Singapore— Case management stay to allow arbitral tribunal to determine validity of settlement agreement (PUBG v Garena International)

By Shaun Lee, Zhe Ning Low

06-2020

Arbitration analysis: What is the Singapore court's approach to the grant of a case management stay where parties to ongoing court proceedings enter into a settlement agreement with an arbitration clause but where that the validity of the settlement agreement is then disputed? 

Shaun Lee (Counsel) & Low Zhe Ning (Associate) in the dispute resolution group at Bird & Bird ATMD LLP explain the implications of the decision of the Singapore Court of Appeal ("SGCA") in PUBG Corp v Garena International I Pte Ltd and others [2020] SGCA 51 ("PUBG v Garena").

Introduction

We had previously discussed the case of Rakna Arakshaka Lanka Ltd v Avant Garde Maritime Services (Pte) Ltd [2019] 2 SLR 131 in which the SGCA set aside an arbitral award on the basis that following the commencement of arbitration, the parties had entered into a settlement agreement and withdrawn the claim. This had the effect of bringing the parties' dispute outside of the scope of the submission to arbitration and rendering those proceedings a nullity. 

In PUBG v Garena, the SGCA upheld the High Court's decision to grant a case management stay of pending court proceedings on the basis that the issue of the validity of a settlement agreement which the disputants had entered into ought first to be referred to and determined by arbitration, in accordance with the settlement agreement's dispute resolution clause. If valid, the effect of the settlement agreement would be to put an end to the ongoing court proceedings.

What are the practical implications of this case? 

Where the disputing parties are in the midst of ongoing proceedings, a settlement agreement, even if its validity were disputed, would amount to sufficient grounds for a stay of Singapore court proceedings, whether on the basis of a statutory stay under the Arbitration Act (Cap. 10) or the International Arbitration Act (Cap. 143A) ("IAA") or pursuant to the inherent powers of the courts on case management grounds. 

Any injustice that may be occasioned to a party as a result of a case management stay has to be raised by that party as soon as possible. The onus is on the affected party to seek the imposition of appropriate conditions to the stay order to address any such possible injustice. It is insufficient for the respondent to a case management stay application to simply seek a lifting of the stay without more.

What was the background? 

The appellant commenced court proceedings on 23 March 2018 against the respondents on the basis of alleged copyright infringement and pass off. Court proceedings timelines were suspended from September to November 2018 for parties to reach a settlement. The appellant offered settlement on terms set out in a proposed settlement agreement on 14 November 2018. For various reasons (which parties dispute), the respondents only countersigned the settlement agreement on 12 April 2018 purporting to accept the same. The settlement agreement contained an arbitration clause.

The appellant denied that there was any settlement on terms of the settlement agreement and argued that the offer contained in that agreement was no longer capable of being accepted by the time of the respondents' countersignature. The respondents then commenced arbitration on 29 April 2019 to affirm the validity of the settlement agreement, and whether it effects a full and final settlement of all the claims which constitute the subject-matter of the court proceedings.

On 30 April 2019, the respondents applied for a stay of the court proceedings on case management grounds, pending the resolution of the arbitration. The Assistant Registrar initially dismissed the stay application. On appeal, the High Court granted the stay on the basis that it was appropriate to determine the validity of the settlement agreement in arbitration first rather than allow the trial to proceed concurrently with the arbitration. The initial stay granted was a limited time stay, which subsequently expired. However, on 23 March 2020, the Judge extended the stay for a further six months. The appellant appealed the decision of the Judge to grant the stay.

What did the Singapore Court of Appeal decide?

In arriving at its decision, the SGCA reiterated that the grant of a stay of court proceedings on case management grounds was a discretionary inherent power. In this respect, the SGCA emphasised and cautioned that while the courts have developed general principles for the grant of a case management stay, those principles could not be applied in a mechanistic fashion without regard to the specific facts of the case. In particular,

  • where a related arbitration is ongoing, the grant of a case management stay is a balance between three imperatives or “higher-order concerns”: (i) preserving the plaintiff’s right to choose whom to sue and where; (ii) upholding agreements to arbitrate; and (iii) preventing an abuse of process;
  • where there is no arbitration agreement between the parties and a stay is not sought to arbitrate the dispute between the parties, but instead to compel the claimant to arbitrate with a third party, no case management stay ought to be granted; and
  • the inherent power to stay court proceedings where related issues involving some or all of the same parties are also subject to an arbitration agreement must be exercised with due sensitivity and regard to the facts and in particular, the nature of the overlapping issues.

In this respect, it was superficially true that there was no overlap between the arbitration and the court proceedings since the arbitration did not involve the infringement claims and the court proceedings did not involve the settlement agreement. However, the SGCA also stressed that the effect of a settlement is to put an end to the proceedings, to preclude parties from taking any further steps in the action, and to supersede the original cause of action altogether. As such, the question of whether a settlement agreement exists is often tried as a preliminary issue and had to be dealt with first in this case.

It was right for the arbitral tribunal to determine the validity of the settlement agreement and the questions of its own jurisdiction on the basis of the principles of judicial non-intervention in arbitral proceedings and kompetenz-kompetenz. As such, even where the formation of the arbitration agreement is in question, the tribunal may first determine the existence of its own jurisdiction — the courts cannot decide the validity of the SA without first allowing the tribunal to determine that question.

Finally, the SGCA did not subject the case management stay to any conditions. This was because the nature of the appellant's position was not to address any possible injustice by seeking a conditioned stay, instead the appellant sought the lifting of the stay altogether. The SGCA also noted the absence of any evidence pointing to the possible injustice which the appellant might face and that the respondents had not had any occasion to address the issue. 

Comments and Conclusion

Where the disputing parties are in the midst of ongoing proceedings, they ought to be mindful of any dispute resolution clause in their settlement agreement, particularly where the dispute resolution forum is different from that of their present proceedings. This is particularly so where the settlement agreement contains an arbitration clause. It might also be prudent for an offer of compromise to be paired with a deadline for acceptance of that offer.

The SGCA also noted that while the respondents had applied for a case management stay, that if they had introduced the validity of the settlement agreement into the court proceedings, there would be "no doubt" that the respondents would be entitled to a mandatory statutory stay pursuant to section 6 of the IAA. 

Finally, the case is also a timely reminder of the fact sensitive and discretionary nature of the grant of a case management stay pursuant to the courts' inherent powers. Further, the grant of such a stay is not a binary proposition as the court can impose conditions to remedy any possible injustice to the defendant arising out of the stay. However, it is for the party opposing the stay to make alternative submissions in this regard. 

This article was first published on LexisPSL linked here.

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.