Singapore High Court: Person Claiming Through or Under Party to Arbitration Agreement Does Not Include Non-Signatories Under Section 6 of IAA

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In the case of A co and others v D and another [2018] SGHCR 9, the Singapore High Court (the Court) addressed the issue of whether non-signatories of the arbitration agreement are entitled to seek stay of Court proceedings pursuant to Section 6 of the International Arbitration Act (Cap 143A) (‘IAA’) of Singapore. Detailed case analysis given below:

Factual Matrix

F & G entered into a JV to form A, a Singaporean Company, pursuant to an Investment Agreement (IA). A is the holding company of B & C and B further holds H. H & C are incorporated in Singapore.

The Persons in Question (PIQ) were holding de facto positions in C & H at all material times and both were not signatories to the IA which had the arbitration agreement. Therefore, the issue before the Court was whether PIQ were party to the arbitration agreement and are entitled to seek a stay of proceedings pursuant to Section 6 of the IAA.

Applicable Legal Principles

Section 6 of the IAA

Enforcement of international arbitration agreement

6.—(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.

(2)  The court to which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

(3)  Where a court makes an order under subsection (2), the court may, for the purpose of preserving the rights of parties, make such interim or supplementary orders as it may think fit in relation to any property which is the subject of the dispute to which the order under that subsection relates.

(4)  Where no party to the proceedings has taken any further step in the proceedings for a period of not less than 2 years after an order staying the proceedings has been made, the court may, on its own motion, make an order discontinuing the proceedings without prejudice to the right of any of the parties to apply for the discontinued proceedings to be reinstated.

(5)  For the purposes of this section and sections 7 and 11A —

(a) a reference to a party shall include a reference to any person claiming through or under such party;

(b) “court” means the High Court, District Court, Magistrate’s Court or any other court in which proceedings are instituted.

Arbitration Clause

29.2 Any dispute, controversy or conflict arising out of or in connection w ith this Agreement including any question regarding its existence, validity or termination (a “Dispute”), shall be referred to and finally resolved by arbitration in Singapore and administered by the Singapore International Arbitration Centre (the “SIAC”) in accordance with the Arbitration Rules of the SIAC for the time being in force which rules are deemed to be incorporated by reference into this clause 29.

Parties’ Contentions

PIQ argued that the signatories to the IA intended them to be entitled to invoke the arbitration agreement and therefore, they can be considered as parties to the arbitration agreement placing reliance on The Titan Unity, [2014] SGHCR 4. In that case, it was inter alia observed that implied consent is determined from the parties’ intention to extend the written arbitration agreement to a non-party who accepts to be bound by it. It was further submitted that PIQ fall under the definitions of Affiliate & Group Company under IA. Pointing towards the expression “arising out of or in connection with” in the arbitration clause, the PIA argued that it demonstrates a clear intention by all parties to extend the arbitration agreement to them as well. PIQ also relied on the “agency principle” postulated in United States case of Kiskadee Communications v Philip Father 2011 US Dist Lexis 34974 and argued that a non-signatory to an arbitration agreement are to be considered agents of a signatory.

On the other hand, the Defendant submitted that if the parties had intended the arbitration agreement to apply to any matter which arises from the IA, then they would have stated so expressly. It pointed towards the Deed of Adherence where there was an express incorporation of the arbitration agreement. Based on this, it was argued that if it was the parties’ intention that the arbitration agreement w as to apply to any matter concerning the disputes in this action, this would have been specifically provided by the parties. The Defendant further contended the “agency principle” set out in Kiskadee has not been accepted in Singapore. Further, it is not persuasive authority because the legal test for stay of proceedings in favour of arbitration in the US is significantly broader than Section 6 of the IAA.

Analysis

The Court agreed with Defendants in holding that US Act does not require the party seeking the stay to be a party to the arbitration agreement in order for a stay of proceedings to be granted. All that is required is that there is an issue which may be referred to arbitration under the arbitration agreement. In contrast, in Singapore, section 6 of the IAA is only applicable when a party to an arbitration agreement seeks a stay of proceedings against any other party to the arbitration agreement.

The Court also distinguished facts in Kiskadee with the instant case. The Court pointed out that in Kiskadee, the alleged breach of fiduciary duties by the defendants was in relation to the formation of the joint venture agreement and w ere ow ed to Kiskadee Bermuda, a party to the joint venture agreement. The claim brought against the defendants pertained to their acts qua agents of ProtoStar in the process of forming the joint venture company. In contrast, in the present case, the alleged breaches of fiduciary duties arise from acts done by PIQ as directors of the Companies in relation to related party transactions. The acts complained of have nothing to do with the formation of the joint venture agreement.

Conclusion

The Court held that there was no objective intention between the signatories to the arbitration agreement to extend this agreement to PIQ and the “agency principle” does not apply in Singapore and PIQ, as non-parties to the arbitration agreement, cannot compel the Defendants to arbitrate the issues in these proceedings.

Comment

In recent case from Supreme Court of India in Cheran Properties Limited v. Kasturi and Sons Limited and Ors (Civil Appeal no.s 10025-10026 of 2017) while dealing with an issue of whether or not an arbitration award can be enforced against a non-signatory third party inter alia held that in terms of Section 35 of the Indian Arbitration and Conciliation Act, 1996, a person who claims under a party is bound by the arbitral award. Besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. To determine whether the award binds the third party, the Court adopted the English doctrine of ‘group of companies’ which uses the intentions of parties as a parameter in this regard.

What is interesting to note is that Section 6(5)(a) of IAA defines the expression “Party” as any person claiming through or under such party. This expression which also appears in Section 35 of the Indian Arbitration Act, has been interpreted by the Supreme Court of India in Cheran Properties (Supra) to mean that an arbitral award binds every person “claiming through or under such party”. I believe, that Singapore High Court clearly missed out the literal interpretation of Section 6(5)(a) of IAA which clearly states that the term “party” includes persons claiming through or under them. Therefore, I believe that present case, might be deterrent for third party/non-signatories in Singapore.

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