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Between a rock and a hard place: Singapore High Court lifts stay of court proceedings on non-commencement of arbitration

20 February 2019

Introduction

Is a court entitled to lift a stay of proceedings in favour of arbitration if the conditions for lifting the stay have not been met? This is what the Singapore High Court (the “Court”) had to consider in Gulf Hibiscus Ltd v Rex International Holding Ltd and anor [2019] SGHC 15.

In a follow up to an earlier, related decision in 2017 (where the court gave its reasons for ordering a stay – discussed here), we examine the Court’s reasoning for lifting the stay and provide some key takeaways.

The parties

The plaintiff, Gulf Hibiscus Ltd (“Plaintiff”), is one of 3 shareholders of Lime Petroleum PLC (“Lime PLC”). The other shareholders are Rex Middle East Limited (“RME”) and Schroder & Co Banque SA (“Schroder”).

The first defendant, Rex International Holding Limited, is the ultimate holding company of RME. The second defendant, Rex International Investments Pte Ltd, is the intermediate holding company of RME, and a wholly owned subsidiary of the first defendant (the two defendants are collectively referred to as the “Defendants”).

Background

The Plaintiff commenced Suit No. 412/2016 (the “Suit”) against the Defendants in respect of alleged wrongs committed by the Defendants and their associated companies in relation to a joint venture.

The dispute concerns a Shareholders’ Agreement (the “SHA”) which governed the relationship between the Plaintiff, RME, Schroder and Lime PLC. Clause 25.2 of the SHA provides a tiered dispute resolution mechanism, (1) starting with amicable resolution, (2) followed by negotiations between the principal officers of each shareholder, and (3) finally arbitration under the existing Rules of International Arbitration of the International Chamber of Commerce (the “ICC Rules”).

The Defendants sought a stay of the Suit, which the Assistant Registrar (“AR”) granted on the basis of the court’s inherent jurisdiction to stay proceedings in the interest of case management. The Plaintiff appealed but the Court affirmed the AR’s decision and allowed the stay on (among other things) the condition(s) that:

If the tiered dispute resolution under cl. 25.2 of the SHA is not triggered by any of the parties to the SHA within three months from the date of this judgment and an arbitration is not commenced within five months from the date of this judgment, the parties shall be at liberty to apply to the court to lift the stay.

The Plaintiff’s case

In April 2018, the Plaintiff applied to lift the stay based on the non-satisfaction of the events specified in the condition(s) of stay.

First, the Plaintiff argued that RME had failed to take “all reasonable endeavours to resolve the matter amicably” and had in fact obstructed its resolution. The Plaintiff alleged that RME failed to take the negotiations seriously, and foreclosed the amicable settlement of the dispute before changing its position subsequently, showing a lack of sincerity. The Plaintiff further alleged that the Defendants had breached cl. 25.2 of the SHA by nominating someone other than the Chairman of RME to attend the negotiations between the principal officers of the parties.

Second, the Plaintiff argued that since arbitration had not commenced within five months from the date of judgment, the stay ought to be lifted.

The Defendants’ case

The Defendants argued that the stay should not be lifted as the conditions for lifting the stay were not met.

First, the Defendants emphasised that RME had issued a notice under cl. 25.2 of the SHA on 23 November 2017 (i.e. within 3 months of the date of the judgment) inviting the Plaintiff to attend a meeting to resolve the dispute. As such, since the first of the two contemplated events had occurred, the Plaintiff was not entitled to apply to lift the stay.

Second, the Defendants argued that the Court should not exercise its discretion to lift the stay as this would effectively permit the Plaintiff to circumvent the arbitration agreement in cl. 25.2 of the SHA. The Defendants submitted that the stay was granted on the basis that the Plaintiff’s right to choose whom to sue and where was a first order concern subject to two other higher-order concerns as identified in the case of Tomolugen Holdings Ltd and anor v Silica Investors Ltd and other appeals [2016] 1 SLR 373. The two higher-order concerns are the (1) prevention of the Plaintiff’s circumvention of the arbitration agreement and (2) the court’s inherent jurisdiction over case management.

The Defendants argued that their submission to arbitration did not require them to commence the arbitration. It would not make commercial sense for the Defendants to commence the arbitration when they sought no positive relief. Pursuing a negative claim under the ICC Rules would be “onerous” as the Defendants would be required to pay a non-refundable filing fee and the attendant arbitration costs.

The Court’s decision

The Court concluded that both parties had not moved the case along through arbitration as expeditiously as possible. As such, on 30 April 2018, the Court gave the parties notice that the stay would be lifted on 31 May 2018, unless arbitration was commenced by then or another order of court was granted.

The Court’s reasoning

The Court recognised that the present case was different from the run-of-the-mill case management stays, in that if the Defendants – who desired for the stay to continue – had to initiate arbitration, they would have to pursue a negative case.

That being said, the case management stay could not continue indefinitely. The court was entitled to exercise its discretion to lift the stay where there has been “undue delay”. Granting liberty to the parties to apply to the court to lift the stay did not preclude the court from exercising its inherent power to manage its processes to “ensure the efficient and fair resolution of disputes”. The court could exercise its discretion even if the conditions of the stay were not met – though this would be the exception rather than the norm.

In particular, where the resolution of the dispute is in fact stymied by the continuation of the stay, the court can and should reconsider the terms of the stay. It is not in the interests of justice that case management stays remain indefinitely or for prolonged periods.

Takeaways

This is an interesting case study in which the court has been asked to make a difficult choice between “permitting” a plaintiff to circumvent an arbitration agreement, or to allow a longstanding dispute to remain unresolved as a result of an existing stay.

As the Court repeatedly emphasised, it is the exception rather than the norm for the court to lift a stay where the conditions of the stay have not been met. This decision should not be taken as the court exercising its discretion carte blanche to lift a case management stay. Each case should and will be considered by its particular facts.

In lifting the stay, the Court considered that the “overriding objective was one of ensuring the resolution of an extant dispute”. The Court’s primary concern was that an existing dispute which has “ground to a halt” should not “remain hanging”.

The Defendants have been given leave to appeal to the Court of Appeal. It remains to be seen if the Court of Appeal will take a similar approach as the High Court in this instance.

Authors

Wei Ming Tan
Senior Associate
Singapore
Lakshanthi Fernando, Partner
Lakshanthi Fernando
Managing Director
Singapore