Singapore—stay of proceedings granted in light of parties’ course of conduct evincing an agreement to arbitrate (Cheung Teck Cheong Richard v LVND Investments)

Cheung Teck Cheong Richard and others v LVND Investments Pte Ltd [2021] SGHC 28

What are the practical implications of this case?

The decision underscores the importance of a properly drafted multi-tiered dispute resolution clause or dispute escalation clause to avoid unnecessary procedural litigation even before the substantive dispute can be resolved.

First, while the Singapore courts have adopted and continue to adopt a pro-arbitration approach and seek to uphold parties’ intention to arbitrate, it is critical for the dispute resolution clause in question to objectively evince an intention by the parties to be bound to submit their disputes to arbitration. To this end, a clause which merely confers on both contractual parties an option to elect to litigate or arbitrate their disputes would not suffice to show an intention to be bound to arbitrate. Such a clause is to be distinguished from a valid and enforceable unilateral arbitration clause i.e. one where the right to elect to refer the dispute to arbitration, once exercised by one party, binds both parties to submit the dispute to arbitration.

Second, an arbitration agreement can be entered into either prior to or after a dispute occurred. Even in the absence of a written (pre-dispute) arbitration agreement at the outset, the parties may, by conduct or correspondence, be found to have separately and subsequently concluded a valid (postdispute)
arbitration agreement. Such an agreement need not be mutually signed to be a valid arbitration agreement. In this regard, an assertion by one party to the proceedings that there is an existing arbitration agreement and a failure by the other party to deny the same is sufficient, for the purposes of AA, s 4(6), to give rise to the legal fiction of an existing arbitration agreement. Further, the assertion and coterminous failure to deny need not necessarily be made in the specific set of arbitration proceedings under consideration. As such, a party which is of the view that there is no agreement to arbitrate in the first place must expressly place its objections on record if it chooses to respond.

Finally, the threshold for the court’s exercise of discretion to refuse a stay under AA, s 6(1) is a high one and will only be exercised sparingly. Notwithstanding the discretionary nature of a stay under the AA (as opposed to a mandatory stay under the International Arbitration Act (IAA)) a party contesting a stay of court proceedings in the face of a valid arbitration agreement must show ‘exceptional circumstances’ which would justify the court’s exercise of its discretion for a refusal of a stay.

What was the background?

The plaintiffs were purchasers of shop units which the defendant had developed and claimed that the defendant had, through its agents and/or representatives, made fraudulent representations or negligent misrepresentations to the plaintiffs to purchase the shop units.

Each of the sale and purchase agreements in respect of the individual shop units (SPAs) between the plaintiffs and the defendant contained the following clause:

‘20A. Mediation

20A.1 The Vendor and Purchase agree that before they refer any dispute or difference relating to this Agreement to arbitration or court proceedings, they shall consider resolving the dispute or difference through mediation at the Singapore Mediation Centre in accordance with its prevailing prescribed forms, rules and procedures.

20A.2 For the avoidance of doubt, this clause shall not amount to a legal obligation on the part of either the Vendor or Purchaser to attempt mediation as a means of resolving their dispute or difference.’

Prior to the commencement of the court proceedings, the plaintiffs had commenced two earlier arbitration proceedings (first, institutional arbitrations administered by the Singapore International Arbitration Centre (SIAC)—subsequently, ad hoc arbitration) both of which were terminated.

In relation to the first SIAC proceedings, the defendant had agreed that the arbitration ‘should be seated in Singapore’ and that the AA applied, but that the arbitrations should not be administered by SIAC or be conducted according to the SIAC Rules. The SIAC Court eventually found that it was ‘not prima facie satisfied that the parties have agreed that SIAC shall administer [the] arbitrations’ and thus terminated the arbitrations.

As regards the ad hoc arbitration, the defendant failed to respond to the plaintiffs’ notice of arbitration but its solicitors had written to the plaintiffs to reiterate its objection to the ‘single ad hoc arbitration’ pursuant to ‘twelve different contracts and the arbitration agreements contained therein’.

The defendant did not deny in either of the arbitration proceedings that there was an agreement that the dispute should be submitted to arbitration.

However, the plaintiffs argued in the court proceedings that (i) there was no valid arbitration agreement, (ii) that any purported arbitration agreement was, in any event, vitiated by mistake, and (iii) that the court’s discretion to stay proceedings should not be exercised on the facts of the case.

What did the SGHC decide?

The SGHC found that the parties’ course of conduct gave rise to a valid arbitration agreement under the AA and which agreement to arbitrate was not vitiated by mistake. Since the facts before the SGHC ‘were not sufficiently exceptional’, a stay of the court proceedings was granted and the SGHC did not exercise its discretion to refuse a stay in the circumstances.

Clause 20A.1 was not a valid arbitration agreement within the meaning of the AA

The SGHC considered that pursuant to AA, s 4(1), an arbitration agreement exists where there is an agreement by the parties to submit to arbitration—both parties must consent to be bound to arbitrate.

As such, clause 20A.1 did not objectively evince any intention by the parties to be bound to submit their disputes arising from the SPAs to arbitration since it merely required parties to ‘consider mediation’ before referring their dispute ‘to arbitration or court proceedings’.

The Singapore courts have previously upheld a bare arbitration clause which merely provided for submission of disputes to arbitration (ie it failed to stipulate the place of arbitration, number of arbitrators) in KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd [2017] SGHC 32 (not reported by LexisNexis® UK). However, the SGHC noted that the arbitration clause there contained mandatory language, ie that the parties’ dispute ‘shall be referred to and finally resolved by arbitration’. In contrast, clause 20A.1 merely provided an option for both parties to elect either litigation or arbitration to resolve their disputes.

Clause 20A.1 could also be distinguished from the line of Singapore cases upholding unilateral arbitration clauses. Where there is a unilateral/asymmetric arbitration clause, once the party on whom the right to elect to arbitrate exercises such a right, both parties are bound to submit the dispute to arbitration. On the other hand, clause 20A.1 ‘goes no more than to state that the parties shall consider mediation[…]before the dispute is referred to either arbitration or court proceedings’, which ‘suggests that parties then have to agree on whether to refer the disputes to arbitration or court proceedings’. Thus, clause 20A.1 was not a valid (pre-dispute) arbitration agreement within the meaning of AA, s 4(1).

A valid arbitration agreement was separately concluded by the parties’ conduct

Notwithstanding the preceding, the SGHC held that independently of clause 20A.1, the parties had agreed to submit their disputes to Singapore-seated arbitration.

• first, the plaintiffs had in the first attempted arbitration effectively proposed to arbitrate the disputes that had arisen with the defendant and the defendant did not, in its responses, disagree that parties should arbitrate the disputes. Instead, the defendant merely objected to (i) SIAC being the administering body, (ii) the application of the SIAC Rules, and (iii) there being a single consolidated arbitration

• second, the plaintiffs had in the second attempted arbitration, unequivocally asserted that the parties had agreed to submit their disputes to an ad hoc arbitration, to which the defendant did not disagree

Having found that there was an agreement to arbitrate, the SGHC considered whether the agreement was recorded in writing as required by AA, s 4(3). In this regard, though each of the correspondence above was unilaterally recorded by one of the parties and was not signed by both parties, it nonetheless amounted to an agreement in writing and provided ‘extensive’ written record of the same.

In so holding, the SGHC considered the position under AA, s 2A(4) (which is in pari materia with AA, s 24(4)) whereby an arbitration agreement is in writing if there is written record by one party only. The SGHC held, considering legislative intent, that the same approach should apply to AA, s 4(4).

An effective arbitration agreement was deemed pursuant to AA, s 4(6)

The SGHC also considered that the legal fiction under AA, s 4(6) gave rise to an ‘effective’ arbitration agreement. AA, s 4(6) provides that ‘where in any arbitral or legal proceedings, a party asserts the existence of an arbitration agreement in a pleading , statement of case or any other document in circumstances in which the assertion calls for a reply and the assertion is not denied, there shall be deemed to be an effective arbitration agreement as between the parties to the proceedings’.

Having considered the legislative history of AA, s 4(6) and on an application of the ejusdem generis principle of statutory interpretation, the SGHC held that the phrase ‘in circumstances in which the assertion calls for a reply and the assertion is not denied’ should be interpreted consistently with the preceding categories of ‘pleading’ and ‘statement of case’ such that it refers to a document made in or for arbitral or legal proceedings, which involves a participation in the arbitral or legal proceeding and which is part of the record of that proceeding.

The SGHC held that a notice of arbitration falls within the meaning of ‘any other document’ since (i) it commences arbitral proceedings by formally requesting for the parties’ dispute to be referred to arbitration, (ii) is a document filed for an arbitral proceeding, and (iii) and forms part of the record of those proceedings.

The SGHC also dealt with the issue as to whether in the face of a notice of arbitration, a response to the assertion of an arbitration agreement is required to avoid the deeming provision under AA, s 4(6). To this end, the SGHC emphasised that a party is not under a duty to respond to a notice of arbitration if its position is that there is no arbitration agreement. However, if there is in fact a response which evinces an intent to participate in the arbitration and which response fails to object to the existence of the arbitration agreement, then AA, s 4(6) would operate to deem that there is an ‘effective arbitration agreement’.

On the facts before it, the plaintiffs had clearly asserted in the first notice of arbitration that there existed an arbitration agreement between the parties. Since such an assertion was not refuted by the defendant in its responses, AA, s 4(6) of the AA operated to deem the existence of an ‘effective arbitration agreement’, such that AA, s 4(1) and 4(3) were satisfied.

The arbitration agreement was not vitiated by mistake nor were the plaintiffs estopped from denying the arbitration agreement

The SGHC rejected the plaintiffs’ submission that any purported agreement to arbitrate arose pursuant to the parties’ mistaken belief that clause 20A.1 was a valid and binding arbitration clause and thus should be set aside. In this regard, the plaintiffs had not proven that the parties were under such a mistaken belief. Instead, the SGHC opined that the parties were always ad idem that the disputes between them regarding the SPAs should be submitted to arbitration.

The SGHC also noted (albeit in obiter) that it ‘had difficulty’ accepting the defendant’s argument that the plaintiffs were estopped from resiling from the agreement to arbitrate. The SGHC reasoned that the defendant’s response pointing out that parties had not agreed to SIAC arbitration ‘cannot qualify as detrimental reliance’ and in any event, there could not have been reliance when the defendant’s own case all along was that the matter should proceed to arbitration.

The circumstances were not so exceptional as to justify the court’s discretionary refusal to grant a stay

The SGHC held that the circumstances before it were not sufficiently exceptional for the discretionary refusal of a stay. First, the mere fact the defendants did not agree with the plaintiffs that SIAC should administer the arbitration(s), that the SIAC Rules applied, or that the arbitrations should be consolidated was not ‘reprehensible’ conduct. Second, the lack of an agreement as to the details regarding the conduct of the putative arbitration was not a factor weighing against a stay. Third, the remedies sought by the plaintiff (rescission and damages) could be granted in arbitration. Finally, there was no risk of multiplicity of proceedings.

Case details:

• Court: General Division of the Singapore High Court

• Judge: Judge Ang Cheng Hock

• Date of judgment: 5 February 2021

This analysis was first published on Lexis®PSL on 25 February 2021 and can be found here (subscription required).