Brief Facts

In this case, Kolmar (as the sellers) and Fujian Sunway Resources Co Ltd ("Sunway", as the buyers) entered into a contract for sale and purchase of a parcel of Indonesia steam coal ("Cargo"). The Contract contained a standard Singapore International Arbitration Centre ("SIAC") arbitration clause. After the Cargo was paid for and delivered, Sunway alleged that the Cargo was not in compliance with the Contract specifications. Such a quality dispute would normally be referred to arbitration as per the arbitration agreement in the Contract. However, Sunway further alleged that Kolmar had conspired with Sucofindo (a commodity inspection company) and the Indonesian shipper in forging the load port inspection report. Therefore, Sunway sued Kolmar, Sucofindo and the shipper in the Court. Kolmar requested the Court to reject Sunway's claims on the basis that the claims against Kolmar should be referred to Singapore arbitration.

Sunway argued that the Court should have jurisdiction on this case. It initially argued, inter alia, that the arbitration clause was not valid and operative. After Kolmar submitted John Seow's legal opinion showing that the arbitration clause was valid and operative under Singapore law, Sunway's counsels dropped this argument during the hearing. Apart from this issue, Sunway's main arguments were that this was a case where the three defendants had conspired to deceive the claimant, so the cause of action of Sunway's claim was tort, which is not arbitrable. In addition, Sunway had no arbitration agreement with the other two defendants; if the Court rejected Sunway's claims and referred the parties to arbitration, Sunway would be unable to commence arbitration against those two other parties.

Court's Ruling

The Court eventually accepted the submissions of Kolmar and held that (i) it is trite law that a tortuous claim can be referred to arbitration; and (ii) though Kolmar had sued three defendants, two of whom had no arbitration agreement with Sunway, Sunway's claims should still be rejected by the Court because the preliminary issue of Sunway's claims (i.e. whether the Cargo was in accordance with the Contract specifications) was a dispute under the Contract and should be subject to Singapore arbitration. 

Concluding Words

The Court did not specify how Sunway should resolve its disputes with the other two defendants, but under Chinese law, if Sunway sued the other two defendants in the Chinese court (without pulling Kolmar into the law suit), the Chinese court should have jurisdiction over such a law suit (unless the defendants could show that the Chinese court was a forum of non-convenience). 

This case has reinforced the long-established practice in the Chinese courts that a party to the arbitration agreement cannot avoid the arbitration by choosing to sue in tort; and tort actions that relate to the relevant contract should still be referred to arbitration. This case also clarifies that in a multi-party action, where some of the parties have no arbitration agreement, while some have, the action may still be referred to arbitration. However, the Court's reasoning in rejecting Sunway's "multi-party action" in total is not very persuasive. We are of the view that it would have been more desirable if the Court referred Sunway's claims against Kolmar to Singapore arbitration while maintaining and staying its claims against the other two parties pending the Singapore arbitration between Sunway and Kolmar.

Sunway did not appeal against the above decision of the Court.