3 February, 2017
The Singapore Court of Appeal case of L Capital Jones Ltd and another v Maniach Pte Ltd [2017] SGCA 03 is another nail in the coffin on the issue of whether minority oppression claims are arbitrable.
Arbitrability of minority oppression claim
This was an appeal brought by a majority shareholder, L Capital against the Singapore High Court's decision refusing a stay of court proceedings in favour of arbitration on the ground that minority oppression claims were not arbitrable. Maniach, a minority shareholder in the Jones the Grocer group of companies resisted the appeal, arguing that his minority oppression claim against L Capital Jones was not arbitrable.
After the present appeal was lodged, the Singapore Court of Appeal had ruled on a separate case, Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57 ("Tomolugen"), that minority oppression claims were generally arbitrable.
Hence, Maniach argued that while the Singapore case of Tomolugen had held that minority oppression claims were generally arbitrable, his case possessed features which raised the public policy exception to arbitrability. The gravamen of his argument was that L Capital had abused court process to place two subsidiaries owned by the group under administration in Singapore, and in Australia to transfer one of the subsidiaries' only asset, its shares, to a third party related to L Capital for no net consideration.
The Singapore Court of Appeal found Maniach's contention without merit and held that the question of an abuse of the judicial process was neither the essence of the present dispute nor a necessary step in proving Maniach's claim. The issue rather was whether there was unfairness in the majority shareholder procuring the transfer of all the shares in the subsidiary to a third party in exchange for extinguishing debts. Maniach had not sought any relief for the alleged abuse of judicial process. Even if the court or tribunal adjudicating the dispute were to find that there was an abuse of process, such a finding would only be incidental to its resolution of the minority oppression dispute. Hence L Capital had succeeded in showing that the dispute was arbitratable.
A step in the proceeding
In a twist of fate however, the Singapore Court of Appeal found that because L Capital's subsidiary had taken a step in the court proceedings, it was not entitled to stay the proceedings pursuant to section 6 of the Singapore International Arbitration Act.
Maniach argued that:
- L Capital's opposition of Maniach's interim injunction and
- the application by L Capital's subsidiary to strike out the minority oppression claim brought by Maniach in the Singapore Court of Appeal
were steps in the court proceedings.
The Singapore Court found that opposing an interim injunction did not amount to a step in the proceedings. However, a striking out application was a step in the proceedings since it invoked the Singapore Court's jurisdiction to dismiss the claim on the merits. Once such a step is taken, it would be irrevocable, even if the striking out application was not eventually pursued. L Capital and its subsidiary's applications to stay the proceedings in favour of arbitration were therefore dismissed.
Key takeaways
The Singapore Court of Appeal has signaled through this case that it continues to adopt a pro-arbitration attitude. Singapore courts will not simply ignore an arbitration agreement to determine whether it would be appropriate for the courts to issue a public rebuke against a party for abusing court process, especially when the rebuke was unrelated to the dispute. Parties involved in arbitration should take comfort knowing that a shareholder agreement which contains an arbitration agreement providing for a Singapore-seated arbitration will be upheld. Last but not least, a party resisting a suit for claims that are arbitrable should be careful to distinguish substantive and procedural remedies, lest its appearance in the court proceedings be construed as submitting to the jurisdiction of the Singapore court instead.
For further information, please contact:
June (Junghye) Yeum, Partner, Clyde & Co
june.yeum@clydeco.com
