things necessary for the proper conduct of the arbitration and remained so.

Comments

In my view, the decision of the High Court of Singapore reflects the pro arbitration approach of Singapore. I also want to make a distinction between grounds to reject stay in case of domestic arbitrations and grounds to reject stay in case of international arbitrations in Singapore. The grounds for international arbitrations are provided under the International Arbitration Act (Chapter 143A) section 6(2), wherein the Court will stay court proceedings “unless it is satisfied that the arbitration is null and void, inoperative or incapable of being performed.” It is apparent that Singapore adopts a strict approach in international arbitrations in this issue. I also want to point out the Indian law in this regard which is as follows:

Stay on Court proceedings in favor of arbitration in India

The courts will stay proceedings pending before it in favour of arbitration upon an application filed  under  Sections  8  and  45  of  the  Arbitration  Act  (both  domestic  and  international  commercial arbitrations) if there exists a valid arbitration agreement between the parties, if the dispute falls within the scope of the arbitration agreement, and if the arbitrator is competent or empowered to decide it. Section 8 and 45 are reproduced below:

8. Power to refer parties to arbitration where there is an arbitration agreement. –

(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. (as amended in 2015)

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, arbitration may be commenced or continued and an arbitral award made.

45. Power of judicial authority to refer parties to arbitration. –

Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908) a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

As it is clear that the world use is “shall” which means that its discretionary rather its compulsory for the Court to stay such proceedings subject to fulfillment of other conditions i.e. if there exists a valid arbitration agreement between the parties, if the dispute falls within the scope of the arbitration agreement, and if the arbitrator is competent or empowered to decide it. But the judicial interpretation of Indian courts runs contrary to the language of the Court. In the recent judgment of the National Consumer Disputes Redressal Commission of India, after analyzing catena of cases of Supreme Court on this issue, the Commission held that an  arbitration  clause  in  a  contract could not circumscribe the jurisdiction of the Courts and the Tribunals, especially those  which  are  constituted  to  achieve  a  particular  purpose  and  objective.

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