10 April, 2017
Introduction
The recent judgment of the Singapore High Court in BLY v BLZ & Another [2017] SGHC 59 is of particular importance to users of arbitration in Singapore.
The court's decision sheds light on the factors governing an application for stay of the arbitration proceedings, pending the court's determination of a challenge to the tribunal's ruling on its jurisdiction.
Prior to this decision, the sole authority in Singapore on this issue was the decision in AYY v AYZ and another [2015] SGHCR 22, where the Assistant Registrar of the Singapore High Court, adapting principles applicable to a stay of execution of court judgments during the pendency of an appeal, held that arbitration proceedings will generally be stayed if the applicant is able to demonstrate with reasonable and credible substantiation that a refusal of stay would result in detriment in respect of which the applicant could not later be adequately restituted i.e. irreparable prejudice would be caused to the applicant.
The decision of the Court
Section 10(3) of the International Arbitration Act (Cap. 143A, 2002 Rev. Ed.)("the IAA") read with Article 16(3) of the Model Law, allow parties to appeal to the Singapore High Court against a tribunal's ruling on its jurisdiction.1
However, Section 10(9) of the IAA clarifies that an application to the court pursuant to Section 10 or Article 16(3) of the Model Law does not operate as a stay of the arbitral proceedings, or of execution of any award or order made in the arbitral proceedings, unless the court orders otherwise.2
Dismissing an application under Section 10(9)(a) of the IAA for a stay of the arbitration proceedings, the court held:
(a) The 'default position' under Section 10(9)(a) of the IAA is that the arbitration proceedings will continue pending curial review of the tribunal's ruling on jurisdiction.
(b) Although the court has discretion to stay the arbitration proceedings, the discretion must be exercised judicially and with reference to all the circumstances of the case.
(c) The court clarified that in order to justify the exercise of its discretion, rather than irreparable prejudice, there must be 'special circumstances' necessitating a stay of the arbitration proceedings.
What are the 'special circumstances'?
The court provided non-exhaustive guidelines to determine what constitutes (and does not constitute) 'special circumstances'. We set these out below:
(a) Special circumstances can include the conduct of the other party in relation to the arbitral proceedings.However, the court did not elaborate what such conduct may be. It is certain however, that the conduct would have to be sufficiently grave in order to justify the court's exercise of its discretion to stay the arbit
(b) Special circumstances would also include manifestly and egregiously improper conduct by the tribunal.
(c) The costs incurred in potentially useless arbitration proceedings (if the court were to subsequently hold that the tribunal lacks jurisdiction) would not constitute special circumstances. The court clarified that such costs are a usual and attendant by-product of a tribunal's decision to continue with the proceedings.
(d) Similarly, the potential detriment stemming from an award that may be passed, pending the court's determination of the application for curial review, also does not constitute special circumstances.
(e) The strength of the objection to the tribunal's jurisdiction would not, in and of itself, be a reason for stay of the arbitration proceedings.
(f) Lastly, the court held that although irreparable prejudice is a consequence of the existence of special circumstances, it does not, in and of itself, constitute special circumstances.
Irreparable prejudice may be caused without the existence of special circumstances. For example, where the tribunal has directed the disclosure of confidential documents, irreparable prejudice may be caused since such disclosure cannot be undone or compensated by costs. However, this would not constitute special circumstances since such disclosure is expected in the course of arbitration proceedings.
Similarly, special circumstances may exist even where no irreparable prejudice is likely to occur. For example, where the merits hearing in the arbitration is scheduled to take place much later than the hearing of the application for curial review.
Conclusion
The decision makes it clear that arbitration proceedings will not be stayed as a matter of course and that the threshold for what constitutes special circumstances is likely to be a high one.
However, it is worthwhile to note that international commentary on Article 16(3) of the Model Law, which vests the tribunal with discretion to stay arbitration proceedings pending curial review of its ruling on jurisdiction by the court, prescribes what appears to be an even higher standard to be met for a stay to be granted. In this regard, one commentary is of the view that it would be "nearly impossible" to conceive of any situation where the tribunal's discretion would be exercised in favour of a stay of the arbitral proceedings pending curial review.3
It would appear that the requirement of "special circumstances" is a lower threshold than "nearly impossible". One possible explanation for this is that the court considers the issue of jurisdiction de novo, unlike the tribunal, which had already decided the issue once before. The tribunal, having found that it possesses jurisdiction, would consider the most likely outcome of the curial review to be a confirmation of its findings on jurisdiction and therefore, apply a higher threshold to granting a stay of the arbitral proceedings.
The decision of the court is of crucial importance to parties contemplating continued participation or withdrawal from arbitration proceedings, pending the court's decision on a challenge to the tribunal's ruling on its jurisdiction. Without an order staying the arbitration proceedings, a party, despite a pending application for curial review, should diligently participate in the arbitration or risk substantial prejudice to its own case should the application for curial review ultimately fail.
[1] Similar provisions also exist in relation to domestic arbitration under Section 21(9) of the Arbitration Act (Cap. 10, 2002 Rev. Ed.)
[2] Similar provisions also exist in relation to domestic arbitration under Section 21A(6) of the Arbitration Act (Cap. 10, 2002 Rev. Ed.)
[3] Simon Greenberg, Direct Review of Arbitral Jurisdiction under the UNCITRAL Model Law on International Commercial Arbitration: An Assessment of Article 16(3) in Fredric Banchand et al, The UNCITRAL Model Law after Twenty-Five Years: Global Perspective on International Commercial Arbitration (2013), page 66
For further information, please contact:
Prakash Pillai, Partner, Clyde & Co
prakash.pillai@clydeco.com
