Singapore High Court once again confirms its support of arbitral proceedings and the principle of Kompetenz-Kompetenz

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Introduction

On 19 December 2013 the Singapore High Court handed down an important judgment in The Titan Unity [2013] SGHCR 28. The judgment is significant as it reaffirms the commitment and support of the Singapore courts for arbitral proceedings.

The case concerned an application to stay Singapore court proceedings, pursuant to the International Arbitration Act (Cap 143A) (the “IAA” ) and, in particular, 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.

Brief facts of the case

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.

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.

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 and 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

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 …

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.

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.

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

  • There exists a state of affairs to support the finding of an arbitration agreement
  • The proceedings which are brought fall within the scope of the arbitration agreement

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”.

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.

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.

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

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.

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.

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.

Conclusion

The judgment provides important guidance to litigants as to how the Singapore courts will determine the existence of arbitration agreements for the purposes of stay applications.

Perhaps more importantly, the judgment reaffirms Singapore’s commitment to support arbitral proceedings and to require parties who have agreed to submit their disputes to arbitration to do just that.

The court’s decision is in the process of being appealed by Portigon, and it remains to be seen on what basis the appeal is being brought or whether the Court of Appeal will take a different view. We will review these developments in a further client alert at a later date. Reed Smith acts for Oceanic in related arbitral proceedings.