THE COURT OF APPEAL CONFIRMS THE JURISDICTION OF ENGLISH COURTS TO RESTRAIN A FOREIGN ARBITRATION IN AN ‘EXCEPTIONAL’ CASE

In Sabbagh v Khoury and others, [2019] EWCA Civ 1219 (available here), the English Court of Appeal partly upheld the injunction granted by the Commercial Court restraining the pursuit of arbitration proceedings seated in Lebanon.  In doing so, the Court of Appeal confirmed the power of English courts to restrain a foreign arbitration on grounds that the foreign arbitration is oppressive and vexatious and provided helpful guidance on the exceptional circumstances in which English courts may exercise this power.

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SINGAPORE ARBITRATION UPDATE: A POTENTIAL CHANGE FOR ‘OPT-IN’ APPEALS FOR ERRORS OF LAW AND COURT CONFIRMATION OF THE CORRECT STANDARD TO BE MET TO RESTRAIN WINDING UP PROCEEDINGS WHERE A CLAIM IS SUBJECT TO ARBITRATION

Two recent developments in the Singapore arbitration landscape are of interest.  First, a written response from the Singapore Minister for Law confirms that the government is considering amending the International Arbitration Act (the “IAA”) to allow for appeals on errors of law on an opt-in basis. Second, a recent Singapore High Court decision confirms the standard to be met by a party seeking to restrain winding up proceedings when there is a valid arbitration agreement. Underscoring both developments is a common objective of respecting party autonomy in arbitration.

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ENGLISH HIGH COURT GRANTS INJUNCTION TO BLOCK JORDANIAN PROCEEDINGS SEEKING TO INVALIDATE AN ARBITRATION AGREEMENT

On 1 March 2019 the English court granted the claimant, ACT, a permanent anti-suit injunction against proceedings issued in  Jordan (the Jordanian Proceedings) by the defendant, Soletanche (in Aqaba Container Terminal (PVT) Co v Soletanche Bachy France SAS). The Court found that the subject matter of the Jordanian proceedings fell within the scope of an arbitration clause agreed between ACT and Soletanche. Soletanche had relied in the validity of that arbitration clause in earlier ICC proceedings to claim damages from ACT (albeit unsuccessfully). It was therefore just in all the circumstances to issue an anti-suit injunction to prevent breach by Soletanche of the agreement to arbitrate and to halt its efforts to invalidate that agreement through the Jordanian Proceedings.

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No U-Turns Ahead: Singapore Court of Appeal holds that commencement of court proceedings may lose you the right to later rely on arbitration agreements

In the recent landmark decision of Marty Ltd v Hualon Corp (Malaysia) Sdn Bhd [2018] SGCA 63, the Singapore Court of Appeal held that the commencement of court proceedings notwithstanding the existence of a binding arbitration agreement and without any explanation or qualification is in and of itself sufficient to constitute a prima facie repudiation of the arbitration agreement. Counterparties who have accepted the court’s jurisdiction would correspondingly be deemed to have accepted the repudiatory breach, and will also no longer be entitled to insist on adherence with the arbitration agreement.

The Singapore Court of Appeal’s decision is noteworthy as it departs from longstanding authority that the mere commencement of litigation proceedings would not constitute repudiation of the arbitration agreement. The Court also provides important guidance to parties to Singapore seated arbitrations on whether (and when) it is appropriate to commence litigation in circumstances where an arbitration agreement exists, and how to react if a counterparty does so.  We analyse the decision below.

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Singapore High Court holds mandatory arbitration agreement in company constitution operative despite earlier litigation

The Singapore High Court ("Singapore Court") has clarified a number of issues concerning the content, scope and operability of arbitration agreements.  Of particular note is the Singapore Court's view on the extent to which a party's choice to subject a dispute, which may otherwise be the subject of an arbitration agreement, to litigation may act as a bar to that party subsequently choosing to refer the dispute to arbitration as a result of the doctrines of waiver or promissory estoppel. The Singapore Court also considered a number of additional issues which serve as a useful reminder as to best practice in drafting and enforcing arbitration agreements.   We discuss the case and the practical issues flowing from it in detail below. 

Facts

In BMO v BMP [2017] SGHC 127 the underlying dispute concerned the ownership of shares in a Vietnamese subsidiary of BMP (the "Subsidiary").  The Defendant, BMP, alleged that its shareholding in the Subsidiary had been substantially reduced by a series of unauthorized and unlawful share transfers which had eventually resulted in the Plaintiff, BMO, becoming the Subsidiary's majority shareholder.  The share transfers were purportedly effected by two individual shareholders in the Plaintiff, with the assistance of the Plaintiff itself.

In July 2014, the Defendant commenced litigation against the Plaintiff and the two individual shareholders in the courts of the British Virgin Islands in relation to the share transfers (the "BVI Litigation"). The Plaintiff acknowledged service of the claim and the parties made a series of interlocutory applications and filings in the courts of the British Virgin Islands.  Subsequently, in May 2015, the Defendant commenced arbitration against the Plaintiff alone (the "Arbitration"), pursuing the same cause of action and relief as it had sought against the Plaintiff in the BVI Litigation.

In March 2016, the BVI Litigation came to an end after the Defendant's claim was struck out.  In the Arbitration, the Plaintiff challenged the jurisdiction of the Tribunal to determine the Defendant's claims, on the basis that the Defendant had lost the right to arbitrate by its decision to pursue the BVI Litigation.  In April 2016, the Tribunal held that it had jurisdiction and ordered the Arbitration to proceed on the merits of the case.  The Plaintiff applied to the Singapore Court to set aside the Tribunal's ruling on its jurisdiction.

Decision of the Singapore High Court

The Singapore Court dismissed the Plaintiff's application and upheld the Tribunal's determination on jurisdiction.  In giving its decision, the Singapore Court discussed a number of important issues. 

  1. Governing law where no express choice is made

The arbitration agreement in this case was contained in the Subsidiary's company charter (i.e. the Subsidiary's constitution), which included no express choice of governing law.  The Court therefore had to determine the proper law of the charter and the arbitration agreement within it. 

The Singapore Court considered the historically divergent case law on this topic, specifically the English case SulAmérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 and the Singapore case FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12.  In short, while SulAmérica stands for the proposition that there is a rebuttable presumption that an implied choice of governing law of the arbitration agreement is the law of the substantive contract, FirstLink took the position that in a competition between an expressly chosen substantive law and the law of the chosen seat of arbitration, it is the law of the chosen seat that prevails.  Both of those decisions have been recently considered by the Singapore Court in BCY v BCZ [2016] SGHC 249 and Dyna-Jet Pte Ltd v Wilson Taylor Asia Pacific Pte Ltd [2017] 3 SLR 267.  In both BCY and Dyna-Jet, the Singapore Court preferred the approach taken in SulAmérica.  Those decisions were discussed previously on this blog (see posts on BCY and Dyna-Jet).

In this case, the Singapore Court determined that the parties had impliedly chosen Vietnamese law to govern the charter on the basis that the charter included references in certain clauses to the requirements of Vietnamese law and it is unlikely that that the parties would intend for different laws to govern different parts of the charter.  Thus, the Singapore Court again adopted the logic of SulAmérica and applied it to the facts of the case holding that, as the parties' impliedly chose Vietnamese law for the substance of the charter, Vietnamese law also governed the arbitration agreement contained within it.

  1. Scope of the arbitration agreement contained in a company constitutional document

The Plaintiff argued that the Defendant's claims in the Arbitration did not fall within the scope of the arbitration agreement in the charter. The Singapore Court reaffirmed the broad approach to interpreting the scope of arbitration agreements, holding that arbitration agreements "should be generously construed such that all manner of claims, whether common law or statutory, should be regarded as falling within their scope unless there is good reason to conclude otherwise".

The Singapore Court also noted that the arbitration agreement used the phrase "all arising disputes" which could refer to all disputes "arising under", "arising out of", "in connection with", "connected with" or "relating to" the charter. The arbitration agreement was therefore wide enough to extend to disputes between the members of the Subsidiary that were not directly premised on the rights and duties created by the charter. 

  1. Had the Defendant lost the right to arbitrate?

In advancing its case that the Tribunal did not have jurisdiction, the Plaintiff relied on the fact that the Defendant had commenced the BVI Litigation to support three legal arguments:

  1. first, the Defendant had elected not to proceed to arbitration and had thereby waived its right to arbitrate;
  2. second, the Defendant had committed a repudiatory breach of the arbitration agreement; and/or
  3. third, the Defendant was estopped from relying on the arbitration agreement.
  1. Waiver

The Plaintiff argued that by commencing the BVI Litigation, the Defendant had elected not to proceed to arbitration and had thereby waived its right to arbitrate.  The Singapore Court considered this issue and made the following key observations:

  • The terms "waiver" and "election" share an immediate and intimate link: the consequence of election, if established, is the abandonment (i.e. the waiver) of a right.
  • It follows that there can be no "election" when there is no choice to be exercised. There is only election when a party with knowledge of its rights chooses between two inconsistent rights.
  • In the context of a breach of contract, waiver by election focuses on the conduct of the innocent party after the wrongdoing party's breach.  The choice between the two inconsistent rights belongs to the innocent party: namely, affirmation or termination of the contract.

Applying these principles, the Singapore Court held that there was no election available to the Defendant, as the party which had breached the contract by starting the BVI Litigation in breach of the arbitration agreement.  It was the Plaintiff, which then faced a choice between two inconsistent rights (to affirm or terminate) and which, if/when it exercised one of those rights, would be said to have made a waiver by election.  The Plaintiff's argument on waiver by election therefore failed.

The Singapore Court noted that if the arbitration agreement had given the Defendant a choice between arbitration and litigation, and if the Defendant had then initiated the BVI Litigation instead of choosing to arbitrate, this would have amounted to a different type of waiver, namely the unilateral waiver of one of two valid but inconsistent rights.  However, that was not the situation in this case.  Here, it was not correct to argue that a simple breach of contract could amount to a waiver by election.

  1. Repudiation

The Plaintiff argued that the Defendant's commencement of the BVI Litigation was a repudiatory breach of the arbitration agreement, which the Plaintiff had accepted through its participation in the BVI Litigation.  The Singapore Court also rejected this view, finding that breach of an arbitration agreement is not necessarily repudiatory in nature if there was some reason for the breach, such as confusion as to the correct course of action to take to purse a claim.  As in any other case of repudiation, it is necessary to analyse the facts in order to understand whether they indicate an intention not to be bound by the contract.  If not, the breach is not repudiatory. 

In this case, the Singapore Court accepted that the reason for the Defendant's decision to commence the BVI Litigation was that it was simply not aware of its obligation to arbitrate and, therefore, that there was no repudiatory breach.  In reaching this decision, the Singapore Court was mindful that after the Arbitration commenced, the Defendant had applied for a stay of the BVI Litigation in favour of the Arbitration and, therefore, this was not a case where the Defendant was maintaining parallel proceedings in breach of the arbitration agreement.

  1. Estoppel

Finally, the Singapore Court considered whether the Defendant, by commencing the BVI Litigation, had represented that it would no longer be relying on the arbitration agreement, such that it was precluded by promissory estoppel from taking a contrary position.

The Singapore Court clarified that the doctrine of promissory estoppel is applicable only in relation to a promise not to enforce legal rights.  The Defendant's commencement of the BVI Litigation was not a forgoing of any right and therefore the doctrine of promissory estoppel did not apply. Estoppel, like waiver by election, is an argument that may be raised against a party seeking to enforce its rights in response to another party's breach. The position here was reversed: the argument was raised by, not against, the party seeking to enforce its rights.

Conclusions and practical guidance

The decision in BMO v BMP provides a detailed legal analysis of a number of important issues with considerable practical impact.  Specifically, this case serves as a reminder of the following points:

  • There is now a trend of the Singapore Courts preferring to adopt the position in SulAmérica in relation to the applicable choice of governing law for arbitration agreements.  However, it remains to be seen what position the Singapore Court of Appeal will take.  In any event, specifying – in addition to the chosen seat of the arbitration – what law should govern the arbitration agreement, will help avoid uncertainty.  Parties should therefore take great care to consider carefully what law should govern the arbitration agreement, regardless of whether the arbitration agreement is contained in a commercial contract, a shareholders' agreement or a company's constitutional documents.
  • The Singapore Courts will continue to interpret arbitration agreements broadly so as to give maximum effect to parties' decision to arbitrate.  Parties should therefore carefully consider the precise scope of disputes which are intended to be the subject of an arbitration clause.  Where the scope is to be restricted, clear and effective language should be used to achieve any such restriction.
  • When determining the most appropriate forum in which to commence proceedings in relation to a dispute, clients should carefully review all relevant documentation and obtain advice as whether the dispute is required to be commenced by arbitration or litigation.  Commencing a dispute in the wrong forum can result in wasted time and costs and, potentially, the loss of substantive as well as procedural rights.

For further information about this case or arbitration in general, please contact Alastair Henderson, Partner, Daniel Waldek, Senior Associate, or your usual Herbert Smith Freehills contact.

 

Alastair Henderson
Alastair Henderson
Partner
+65 6 868 8000
Daniel Waldek
Daniel Waldek
Senior Associate
+65 6 868 8068

New Zealand considers further amendments to its Arbitration Act

On 9 March 2017, the Arbitration Amendment Bill (Bill) was introduced to the New Zealand Parliament. The Bill proposes to amend the Arbitration Act 1996 (Act), and follows recommendations by the Arbitrators’ and Mediators’ Institute of New Zealand (AMINZ).

The proposed changes include:

  1. permitting the inclusion of arbitration clauses in trust deeds;
  2. greater confidentiality of arbitration-related court proceedings; and
  3. narrowed grounds for the set-aside of an arbitral award.

Other amendments to the Act came into effect on 1 March 2017, which we earlier reported on here.

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English Court confirms power to grant anti-enforcement injunction but application fails due to unnecessary delay

The English Commercial Court (the Court) in Ecobank Transnational Inc v Tanoh [2015] EWHC 1874 (Comm) refused to restrain the enforcement of two foreign judgments because of unnecessary delay. The application was made on the basis that the subject matter of both judgments fell within the scope of an arbitration agreement.

Although the Court dismissed the request, the judgment confirms the English courts’ jurisdiction to grant injunctive relief post-judgment (in relation to judgments of non-EU countries at least). It also gives helpful guidance on what factors the English courts will take into account in exercising their discretion to grant an anti-enforcement injunction.

The judgment confirms the risks of letting foreign proceedings play out and seeking to neutralise any unfavourable judgment at the enforcement stage only. The Court highlighted that where the applicant does not apply, pre-judgment, for an anti-suit injunction in relation to the substantive proceedings it will need to provide a good reason for the delay. Anti-enforcement injunctions are not therefore to be considered an ‘after the event’ alternative to anti-suit relief.

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The English Commercial Court considers whether a party’s failure to pay its share of the advance on costs is a repudiatory breach of the arbitration agreement

In BDMS Limited v Rafael Advanced Defence Systems [2014] EWHC 451 (Comm), the English Commercial Court considered whether the Respondent’s failure to pay its share of the advance on costs in an ICC arbitration amounted to a repudiatory breach of the arbitration agreement entitling the Claimant to pursue its claim in court. In the particular circumstances, the judge considered that whilst a failure to pay constituted a breach of the arbitration agreement, such a breach was not repudiatory. Accordingly, the court granted a mandatory stay of the court proceedings.

This case provides useful clarification as to the repercussions of a party’s failure to pay an advance of costs and the avenues available to Claimants in such circumstances.

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Russia tables proposals for reforms to its arbitration system

Reforms to the Russian system and procedure for arbitration have been tabled by the Ministry of Justice of the Russian Federation (MoJRF), in the form of a package of three draft Bills that are to be the subject of a 45 day consultation. The consultation concludes on 3 March 2014, following which any revisions proposed to the draft Bills shall be considered by the MoJRF and the revised Bills submitted to the Duma (Parliament) for the vote.

The reforms proposed in the draft Bills address a range of important issues: clarifying the position on arbitrability; introducing quality control for arbitral institutions; streamlining the processes for challenge and enforcement of awards; providing for (optional) assistance by the state courts; defining the remit of arbitrators liability; and implementing changes that favour the validity of arbitration agreements.

Broadly, these are all arbitration-friendly changes to the system, although some provisions do expose procedure to state control. Notwithstanding any concern regarding the latter, however, the practitioners’ responses will reveal whether, in reality, such measures will assist or deter the bringing and proper resolution of arbitral claims in Russia-related disputes.

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