Singapore High Court grants stay of proceedings in favour of arbitration on an application by a non-party to the arbitration agreement.

Background

Gulf Hibiscus Ltd (the "Plaintiff") and Rex Middle East Limited ("RME") were shareholders of Lime Petroleum PLC ("Lime PLC") and had entered into a shareholder's agreement (the "SA").  The SA incorporated an arbitration agreement clause which stated that "any dispute, controversy or claim arising under, out of or relating to" the SA was to be referred for arbitration. 

Disputes arose between the shareholders in relation to the management and operations of Lime PLC and its subsidiary companies. The Plaintiff commenced proceedings in the Singapore High Court for conspiracy, wrongful interference, and unjust enrichment against other entities in the Rex group of companies, namely:- 

a) Rex International Holding Ltd, the ultimate holding company of RME ("RIH"); and 
b) Rex International Investments Pte Ltd, an intermediate holding company of RME, and a wholly owned subsidiary of RIH. 
 (collectively, the "Defendants")

The Defendants applied for a stay of the Court proceedings in favour of arbitration, despite (a) not being party to the SA which contained an arbitration agreement clause; and (b) arbitration proceedings not having been commenced.  

The Plaintiff argued that as it did not rely on breaches of the SA, the dispute in the Court proceedings did not fall within the scope of the arbitration agreement. Additionally, it advanced as a fundamental point that it could not be compelled to commence arbitration proceedings against a party that it did not intend to sue (namely, RME).

The Defendants argued that the Plaintiff was seeking to circumvent the arbitration agreement by framing its claims against them. The Court was to look at the substance of the dispute, which arose from the relationship between the Plaintiff and RME as shareholders of Lime PLC, and which accordingly fell within the scope of the arbitration agreement.  

The Decision of the Court 

The Court, on appeal, affirmed its decision to grant a stay of the Court proceedings subject to the condition that (a) the Defendants agree to be bound by the findings of fact made by the arbitral tribunal; and (b) the Plaintiff be at liberty to apply for a lift of the stay should arbitration proceedings not be commenced within 5 months of the grant of the stay. 

In coming to its decision, the Court made a determination on 3 issues:-  

a. The scope of the arbitration agreement clause; 
b. The nature of the claims in the Court proceedings and whether they fell within the scope of the arbitration agreement; and 
c. Whether the grant of a stay was appropriate under the circumstances. 

In relation to the first issue, the Court held that the phrase "arising under, out of or relating to" the SA in the arbitration agreement was one of wide meaning. Several other clauses in the SA also reflected that the arbitration agreement was intended to extend to matters concerning not just the specific parties to the SA, but to the subsidiary companies of Lime PLC, which was the subject of the present dispute. 

In relation to the second issue, whilst the Plaintiff had not in the Court proceedings expressly relied on, and pleaded any breach of the SA, the Court held that considered holistically, the substance of the Plaintiff's claim in Court against the Defendants were in the nature of disputes between shareholders under the SA and related to alleged improper actions taken at the Lime PLC level. The Court held that an artful pleader should not be allowed to circumvent the arbitration agreement. 

In relation to the third issue, the Court held that the grant of a stay was appropriate for the following reasons:-  

a. There was a significant overlap between the factual and legal issues in the prospective arbitration with those in the Court proceedings;
b. There was sufficient risk of inconsistent findings of fact between the Court proceedings and the prospective arbitration proceedings;
c. There was likely to be a duplication of witnesses and evidence in both proceedings; and 
d. The arbitration agreement was broad enough to encompass prospective claims arising out of the SA and associated tortious claims. 

Conclusion 

This decision is significant as it affirms the Singapore Court's inherent case management powers to stay proceedings on the application of a non-party to an arbitration agreement. The Court's powers are not limited to the relevant provisions under the Arbitration Act and International Arbitration Act, invoked by a party to an arbitration agreement. 

While it is the Plaintiff's fundamental right to identify the party it wishes to sue, and how a such claim is to be brought (i.e. by litigation or arbitration) this right must be balanced with the need to prevent a party from circumventing an arbitration agreement clause through the ingenious drafting of a claim. The Singapore Court will rely on its inherent case management powers to prevent an abuse of process and ensure an efficient and fair resolution of the underlying dispute.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.