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    04:25 PM Nicholas Poon (Advocate and Solicitor, Supreme Court of Singapore)

    The limits of a case management stay to enforce the contractual bargain under an arbitration agreement: Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57

        

    Tomolugen is, or will come to be recognised as in time, a ground-breaking decision, as far as Model Law and other similar jurisdictions go, not so much for the result in the case, but the reasoning and application of principles to the facts.

    Facts

    The facts, very briefly, are these. The Plaintiff sued eight Defendants.  The Defendants can be divided into two groups: (a) the 2nd defendant (“Lionsgate”), and (b) the remaining defendants (“Other Defendants”). The action against the Defendants related to the affairs of the 8th defendant (“ARMG”) which the Plaintiff claimed was run in a manner that was oppressive and unfairly prejudicial to the Plaintiff, and for which it thus claimed statutory relief under s 216 of the Companies Act. The Plaintiff’s interest in ARMG was acquired from Lionsgate under a share sale agreement (“SSA”), which contains an arbitration clause in favour of a Singapore-seated arbitration. It is important at this juncture to bear in mind that only Lionsgate, but not the Other Defendants, was party to the SSA. Hence, only the Plaintiff and Lionsgate were subject to the arbitration agreement.

    Broadly speaking, the Plaintiff’s action for minority oppression was premised on the following four allegations: (a) the Share Issuance Allegation; (b) the Management Participation Allegation; (c) the Guarantees Allegation; and (d) the Asset Exploitation Allegation. The general nature of each allegation is apparent from its classification. For the purposes of this commentary, more context needs to be given in respect of the Management Participation Allegation.

    Under the Management Participation Allegation, the Plaintiff claims that contrary to an understanding or legitimate expectation, supported by the terms of the SSA, the Plaintiff was denied participation in the management of ARMG (at [16]). Importantly, the Management Participation Allegation was as much part of the Plaintiff’s case against Lionsgate as it was against the Other Defendants (at [189(ii)].      

    Court of Appeal’s decision

    The Court of Appeal accepted that there was a prima facie case that only the Management Participation Allegation, but not the rest, fell within the scope of the arbitration agreement (at [137]) (for a comment on the prima facie standard, see Nicholas Poon, “Singapore Court of Appeal affirms prima facie standard of review for stay applications in favour of arbitration” SLW Commentary, Issue 4, October 2015). Accordingly, pursuant to s 6(1) of the International Arbitration Act which applied to the dispute, the issues relating to the Management Participation Allegation between the Plaintiff and Lionsgate were subject to a mandatory stay in favour of arbitration.

    That, however, gave rise to the question of how the remainder of the action – the other three allegations as against Lionsgate, and all four allegations as against the Other Defendants – should be progressed, since those were not the subject of the arbitration agreement. There were three main options (at [139]):

    (a) these claims could continue in court parallel to any arbitration commenced between the Plaintiff and Lionsgate over the Management Participation Allegation (which for convenience shall be referred to as the “Lionsgate arbitration”);

    (b) these claims would continue in court, and it is only after they are resolved that the Lionsgate arbitration shall commence, or

    (c)  the court proceedings in respect of these claims could be stayed, on case management grounds, pending the resolution of the Lionsgate arbitration (at [138]).

    The Plaintiff favoured the first option, while the Defendants argued for the third. The Court went, essentially, with the third option. (As an aside, the Court provided for some modifications to its orders should the Plaintiff either abandon the Management Participation Allegation or if the Other Defendants agreed to arbitrate that issue in the same Lionsgate arbitration. However, the remainder of the commentary proceeds on the assumption that neither materialised.) 

    In arriving at its decision, the Court characterised the issue as how best to “uphold the statutory mandate and strong legislative policy in favour of arbitration in circumstances where the dispute which is covered by the arbitration clause in question forms only part of a larger dispute” (at [186]). The unifying theme across the cases dealing with this issue, the Court said, is the “recognition that the court, as the final arbiter, should take the lead in ensuring the efficient and fair resolution of the dispute as a whole” (emphasis added) (ibid). To achieve that, “precise measures” may be required, and what these are “turn on the facts and the precise contours of the litigation in each case” (ibid). Taking all of those into consideration, the Court ordered a stay of the remaining court action in the interest of case management ([190(f)]).

    Comments

    This commentary offers three takeaways.

    First, the case management interests protected by the two case management stay orders – one in respect of the remaining three allegations against Lionsgate, and the other in respect of the four allegations against the Other Defendants – are conceptually different, and therefore warrant closer consideration.

    As against Lionsgate, the stay of the other three allegations was conditional upon the following (at [190(c) and (e)]):

    (a) the Lionsgate arbitration “being arbitrated expeditiously”;

    (b) the parties in the Lionsgate arbitration “should endeavour” to have this narrow issue resolved by means of “any expedited procedures that may be available under the SIAC Arbitration Rules”; and

    (c)  should the resolution of the putative Lionsgate arbitration be “unduly delayed”, “any party to the arbitration” may apply to court to have the stay lifted.

     The conditions imposed reveal that the main case management interest advanced is two-fold: (a) avoiding simultaneous court and mandatory arbitration proceedings involving different issues but the same defendant and the same factual substratum; and (b) avoiding undue delay in the resumption of the court proceedings.  

    Crystallising the case management interest protected by the second stay order is more difficult. It is safe to say what is not protected. The avoidance of multiple proceedings is not protected because there is no mandatory arbitration to speak of as between those parties: the Other Defendants are not bound to arbitrate any part of the dispute with the Plaintiff in the first place, and neither them nor the Plaintiff can be or were compelled to arbitrate their dispute. It is also not about protecting the Plaintiff from having to fight on two fronts; there is no suggestion that the Plaintiff wished to be saved from that. In short, there is very little left that is conceivably worth protecting and which justify an exercise of the Court’s inherent power to stay its proceedings on case management grounds.   

    Second, the Court’s emphasis that the Other Defendants should be bound by the findings in the Lionsgate arbitration or at least precluded from re-litigating the Management Participation Allegation (at [189(b)(iii)]) should be taken seriously. At a general level, the logic applied by the Court is easy to follow: if the Other Defendants want to enjoy the benefit of a case management stay by relying on the Lionsgate arbitration, it is only fair and reasonable that that benefit should be enjoyed to its fullest, which is that the outcome of the Lionsgate arbitration in respect of the Management Participation Allegation would apply equally to them.   

    Naturally, this has practical implications for parties in the shoes of the Other Defendants. On the basis of the above logic, if the Other Defendants had not applied for the stay, the justification for granting the stay would be arguably weaker. While the court can still of course exercise on its own accord the power to stay proceedings, there would be a real doubt as to the fairness of granting the stay, as without the Other Defendants asking for a stay, there would be no quid pro quo principle, as it were, that the Court may rely upon to pin the outcome of the Lionsgate arbitration on the Other Defendants.

    Parenthetically, it is at least interesting to note that the Court did not state whether the Plaintiff would be bound by the decision in the Lionsgate arbitration when the stayed action against the Other Defendants is resumed. It would be peculiar if the Plaintiff was so bound because, unlike the Other Defendants, the Plaintiff did not ask for a stay. Yet, if the Plaintiff is not so bound by the decision in the Lionsgate arbitration on the Management Participation Allegation, there would be an obvious legal pickle: the point that the Other Defendants cannot re-litigate that issue could be hollow, since whether that issue will be litigated would depend on whether the Plaintiff decides to “accept” the outcome vis-à-vis the Other Defendants. The Plaintiff would naturally not want to be bound if the outcome of the arbitration is unfavourable. It may be that the principle is that the plaintiff in such cases has a right of election, even if that may contradict, ultimately, the very notion of efficiency which the case management stay is intended to realise.    

    The third takeaway is parties seeking a case management stay can now expect conditions to be imposed in tandem and support of a case management stay. This practical implication, though simple conceptually, may produce uncertainty, as the “precise measures” necessary to enable an efficient and fair resolution of the dispute depends on the facts of each case. Nonetheless, it is reasonable to assume that any condition imposed would be for the purpose of facilitating a prompt resolution of the court proceedings. To that extent, parties should be prepared to expect a case management stay accompanied with orders giving parties liberty to apply to lift the stay should the putative arbitration be prosecuted in an untimely manner.    

    As for the circumstances under which the court will find that the actions of the parties merit the lifting of the stay, greater clarity will no doubt be provided in future cases, for the lifting of the stay may have drastic consequences, especially where the arbitration is already afoot. This was not addressed by the Court, presumably because it did not want to undermine the confidence it had that the Lionsgate arbitration would be progressed expeditiously. It is, nevertheless, a real concern because of the potential for parallel proceedings. If the stay is lifted during the pendency of the Lionsgate arbitration, there will be two proceedings between the Plaintiff and Lionsgate – one, the Lionsgate arbitration over the Management Participation Allegation, and two, the court proceedings over the remaining allegations – the existence of each giving rise to potential inconsistent and conflicting findings (for eg, where the tribunal in the Lionsgate arbitration and the court differ in their evaluation of the facts that are common to both the Management Participation Allegation and the other three allegations).

    Because of the potentially drastic consequences that may follow the lifting of the stay, one would expect substantially more than a de minimis deviation or technical non-compliance with a condition before the court will lift the case management stay. Any lifting of the stay should not be viewed as a sanction arising from non-compliance with a court-ordered condition – which if it were so, a strict approach would be justified – but a calibrated and appropriate readjustment of the balance between “a plaintiff’s right to choose whom he wants to sue and where”, the court’s “desire to prevent a plaintiff from circumventing the operation of an arbitration clause”, and ensuring “the efficient and fair resolution of disputes” (at [188]), in the light of new developments and circumstances after the stay was issued.

    Along those lines, a charitable judicial attitude towards any assertion of ‘delay’ has much to commend it. A possible outworking of this attitude could be to give arbitration proceedings a ‘margin of appreciation’ in relation to matters such as case disposal timeframes, calendaring conflicts, venue availability and the like which cause protraction of the arbitration proceedings. There should however be no doubt that the stay can and will be lifted in the right case. When that happens, the court may even take steps to prevent parallel proceedings and conflicting decisions by, for instance, restraining the continuation of any ongoing arbitration, possibly on the ground that the parties have by their conduct clearly displayed an intention to depart from their prior agreement to resolve the dispute by arbitration coupled with certain egregious aggravating conduct by the party which is causing the delay.   

    With the structure of the Tomolugen case management stay only just beginning to take shape, parties who are affected by Tomolugen would do well to monitor this space.

    * This blog entry may be cited as Nicholas Poon, “The limits of a case management stay to enforce the contractual bargain under an arbitration agreement” (7 July 2016)  (http://www.singaporelawblog.sg/blog/article/165)

    ** A PDF version of this entry may be downloaded here

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