20 December 2018

Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] SGCA 65

In a landmark decision, the Singapore Court of Appeal in Vinmar Overseas (Singapore) v PTT International restated the law in relation to an application
for a stay of proceedings based on an exclusive jurisdiction clause (“EJC Application”). In general, the courts will enforce an exclusive jurisdiction clause unless there is strong cause for refusing a stay. Overruling an established line of cases, the Court of Appeal held that, when considering whether there is strong cause to refuse a stay in an EJC Application, the merits of any defence that the applicant intends to raise are irrelevant.

Facts

In November 2014, Vinmar Overseas (Singapore) Pte Ltd (“Vinmar”) entered into a contract (“Contract”) to purchase chemicals from PTT International Trading Pte Ltd (“PTT”). Pursuant to this, PTT sent over a document which it referred to as a “draft contract” (“Written Terms”) to Vinmar. The Written Terms contained an exclusive jurisdiction clause providing for disputes to be referred to the English High Court.

After disputes between the parties arose, PTT commenced an action in the Singapore High Court, contending that Vinmar had repudiated the Contract and caused PTT to suffer loss. Vinmar applied for a stay of the suit on the basis that the parties had agreed to refer the dispute to the English High Court. The EJC Application was dismissed at first instance, as the Assistant Registrar hearing the EJC Application found that there was strong cause to refuse a stay on the basis that Vinmar did not have a genuine or bona fide defence to PTT’s claim. In this regard, the Assistant Registrar applied a long line of Singapore Court of Appeal cases, starting from The Jian He [1999] 3 SLR(R) 432, which held that the absence of a meritorious defence will suffice to establish strong cause to refuse a stay. The rule in The Jian He has been rationalised on the basis that if the applicant’s intended defence is unmeritorious, the applicant does not genuinely desire trial in the selected foreign court and there is therefore no purpose in staying the proceedings. Accordingly, the court should exercise its discretion to refuse a stay. Vinmar’s appeal was dismissed by the Singapore High Court.

Decision of the Court of Appeal

In allowing Vinmar’s appeal and granting a stay of the suit, the Court of Appeal made certain findings in relation to the incorporation of an exclusive jurisdiction clause into the Contract. More importantly, the Court of Appeal considered the relevance of the merits of the applicant’s intended defence in an EJC Application. After tracing the development of the law, the Court of Appeal decided to depart from the rule in The Jian He for the following reasons:

  • The rule in The Jian He is inconsistent with the central principle of party autonomy, as parties who agree to an exclusive jurisdiction clause agree to bring all disputes to an agreed forum, regardless of the merits.
  • The rule in The Jian He generates uncertainty for commercial parties in the business of international trade, since whether a dispute is decided in the agreed forum depends on an uncertain determination, by the non-contractual forum, of the merits, which may turn on contested issues of fact and foreign law. This is contrary to policy.
  • The rule in The Jian He has led parties to expend significant costs at the interlocutory stage of proceedings and has delayed the resolution of disputes. This is also contrary to policy.
  • Departing from the rule in The Jian He would promote coherence in the law, not only by aligning the law governing EJC Applications with that governing applications for a stay of court proceedings in favour of arbitration and a stay of court proceedings on the basis of forum non conveniens (where the merits of the defence are irrelevant), but also by bringing consistency to the treatment of exclusive jurisdiction clauses (e.g. where not having a defence to a claim is not a ground for refusing an anti-suit injunction).

Moreover, there were doctrinal reasons for departing from the rule in The Jian He. The rule in The Jian He was premised on the assumption that a defendant with no genuine defence does not genuinely desire trial in the agreed forum. The Court of Appeal observed, however, that there could be many reasons for an applicant to desire trial in the agreed forum despite not having a genuine defence, such as where the forum has more favourable rules regarding interest on judgment sums or on costs.

The Court of Appeal then recognised two general grounds on which a stay may be refused in an EJC Application where the only parties involved in the dispute are the parties to the jurisdiction agreement: abuse of process (such as where the applicant for a stay had started a media campaign in the agreed forum to malign the plaintiff, thus undermining the prospects of a fair trial) and denial of justice (such as where the agreed forum is not realistically available due to an outbreak of war).

Having departed from the rule in The Jian He, the Court of Appeal proceeded to enforce the exclusive jurisdiction clause in the Contract and ordered a stay of the suit in Singapore.

Comment

With this decision, a party to a freely negotiated commercial contract who commences proceedings in a forum in breach of an exclusive jurisdiction clause will no longer be able to argue that a stay of proceedings should not be ordered simply because the other party purportedly has no real defence. As the decision cuts down one of the factors which may be used to establish strong cause to derogate from an exclusive jurisdiction clause, it reduces some of the uncertainty relating to the enforcement of an exclusive jurisdiction clause and reaffirms the importance of party autonomy in selecting a preferred forum to hear disputes.One issue that the Court of Appeal left open was whether its restatement of the law applies equally to jurisdiction clauses in bills of lading and standard form contracts that the plaintiff was not in a position to negotiate, given that party autonomy, the central principle underlying the restatement, would not apply with the same force in such cases. The Court of Appeal expressed a “tentative preference” for the view that the position should be the same, but as this issue was not fully argued, declined to definitively comment on it.

 

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