Singapore High Court: Whether A Conditional Stay Of Court Proceedings In Favour Of Arbitration Granted In Exercise Of Case Management Powers By The Court Can Be Mandatorily Lifted When Such Conditions Are Met

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In Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2019] SGHC 15, the High Court of Singapore dealt with the issue of whether the court should exercise its discretion to lift the conditional stay in favour of arbitration granted earlier if the conditions of the stay were met. The Court lifted the stay and inter alia held that the court’s discretion to lift the stay is not constrained by or contingent upon the conditions of the stay. It was further observed that granting liberty to the parties to apply to the court to lift the stay did not preclude the court from exercising its inherent power to manage its processes to “ensure the efficient and fair resolution of disputes.” Detailed case analysis given below:

Factual Matrix

The plaintiff sued the defendants in respect of alleged wrongs committed by them and their associated companies in joint ventures between the two sides. Running parallel to this action in Singapore were a number of connected proceedings in foreign jurisdictions. The parties are governed by a Shareholders’ Agreement (SHA) which contained a multi-tier dispute resolution clause starting first with amicable resolution, then negotiations between a principal officer from each of the Shareholders, and then arbitration under the extant Rules of ICC.

The defendants sought a stay of the proceedings in Singapore which was granted by the Assistant Registrar on the basis of the court’s inherent jurisdiction to stay proceedings for case management interests. This decision was appealed by the Plaintiff which was dismissed by the High Court of Singapore imposing certain conditions on stay. One such condition was that if the tiered dispute resolution is not triggered by any of the parties within three months from the date of the judgment of the High Court and an arbitration is not commenced within five months from such date, then the parties shall be at liberty to apply to the court to lift the stay.

The said period passed without dispute resolution clause and arbitration being triggered and therefore, the plaintiff applied for lifting of the stay, on the grounds that the conditions had been met for an application to be made. It was accordingly allowed by the High Court but on a further condition that the stay would be lifted on 31 May 2018, unless arbitration was commenced by then or another order of court was granted.

Parties Contentions

The plaintiff argued that the stay should be lifted due to the non-satisfaction of the events specified in condition. Further, the tiered dispute resolution of the SHA had not been triggered within three months of the judgment. As also the arbitration had not commenced within five months of the judgment.

The defendants’ first argument was that the conditions for the lifting of the stay had not been met. It was clear from the order passed by the High Court that the parties could apply for the stay to be lifted upon the non-happening of two events in condition (a) of the stay: the triggering of dispute resolution clause of the SHA and the commencement of arbitration. If only one of the events occurred, parties would have no right to apply to lift the stay. In the present case since only the first of the two contemplated events had occurred, the plaintiff was therefore not entitled to apply to lift the stay. The defendant’s second argument was that the court should not exercise its discretion to lift the stay in light of Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373. It was further contended basis Hermes One Ltd v Everbread Holdings Ltd and Ors [2016] 1 WLR 4098 that the mere fact that the defendant did not commence the arbitration as claimant should not change the basis of the stay.

Judgement

The Court lifted the stay and observed

  • That if the party desiring the stay to continue had to initiate arbitration, as required under the conditions of the stay, it had to essentially commence arbitration in pursuit of a negative case. This party might have to incur costs and effort in doing so, perhaps at a greater level than if it were to simply defend the arbitration.
  • That being said, the court was not in effect directly compelling one side or the other to commence arbitration. Indeed, the court could not do so; it could only specify the consequences if arbitration were not in effect pursued, namely, that the civil proceedings should be permitted to continue.
  • That this outcome simply flows from the nature of the case management stay which could not continue indefinitely, given its conditional nature and the liberty of the parties to apply to court to reinstate proceedings if the relevant conditions were met. In any case, the court was entitled to lift the stay in the event of undue delay, through the exercise of its general discretion.
  • That the conditions of a stay do not have the effect of precluding a party from seeking relief unless and until the conditions have been met. The court’s discretion to lift the stay is not constrained by or contingent upon the conditions of the stay which gave parties liberty to apply for the lifting of the stay.
  • Regardless of whether the conditions of the stay were met, the court retains the general discretion to lift the stay. Granting liberty to the parties to apply to the court to lift the stay did not preclude the court from exercising its inherent power to manage its processes to “ensure the efficient and fair resolution of disputes”.
  • The court’s general discretion to lift the stay also flows from the fact that the stay was imposed in the exercise of the court’s selfsame case management powers. Such discretion could be exercised even if the conditions of the stay were not met, though one would expect that the circumstances in such a situation would be rather exceptional.
  • As per Tomolugen (Supra) the court, as the final arbiter, should take the lead in ensuring the efficient and fair resolution of the disputes a whole. This includes the court’s power to stay proceedings and the scope of the court’s power to make suitable orders to that end is determined by the circumstances.
  • That whether the lifting of such a stay is appropriate would also be dependent on the circumstances. As a general rule, where the granted stay is conditional, the parties’ compliance with the stipulated conditions would be a material consideration. However, in addition, the court would need to assess whether the stay continues to achieve its purpose of ensuring that a dispute is resolved efficiently and fairly.
  • Where the resolution of the dispute in question is in fact stymied by the continuation of the stay, the court can and should reconsider the terms of the stay. It is not in the interests of justice that case management stays remain indefinitely or for prolonged periods of time. Disputes ought to be resolved one way or another.

Position in England & Wales

The English position in settled by the Court of Appeal in Reichhold Norway ASA v Goldman Sachs International [2000] 1WLR 174. In that case a Norwegian company, Jotun AS, engaged Goldman Sachs to act for it in relation to the proposed sale of a subsidiary.  Reichhold expressed interest in purchasing the subsidiary and sought detailed financial information about its business. A confidentiality agreement between Jotun and Reichhold contained a term whereby Reichhold accepted that neither Jotun nor any of its agents, representatives or advisors had made any representations as to the accuracy or completeness of the evaluation material, and that none of them should have any liability to Reichhold resulting from the use of the evaluation material.

In due course the negotiations led to exchange of a draft sale agreement, containing warranties of a usual nature. Shortly afterwards, Goldman Sachs sent Reichhold a memorandum saying “Management does not currently foresee any reason to adjust the budget for 1997”, although on the previous day the subsidiary had apparently reported a significant decrease in its profitability for 1997. A month later an agreement was entered into for sale of the shares, which contained warranties much as in the draft agreement and provided that the claimants’ remedies for any breach were limited to damages and were to be resolved by arbitration in Norway. The contract itself was governed by Norwegian law.

The claimants gave notice to Jotun of a possible claim under the agreement, but then began an action in England claiming damages for negligent misrepresentation against Goldman Sachs. Following the issue by Goldman Sachs of a summons to stay the action, the claimants began arbitration proceedings in Norway. The judge (Moore-Bick J) stayed the claimants’ action pending determination of the arbitration in Norway, and the Court of Appeal dismissed the claimants’ appeal.

The stay was ordered based on the court’s case management powers, the factors considered by Moore-Bick J were more varied and included the following:

  • The relationship between the parties to the proceedings before the court and in arbitration;
  • Whether the proceedings before the court and the arbitral tribunal were distinct and the effect, they may have on each other;
  • Costs and convenience (including time) of obtaining resolution at either forum;
  • Disadvantage or prejudice to the plaintiff if a stay of proceedings is ordered;

Position in India

The position in India in respect of international commercial arbitration is covered by Section 45 of the Arbitration and Conciliation Act, 1996 (1996 Act).

In the landmark case of Chloro Controls (I) P. Ltd. vs. Severn Trent Water Purification Inc. and Ors. (2013) 1 SCC 641, the Supreme Court inter alia held that when the Court is satisfied that an arbitration agreement is enforceable, operative and is not null and void, it is obligatory upon the court to make a reference to arbitration and pass appropriate orders in relation to the legal proceedings before the court, in exercise of its inherent powers. Section 45 of the 1996 Act reads as under:-

“Section 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.”

Further, the Court has inherent powers under Section 151 of CPC. This section recognizes the discretionary powers inherent in every court as a necessary corollary for rendering justice in accordance with law but it cannot be made use of where the remedy or procedure is provided in the CPC. Such powers being complementary to the powers specifically conferred, the Court is free to exercise them for the purposes mentioned in Section 151 but cannot be in conflict with express powers. However, irrespective of applicability of Section 151 of CPC, if the Court or the judicial authority finds that the proceeding brought before it cannot be maintained as not supported by the provisions of the Statute under which it is brought, the Court or the judicial authority has inbuilt and inherent powers to declare it as not maintainable and to reject it in that way.

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