Singapore and Supporting Arbitration

March 2014

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Singapore High Court reaffirms its support of arbitral proceedings and the principle of Kompetenz-Kompetenz.

Introduction

1.  On 19 December 2013 the Singapore High Court handed down an important judgment in the Titan Unity [2013] SGHCR 28, which affirmed the Court’s commitment and support for arbitral proceedings. On 4 February 2014, in a subsequent decision, Titan Unity 2 [2014] SGHCR 04 the Court handed down a judgement in which it re-affirmed its support for arbitral proceedings and provided important guidance on when a party can be joined to an arbitration.
 
2. Both cases arose out of the same enterprise and concerned two separate applications to stay Singapore court proceedings, pursuant to the International Arbitration Act (Cap 143A) (the ‘IAA’).
 
3. In Titan Unity the court addressed the threshold to be applied by the Court in determining the existence of an arbitration agreement for the purposes of a stay. The judgment also provided some guidance on the incorporation of charterparties and arbitration agreements into bills of lading.
 
4. In Titan Unity 2 the court addressed the issue of when a party can be joined to arbitration and gave some important guidance on the approach adopted by the Singapore Courts when considering the issue.
 


Titan UnityBrief Facts

5.  The Plaintiff, Portigon AG (‘Portigon’) was a German bank providing trade finance facilities for oil trading to Onsys Energy Pte Ltd (‘Onsys’). Portigon alleged that it had taken certain bills of lading as security and that it was the lawful holder of the bills for a cargo with a value of around US$3.7 million carried onboard the vessel “Titan Unity”. 
 
6. Portigon alleged that the cargo was misdelivered, having been delivered to third parties without presentation of the bills of lading. Portigon commenced Singapore Court proceedings and arrested the Vessel as security for its claims.
 
7.

The demise charterers, Oceanic Shipping Pte Ltd (‘Oceanic’), applied for a stay of the Singapore Court proceedings in favour of Singapore arbitration, pursuant to section 6 of the IAA, set out below:

“Enforcement of international arbitration agreement

 
6. (1) 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 an 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.
 
  (2) The Court to which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings so far as the proceedings relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.”

 

8. Oceanic submitted that the bills of lading incorporated an arbitration clause by express wording on the face of the bills, as follows:
 
  “…Assigns he or they paying freight for the same as per Governing Charter Party dated - at - all the terms and exceptions contained in which Charter are herewith incorporated, including the arbitration clause…. The name and place for arbitration is available upon request from the carrier… “
 
9.  Portigon argued that the proceedings against Oceanic should not be stayed because, inter alia, the arbitration clause had not been incorporated (‘dashes’ having been inserted instead of the date of the charterparty) and because the registered owners of the Vessel (not Oceanic) were the contractual carriers under the bills.
 
10. Oceanic argued that the Court should limit its determination as to whether an arbitration agreement existed between the parties to a prima facie level (i.e. whether on the face of it an agreement existed) and, if, on that basis the Court concluded that there was an arbitration agreement, then the matter should be referred to the Tribunal to decide if the arbitration agreement was valid and binding. Portigon, on the other hand, argued that the Court should conduct a full review of the evidence to determine, on a balance of probabilities, whether an arbitration agreement existed.
 
11.

The Court stated that any application to stay court proceedings in favour of arbitration must satisfy two pre-conditions, being that:

(a) There exists a state of affairs to support the finding of an arbitration agreement;

and

(b) The proceedings which are brought fall within the scope of the arbitration agreement.

12. The Court confirmed that a stay must be granted if those two pre-conditions were met unless (pursuant to section 6(2) of the IAA) the court was satisfied that the arbitration agreement was invalid in so far as it was “null and void, inoperative or incapable of being performed”.
 
13. The dispute between the parties clearly fell within the scope of the arbitration agreement and the validity of the agreement was not in question. The issue for the Court was whether an arbitration agreement existed and how far the Court was obliged to go to ascertain this.

14. The Court considered authorities from Hong Kong, Canada and India (which have all given the UNCITRAL Model law the force of law), where the approach taken in general has been to adopt a prima facie determination of the existence of an arbitration agreement.

15. Having heard all of the parties’ arguments and on the basis of its analysis (set out in detail in the judgment) the Court decided that it was only required to determine the existence of an arbitration agreement between the parties on a prima facie level for the purposes of establishing the first pre-condition under section 6(1) of the IAA (i.e. that there exists a state of affairs to support the finding of an arbitration agreement). The Court confirmed that this pre-condition would be met in all but the clearest and most obvious of cases.

 

Policy considerations

16. For the reasons given in detail in the judgment, it is also clear that the Court was conscious that it should protect the Tribunal’s function as first arbiter of its own jurisdiction in accordance with the principle of Kompetenz-Kompetenz and that if it did not do so, this could open the door to dilatory tactics by unscrupulous litigants seeking to circumvent arbitration agreements.
 
17. Portigon had filed a cross-application requesting the Court to exercise its discretion under sections 6 and 7 of the Arbitration Act (Cap 143) (‘AA’) to either refuse the application to stay the proceedings or otherwise to order a stay subject to certain conditions. In particular, the Plaintiff requested that the Court impose conditions obliging Oceanic to waive the Hague-Visby Article III time bar defence.
 
18. The Court took the view that the proper tribunal to determine any time bar defence would be the Tribunal and not the Court. In particular, the Court stated:

“If the arbitral tribunal decided that it has jurisdiction to determine the dispute, the plaintiff can place the very same arguments before the arbitral tribunal for its consideration…. It is not for the courts to pick and determine what issues should be placed before the arbitral tribunal by way of imposing conditions to a stay of court proceedings where parties have already consented to refer their dispute to arbitration… A party to an arbitration agreement will not be allowed a backdoor way of obviating the limited scope of the court’s review of an arbitral award… by cherry picking the issues which may be placed before the arbitral tribunal via a conditional stay of court proceedings.”
 


“Titan Unity 2”Brief Facts

19. Singapore Tankers Pte Ltd (“STPL”), the owners of the “Titan Unity”, entered into a demise charterparty with Oceanic Shipping Pte Ltd (“Oceanic”) which in turn entered into a time charterparty with Onsys Energy Pte Ltd (“Onsys”).
 
20. Portigon, the holder of the relevant bills of lading, commenced an action against STPL and Onsys for mis-delivery of cargo and succeeded in obtaining an order for the arrest of the vessel.
 
21. STPL argued that the action should be struck out or set aside as the claim was time-barred pursuant to Article III rule 6 of the Hague –Visby Rules because no competent suit had been brought within 12 months of the alleged mis-delivery of the cargo. STPL argued the Hague Visby Rules were applicable to the bills of lading and the competent suit was arbitration as per the arbitration agreement between Portigon and Oceanic (held by the Court in Titan Unity where the action had been stayed in favour of arbitration). 
 
22. Portigon argued that STPL was the contractual carrier of the bills which did not contain an arbitration clause as the charterparty had not been incorporated into the bills.
 
23. The Court rejected STPL’s argument that the action should be struck out and refused to release the vessel. The court did however consider whether or not STPL should be joined to the arbitration between Portigon and Oceanic.
 


Policy Considerations

24. The Court found that STPL was trying to avail itself of the benefit of the arbitration agreement between Portigon and Oceanic to take advantage of the time-bar defence while not submitting itself to the arbitration jurisdiction. It also found that the very basis of Portigon’s cause of action was found in the contract which contained the arbitration agreement. As such, the Court found that both Portigon and STPL had by their conduct impliedly consented to be party to the arbitration agreement contained in the Portigon contract with Oceanic.
 
25. The Court was wary of compelling STPL to be joined to the arbitration without its and Portigon’s express consent because of the requirement for a written agreement under the IIA, Model Law and the New York Convention.
 
26. However, it did note that the parties to the arbitration agreement, Portigon and Oceanic had expressly agreed upon a mechanism to join a party under Rule 32.2 of the SCMA Rules. As such, the Court indicated that it “should defer any views it has on the parties’ implied consent to joinder, the arbitration tribunal’s determination of its own jurisdiction pursuant to that mechanism… if party autonomy is to be respected, and this would be consistent with the principal of Kompetenz –Kompetenz.” 
 
27. Before inviting argument on costs, the Court suggested that STPL might want to consider agreeing to be joined to the arbitral process and reminded the parties of the procedural and cost efficiencies that might be gained by a joinder. 
 

 

Conclusion

28. These two judgments provide important guidance on to litigants as to how the Singapore Courts will determine the existence of arbitration agreements for the purposes of stay applications as well as an insight into the Court’s approach when considering whether a party has consented to be joined to an arbitration.
 
29. More importantly, both judgments reaffirm Singapore’s commitment to support arbitral proceedings and to require parties who have agreed to submit their disputes to arbitration to do just that.
 


Barry Stimpson, Simon Sloane and Jody Wood
ReedSmith Singapore Pte Ltd