Defendants Stay Court Proceedings by Relying on an Arbitration Agreement to Which They were Not a Party
The Singapore High Court has reaffirmed that Singapore courts have the power to stay court proceedings in favour of arbitration, even where the party seeking the stay is not a party to relevant arbitration agreement and arbitration proceedings have not yet been commenced (Gulf Hibiscus Ltd v Rex International Holding Ltd & Anor  SGHC 210).
Gulf Hibiscus (Gulf), Rex Middle East (RME), and Schroder & Co Banque were shareholders in Lime Petroleum PLC (Lime PLC) and parties to a Shareholders’ Agreement with respect to that company. The Shareholders’ Agreement provided that any dispute “arising under, out of or relating to” the Shareholders’ Agreement must be arbitrated under the Rules of International Arbitration of the International Chamber of Commerce.
A dispute arose between the parties about the management and operations of Lime PLC and some of its subsidiaries. Gulf issued court proceedings in Singapore against Rex International Holdings, the ultimate holding company of RME, and Rex International Investments, an intermediary company (together, the “Defendants”), alleging conspiracy, wrongful interference, and unjust enrichment. The Defendants applied to stay the Singapore court proceedings relying on the arbitration clause in the Shareholders’ Agreement, notwithstanding they were not parties to this agreement. The learned Assistant Registrar (AR) granted the Defendants’ stay application at first instance. Gulf appealed.
The Defendants argued that the substance of the controversy was a shareholders’ dispute arising out of the Shareholders’ Agreement. This dispute therefore fell within, and should be resolved in accordance with, the arbitration clause in the Shareholders’ Agreement. The Defendants argued that the Court should therefore refer the dispute to arbitration, and on that basis stay the current proceedings. Gulf argued that its case against the Defendants, as amended on appeal, did not rely on breaches of the Shareholders’ Agreement, and so there was no basis for ordering a stay. Gulf also argued that it could not be compelled to bring arbitration proceedings against a specific party it did not intend to sue (i.e. RME). The appeal was heard by the Honourable Judicial Commissioner Mr Aedit Abdullah (Abdullah JC), who upheld the stay granted by the AR.
It is well established that the Singapore courts can stay court proceedings under section 6 of the Singapore International Arbitration Act (IAA). This section applies where a party to an arbitration agreement issues proceedings in the Singapore courts against another party to that agreement in breach of its terms. The second party can seek to enforce the parties’ arbitration agreement by applying to the Singapore courts under the IAA to stay the court proceedings issued against them. The Defendants, however, could not rely on section 6 of the IAA in this case for one simple reason: they were not parties to the Shareholders’ Agreement which contained the relevant arbitration clause.
Abdullah JC held that, while the IAA did not apply in this case, it was still possible to order a stay relying on the Court’s inherent case management powers (as held by the Singapore Court of Appeal’s decision in Tomulgen1). This power was premised on “the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice” rather than being “predicated on holding parties to any agreement”. The absence of an arbitration agreement between Gulf and the Defendants was therefore no bar to a stay being granted. Abdullah JC also held that a stay could be ordered notwithstanding no arbitration was currently on foot.
The key questions for Abdullah JC were: (i) was the Shareholders’ Agreement (which contained the relevant arbitration clause) engaged; and (ii) if so, was it appropriate to order a stay?
On the first question, Gulf, after amending its pleadings on appeal, did not expressly claim any breach of the Shareholders’ Agreement in its claims against the Defendants. Abdullah JC, however, considered that Gulf’s claims did nevertheless relate to the management and operation of the various Lime Petroleum subsidiaries, and that these were matters governed by the terms of the Shareholders’ Agreement. Abdullah JC concluded that “[c]onsidered holistically, … the primary claims by [Gulf] are in the nature of disputes between the Shareholders under the [Shareholders’ Agreement] and pertain to alleged improper actions taken at the [Lime Petroleum] level. These are, in my view, disputes arising out of the [Shareholders’ Agreement] given that the [Shareholders’ Agreement] regulates the business of [Lime Petroleum]".
On the second question, Abdullah JC held that it was appropriate to stay the Singapore court proceedings as there would be (amongst other things) (i) significant overlap between the factual and other issues in the court proceedings and any arbitration, (ii) a risk of inconsistent findings in the court proceedings and any arbitration, and (iii) likely duplication of witness and evidence in both forums. Abdullah JC, however, granted the stay subject to two provisos. First, given that the Defendants had requested a stay, they would be bound by any findings of fact in any arbitration under the Shareholders’ Agreement. Second, the Defendants had confirmed that they as well as RME would do all things necessary to enable disputes arising out of the Shareholders’ Agreement to be resolved expeditiously through arbitration with RME. Adbullah JC ordered that in the event that arbitration was not commenced by either Gulf of the other Lime Petroleum shareholders within 5 months, then Gulf would be at liberty to continue with the court proceedings.
The Gulf Hibiscus decision confirms that a Singapore court’s power to order a stay of proceedings where there is an arbitration agreement is not limited to circumstances covered by the Singapore International Arbitration Act (or the Arbitration Act for that matter). The Singapore courts can also order a stay in some circumstances under their inherent case management powers.
As the Court of Appeal recently held in Tomulgen, a plaintiff has a right to choose for themselves whom he or she wants to bring proceedings against and where. But this is neither an absolute nor an overriding right. Instead, that right must be balanced against other concerns, including the court's desire to prevent a plaintiff from circumventing the operation of an arbitration clause, and the court's inherent power to manage its processes to prevent an abuse of process and ensure the efficient and fair resolution of disputes.
1Tomulgen Holdings Ltd & Anor v Silica Investors Ltd & other appeals  1 SLR 373