Party autonomy prevails: Singapore Court of Appeal restates law governing a stay of proceedings based on exclusive jurisdiction clauses in negotiated contracts
2 November 2018
This article is produced by CMS Holborn Asia, a formal law alliance between CMS Singapore and Holborn Law LLC.
In Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd  SGCA 65 (“Vinmar”), a bench of five judges of the Court of Appeal (Singapore’s apex court) departed from a long line of authorities laid down by previously constituted Courts of Appeal which held that the merits of a defence, or lack thereof, are relevant in deciding whether proceedings should be stayed to give effect to an exclusive jurisdiction clause. In this article, we examine the decision in Vinmar and set out the key implications of the same.
Vinmar Overseas (Singapore) Pte Ltd (“Vinmar”) entered into four contracts to purchase chemical commodities between December 2013 and October 2014. The first two contracts were with PTT Public Company Limited (“PTT Public”) and the third and fourth contracts were with PTT International Trading Pte Ltd (“PTT”), a subsidiary of PTT Public. All four contracts were concluded in the same way – parties would negotiate over the telephone and subsequently agree on certain key terms that would be reflected in emails and other correspondence. Finally, PTT or PTT Public would send a Supply Agreement to Vinmar containing the full terms of the parties’ contract(s). Each of the four Supply Agreements (corresponding with the four contracts) (the “Four Agreements”) contained an exclusive jurisdiction clause (“EJC”) that conferred jurisdiction over disputes arising out of the agreements on the “High Court of England sitting in London”.
In November 2014, Vinmar entered into another contract (the “Contract”) with PTT. The Contract was concluded in a similar way as the Four Agreements, with parties agreeing on certain terms over email over the course of 21 and 22 November 2014, with a written Supply Agreement sent from PTT to Vinmar on 27 November 2014 (the “Written Terms”). The Written Terms were referred to as a “draft contract” in the email enclosing the same and contained certain provisions found in all of the Four Agreements, including the EJC. A dispute subsequently arose between Vinmar and PTT and Vinmar terminated the Contract. PTT commenced proceedings in Singapore against Vinmar and Vinmar applied for a stay of proceedings on the basis that the parties had agreed to refer disputes under the Contract to the High Court of England (the “EJC Application”).
Decisions of the High Court
In the court below, both the Assistant Registrar hearing the first instance application and the High Court Judge hearing the subsequent appeal found that the EJC was a term of the Contract. However, the lower courts refused to grant Vinmar a stay of proceedings on the basis that Vinmar did not have a genuine defence to PTT’s claim, relying on a long line of Court of Appeal authorities for the proposition that the lack of a genuine defence would amount to “strong cause” to refuse a stay. The long line of Court of Appeal authorities had previously been rationalised on the basis that absent any merits in the defence, a defendant does not genuinely desire trial in a selected foreign court and as such, a court should exercise its discretion to refuse a stay.
Decision of the Court of Appeal
The “good arguable case” test
The Court of Appeal first expounded on the test of a “good arguable case” in the context of an EJC application, observing that different formulations of the test existed: namely, the “much better argument” formulation adopted by the English Court of Appeal in Canada Trust Co and Others v Stolzenberg and Others (No 2)  1 WLR 547 and the Privy Council in Bols Distilleries BV and another v Superior Yacht Services Ltd  1 WLR 12 and the “better of the argument” formulation adopted by the English Court of Appeal in Joint Stock Company “Aeroflot Russian Airlines” v Berezovsky  2 Lloyd’s Rep 242.
In the Court of Appeal’s judgment, to establish a “good arguable case” that a jurisdiction agreement governs the dispute in an EJC Application, the applicant must have the better of the argument on the evidence before the court that the agreement exists and applies to the dispute. The Court of Appeal observed that this formulation reflects that the threshold is more than a mere prima facie case, but is different from the standard of a balance of probabilities given the limits inherent in the stage at which an EJC Application is heard.
Incorporation of terms by a course of dealings
The Court of Appeal endorsed the following test laid out in The Law of Contract (Michael Furmston gen ed) (LexisNexis, 6th Ed, 2017) in respect of whether a term is incorporated into a contract by a course of dealings: “Whether, at the time of contracting, each party as a reasonable person was entitled to infer from the past dealings and the actions and the words of the other in the instant case, that the [term] [was] to be part of the contract”. The Court of Appeal noted that a high threshold must be met for a party to be entitled to infer that a term sought to be incorporated is part of the contract.
The Court of Appeal, while noting that there is no fixed number of contracts that must have been executed before a term can be incorporated into a contract by a course of dealing, observed that the following factors were relevant in the analysis:
- The number of previous contracts;
- How recent they are;
- Whether they have a similar subject matter; and
- Whether they were made in a consistent manner.
The Court of Appeal also endorsed the following propositions:-
- That a court may consider earlier transactions not with the counterparty to the contract in issue but with a different company in the same group of companies in determining if terms were incorporated into the contract with the instant counterparty;
- In general, it would be easier to establish incorporation by a course of dealings where both parties are in business, rather than where one is a consumer; and
- A term may be more easily incorporated if it is not unusual or unreasonable.
On the facts of the case, the Court of Appeal was satisfied that Vinmar had established a good arguable case that the EJC is incorporated into the Contract by the course of dealings between Vinmar and PTT/PTT Public.
Restatement of the law on principles governing an EJC Application
The Court of Appeal held that that the overarching test of whether an EJC Application should not be granted remained one of “strong cause” to refuse a stay. In determining whether the test is satisfied, the Court of Appeal noted that the factors set out in the celebrated case of The Eleftheria  1 Llyod’s Rep 237 remained relevant considerations.
After an extensive and detailed review of the law with reference to developments in Hong Kong, Singapore and the United Kingdom, the Court of Appeal held that the time had come to depart from the rule that the merits of a defence are relevant in determining whether to grant a stay in an EJC Application. The Court of Appeal held that the merits of a defence are irrelevant for two primary reasons: (1) for reasons of principle, policy and coherence in the law; and (2) the doctrinal basis on which the merits of a defence were incorporated into the general test in an EJC Application is flawed.
The Court of Appeal then recognised two general grounds upon 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: (1) abuse of process; and (2) denial of justice. In respect of the abuse of process ground, the Court of Appeal observed that the threshold for abusive conduct is very high and that the cases where this ground will be fulfilled will be few and far between. An example posited by the Court of Appeal where such a ground may succeed would be if the applicant for the stay had “started a media campaign in the agreed forum to malign the plaintiff, thus undermining the prospects of a fair trial”. In respect of the denial of justice ground, the Court of Appeal provided the following examples: “if the agreed court had been dissolved by the time the dispute arose, or was not realistically available to determine the dispute because war had broken out in the jurisdiction.”
One of the issues left open by the Court of Appeal in Vinmar is whether the principles laid out apply equally to jurisdiction clauses in bills of lading and standard form contracts that the plaintiff is not in a position to negotiate. The Court of Appeal observed that the central principle that underlined its restatement of the law was party autonomy and that the principle does not apply with the same force where a party had no say in the fact or choice of a jurisdiction clause. While the Court of Appeal expressed a “tentative preference” that the same principles should apply to a jurisdiction clause even where the plaintiff was not in a position to negotiate, it noted that given the importance of the issue, it would leave the issue open for determination at a later date.
Commercial parties should be mindful that the court can, in determining whether a term is incorporated into a contract by a course of dealings, consider earlier contracts with a party from the same corporate group as the party to the contract in issue. If different terms are intended to apply to different entities within the same corporate group, care must be taken for these differences to be expressly provided for.
Vinmar reinforces the primacy of party autonomy in commercial contracts. If the parties had negotiated the inclusion of an exclusive jurisdiction clause, they will be held to their bargain barring their ability to show “strong cause” as to why a stay should not be granted. What is clear from Vinmar is that it is no longer possible for a plaintiff to argue that a stay should not be granted simply because the defendant does not have a genuine or bona fide defence.
Where parties prefer litigation over arbitration and a party anticipates that any eventual enforcement is likely to take place in Singapore (for example, where the counterparty’s assets are located in Singapore), it may wish to consider having an exclusive jurisdiction clause in favour of Singapore as opposed to some other jurisdiction. If it fails to do this, the party will have to surmount the additional hurdle of obtaining a judgment in the foreign jurisdiction first, and then subsequently seeking to enforce the same in Singapore.
Commercial parties should note that the extent to which the Court of Appeal’s restatement of the law in Vinmar applies to jurisdiction clauses in bills of lading and standard form contracts has been left open. The Court of Appeal’s expressed “tentative preference” for the same principles to apply is not binding on the next bench hearing this issue.