Section 6 of the International Arbitration Act allows the Court to stay legal proceedings in favour of international arbitration. However, the Singapore High Court in The “Engedi”  SGHC 95 clarified that this provision does not give the Court power to stay an action in rem where the owner of the res is not a party to the arbitration agreement.
The case involved an application by the Plaintiff for a stay of proceedings in rem in respect of claims against a vessel. However, by the time the vessel was arrested, the Defendant had become insolvent, and ownership of the vessel had been transferred to an intervener in the claim.
The Court held that it had no power under section 6 of the International Arbitration Act to stay the proceedings in rem because the vessel itself was not involved in the arbitration agreement between the Plaintiff and the Defendant, and because staying the action would deny the intervener its right to defend its interests. Judith Prakash J went on to consider (as obiter) whether the Plaintiff was required by section 299 of the Companies Act to seek leave from the Court before commencing foreign arbitration proceedings against the Defendant. She opined that foreign arbitrations would be unlikely to be caught by this provision as the local Court has no power over the conduct of foreign arbitrations.
- The Plaintiff entered into a charterparty with the Defendant. The charterparty provided that disputes would be referred to arbitration in London.
- A dispute arose between the Plaintiff and Defendant after a grounding incident, and the Plaintiff sought indemnity from the Defendant.
- On 2 December 2009, the Plaintiff commenced proceedings in rem (“the Action”) in respect of those claims against a vessel (“the Vessel”) then belonging to the Defendant. However, in late December, the Defendant transferred ownership of the Vessel to the Intervener for US$1 and “other good and valuable consideration”.
- The Defendant was soon placed in provisional liquidation. Nonetheless, the Plaintiff continued with the in rem proceedings, and successfully arrested the Vessel. The Intervener then applied to have the arrest set aside.
- The Plaintiff applied to Court for an order that all further proceedings in the Action were to be stayed under section 6 of the International Arbitration Act (“IAA”). This was granted by the assistant registrar.
- The Intervener appealed the decision to grant the stay.
The Court had to determine: (
- Whether it had the power under section 6 of the IAA to grant a stay of the proceedings in rem which the Intervener was defending; and
- Whether a stay could be granted even though the Plaintiff had not sought leave of court before commencing arbitration proceedings against the Defendant, as under section 299(2) of the Companies Act (CA).
Holding Of The High Court
The Court decided to allow the appeal and set aside the stay order granted below. It was held that section 6 of the IAA did not require the Court to grant a stay of the action in rem here.
Section 6 Of The IAA
Under this provision, a number of threshold requirements must be met before the Court is bound to grant a stay of legal proceedings in favour of international arbitration. Amongst them, the proceedings must be “in respect of any matter which is the subject of the [international arbitration] agreement”.
Here, the Court found that the action in rem against the Vessel was not a subject of the arbitration agreement between the Plaintiff and the Defendant, and thus did not fall within the ambit of section 6 of the IAA because there was no arbitration agreement between the Plaintiff and the res (in this case, the Vessel), which was the notional defendant of the in rem action (Kuo Fen Ching v Dauphin Offshore Engineering & Trading Pte Ltd  2 SLR(R) 793).
The Court distinguished between an action in rem, which operates only against the res, and an action in personam, which operates against the shipowner defendant.
- In most instances, the distinction has no practical effect. Once the in personam aspects of proceedings are stayed, parties usually will not proceed with the in rem claims so as to avoid multiplicity of costs and decisions.
- However, where the owner of the res is no longer the Defendant but the Intervener, the in rem claim is no longer identical to the in personam claim.
- If the matter were to proceed to arbitration, then the Intervener would have no rights in the arbitral process, and would be unable to protect its interest in the res. Even if the Plaintiff allowed the Intervener to participate in the arbitration, the Intervener cannot be forced to arbitrate against its will.
Allowing the stay of the action in rem would clearly deny the Intervener the opportunity to protect its interests in the Vessel.
The purpose of the procedure for intervention is to allow an intervener to protect its interest by defending the action in rem. This purpose would not be achieved by allowing the Plaintiff to remove the dispute to arbitration despite arresting property owned by the Intervener.
- The overarching purpose of the IAA is to promote Singapore’s role as a growing centre for international legal services and arbitration; it cannot be used to deprive third parties of their right to protect their interests.
- Having acted to arrest the Vessel which was owned by the Intervener, the Plaintiff thus cannot use the arbitration agreement between itself and the Defendant to exclude the Intervener from the defence; it cannot have its cake and eat it too.
Section 299(2) Of The CA
Having decided the case on the basis of section 6 of the IAA, the Court went on to express its opinion on whether the Plaintiff was required to seek leave under section 299(2) of the CA, though it emphasized that it was merely obiter. The provision states that:
“After the commencement of the winding up no action or proceedings shall be … commenced against the company except by leave of the Court”
The Court opined that parties did not require leave under section 299(2) of the CA to commence foreign arbitrations.
- The word “proceedings” should be interpreted to encompass arbitration, which is by now a well-established means of dispute resolution.
- However, it is also well-established that foreign proceedings are not affected by section 299 as the courts of one country have no jurisdiction over the affairs of another country.
- Similarly, the local Court has no power to control or direct the conduct of foreign arbitrations.
It is often commented that the Court shows deference to the decisions and jurisdiction of the arbitrator, because parties who have committed themselves to being bound by arbitration cannot avoid being held to its consequences. However, this case demonstrates that there are other external considerations that the Court will take into account in a dispute involving arbitration.
Here, that consideration is third party interests. An arbitration agreement binds only the parties to it, and should not affect a third party with legitimate interests to defend. The role of the Court is thus still vital in the protection of such interests.