21 March, 2020
Introduction
1. On what basis does the Court grant a stay of court proceedings, in favour of arbitration, on case management grounds? In this article, we consider the Court of Appeal case of Rex International Holding Ltd and another v Gulf Hibiscus Ltd [2019] SGCA 56 (“Rex International Holding (CA)”) in respect of the factors taken into consideration by the Court when determining whether a case management stay should be granted in favour of arbitration.
2. This article will discuss the following:-What exactly is a case management stay?
-What were the facts in Rex International Holding (CA)?
-What was the Court of Appeal’s decision and guidance in Rex International Holding (CA) on the requirements for a case management stay?
i. Would an overlap between the issues in the court proceedings and the issues to be ventilated at the putative arbitration be sufficient to give rise to a case management stay?
ii. What specific factors are taken into consideration by the Court in determining whether there is sufficient overlap to grant a case management stay?
A. What exactly is a case management stay?
3. A Court may order a stay of court proceedings in favour of arbitration on the basis of a case management stay. Such an order is exercised by the Court in its discretion. In this regard, the Court uses its inherent power to ensure a fair resolution of a dispute.[1] For the Court to grant a case management stay, the Court must find that there is an existence or imminence of separate legal proceedings (discussed below in detail).
B. What were the facts in Rex International Holding (CA)?
4. In the High Court case of Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210 (“Rex International Holding (HC) 1”), Gulf Hibiscus Ltd (the “Respondent”) had entered into a shareholder agreement (the “Agreement”) with Rex Middle East Limited (“RME”). Subsequently, the Respondent commenced proceedings against Rex International Holding Limited and Rex International Investments Pte Ltd (the “Appellants”) for mismanagement of various joint ventures leading to RME’s breach of the Agreement.[1]
[1] Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2017] SGHC 210 (“Rex International Holding (HC) 1”), at [8]; Rex International Holding (CA) at [14].
5.The Appellants argued that the court proceedings should be stayed because the Respondent was bound by the arbitration clause with RME.[1] A case management stay was granted by the Assistant Registrar hearing the case in the first instance.[2]
6.On appeal, the judge upheld the Assistant Registrar’s decision – subject to certain conditions. If the dispute resolution mechanism which contained the arbitration clause in the Agreement was not triggered within 3 months, or arbitration had not been commenced within 5 months, of the date of the judgment, then parties could apply to lift the stay.[3]
7. In Gulf Hibiscus Ltd v Rex International Holding Ltd and another [2019] SGHC 15 (“Rex International Holding (HC) 2”), the Respondent successfully applied for the stay to be lifted on the basis that neither condition had been satisfied.[4]
8. The Appellants then appealed to the Court of Appeal against the decision of the High Court judge to lift the stay in Rex International Holding (HC) 2. However, in Rex International Holding (CA), the Court of Appeal found that the stay should not have been granted in the first place as the requirements for a case management stay had not been met.[5]
C. What was the Court of Appeal’s decision and guidance in Rex International Holding (CA) on the requirements for a case management stay?
9. As mentioned earlier, there must first be the existence or imminence of separate legal proceedings for a case management stay to be granted.[1] In a proper case for a case management stay, there would be overlapping issues being ventilated between different fora among different parties – some of whom are bound by an arbitration clause while others are not.[2] The Court would have to consider the nature and extent of the overlap by identifying and examining the following:
- 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.[3]
10. A case management stay would only be appropriate in a case where, in examining the above, the Court found that the proper ventilation of the issues in the court proceedings depended on the resolution of the related putative arbitration.[1]
i. Would an overlap between the issues in the court proceedings and the issues to be ventilated at the putative arbitration be sufficient to give rise to a case management stay?
11. In the Rex International Holding cases, the Respondent could not rely on the arbitration clause despite the fact that the Respondent’s allegations did, in fact, concern the Agreement between the Respondent and RME (the claim was that the Appellants’ misconduct had led to RME’s breaches of the Agreement).[2] According to the Court of Appeal, this “potential or theoretical overlapping of issues, parties or proceedings” was not enough to justify granting a case management stay.[3] Up until there was a real risk of overlapping issues, due to the “existence or imminence of separate legal proceedings”, it would be premature to grant a stay.[4]
ii. What specific factors are taken into consideration by the Court in determining whether there is sufficient overlap to grant a case management stay?
12. In summary and in considering the related putative arbitration, the Court of Appeal in Rex International Holding (CA) emphasised the importance of considering the shape of the arbitration based on the following factors:
- Who would be the likely parties to the arbitration?
- What relief was being sought?
- How would the issues in the putative arbitration relate to the issues in the court proceedings?
- Would the court proceedings depend on the resolution of issues that may arise in the putative arbitration?[5]
Conclusion
13. In Rex International Holding (CA), the Respondent did not intend[6] to commence court proceedings against RME and, more importantly, had framed its allegations as seeking compensation from the Appellants for the Appellants’ mismanagement of various joint ventures – and not as a claim against RME.[7] In such a situation, where the claim is against a non-party to the agreement, and there is no claim against the party to the agreement, the Court is unlikely to find that there is a real risk of overlapping issues sufficient to give rise to a case management stay.
14. Although the Appellants in Rex International Holding (CA) argued that the “real” claim was against RME, rather than the Appellants, the Court of Appeal emphasised that the Respondent had the right to pursue whichever party and whatever causes of action that it chooses and it was not up to the Appellants to allege that the “real complaint” was against RME.[8]
15. However, a party may still be able to rely on an arbitration clause, even if it was not a party to the agreement containing the arbitration clause, if the factors outlined in Rex International Holding (CA) are present on the facts of the case, i.e., if separate legal proceedings are imminent or already in existence, if there is sufficient overlap in the parties to the arbitration, the relief being sought and the issues to be ventilated, and if the court proceedings depended on the resolution of those issues at the putative arbitration. In such a situation, the Court may still be minded to grant a stay.
16. Parties intending to commence court proceedings under similar circumstances would be well advised to carefully consider the guidance of the Court of Appeal in Rex International Holding (CA) as the determination of the above factors will likely affect whether the potential defendants to the proceedings can successfully apply for a case management stay in favour of arbitration.
