In Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57, the Singapore Court of Appeal gave a definitive ruling on the standard of review for stays of court proceedings in favour of arbitration, holding that the courts need only be satisfied on a prima facie basis that a valid arbitration agreement applies to the dispute.  The ruling departs from the English case law which permits courts to decide the full merits of jurisdictional questions, and sides with Hong Kong which also applies the prima facie standard of review.

Background

The plaintiff, Silica Investors, entered into a share sale agreement with Lionsgate for the sale of shares in Auzminerals Resource Group Limited. The defendants include the company of which the plaintiff is a minority shareholder, as well as other shareholders and current or former directors of either that company or its related companies. The Share Sale Agreement contained an arbitration clause which provided for a SIAC arbitration in relation to “any dispute arising out of or in connection with [it]“.

Silica Investors commenced court proceedings, seeking relief against eight defendants under section 216 of the Companies Act (Singapore) for oppressive or unfairly prejudicial conduct towards it as a minority shareholder. Lionsgate made an application pursuant to section 6 of the International Arbitration Act (“IAA”) for the stay of the court proceedings against it.

High Court proceedings

The High Court held that it had to identify the “essential scope” of the proceedings and determine whether that fell within the scope of the arbitration clause in the Share Sale Agreement. It found that this dispute fell within the ambit of the arbitration clause because there was a sufficient factual nexus between certain of the allegations and the Share Sale Agreement.  The Court further held that there was a fine line between arbitrability and non-arbitrability for claims seeking relief under section 216 of the Companies Act.  However, in rejecting Liongate’s application for a stay of the court proceedings, the Court held that the dispute was non-arbitrable as some of the remedies sought by the plaintiff under the Companies Act were not available to the tribunal to grant, certain defendants were not party to the arbitration agreement and separating the various parties into different and potentially overlapping court and arbitration proceedings would be too procedurally complex.

The issues in the appeal

In the appeal, the Court of Appeal considered three issues:

  1. whether a dispute over minority oppression or unfairly prejudicial conduct is arbitrable;
  2. whether the court proceedings between Silica Investors and Lionsgate, or any part thereof, fell within the scope of the arbitration clause of the Share Sale Agreement; and
  3. in the event that the court proceedings between Silica Investors and Lionsgate (or any part thereof) are covered by the arbitration clause and are stayed in favour of arbitration, whether the remainder of the court proceedings (whether against Lionsgate or against the remaining defendants) should also be stayed pending the resolution of the arbitration.

The threshold

As part of its analysis and determination of the standard of review in a stay application under the IAA, the Court of Appeal considered Article 16 of the Model Law (which embodies the kompetenz-kompetenz principle) which has force in Singapore through section 3 of the IAA and confers on a tribunal the jurisdiction to “rule on its own jurisdiction, including any objections with respect to the existence or validity or the arbitration agreement”. Furthermore, under section 6 of the IAA, the court must stay court proceedings relating to “any matter” that is covered by an arbitration agreement upon an application for a stay by a party to that agreement.

The Court noted that any determination made by the court on the existence and scope of the arbitration agreement may well “intrude” into the remit of the tribunal’s kompetenz-kompetenz. It considered that this potential friction could be caused by the interplay of the provisions of the IAA and the kompetenz-kompetenz principle, and that a balance must be struck between them.

The Court held that the balance may be struck by adjusting the standard of review which a court adopts when hearing an application for a stay under section 6 of the IAA.  On the one hand, it should only undertake a prima facie review of the existence and scope of the arbitration clause. On the other, the court  may also undertake an actual determination of the existence and scope of the arbitration agreement when it hears a stay application under section 6 of the IAA.

The Court considered decisions from Australia, Canada, England and New Zealand.  It noted that the English courts generally adopt a stricter, “full merits” approach when hearing stay applications under section 9 of the UK Arbitration Act 1996, subject to a residual discretion to stay the court proceedings under the court’s inherent jurisdiction so as to allow the arbitral tribunal to make a determination on its own jurisdiction instead.

The Court considered that to follow the English courts’ approach of a full merits examination would “significantly hollow” the principle of kompetenz-kompetenz.  Furthermore, adopting the English approach would leave a tribunal’s ability to decide its own jurisdiction subject to a party’s “arbitrary choice” of whether the claimant will pursue its claim by arbitration or litigation.

The Court of Appeal departed from the English position and adopted the prima facie approach for four reasons:

  1. the prima facie approach is more in line with what the court considered was envisaged by the drafters of the IAA;
  2. to undertake a full determination of an arbitral tribunal’s jurisdiction could significantly hollow the kompetenz-kompetenz principle of its practical effect;
  3. the fear of “duplication of resources” which, some would argue, will arise from the prima facie approach is overstated; and
  4. the word “satisfied” in s 6(2) of the IAA does not, in the Court’s view, suggest that the court is required to conduct a full merits review when it is faced with the threshold question.

The Court held that it should grant a stay in favour of arbitration if the application is able to establish a prima facie case that:

  1. there is a valid arbitration agreement between the parties to the court proceedings;
  2. the dispute in the court proceedings (or any part thereof) falls within the scope of the arbitration agreement; and
  3. the arbitration agreement is not null and void, inoperative or incapable of being performed.

The judgment follows three other Singapore decisions which have addressed the threshold question, the most recent of which is Malini Ventura v Knight Capital Pte Ltd and others [2015] SGHC 225 (which we reported here) all of which adopted the prime facie approach.

Arbitrability

The Court also considered the concept of ‘arbitrability’.  At first instance, the High Court concluded that a claim for relief under section 216 of the Companies Act was non-arbitrable for two reasons: (1) remedial inadequacy and (2) procedural complexity.

The Court of Appeal considered that jurisdictional limitations (i.e. that the relief being sought is beyond the power of the tribunal) were not relevant to the question of arbitrability. With regards to procedural complexity, it was noted that the High Court was uncomfortable about sending the dispute to arbitration, only to have the parties return to court for their remedy. The judge thought this would lead to procedural complexity and difficulties on multiple levels. The Court of Appeal disagreed and took the opportunity to reiterate that as a general rule parties to an arbitration will be bound by the arbitral tribunal’s findings and, to that extent, there would not be any question of the court having to decide matters afresh.

Comment

This decision confirms the prima facie standard of review for stays of court proceedings in favour of arbitration, and clarifies the appropriate test to demonstrate that threshold has been met.  Furthermore, the Court also confirmed that neither the unavailability of certain powers to the arbitral tribunal nor reasons of procedural complexity could justify refusing a stay of court proceedings – that “inconvenience is not the threshold”.