By Debbie Lee and Sharon Wong Qiao - ECYT Law LLC
1. This case involves a stay of court proceedings in favour of arbitration, as the matters raised in court proceedings fell within the ambit of an arbitration clause. The learned Assistant Registrar’s decision to stay the court proceedings was upheld by the Honorable Judicial Commissioner Aedit Abdullah (“JC”), relying on and thus, affirming, the principles set out in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”).
Brief Facts
2. For ease of reference, the following charts illustrate the shareholding structure of Lime Petroleum PLC (“Lime PLC”), relevant relationships between Lime PLC’s shareholders and their affiliated companies and the relevant relationships between Lime PLC and its affiliated companies.
Lime PLC’s Shareholding Structure and Relationships between Shareholders & Affiliates
3. Lime PLC has three shareholders, with their respective shareholdings shown above.
4. The 1st Defendant is the ultimate holding company of RME and wholly owns the 2nd Defendant, which is the intermediate holding company of RME.
Relationships between Lime PLC and its Affiliated Companies
5. Lime PLC owns shares in Lime Norway and has a wholly owned subsidiary, Lime BVI, which in turn holds shares in the four companies in the above chart.
6. A Shareholders’ Agreement dated 24 October 2011 was entered into by the shareholders of Lime PLC and Lime PLC (the “SHA”). Clause 25.2 of the SHA provides for arbitration in case of disputes arising from the SHA. However, the Plaintiff was not a party to the SHA and therefore not directly a party to the agreement to arbitrate.
7. There were two other agreements of relevance to this case, the Project Management and Technical Services Agreement (“PMTSA”) entered into by the affiliate company of the Plaintiff’s parent company and Lime PLC, and the Operating Services Agreement (the “OSA”) entered into by MOL and Lime PLC.
8. The Plaintiff commenced Suit 412 of 2016 (“the Suit”) making allegations of various wrongs committed by the Defendants, including allegations about the conduct of the Defendants and their associated companies and persons, some of which involve the PMTSA and OSA.
The AR’s Decision
9. The Defendants applied to invoke the Court’s inherent jurisdiction to stay the proceedings in the Suit, as the claims in the Suit arose out of the alleged breaches of, and disputes arising out of, the SHA and should be stayed pending arbitration by virtue of clause 25.2 of the SHA.
10. The Defendants also applied for a stay on the basis that the Plaintiff was abusing the process of the Court. The AR granted the stay on the first basis but rejected the second basis due to lack of evidence.
The High Court’s Decision
11. The Plaintiff applied for the amendment of its pleadings and appealed against the AR’s decision. The Plaintiff claimed that the Suit did not fall within the ambit of the arbitration clause in the SHA, whereas the Defendants argued in favour of a stay, as the Plaintiff’s claims in the Suit are derived from and subsidiary to the allegations of breaches of the SHA and are thus caught under the arbitration clause in the SHA.
12. The Court allowed the Plaintiff’s amendment and upheld the AR’s decision, subject to several conditions, which will be further elaborated on below.
The Amendment of Pleadings
13. The Plaintiff proposed amending its pleadings in order to remove the portions which relied on the SHA to make out its case. In other words, since the SHA contained the arbitration clause, the Plaintiff sought to reframe its claims so as to avoid a stay in favour of arbitration. However, the Plaintiff only sought to make this amendment at the appellate stage, despite having been offered the chance to do so at first instance by the AR.
14. The Court allowed the amendments to be made: There was no prejudice or attempt to revisit decided issues;
- There was no prejudice or attempt to revisit decided issues;
- It only involved the Plaintiff giving up parts of its initial claim;
- There was also no hearing on evidence, such that any changes to the pleadings would require a re-hearing on evidence.
15. The fact that the Plaintiff only waited until the appellate stage to amend the pleadings would not affect the Plaintiff’s right of amendment, but might lead to adverse cost consequences.
Stay of Court Proceedings in favour of Arbitration
16. The first issue dealt with by the Court was whether the Court may stay court proceedings in favour of arbitration at the request of a non-party to the arbitration agreement.
17. Affirming the Tomolugen decision, the Court held that the inherent power is “invoked to deal with situations without an express agreement between the relevant parties to the court proceedings... the jurisprudential basis for the exercise of the power to stay in the absence of an agreement is the wider need to control and manage proceedings between the parties for a fair and efficient administration of justice; it is not predicated on holding parties to any agreement – the absence of such an agreement is therefore irrelevant.”
18. The second issue was whether the nature of the dispute between the Plaintiff and the Defendants falls within the scope of the arbitration agreement.
19. In accordance with the methodology set out in Tomolugen, the Court bifurcated the steps in determining the second issue – one must first define the nature of the dispute and then determine the scope of the arbitration agreement.
20. In defining the “nature of the dispute”, the Court went on to seek guidance from the decision in Tomolugen. The Court’s task is thus to “examine the substance of the controversy without paying undue attention to the details of how it has been pleaded” [emphasis in bold].
21. The Court will then have to look into the parties’ intentions (as rational commercial parties) when looking at the scope of the arbitration agreement.
22. The Plaintiff argued that as a result of the amended pleadings, the scope of the SHA does not cover the amended claims in the Suit, as the claims in the Suit did not involve the rest of Lime PLC’s shareholders. On the other hand, the Defendants claimed that even after the amendments, the allegations raised in the pleadings touched on matters within the scope of the SHA, and thus, the subject of arbitration between the Plaintiff and RME.
23. The Court held that the arbitration agreement does not only cover disputes concerning the specific parties and matters expressly mentioned in the SHA, but also disputes in relation to Lime PLC’s subsidiaries, including Lime Norway and MOL, as well as a number of matters involving the subsidiaries of Lime PLC.
24. On the facts, the Court held that the SHA “governs the control exerted by the Shareholders over Lime PLC’s subsidiaries. These provisions show that the Shareholders did intend to regulate their disputes pertaining to the general business of Lime PLC, including its subsidiaries, under the framework of the SHA.”
25. Even with the Plaintiff’s amended statement of claim, which reduces reference to the SHA, the Court held that the claims in the Suit trigger the arbitration clause in the SHA, as “the crux of the inquiry on whether to order a stay requires an examination of the “substance” of the court proceedings, and not only on how it is presented at the surface level in the pleadings”.
26. The Court varied the conditions of the stay, as follows:
- If the tiered dispute resolution clause in the SHA is not triggered within three (3) months from the date of the Court’s decision, or if no arbitration is commenced within five (5) months from the said date, the parties are at liberty to apply to Court to lift the stay;
- The Defendants be bound by the findings of fact made by the putative arbitral tribunal;
- The parties shall be at liberty to apply to Court to lift the stay and continue the Suit if the putative arbitration is unduly delayed; and
- After the conclusion of the arbitration, subject to any res judicata issues, the parties are entitled to resume the Suit against the Defendants.
Conclusion
27. This case upholds the principles of Tomolugen in considering the factors of a case when a Court exercises its inherent powers to grant a stay in favor of arbitration for parties who are not expressly subject to the arbitration agreement.
28. Particular emphasis is made on the importance of the examination of the “substance” of the court proceedings and not the form in which a party’s claims are presented, even when amendments have been made to a party’s pleadings.
29. This case also illustrates the balancing exercise to be made by the Court to prevent injustice to any party – on one hand, the plaintiff has a right to have its day in court but on the other, the defendant cannot be unduly prejudiced by being subject to multiple and duplicitous proceedings. In this particular case, arbitration had yet to be commenced, which led the Court to impose conditions, such that the Plaintiff’s right to pursue its claims is not undermined.