By CAMERON FORD - Corporate Counsel, Rio Tinto
This issue looks at three recent decisions on arbitration by the Singapore Courts:
(a) L Capital Jones Ltd and another v Maniach Pte Ltd [2017] SGCA 3;
(b) KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd and another suit [2017] SGHC 32
(c) Prometheus Marine Pte Ltd v King, Ann Rita & other matters [2017] SGHC 36.
Arbitrability of minority oppression claims, and Applications as “step in the proceeding” – L Capital Jones Ltd and another v Maniach Pte Ltd [2017] SGCA 3.
A specially constituted five-member Court of Appeal in Singapore has held that, while minority oppression claims are arbitrable in principle, the facts of particular oppression claims might raise public policy concerns sufficient to grant a stay under s 6(1) of the International Arbitration Act (IAA). The Court also held that an application to strike out proceedings on the merits is a step in the proceedings sufficient to disentitle an applicant to a stay, and that such a step could be attributed to a co-defendant who had not been served with a statement of claim and did not make the application but who controlled the applicant and had the real interest in the application.
In L Capital Jones Ltd and another v Maniach Pte Ltd [2017] SGCA 3 (“Maniach”), a shareholder brought minority oppression proceedings under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) against a company and its majority shareholder. The defendants applied to strike out the proceedings on the merits or, in the alternative, have them stayed under s 6(1) of the IAA on the basis of an arbitration agreement in the shareholder agreement between the parties. On the day of the hearing, the defendants withdraw the application to strike out and proceeded only on the stay application which the judge refused: Maniach Pte Ltd v L Capital Jones Ltd [2016] 3 SLR 801.
In the oppression proceedings, the minority shareholder alleged that the defendants had abused the process of Australian courts in transferring shares in the company to a third party for an undervalue. The shareholder argued that the issue of abuse of court process was not arbitrable as it would be against public policy within the meaning of s 11(1) of the International Arbitration Act which stated:
Any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless it is contrary to public policy to do so
The trial judge held that oppression proceedings are not arbitrable generally and, in any case, the proceedings fell outside the scope of the arbitration agreement. He ruled that, in filing the striking out application, the defendants had not taken a step in the proceedings to disqualify them from applying for a stay under s 6(1), which provided:
Notwithstanding Article 8 of the Model Law, where any party to an arbitration agreement to which this Act applies institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.
The arbitration agreement provided the following:
In case any dispute or difference shall arise between the Parties as to the construction of this Agreement or as to any matter of whatsoever [sic] nature arising thereunder or in connection therewith, including any question regarding its existence, validity or termination, such dispute or difference shall be submitted to a single arbitrator … Such submission shall be a submission to arbitration in accordance with the SIAC Rules by which the Parties agree to be so [sic] bound …
The defendants appealed against the decision. The issues on appeal of interest in this instance were as follows:
1. Were these minority oppression proceedings arbitrable as not being against public policy?
2. Had the defendants taken a step in the proceedings in making the strike out application?
3. Were these proceedings within the scope of the arbitration agreement?
Sundaresh Menon CJ delivered the reasons of the court as follows:
Arbitrability of these proceedings
(1) Minority oppression claims are generally arbitrable. The essential criterion of non-arbitrability is whether the subject matter of the dispute is of such a nature as to make it contrary to public policy for that dispute to be resolved by arbitration: [3], [25].
(2) While minority oppression claims generally do not raise public policy considerations against arbitration, the facts of particular oppression claims might do so because of other features of the dispute: [26].
(3) The proceedings were arbitrable because the question of an abuse of the judicial process was neither the essence of the dispute nor a necessary step in proving the claim. The dispute centred on whether there was unfairness in the majority shareholder procuring the transfer of the shares. The fact that this was effected by placing a company in judicial management and then obtaining leave from the Australian court to effect the transfer was of no legal relevance to that question: [29].
(4) The court would not ignore an arbitration agreement just because it wishes to determine whether it would be appropriate for it to issue a public rebuke against a party for abusing the process of the court, especially where such a rebuke would relate to matters that had no legal relevance to the dispute before it: [31].
Step in the proceedings
(5) A pragmatic approach should be taken to assessing whether a step in the proceedings has been taken, and the court should not place “an undue premium on procedural subtleties rather than on the substance of the issue at hand”: [85].
(6) Whether a party has taken a step in the proceedings is a fact-sensitive inquiry that should not be approached with undue technicality or formalism; rather, the court must look at the substance of the events that transpired to determine whether the party in question had taken a step in the proceedings: [85].
(7) An application to strike out the proceedings on the merits would ordinarily be a step in the proceedings, sufficient to preclude the applicant from applying for a stay under s 6(1) of the International Arbitration Act: [77].
(8) An application to strike out proceedings on the basis it is unmeritorious signifies a submission to the court’s jurisdiction to resolve the dispute on the merits. It is an affirmation of the court’s jurisdiction: [78].
(9) If an application to strike out proceedings on the merits is successful, it creates some form of estoppel or res judicata precluding the matter from being relitigated before an arbitral tribunal: [78].
(10) Once such a step is taken it will generally be irrevocable, even if the application is withdrawn or the party indicates it no longer wishes to prosecute the application. This is especially so if the applicant has filed affidavits or submissions on the application: [83].
(11) It would only be in exceptional circumstances that the court would attribute an application taken up by one defendant to a co-defendant: [86].
(12) The non-applicant co-defendant had the real interest in the application and controlled the shell company applicant. The relief was sought on behalf of the co-defendant even though it had not been served with the statement of claim. The application and its being a step in the proceeding were attributable to the co-defendant so it too was prevented from applying for a stay: [87]-[89], [92]
Within scope
(13) Not all shareholder disputes fall within the scope of an arbitration agreement in a shareholder agreement. It is critical to consider in detail the distinct strands of the minority oppression claim: [95].
(14) An allegation that a defendant excluded the minority shareholder from the management of the company and its subsidiaries in breach of a common understanding was within the scope of the arbitration agreement. Given that the common understanding is “reflected in” the shareholder agreement, the complaint regarding exclusion from management is clearly at least “connected with” the shareholder agreement: [97].
(15) An obligation to act fairly and with regard to the other shareholder’s interest in a shareholder agreement inevitably influences the understandings and expectations of fair treatment among the shareholders, and is hence likely to affect the court’s determination of what constitutes oppression: [99].
Court or SIAC President may appoint tribunal under some bare arbitration agreements – KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd and another suit [2017] SGHC 32
In KVC Rice Intertrade Co Ltd v Asian Mineral Resources Pte Ltd and another suit [2017] SGHC 32, Pang Khang Chau JC dealt with bare arbitration clauses in two contracts which did not specify the place of arbitration or the means of appointing arbitrators. The clause in one contract stated:
The Seller and the Buyer agree that all disputes arising out of or in connection with this agreement that cannot be settled by discussion and mutual agreement shall be referred to and finally resolved by arbitration as per Indian Contract Rules.
The clause in the other contract simply replaced “Indian” with “Singapore”. Neither contract contained a governing law clause. The parties could not agree on the meaning of the clauses or the appointment of arbitrators. The plaintiffs (suppliers of rice) commenced proceedings for the purchase price under the contracts and the common defendant applied under s 6(1) of the International Arbitration Act (IAA) to stay the proceedings on the grounds of the arbitration clause. The plaintiffs argued that the clauses were “incapable of being performed” within the terms of s 6(1). The defendant said the missing details could be agreed or the arbitrator could be appointed by the President of the Court of Arbitration of the SIAC under Art 11 of the UNCITRAL Model Law.
Under s 6(1), court proceedings must be stayed if there is an applicable arbitration agreement which is not “null and void, inoperative or incapable of being performed”. “Null and void” is generally understood to refer to where there is simply no binding arbitration agreement between the parties. A clause is “inoperative” where it has ceased to have effect as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have by their conduct impliedly revoked the arbitration agreement. “Incapable of being performed” appears to refer to more practical aspects of the prospective arbitration proceedings, for example, if for some reason it is impossible to establish the arbitral tribunal: [27].
An arbitration clause which fails to provide for the place of the arbitration, the number of arbitrators and the method for establishing the arbitral tribunal is not void or invalid. A bare arbitration clause which merely provides for submission of disputes to arbitration is valid and binding if the parties have evinced a clear intention to settle any dispute by arbitration: [29].
Where the bare arbitration clause relates to an international contract, practical difficulties may be encountered in getting the arbitral tribunal established. The President of the Court of Arbitration of the SIAC may only appoint the tribunal where the place of arbitration is Singapore: [30].
Bare arbitration clauses fall into three categories – (a) where all factors point unequivocally to Singapore; (b) where all factors point unequivocally to another country; and (c) where the factors point in different directions. Category (a) clauses produce a domestic arbitration governed by Singapore law; and category (b) clauses produce an arbitration in that other country: [31].
The combined effect of Art 11(3) of the Model Law and s 8 of the IAA is that, where an arbitration clause does not provide a mechanism for breaking a deadlock between parties on the appointment of arbitrators, the SIAC President can step in to make the necessary appointment if parties are not able to agree on the tribunal: [34].
Where the place of arbitration is unclear or not yet determined parties could look to provisions in domestic law for assistance. [36].
An appointing authority need only be satisfied that there is a prima face case that it has jurisdiction to make an appointment: [48].
The arbitration clause in this case could be construed as (a) subjecting the arbitration to the arbitral laws of India (or Singapore), (b) subjecting the underlying purchase contract to the contract laws of India (or Singapore), or (c) lacking any intelligible meaning: [50].
There were ample materials for the SIAC President to conclude that a prima facie case for the applicability of Art 11(3) of the Model Law has been made out given the different possible constructions of the clauses: [55].
It remains open to the arbitral tribunal, after undertaking a full review of the matter, to come to a different view from the SIAC President on the place of arbitration: [57].
Prima facie, the SIAC President is able to act and therefore the clauses are workable: [63].
In a case where there is truly no other way to prevent injustice to a would-be claimant, a Singapore court would be prepared to step in to directly appoint an arbitrator, provided the dispute had some connection with Singapore. This could be done by contractual interpretation and implied terms or in the court’s inherent jurisdiction to prevent injustice: [71]. Section 8(1) of the IAA does not strip the courts of all residual jurisdiction to come in aid of arbitration through the appointment of arbitrators: [73].
Conditions imposed on a stay should seek to support and give effect to the parties’ intention, and should avoid rewriting the parties’ agreement to impose on them an arbitration that was not within the contemplation of either party: [79]. Stay granted on condition that the defendant will raise no objections to the SIAC President’s jurisdiction to appoint an arbitrator under Art 11(3) of the Model Law in the event that the parties cannot reach agreement on the appointment: [80]. Liberty granted to apply if the SIAC President declines to make an appointment: [82].
Award withstands challenge by all usual suspects – Prometheus Marine Pte Ltd v King, Ann Rita & other matters [2017] SGHC 36
In Prometheus Marine Pte Ltd v King [2017] SGHC 36, Kannan Ramesh JC dismissed a multi-pronged attack on an arbitral award, describing it as a scattergun and indiscriminate attempt to re-ventilate arguments on the merits.
An arbitrator had awarded a purchaser of a yacht damages against a broker for failure to deliver according to specifications plus costs. The broker applied to the court to set aside the award on the grounds the arbitrator:
1. did not have jurisdiction because the contract was not with the broker but with the ship builder who was not a party to the arbitration;
2. exceeded his jurisdiction by reclassifying some of the purchaser’s claims and awarding damages for diminution in value;
3. breached natural justice by not considering its submissions fully or at all;
4. made an award that was contrary to public policy in failing to determine the lex arbitri, awarding damages for diminution in value and awarding costs;
5. was biased as evidenced only by his rejection of the broker’s submissions.
At one stage the broker also alleged fraud and corruption by the arbitrator with no evidence, but eventually withdrew the allegations after warnings from the court.
Many of the arguments were heavily fact based and not of interest here, but during the course of dealing with them, the court restated useful legal propositions which will be dealt with in the above order.
Jurisdiction
The court undertakes a de novo examination of the evidential matrix when considering a challenge that the Arbitrator did not have jurisdiction: [37]. The contract contained the arbitration agreement and ascertaining the parties to the contract would be determinative of who were the parties to the arbitration agreement: [39]. There was nothing in the contract to suggest the broker was contracting as agent of the ship builder, and everything to indicate it was not: [41]. If the ship builder was the undisclosed principal of the broker, the broker would remain personally liable: [45]. The arbitrator had jurisdiction: [55].
Excess of jurisdiction
Mere errors of law or even fact are insufficient to warrant a setting aside. The crucial question in every case is whether there has been “real or actual prejudice” to the parties: [56]. The remit and jurisdiction of an arbitrator are circumscribed by, inter alia, the pleadings and the Statement of Issues. A formulaic and pedantic approach to construction of the issues should be eschewed in favour of a holistic assessment of the true issues before an arbitrator: [60]. Here, the contentious issue was clearly in the Statement of Issues and was within the cause of action however described. It is the substance and not the badge that matters: [64]-[65].
A finding that an oral term could not be incorporated into the contract because of an “entire agreement” clause did not preclude a finding that the same term was expressly included: [76].
Natural justice
The broker did not point to any particular pleading that was left unconsidered by the arbitrator, but merely said he did not consider its arguments fully or at all: [85]. A high threshold must be crossed for the court to set aside an award for breach of the rules of natural justice. Where a party complains of a procedural breach, the breach “cannot be of an arid, technical, or trifling nature”, but must be “serious enough that it justifies the exercise of the court’s discretion to set aside the award”. The breach must have prejudiced the party’s rights: [86].
There is no obligation for an arbitrator to expressly address each and every argument put forward by the parties. It is simply not practical nor feasible, nor necessary to do so. An issue need not be addressed expressly in an award but may instead be implicitly resolved. If it is clear to the arbitrator that a particular finding on a specific argument satisfactorily disposes of an issue, he need not go on to consider and reject further arguments in relation to that issue. The central inquiry is simply whether the award shows that the arbitrator has applied his mind to the arguments advanced by the parties. [88].
An inference that an arbitrator failed to consider an important pleaded issue should only be drawn where it is “clear and virtually inescapable”. The threshold for an inference that an arbitrator has not considered a submission must be at least that, possibly higher: [89].
Courts should be chary of attempts to re-ventilate arguments on the merits. There is a well-established principle of minimal curial intervention, as well as the “salutary reminder that the substantive merits of the arbitral proceedings are beyond the remit of the court”: [91].
Public policy
The broker said it was contrary to public policy not to determine the lex arbitri. This was a wholly misconceived submission. The seat of the arbitration almost invariably determines the lex arbitri. The arbitrator did in fact determine the lex arbitri by determining that the seat of the arbitration was Singapore but did not go on to determine which Act governed the proceedings: [98]. It is not necessary to state the legislation but is only a drafting suggestion: [99].
It is crucial to state the place of arbitration or juridical seat because it determines which court has supervisory jurisdiction over the arbitration proceedings, the nature and scope of the court’s involvement and intervention, the degree to which an award might be challenged and the curial law of the arbitration: [100].
An objection based on public policy is to be narrowly construed, and only operates where the award would shock the conscience, is clearly injurious to the public good or wholly offensive to the public, or violates the forum’s most basic notion of morality and justice. Mere errors of fact and/or law made by an arbitral tribunal are not contrary to public policy per se; instead the tribunal’s decision or decision making process must be tainted by fraud, breach of natural justice or some other vitiating facto. A merely “perverse” or “irrational” award cannot amount without more to a breach of public policy. There must be egregious circumstances, such as corruption, bribery or fraud: [106].
The arbitrator’s award of costs was an exercise of discretion based on his assessment of how the issues had been decided. The broker’s argument was an impermissible challenge on the merits and there was nothing contrary to public policy. The same applied to 16 other legal and/or factual findings attacked by the broker: [111]-[112].
Bias
The broker’s challenge was based only on the arbitrator’s rejection of its submissions with no other evidence or substance and was rejected: [113].