Should I stay or should I go? Singapore High Court declines to stay arbitration pending review of jurisdictional ruling

Overview

In a recent ex tempore judgment in the case of Loblaw Companies Limited v Origin & Co Ltd & Another [2017] SGHC 59 ("Loblaw v Origin"), the Singapore High Court declined to exercise its discretion under s10(9) of the International Arbitration Act ("IAA"), and refused to stay an arbitration pending final determination by the Singapore courts of a separate application by Loblaw to review the Tribunal's finding on its jurisdiction.

In its decision the High Court acknowledged the lack of authority on when and how a court shall exercise its discretion under s10(9) of the IAA, finding that "[u]ltimately, very much depends on the unique facts and circumstances of each case". However, an applicant would generally be required to show "special circumstances" justifying a stay, over and above the (alleged) merits of the jurisdictional objection or the obvious risk of wasted time and costs.

Background

The proceedings involved a large Canadian food retailer, Loblaw, and a South Korean distributor, Origin & Co., and related to ongoing arbitration proceedings between them at the International Chamber of Commerce.

Loblaw applied to the Singapore courts to stay the arbitration under s10(9) of the IAA, pending final determination of a separate application under s10(3) of the IAA to review a ruling by the Tribunal's on its jurisdiction (which it ruled on as a preliminary issue and which Loblaw disputed). Section 10(9) of the IAA provides that where a party appeals a tribunal's ruling on its jurisdiction, the appeal "shall not operate as a stay of the arbitral proceedings or of execution of any award or order made in the arbitral proceedings unless the High Court orders otherwise", and that "no intermediate act or proceeding shall be invalidated except so far as the High Court may direct".

Loblaw argued that if the arbitration were not stayed pending the court review, it would suffer prejudice and irreparable harm. It was particularly concerned that under a document production order handed down by the Tribunal in the arbitration (which retained its legal force during the appeal under s10(9)), Loblaw would have to hand over sensitive and confidential information to Origin while the issue of the Tribunal's jurisdiction remained in dispute.

As both parties acknowledged, there is a paucity of legal authority setting out the appropriate test to be applied to stay an arbitration under s10(9) of the IAA. The sole authority dealing with this point, AYY v AYZ and another [2015] SGHCR 22, found that a stay in arbitral proceedings will generally be ordered if an applicant is able to demonstrate with reasonable and credible substantiation that a refusal to stay would result in detriment or prejudice that could not be adequately compensated with costs. This was referred to as the "irreparable prejudice" test.

Loblaw disagreed that this test was the relevant measure for a stay under s10(9), and asserted that a more appropriate test was "balance of convenience" between the prejudice that may result from the carrying out of an unnecessary arbitration and the prejudice that would result from a delay. Origin, on the other hand, contended that the applicant must show "special circumstances" over and above inconvenience and wasted time and expenses before the court will grant a stay.

Decision

The High Court agreed with Origin, and found that the court's statutory discretion was not based on a balance of convenience test. Rather, the starting point is the statutory scheme outlined in s10(9), which allows for curial review of a tribunal's ruling on jurisdiction but only under certain conditions. It states that an application for such review “shall not operate as a stay of the arbitral proceedings", although the court is given the statutory discretion to stay arbitral proceedings pending the review. This implied a default presumption against the arbitration being stayed, though with a discretion for the court to reverse this. This puts a greater burden on the applicant: the court's discretion should be exercised only where there exist "special facts and circumstances that warrant the court's exercise of its statutory discretion to depart from the statutory default position", in which special circumstances "a stay ought to be granted".

By way of guidance as to what such "special circumstances" might comprise, and by reference to Loblaw's circumstances, the High Court stated that wasted time and costs are a "usual and attendant by-product or consequence of a tribunal's decision to continue with the arbitral proceedings" and hence cannot, in and of themselves, justify a stay. It was a "necessary corollary" of the IAA's preference for allowing the continuation of arbitral proceedings while a jurisdictional challenge was pending that factors such as the time and costs expended on an unnecessary arbitration are not "special" enough to warrant the granting of a stay.

Referring back to Article 16(3) of the UNCITRAL Model Law (on which s10(9) of the IAA was based), the court noted that the continuance of arbitral proceedings despite an application for curial review was a "fundamental feature" of Article 16(3). Furthermore, Article 16(3) reflected the balance the drafters had intended between the countervailing considerations of allowing the courts to have control over a tribunal's decision on jurisdiction on the one hand, and the need to ward against the abuse of such recourse as a dilatory tactic to hold up the arbitration on the other. The "balance" referred to by Loblaw was already achieved via the tribunal's inherent discretion to continue proceedings envisaged in the Model Law and enacted in the IAA.

In relation to Loblaw's concerns over the production of confidential documents, the court held that (i) Loblaw had not demonstrated that the information contained in the relevant documents was sufficiently sensitive or confidential to warrant the protection afforded by a stay; and (ii) disclosure orders are commonplace in arbitration proceedings and, if such orders justified a stay, the default position would be "turned on its head" and stays would be routinely granted. In any event, the court found that sufficient safeguards existed in the form of confidentiality arrangements.

Discussion

This decision is of particular interest in relation to applications under s10(9) of the IAA due to the lack of authority on when the court shall exercise its discretion to stay an arbitration in such circumstances  – an issue which the High Court acknowledged in its judgment.

While the judgment offers little in the way of a definitive test, it rejected the "irreparable prejudice" test, which it found to be simultaneously both over- and under-inclusive. As the court noted, a stay may well be warranted under s10(9) even where parties have not suffered any harm or prejudice per se.

Ultimately, the High Court made it clear that it will only exercise its discretion under s10(9) of the IAA in "special circumstances" – "[u]ltimately, very much depends on the unique facts and circumstances of each case". While this lacks clearly-defined parameters, it is clear that a party seeking a stay of arbitration pending an appeal against jurisdiction must meet a higher standard than merely balance of convenience – in this case, wasted time and costs were found to be part and parcel of such proceedings, and even the risk of the supposedly irreversible disclosure of sensitive and confidential information by Loblaw did not prompt the High Court to grant a stay.

For further information, please contact Alastair Henderson, Partner, or Daniel Mills, Associate, or your usual Herbert Smith Freehills contact.

Alastair Henderson
Alastair Henderson
Managing Partner - SE Asia
Email | Profile
+65 68688058
Daniel Mills
Daniel Mills
Associate
Email
+65 68688063

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Filed under Asia, Court intervention, Jurisdiction, Stays

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