Singapore High Court: Whether a multi-tier dispute resolution clause constitutes an agreement to arbitrate

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In the case of Ling Kong Henry v Tanglin Club [2018] SGHC 153, dealt with the issue of whether a multi-tier dispute resolution clause constitutes an agreement to arbitrate. After citing the English, Hong Kong and Singaporean authorities on the issue the Court held that these authorities concur and holds that such clauses constitute agreements to arbitrate along with other findings which are briefly discussed below.

Factual Matrix

Certain members of a Club (defendant) entered into a dispute another member of the Club (Plaintiff) on the usage of an activity room belonging to the Club. Defendant complained against the Plaintiff on disciplinary grounds under Rule 26 of the Club Membership Contract and the ruling of the Club in these proceedings was challenged by the Plaintiff on the grounds of breach of principles of natural justice and fairness in the Court. Per contra, the Club filed a stay of Court proceedings application under Section 6 of the Singaporean Arbitration Act (AA) stating that there exists an arbitration clause (Rule 45B) in the club membership contract. The membership contract contained a multi-tier dispute resolution mechanism: which stipulated the dispute to be resolved first by way of conciliation, followed by mediation, and then finally, arbitration.

Rule 26 of the Club Membership Contract

Inquiry Sub-Committee

26(v) Inquiry Sub-Committee

(a) The Committee may at any time appoint an Inquiry Sub-Committee to inquire into any alleged infringement of the Rules or Bye-laws of the Club or any behaviour or action considered unacceptable and or inappropriate to the Club, for which it is not immediately apparent that disciplinary action needs to be taken. Its aim shall be to determine the facts.

(b) The Sub-Committee shall consists of three or more members, at least one of whom must be a Committee Member. The Chairman shall be a Committee Member. No member or Committee Member with a personal involvement in the matter inquired into may be a member of the Inquiry Sub-Committee.

(c) The Sub-Committee shall report is findings to the Committee, which will decide whether any further action is required.

Multi-tier dispute resolution Clause

“45B(i) Where a dispute or question arises between the Club and a member or between a member and a member (hereinafter referred to as “the Parties”) touching on any matter dealt with in these Rules, any matter of the Club or arising out of such matter, for which express provision has not been made in these Rules, the Parties shall resolve such dispute or question in accordance with this Rule and the Club and any member involved shall not take any steps in relation to such dispute or question save as is specifically provided herein.

45B(ii) Such dispute or question shall be first referred by the Committee or the member raising the dispute or question, to the General Manager by notice in writing for conciliation. Conciliation will be carried out by such conciliator or conciliators appointed by the Conciliation, Mediation and Arbitration Board (“Board”), in accordance with such procedure prescribed in the Bye Laws of the Club. The General Manager shall initiate the conciliation procedure within seven (7) days of receipt of the said notice and such conciliation procedure shall be concluded within fourteen (14) days after initiation, unless the parties to the dispute or question agree on any extension of time.

45B(iii) If the dispute or question is not resolved through conciliation, the dispute or question shall be immediately referred to mediation. Mediation will be carried out by such mediator or mediators appointed by the Board, in accordance with such procedure prescribed in the Bye Laws of the Club.

The General Manager shall initiate the mediation procedure within seven (7) days of being notified that the dispute or question has not been resolved by conciliation. The mediation procedure shall be concluded within thirty (30) days after initiation, unless the parties to the dispute or question agree on any extension of time.

45B(iv) If the dispute or question is not resolved through mediation, the dispute or question shall be immediately referred to arbitration. Arbitration will be carried out by such arbitrator or arbitrators appointed by the Board in accordance with such procedure prescribed in the Bye Laws of the Club.

Applicable Legal Principles

Section 6 of AA

Stay of legal proceedings

6.—(1) Where any party to an arbitration agreement 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.

(2) The court to which an application has been made in accordance with subsection (1) may, if the court is satisfied that —

(a) there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and

(b) 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, make an order, upon such terms as the court thinks fit, staying the proceedings so far as the proceedings relate to that matter.

Parties’ Contentions

Plaintiff premised his argument on the wordings “for which express provision has not been made in these Rules” (in bold and underline above) of the dispute resolution clause arguing that since disciplinary proceedings under Rule 26 have been convened against him, the dispute resolution clause would not be applicable on him and thus outside the scope of the arbitration. Furthermore, the Plaintiff contended that Rule 45B contains neither an appellate or review process for issues arising for disciplinary proceedings commenced under Rule 26. Also, it was contended that Rule 45B was incapable of being performed firstly there is no Bye-Law governing the appointment of conciliators, mediators, arbitrators and the procedures for conciliation, mediation and arbitration and secondly no Conciliation, Mediation and Arbitration Board (CMA Board) has been appointed as required under Rule 45B(v).

On the other hand the Defendant argued that the scope of the dispute resolution provision is broad and covers both matters addressed and not yet addressed by the Rules. The Defendants relied on the wordings “any matter dealt with in the Rules” contending it could not be correct that Rule 45B only covers matters not addressed by the Rules, because that interpretation would render this phrase (“any matter dealt with in the Rules”) in Rule 45B ineffectual.

Analysis

The Court noticed that the issue of whether a multi-tier dispute resolution clause constitutes an agreement to arbitrate can be explained from two conceptual perspectives.

First Perspective

The first perspective is that the entire multi-tier dispute resolution clause is an agreement to arbitrate. The obligation to arbitrate, however, is only invoked when the preconditions to the commencement of arbitration have been fulfilled.

Second Perspective

The second perspective is that there is no agreement to arbitrate at the outset. Instead, the agreement is limited to the first tier dispute resolution forum chosen by the parties. The agreement to arbitrate only arises after the preconditions have been exhausted.

The Defendant cited the case from Hong Kong Westco Airconditioning Ltd v Sui Chong Construction & Engineering Co Ltd [1998] 1 HKC 254 wherein it was inter alia held that an agreement which requires parties to submit a dispute first to a pre-arbitral dispute resolution procedure was nevertheless an arbitration agreement. This was in conformity with first perspective mentioned above.

The Court further cited the House of Lords case of Channel Tunnel Group v Balfour Beatty Ltd [1993] 1 All ER 664 (also discussed in Westco Airconditioning (Supra)) wherein that a clause providing for referral of disputes to three independent experts, followed by an appeal to an arbitral tribunal, constituted an arbitration agreement”.

The Court cited its earlier dictum of International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another [2014] 1 SLR 130, where no objection was taken to a multi-tier dispute resolution clause save on grounds of certainty, the Court of Appeal had not regarded the clause in question as anything other than an agreement to arbitrate.

Further the Court remarked that a dispute resolution clause is essentially an expression of the parties’ agreement on the forum (or fora) to have a matter resolved. If the clause seeks to avoid dispute resolution in a court setting by ultimately having a matter proceed to arbitration, this intention ought to be upheld. The object is to give full effect to parties’ agreement. This must apply with equal force to clauses which include conciliatory steps as a preface.

With regard to the argument raised by the Plaintiff that there is no dispute and therefore, the matter is outside the scope of the dispute resolution clause, the Court quoted the interpretation of word ‘dispute’ from Court of Appeal Judgment of Singapore in Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 wherein it was stated “the court will interpret the word ‘dispute’ broadly… and will readily find that a dispute exists unless the defendant has unequivocally admitted that the claim is due and payable”. Based on this interpretation the Court concluded that Plaintiff was clearly disputing how the Club had conducted the disciplinary proceedings and the Club did not admit to Plaitiff’s allegations, but instead “categorically contest[ed] any and all” of them. Hence there exists a dispute.

With regard to absence of appeal or review mechanism in the dispute resolution clause, the Court observed that although no provision has been made for appeal or review, disputes, such as the present, arising out of concluded disciplinary proceedings. The Court concluded that Rule 26 applied to the disciplinary proceedings as interpreted by the legal advisor who has drafted the rules.

On the issue of whether or not the stay should be granted, the Court cited a line of authorities of Singapore and held that even though the court’s power to grant a stay under Section 6 of AA is discretionary, the burden is on the plaintiff to “show sufficient reason why the matter should not be referred to arbitration”, and “[a]ssuming the applicant is ready and willing to arbitrate, the court will only refuse a stay in exceptional cases.”

On the issue of absence of any relevant Bye-law governing the appointment of conciliators, mediators, arbitrators and the procedures for conciliation, mediation and arbitration, the Court held that the absence of detailed procedural rules would not hamper the conduct of the arbitration. This is because the arbitrator is, subject to any procedure otherwise agreed between the parties, the “master of his own procedure and has a wide discretionary power to conduct the arbitration proceedings in the way he sees fit, so long as what he is doing is not manifestly unfair or contrary to natural justice”. Further, the court remarked just because CMA board was not appointed does not preclude the dispute from proceeding to arbitration.

On breach of natural justice, the Court found that where the contract that governs has provided express terms to deal with such issues, recourse should first be had to the procedure provided and therefore, the complaint ought to be first dealt with pursuant to the procedure set out in Rule 45B.

Conclusion

The Court concluded that Rule 45B was an agreement to arbitrate, even though conciliation and mediation were preconditions to arbitration.

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