MAYBANK KIM ENG SECURITIES PTE LTD V LIM KENG YONG AND ANOTHER [2016] SGHC 68

Introduction

Where related claims arise out of related contracts containing conflicting jurisdiction clauses there is an inherent danger of multiplicity of proceedings with the risk of wasted costs and inconsistent decisions. In this case the Singapore High Court used its inherent powers to stay court proceedings pending the outcome of a related arbitration, even though this meant not giving full effect to an agreement for the exclusive jurisdiction of the courts of Singapore. In effect the competing arbitration agreement was given practical precedence over the choice of the Singapore court because this was in the interests of efficient case management and the pro-arbitration policy of Singapore’s legislation and case law.  If a party uses inconsistent dispute resolution clauses in its standard terms then it is likely that the arbitration clause will prevail.

Steven Chong J’s decision reinforces and extends the Court of Appeal’s approach in Tomolugen Holdings v Silica Investors Ltd [2015] SGCA 57 (“Tomolugen Holdings Ltd”), decided under the International Arbitration Act (Cap143A, 2002 Rev Ed) (“the IAA”), by applying it in the context of a domestic arbitration.

The facts

The Appellant was a securities brokerage providing tradings services to individuals and also institutions. The First Respondent, was an individual who maintained an account with the Appellant permitting trading in over-the-counter contracts for difference (“CFD”). These are derivative contracts that allow a party to speculate on price movements of an underlying security. Her contract with the Appellant provided for “arbitration in Singapore in accordance with the UNCITRAL law”. Her husband, the Second Respondent, was appointed by the Appellant as her trading representative. His contract with the Appellant provided for “the exclusive jurisdiction of the Courts of Singapore”.

The parties’ dispute arose from a series of CFD transactions which the First Respondent entered into regarding shares in Apple Inc and Baidu Inc as underlying securities. The shares started falling in value in August 2015 and on 24 August 2015 (“Black Monday” as it was termed) there was a sharp drop in value and the Appellant closed out the CFD transactions at the prevailing market prices. As a consequence the CFD account reflected substantial trading losses said to exceed US$10m. The central underlying issue was whether the closing out was authorised by either of the Respondents.

The Appellant commenced court proceedings against the First and Second Respondents for outstanding trading losses amounting to just over S$8m. It was significant that although the claims against each respondent were made under different contracts they were for the same amount and for essentially the same loss.

First instance decision

The Assistant Registrar ordered a stay of the proceedings against the First Respondent under the court’s statutory jurisdiction to stay proceedings brought in breach of an arbitration agreement (s 6 of the Arbitration Act (Cap 10 2002 Rev Ed) (“the AA”).  As this was a domestic arbitration the stay was granted as a matter of discretion as opposed to the mandatory jurisdiction available under the International Arbitration Act (Cap143A, 2002 Rev Ed) (“the IAA”).

The claim against the Second Respondent was not subject to an arbitration agreement but a stay of the proceedings against the Second Respondent was also granted under the court’s inherent jurisdiction as a matter of case management.

Decision of Steven Chong J

Initially the Appellant had appealed against both orders for a stay. It then abandoned the appeal of the stay granted to the First Respondent  but indicated that it had no intention to commence arbitration and used this to argue that there was no risk of multiplicity of proceedings if the claim against the Second Respondent went ahead. Chong J was unimpressed by this tactic especially since the argument crumbled when the First Respondent indicated that she would invoke the arbitration agreement in her contract.

Chong J dismissed the appeal and upheld the decision to stay the proceedings against the Second Respondent pending the outcome of the arbitration proceedings between the appellant and the First Respondent.

The High Court’s reasoning

Chong J applied the decision of the Court of Appeal in Tomolugen Holdings Ltd in deciding whether the proceedings against the Second Respondent should be stayed under the court’s inherent powers. In Tomolugen Holdings Ltd Sundaresh Menon CJ addressed in detail the situation where a dispute falls to be resolved in part by arbitration and in part by the court, and where the outcome of the court proceedings is likely to depend on the resolution of a related arbitration involving overlapping issues and parties. One aspect of the decision was that the court used its inherent case management powers to stay parts of the court proceedings pending the resolution of the related arbitration. Menon CJ explained (at [186] and [188]) that “the unifying theme among the cases is the recognition that the court, as the final arbiter should take the lead in ensuring the efficient and fair resolution of the dispute as a whole...The court must in every case aim to strike a balance between three higher order concerns that may pull in different considerations: first, a plaintiff ’s right to choose whom he wants to sue and where; second the court’s desire to prevent a plaintiff from circumventing the operation of an arbitration clause; and third, the court’s inherent power to manage the processes to prevent an abuse of process and ensure the efficient and fair resolution of disputes.”

It was argued that Tomolugen Holdings Ltd was decided under the IAA and that the court’s inherent powers to stay proceedings pending the outcome of a related arbitration were inapplicable to a case involving a domestic arbitration agreement governed by the AA. Chong J rejected this since the only substantial difference between the IAA and the AA in this context was the discretionary nature of the stay. The court would be slow to allow all claims to proceed in court notwithstanding an enforceable arbitration agreement and once a statutory stay was granted in favour of arbitration then the court’s case management powers would have the same objective and give rise to the same outcome.

The multiplicity of the proceedings had arisen out of the Appellant’s policy of using different dispute resolution clauses in its standard terms. Chong J rejected its argument that the stay would undermine its bargain for the jurisdiction of the Singapore court and that it was entitled to sue the First Respondent without having to seek recourse first from the Second Respondent. He concluded that the stay would not unduly prejudice the Appellant since it would only be temporary (in particular the Appellant could apply to reinstate the proceedings if the arbitration was not pursued expeditiously). Chong J was influenced by the fact that there were no other parties involved, the Appellant was the sole plaintiff and it was bound to arbitrate some of the issues (as was the case in Tomolugen Holdings Ltd).

There was significant overlap in the issues of fact and law in the court proceedings and the anticipated arbitration proceedings. The issues were not identical but there were common issues such that allowing parallel proceedings would lead to duplication of costs and the risk of inconsistent decisions.

Chong J refused to follow the decision in Lanna Resources Public Co Ltd v Tan Beng Phiau Dick [2011] 1 SLR 543 where Prakash J had held that the court’s inherent powers to stay proceedings in favour of arbitration were residual powers limited to “rare and exceptional” cases.  In this respect, Lanna has been superseded by Tomolugen Holdings Ltd.

Comments

This case is important in showing the scope of the court’s inherent and discretionary jurisdiction to stay proceedings in favour of arbitration where the statutory jurisdiction to stay is not available. Together with Tomolugen Holdings Ltd it reaffirms that Singapore’s strong legislative policy in favour of arbitration extends to circumstances where the dispute which is covered by the arbitration clause forms only part of a larger dispute. This case and Tomolugen Holdings Ltd demonstrate how the court will use flexible inherent powers to achieve efficient case management. It also shows how, as a matter of broader policy, the courts are willing to go beyond the statutes to use their inherent powers and the development of case law to support Singapore’s “pro-arbitration” policy.

Formerly the courts might have been quicker to decide matters within their jurisdiction especially where the parties had expressly chosen the court and arbitration had not yet even been commenced. Indeed in similar circumstances the court was much more cautious about granting such a stay in Lanna Resources Public Co Ltd v Tan Beng Phiau Dick [2011] 1 SLR 543. However, Chong J is correct in suggesting that this approach has been superseded and that a competing arbitration (or even an anticipated arbitration) is more likely to be given priority.

However, the specific outcome in this case (and Tomolugen) and the means used to achieve it are not surprising or groundbreaking. They reflect a sensible, but pro-arbitration, approach to managing complex litigation where there is an unavoidable overlap between arbitration and court proceedings. A similar conclusion was reached recently in London in the Commercial Court in Stemcor UK Ltd v Global Steel Holdings [2015] EWHC 363 where court proceedings under a trading guarantee were stayed pending resolution of an existing LCIA arbitration on the underlying contract between the traders.

Maybank crystallises the position of Tomolugen Holdings Ltd as a leading judgment that is likely to be an extremely useful on a wide range of issues. Sundaresh Menon CJ dealt with a number of difficult aspects of the interface between arbitration and court proceedings, in particular where parties have deliberately not chosen arbitration to cover every aspect of their relationship. It is not surprising that Chong J extended this approach to arbitration agreements covered by the AA.

This decision also extends the scope of Tomolugen to a situation where the related claims are governed by inconsistent dispute resolution clauses. Again it is not surprising that the court will step in to impose some order if multiple proceedings arise because parties have chosen inconsistent clauses for related transactions. In complex banking transactions it is relatively common for parties to use an arbitration agreement for some agreements but a choice of court in the security agreements since there may be third parties involved. Here, however, the parties had little reason for adopting different clauses and this case is a lesson in the dangers of using different jurisdiction clauses.

If there are inconsistent clauses Maybank suggests that the choice to arbitrate will generally be given effect and tactical ploys to circumvent the arbitration agreement have limited prospect of success. However, an arbitration agreement will not always prevail so as to justify freezing court proceedings pending the outcome of a related arbitration. Sundaresh Menon

CJ made clear that stays under the court’s inherent jurisdiction will not be granted as a matter of course. The court’s discretion to stay will depend on the facts. It will be important to establish that the outcome of the court proceedings will necessarily be affected by the result in the arbitration.The court will be balancing rights of access to court and also efficient case management. For example if there were several parties involved in the court proceedings a stay would be less readily granted because of the potential prejudice to those parties.