Knowledge Highlights 7 November 2019

In Rex International Holding Ltd & Anor v Gulf Hibiscus Ltd [2019] SGCA 56, the Singapore Court of Appeal provided important guidance on the circumstances in which a case management stay in favour of arbitration should be granted. The Court of Appeal upheld the decision of the High Court to lift a stay of court proceedings that had previously been granted on case management grounds.

Allen & Gledhill Partner Jason Chan acted for the successful respondent in the appeal, Gulf Hibiscus Ltd (“Respondent”).

Background

In 2016, the Respondent commenced court proceedings against the appellants, Rex International Holding Limited and Rex International Investments Pte Ltd (“Appellants”). The Appellants applied for a stay of proceedings on case management grounds, citing an arbitration clause contained in a shareholders’ agreement between the Respondent and the Appellant’s subsidiary, Rex Middle East Limited (“RME”). The Appellants were not parties to the shareholders’ agreement and the Respondent’s claims against the Appellants were not subject to any arbitration clause.

A case management stay of proceedings was granted by the Assistant Registrar. On appeal, the High Court judge (“Judge”) upheld the Assistant Registrar’s decision, but made the stay subject to the condition (among other things) that the parties be at liberty to apply to the court to lift the stay if the dispute resolution mechanism in the shareholders’ agreement (which included the arbitration clause) was not triggered by any of the parties to the shareholders’ agreement within three months from the date of judgment, and an arbitration was not commenced within five months from the date of the same.

In April 2018, the Respondent applied to lift the stay on the grounds that the conditions for the application had been met. The Judge ordered the stay to be lifted on 31 May 2018 unless arbitration was commenced or another order of court was granted before then.

The Appellants appealed against the Judge’s decision to the Court of Appeal.

Decision of the Court of Appeal

The Court of Appeal dismissed the appeal. The Court of Appeal held that it was ill-conceived to stay the Respondent’s claim against the Appellants, which was not subject to any arbitration agreement, on account of an arbitration agreement between the Respondent and a non-party to the original dispute, RME.

In the judgment, the Court of Appeal elaborated on the circumstances under which the question of a stay on the basis of case management would arise, and when such a stay would be granted.

In order for a case management stay to be granted, there must first be the existence or imminence of separate legal proceedings. These separate proceedings must give rise to a real risk of overlapping issues. In a typical case, there will be: (a) some overlap in the parties to the putative arbitration and the parties to the suit; and (b) some overlap in the issues that would be engaged in the putative arbitration and those in the suit. The question of case management arises where the overlapping issues have to be ventilated before different fora among different parties, some of whom are bound by an arbitration agreement, while others are not.

It is not sufficient for there to be a potential or theoretical overlapping of issues, parties or proceedings. The sort of overlap that would attract a case management stay would be one where the proper ventilation of the issues in the court proceedings depended on the resolution of the related putative arbitration.

The Court of Appeal emphasised that a court must therefore examine precisely which are:

  • the potential fora for the resolution of the dispute; 
  • the different parties before each forum; and
  • the issues to be determined before each such forum.

On the facts, the Court of Appeal concluded that the stay should not have been granted in the first place. The court proceedings did not depend on the resolution of issues that may arise in the putative arbitration. The Court of Appeal found that the putative arbitration was largely illusory. The Respondent had chosen not to sue RME. The Respondent had chosen to sue the Appellants, and no arbitration clause applied to that dispute because the Appellants were not party to the shareholders’ agreement. RME itself had not suggested that it had any claims to bring against the Respondent. Moreover, there were no relevant disputes under the shareholders’ agreement. Thus, even if the Appellants could move RME to commence arbitration proceedings, it was not clear what case RME would or could bring if the Respondent had no claims against RME to begin with.

Practical implications

The Court of Appeal has emphasised that a claimant has a fundamental right to choose its cause of action and to sue the party it wishes to sue, in whichever forum it wishes. This is not an absolute right, and is subject to applicable legal constraints such as an applicable arbitration agreement. However, the Court of Appeal has made it clear that this right will be derogated from only if the facts properly give rise to other higher-order concerns.

Parties that apply in the Singapore courts for a case management stay in favour of arbitration should therefore ensure that they are able to address the concerns that have been raised by the Court of Appeal. In applying for such a case management stay, it is not sufficient to rely on the fact that issues in the court proceedings may overlap with issues in arbitration proceedings. The following questions, posed by the Court of Appeal in this case, will need to be answered:

  1. Who are likely to be the parties to the arbitration proceedings? 
  2. What relief is sought in the arbitration proceedings?
  3. How would the issues in the arbitration proceedings relate to the issues in the court proceedings?
  4. Do the court proceedings depend on the resolution of issues that may arise in the arbitration proceedings?

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