Singapore - A Pragmatic Stay Of Proceedings: The High Court Declines Jurisdiction Under Its Insolvency Regime In Favour Of Overlapping Arbitral Proceedings.

Legal News & Analysis - Asia Pacific - Singapore - Insolvency & Restructuring

26 April, 2018

 

In a recent decision Takenaka Corporation v Tam Chee Chong and another [2018] SGHC 51, Justice Aedit Abdullah granted a stay of proceedings under the Arbitration Act of Singapore (Cap 10, 2002 Rev Ed) (the “Arbitration Act”), for an appeal against the judicial managers’ rejection of a creditors’ proof of debt pursuant to Section 75 of the Companies Regulations. In particular, the High Court placed emphasis on the fact that the arbitration proceedings would fully determine the issues and cross-claims between the parties, whereas the court proceedings, being limited to an appeal against a rejection of a proof of debt, would not be able to do so.

 

Shook Lin & Bok LLP (David Chan and Daryl Fong) acted for the successful judicial managers of Acesian Star (S) Pte Ltd in obtaining a stay of proceedings under the Arbitration Act.

 

Background facts

 

The proceedings arose out of sub-contracts between Takenaka Corporation (‘Takenaka”), the main contractor for various projects involving addition and alteration works at Changi Airport, and Acesian Star (S) Pte Ltd (“ASPL”), a provider of engineering, mechanical, electrical and plumbing services for construction projects, where ASPL would perform air-conditioning works at Terminal 1 (the “T1E Subcontract”) and Terminal 4 (the “T4 Subcontract”) of Changi Airport (collectively the “Subcontracts”).

 

A dispute arose between Takenaka and ASPL in relation to payments due under the T4 Subcontract. Pursuant to an adjudication determination under the Building and Construction Industry Security Act (Cap 30B, 2006 Rev Ed), Takenaka was adjudged liable to ASPL for approximately S$7 million, but asserted that it was entitled to refuse further payments as it had a counterclaim for back charges and liquidated damages. Subsequently, Takenaka then terminated the T1E and T4 Subcontracts and ASPL applied for, and was placed under, judicial management.

 

The judicial managers of ASPL then rejected a proof of debt filed by Takenaka for approximately S$27.9 million under the T1E and T4 Subcontracts, where Takenaka applied (by way of Originating Summons No. 936 of 2017 (“OS 936”)) for an order setting aside the judicial managers’ rejection of the proof of debt pursuant to Section 75 of the Companies Regulations. The judicial managers sought a stay of OS 936 pursuant to Section 6 of the Arbitration Act on the basis of the arbitration clauses contained within the Subcontracts.

 

The law on stay of proceedings under Section 6 of the Arbitration Act

 

Under Section 6 of the Arbitration Act, any party to an arbitration agreement may apply for a stay of proceedings which are instituted in respect of matters subject to the arbitration agreement. The court may stay proceedings if it is satisfied that:

 

(a)  there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement; and

 

(b)  the applicant was, at the time when the proceedings were commenced, and still remains, ready, and willing to do all things necessary for the proper conduct of the arbitration.

 

Whilst the court's power to grant a stay in favour of arbitration under Section 6 of the Arbitration Act is discretionary rather than mandatory, where the applicant seeking a stay remains ready and willing to arbitrate, the court will only deny a stay in exceptional circumstances: Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong [2016] 3 SLR 431 (at [23]). Further, whilst the inquiry under the term “sufficient reason” can be wide ranging and captures a broad range of factors, the factors invoked should outweigh the considerations that generally point 

 

to enforcing the arbitration agreement (i.e. the fact that the parties had voluntarily bound themselves to arbitrate), as recognised in Sim Chay Koon v NTUC Income Insurance Cooperative Ltd [2016] 2 SLR 871.

 

The decision

 

In granting the stay application sought by ASPL, a key consideration upon which Justice Aedit Abdullah’s reasoning turned was ASPL’s argument that OS 936 would not be able to fully determine the issues between the parties arising out of the T1E and T4 Subcontracts. As OS 936 was solely limited to being an appeal against the rejection of Takenaka’s proof of debt, the court in OS 936 would not be able to address and grant relief in respect of ASPL’s counterclaims against Takenaka, whereas the claims by the respective parties would be fully adjudicated in the arbitration.

 

In this regard, Takenaka argued that as its proof of debt was rejected because of the set-off from other claims that ASPL had against Takenaka, those other claims were thus linked to OS 936.Further, as OS 936 was linked to mutual claims between the parties and potential clawback actions, it would be necessary and beneficial for the court to exercise overall supervision and oversight of all proceedings arising from the judicial management of ASPL.

 

In coming to his decision, Justice Aedit Abdullah held that whilst the existence of other claims may have led to the rejection of the proof of debt, this fact did not expand the scope of OS 936, which, as argued by ASPL, was still solely limited to the question of the rejection of Takenaka’s proof of debt, and within which there could not be any determination of the other claims.

 

Another argument which Takenaka sought to advance was that in the event OS 936 was not stayed, there would be significant cost savings as well as the avoidance of uncertainty and risk of prejudice arising from the possibilities that ASPL might run out of funds to pursue the arbitration, or might not be able to pay any adverse costs orders made against it in the arbitration.

 

Although the judge was satisfied on the evidence that sufficient assurance had been given as to ASPL’s ability to bear the costs of the arbitration in the event it lost, he also held that in any event, the possibilities: that (a) court proceedings may ultimately lead to a faster and more efficient resolution of the entire bundle of disputes between parties; and (b) the party seeking arbitration for any adverse cost order could not, by themselves, provide sufficient reason for the court to disregard the parties’ agreement to arbitrate. Neither statute nor case law required the party seeking a stay be in a position to pay for the costs that may be incurred by the other side. Hence, to exercise the court’s discretion against granting a stay in such a situation would not give sufficient weight to the binding nature of the arbitration agreement entered into by the parties, who would have been expected to have factored the risks of lower speed and efficiency in arbitrating as well as non-reimbursement of costs following arbitration into their choice to arbitrate their disputes.

 

Analysis

 

The judge’s decision in granting a stay of OS 936 is yet another illustration of the Singapore courts’ strong policy in favour of arbitration. Even where, in the context of domestic arbitration agreements, the granting of a stay is discretionary in nature, the courts have indicated that parties’ agreement to arbitrate their dispute will not be lightly displaced. This approach is congruent with the oft-reiterated pronouncements by the Singapore courts of Singapore’s strong policy in favour of arbitration. The Singapore courts will be slow to exercise the discretion to refuse a stay in the context of the Arbitration Act, and where such discretion is exercised, it will be done so sparingly, and in a principled manner: Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong [2016] 3 SLR 431 and Sim Chay Koon and others v NTUC Income Insurance Co-operative Ltd [2016] 2 SLR 871.

 

A more interesting aspect of the decision lies in the judge’s focus on the fact that arbitration should be favoured due to the limitations presented by court proceedings in the current situation. In this regard, it was recorded in the judge’s written grounds that:

 

“I accepted the Judicial Managers’ argument that not all aspects of the dispute between the parties would be canvassed if the court proceedings were to be pursued; in contrast, the arbitration would cover the claim and the counterclaim between the parties. It may be that there are other areas that are covered neither by OS 936/2017 or the arbitration, but that does rob the arbitration of the advantage it has over the proof of debt.” 

 

The judge’s emphasis on this aspect of the factual matrix was a pragmatic one in that OS 936, being limited only to Takenaka’s appeal against the rejection of its proof of debt by the judicial managers, was not a forum under which the court could award the company its claims against Takenaka in the event that such claims were successful. The judge instead recognised that arbitration was the proper forum where the cross-claims between the parties could be fully determined.

 

Conclusion

 

This decision serves as a timely reminder that the existence of an arbitration agreement between parties is not a factor to be lightly disregarded in commencing litigation proceedings. Moreover, the judge’s pragmatic approach towards choosing between curial and arbitral proceedings, with his focus on the fact that curial proceedings would not fully determine the outstanding issues between the parties, would be particularly useful in future stay applications where the court is faced with a similar factual matrix. 

 

Shook Lin Bok LLP 
 

 

For further information, please contact:  
 
David Chan, Partner, Shook Lin & Bok