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    09:38 PM Wu Junneng (Rajah & Tann Singapore LLP)

    The Reign of Party Autonomy and Contractual Sanctity: Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] SGCA 65

        

    Introduction

    Litigation is like a game of chess – every “move” is a calculated one. The forum where the dispute is heard may be crucial. To that end, commercial parties often agree in advance on the forum to resolve their dispute. Such forum selection agreements are commonly known as jurisdiction (exclusive or non-exclusive) or arbitration agreements.

    This commentary will examine the recent decision of Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] SGCA 65 (“Vinmar”) in which the Singapore Court of Appeal overturned a line of established cases and restated the principles to be applied in applications for stay of proceedings where proceedings have been brought in breach of an exclusive jurisdiction clause (“EJC”). In summary, the Court of Appeal held that the lack of a genuine defence does not justify a refusal to stay proceedings. This commentary focuses on the Court of Appeal’s approach to stay applications and analyses the Court’s reasoning.

    Facts of Vinmar

    The dispute between the parties in Vinmar arose out of a sale contract for styrene monomer (the “Styrene Monomer Contract”). Prior to this contract the appellant and the respondent entered into similar contracts for the purchase of chemical commodities, which included an EJC in favour of London. The Sytrene Monomer Contract did not contain any EJC. The relations between the parties broke down because the appellant rejected the cargo and as a result the respondent had to re-sell the cargo at a loss. The respondent claimed the loss it suffered by commencing action against the appellant in Singapore.  The appellant applied for a stay of the Singapore action on the basis of the EJC in favour of London.

    Typically, the Court would enforce the EJC by granting a stay if it can be established that there is a good arguable case that the parties’ disputes are governed by an EJC. However, a stay may be refused if there is strong cause justifying the refusal, for instance if the defendant does not have a genuine defence to the plaintiff’s claim (per The Jian He [1999] 3 SLR(R) 432). The AR and Judge below refused to grant a stay of the action. On the facts, the AR and Judge found that there is a good arguable case that the EJC governs the dispute but a stay should be refused because there was strong cause to refuse a stay. The AR and Judge accepted the respondent’s argument that the appellant does not have a genuine defence (following The Jian He, The Hung Vuong-2 [2000] 2 SLR(R) 11 and The Golden Shore Transportation [2004] 1 SLR(R) 6).

    On appeal, the issues before the Court of Appeal were:-

    • First, has the appellant established a good arguable case that the EJC governs the dispute? The key issue in this regard was whether the EJC has been incorporated into the Styrene Monomer Contract.
    • Second, should the rule in The Jian He be departed from?
    • Third, if the Court does decide to depart from the rule in The Jian He, should that rule only be overruled prospectively?
    • Fourth, applying the above, what should be the outcome of the appeal?

    Holding

    On the first issue, the Court agreed with the AR and Judge’s holding, and held that the appellant had established a good arguable case that the EJC governed the dispute.

    Second, the Court held that the rule in The Jian He should be departed from. The Court’s finding in this respect is that at the jurisdiction stage, the merits of the defence is an irrelevant consideration. Accordingly, whether the defendant has a genuine defence or not, is irrelevant in determining whether there is strong cause to refuse a stay (see [112]-[113]).

    Third, the Court held that its’ finding that the rule in The Jian He should be departed from should be applied retrospectively as the test of serious and demonstrable injustice has not been met (see [144]). In any event, the prejudice to the respondent has been addressed by not disturbing the costs orders below as well as not ordering the costs of the appeal against the respondent (see [145]).

    Lastly, the Court allowed the appeal and ordered a stay of proceedings in favour of London.

    Restatement of the Law – Departing from The Jian He

    A stay of proceedings where proceedings were brought in breach of an EJC may be refused if the plaintiff is able to demonstrate strong cause to justify the refusal (see The Eleftheria [1969] 1 Lloyd’s Rep 237).

    Pausing for a moment, as Chong JA succinctly and accurately explains, it is noted that the strong cause test reflects the philosophy that the courts will insofar as possible uphold parties’ jurisdiction agreement — this philosophy is underpinned by the twin pillars of party autonomy and commercial certainty.

    Coming back to the “strong cause” test, a number of factors are relevant. Under Singapore law (as it was at the time of the Appeal), one of the factors is whether the defendants genuinely desire trial in the foreign country or are merely seeking procedural advantages (see [71]). In determining whether the defendants genuinely desire trial, the Court may consider whether the defendants have any genuine defence.

    The Court observed that the approach of considering the merits of the defence in stay applications was first established by Sheen J in The Vishva Prabha [1979] 2 Lloyd’s Rep 286. In that case, Sheen J took the view that the merits of the defence was a relevant consideration in a stay application and held that a stay should be refused because the defendants in seeking the stay was only “seeking the advantage of delay and are not really anxious that the matter should be heard in the Courts of Bombay for any other reason” (at [75]-[83]). This approach was adopted in local jurisprudence such as The Jian He, The Hung Vuong-2 and The Golden Shore Transportation, where in the light of EJCs in favour of a foreign forum, the Singapore courts refused to grant a stay of proceedings because the defendant did not have a genuine defence or that the defendant’s defence was unsustainable (see [84]-[94]).

    However, the English Courts (at [97]-[102]) and Hong Kong Courts (at [103]) have in recent years, departed from Sheen J’s approach. For instance, Coulson J in Euromark Ltd v Smash Enterprises Pty Ltd [2013] EWHC 1627 (QB) reasoned that it would be absurd for parties to the EJC to contend that only a more arguable case should be heard in the chosen foreign forum.

    Next, the Court also drew a parallel between applications for stays where proceedings are brought in breach of an EJC and applications for stays on the basis of forum non conveniens (see [104]-[109]). The Court noted that in Singapore, the merits of the defence is an irrelevant consideration where applications for stay are brought on the basis of forum non conveniens (see e.g. The Rainbow Joy [2005] 3 SLR(R) 719 and Q&M Enterprises Sdn Bhd v Poh Kiat [2005] 4 SLR(R) 494). At the stage of applying for stay, the Court is concerned with a question of jurisdiction, and this question precedes the court’s consideration of the substantive merits of the dispute. It thus follows, as a matter of logic, that consideration of merits (based on either party’s case) is irrelevant at the jurisdiction stage. Proceeding on this basis, the Court noted there should not be any distinction drawn between stay of proceedings brought in breach of EJC and stay of proceedings on the basis of forum non conveniens (at [107]-[109]). Accordingly, for reasons of principle, policy and coherence, the Court declared that The Jian He line of cases should be departed from. This brings Singapore’s jurisprudence on this issue in line with England and Hong Kong.

    The Court of Appeal reasoned as follows. First, the Court held that The Jian He line of cases is doctrinally incorrect and is inconsistent with the central principle of party autonomy. If party autonomy is key, the parties’ agreement to bring all disputes within the scope of the EJC should be respected, regardless of the merits of the dispute (at [114] and [121]-[125]).

    Second, the Court also found strong policy reasons to depart from The Jian He. The rule in The Jian He would create much commercial uncertainty as the issue of whether parties will be bound by the EJC could ultimately turn on whether there is any merit to the defence, which in turn depends on uncertain determinations of fact and foreign law (see [116]). This defeats the purpose of an EJC, which purpose is to allow commercial parties to reduce the risk of being sued in an unfavourable forum. Additionally, if the rule in The Jian He is allowed to stand, the trend has been that parties frequently expend significant costs at the interlocutory / jurisdiction stage to delve into the merits of the dispute (see [117]).

    Lastly, abandoning the rule in The Jian He would also promote coherence (see [119]). This brings the practice in applications for stay of proceedings in the context of EJC in line with the position in stay of proceedings in the context of forum non conveniens, stay of proceedings in favour of arbitration, as well as the current approach in respect of granting anti-suit injunctions without delving into the merits of the dispute.

    Nevertheless, the Court of Appeal recognised that there may be situations where a stay should be refused. In that connection, the Court devised two new grounds for refusing a stay – (i) where the application for stay is an abuse of process; and (ii) where the proceedings in the agreed forum will result in a denial of justice (at [128]). The Court, however, cautioned that the chances of these grounds arising are rare and few. The Court opined that abuse of process may be a relevant ground where for instance, an applicant for stay has clearly admitted to the claim as regards both liability and quantum but seeks a stay for no reason other than its alleged inability to pay (at [131]). As for denial of justice, this ground may be invokved where “the agreed court had been dissolved by the time the dispute arises, or was not realistically available to determine the dispute because war had broken out in the jurisdiction” (at [133]).

    Comment

    The Court of Appeal’s departure from The Jian He line of cases rests heavily on the underlying philosophy of the “strong cause” test – the promotion of party autonomy and commercial certainty. The effect is that parties should be held to their contractual arrangement as far as possible. Considerations which do not affect party autonomy are ipso facto irrelevant.

    However, it can also be said that several of the other factors currently considered in the “strong cause” test (per The Eleftheria), are arguably also irrelevant as well. To recap, the factors that can be considered in determining “strong cause” includes (see Amerco Timbers Ptd Ltd v Chatsworth Timber Corp Pte Ltd [1977-1978] SLR(R) 112 at [11]):-

    1. In what country the evidence on the issues of fact is situated or more readily available, and the effect of that on the relative convenience and expense of trial as between the Singapore and foreign courts (see e.g. The Panseptos [1981] 1 Lloyd’s Rep 152 at 154 per Sheen J).
    2. Whether the law of the foreign court applies and, if so, whether it differs from Singapore law in any material respects.
    3. With what country either party is connected and, if so, how closely.
    4. Whether the defendants genuinely desire trial in the foreign country, or are only seeking procedural advantages.
    5. Whether the plaintiffs would be prejudiced by having to sue in the foreign court because they would:
      • Be deprived of security for their claim;
      • Be unable to enforce any judgment obtained;
      • Be faced with a time bar not applicable here; or
      • For political, racial, religious or other reasons be unlikely to get a fair trial.

    It is submitted that factors (a), (b) and (c) are arguably factors which may be irrelevant. For instance, by designating a contractual forum, parties would have had agreed to have the dispute resolved in the contractual forum regardless of where the facts, evidence and/or witnesses of the dispute would ultimately be located.

    Traditionally, these factors are given little weight in the “strong cause” test because they are foreseeable factors at the time of choosing the contractual forum, whereas unforeseeable inconveniences may be relevant. In relation to these foreseeable factors, arguments of relative convenienece and expense of the trial are irrelevant. Party autonomy is therefore given effect to.

    However, it is contended that when parties choose a contractual forum, it is unrealistic for parties to not have recognised that some unforeseeable factors may arise. Yet, there is no agreement to depart from the EJC should any unforeseeable factors arises. In that connection, it is respectfully argued that by choosing a particular forum without any contrary indications, parties have implicitly agreed to bear the inconvenience (whether foreseeable or not) of bringing the evidence and witness to the contractual forum for the purposes of the trial.

    Similarly, the same can be said in respect of the factor concerning the applicability of the law of the foreign contractual forum. While traditionally the approach is to accord this factor lesser weight in the “strong cause” test, if party autonomy is key (and not merely a principle to be considered), parties should be held to their agreement even if they have chosen a different law from that of the foreign contractual forum. In this regard, they would have had implicitly agreed to bear the inconvenience of proving whichever foreign law they have chosen in the foreign contractual forum.

    Lastly, if party autonomy is key, the connection of the parties with the contractual or non-contractual forum is clearly irrelevant. Parties would have had given weight to these factors at the time of contracting and have chosen the contractual forum taking these factors into account. To illustrate, if the contractual forum is the “home” court of one of the contracting parties, parties must have understood and accepted that one party would ultimately be litigating the dispute in an “away” court. It follows that considerations of connection with the contractual forum would be irrelevant (see Beazley v Horizon Offshore Contractors Inc [2005] 1 LRL 231).

    Therefore, it is respectfully suggested that the time may also be ripe to reconsider the other factors that are considered in the “strong cause” equation. If party autonomy underpins the “strong cause” test, this principle may have to equally permeate the Court’s approach in applying the other factors.

    Second, an issue that has been left open by the Court of Appeal is whether the Court’s restatement of the law applies with equal force in relation to EJCs in contracts where one party was in no position to negotiate at all (at [136]). The Court of Appeal did recognise that if their holding in Vinmar is justified on the basis of party autonomy, it must follow that the same should not apply with equal force in standard form contracts (i.e. bills of lading) since parties have not been able to negotiate freely and agree on the choice of jurisdiction.

    It is respectfully submitted that this must be correct. If party autonomy is key, surely parties who have not been able to apply their minds to the choice of jurisdiction cannot be bound by the jurisdiction clause. The same arguments which justify the departure from The Jian He may not appear as attractive in the context of standard form contracts simply because it cannot convincingly be argued that both contracting parties have agreed to disregard any factors which do not affect party autonomy. This is especially the case in international trade, where the bills of lading are passed from one buyer to another. The argument that parties should be held to their bargain because bills of lading are “typically entered into between sophisticated parties familiar with the negotiation of maritime shipping transactions” (per ZI Pompey Industrie and others v ECU-Line NV (2003) 224 DLR (4th) 577 at [29]) is misplaced. Traders down the chain would simply not have had the chance to negotiate the choice of jurisdiction and consider how best to protect their commercial interests (if any).

    However, if the Court of Appeal’s restatement of the law does not apply in standard form contracts, the result would be that a separate set of rules will have to be devised. But having a separate set of rules just for standard form contracts may be commercially insensible and unviable. This incongruity can (perhaps) be resolved, as Professor Yeo Tiong Min, SC suggested, in favour of adopting a consistent approach across all types of contracts (see [37]).  

    * This blog entry may be cited as Wu Junneng, “The Reign of Party Autonomy and Contractual Sanctity: Vinmar Overseas (Singapore) Ptd Ltd v PTT International Trading Pte Ltd [2018] SGCA 65”  (11 December 2018) (http://www.singaporelawblog.sg/blog/article/226)

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

    *** The author is grateful to Professor Yip Man (SMU, School of Law), Mr. Ian Teo (LLB (Hons), LLM (Cantab), Partner, Rajah & Tann Singapore LLP), Ms. Tan Tian Hui (LLB (Hons), BCL (Oxon)) and an anonymous referee for comments on an earlier draft of this article. The usual caveats apply.

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