High Jinx in Arbitration

James Hayton and Emily Gillett

In the recent case of Hai Jing 1401 Pte v Singapore Technologies Marine Ltd [2020] SGHC 20, the High Court of Singapore decided that where a defendant to a claim under a contract denies it is party to that contract, it may nevertheless enforce an arbitration agreement applicable to that contract if the claim otherwise falls within its scope. In this way, the arbitration agreement can effectively be enforced by the non-party through an anti-suit injunction (an ‘ASI’).

In reaching its conclusion, the High Court of Singapore followed the decision of the English High Court in Sea Premium Shipping Ltd v Sea Consortium Pte Ltd (11 April 2001); [2001] 4 WLUK 336. The Court also decided, albeit less convincingly, that: (a) the standard of proof upon an application in Singapore for an ASI relying on an arbitration agreement was merely a prima facie case; and (b) the applicant (‘Hai Jing’), as an assignee of the benefit of the arbitration agreement, was entitled to compel the respondent to arbitrate its claim against Hai Jing merely by virtue of the assignment.

Background

In 2014, the applicant vessel owner, Hai Jing, chartered a vessel to Lewek Champion Shipping Pte Limited (‘LCS’). The terms of the charterparty provided that LCS would carry out various works to the vessel, including replacing its crane. A sub-charterparty between LCS and one of its sister companies (‘EMAC’) included a similar term. LCS, EMAC and Hai Jing then executed a ‘General Assignment’ (the ‘Assignment’) under which LCS assigned various rights to Hai Jing, including: “all rights to commence, conduct, defend, compromise or abandon any legal or arbitration proceedings relating to the [subcharter] or to any matter arising out of or in connection with the [subcharter]”.

In 2015, LCS entered into a ‘Crane Upgrade Agreement’ (‘CUA’) with the respondent, Singapore Technologies Marine Ltd (‘STM’), to carry out the necessary crane works.  Those works were completed in 2016. The CUA was governed by Singapore law and contained an arbitration agreement (the ‘Arbitration Agreement’) which provided for disputes to be referred to arbitration in Singapore.

LCS allegedly failed to pay sums due to STM under the CUA and then entered liquidation in 2017.  In 2018, STM commenced proceedings in the Sharjah Court of First Instance seeking the arrest of the vessel, which was lying there, effectively as security for the contractual debt owed by LCS under the CUA.  Shortly afterwards, STM commenced substantive proceedings in Sharjah naming both Hai Jing and LCS as defendants on the basis that the debt outstanding under the CUA was owed by both LCS and Hai Jing. Whilst the contractual claim against LCS had a clear foundation, STM failed to identify the basis of its claim against Hai Jing.

Hai Jing applied to the Singapore Court, being the court of the arbitral seat, for an ASI to restrain STM from continuing the Sharjah proceedings.

Decision

The Court held as follows:

  1. The Sharjah proceedings were vexatious and oppressive on the facts. The Court relied upon STM’s delay in commencing the proceedings and its failure to articulate any properly founded claim against Hai Jing. It also found that Sharjah was not the appropriate forum.
  1. By analogy with the standard applicable in applications under s.6 of Singapore’s International Arbitration Act, the standard of proof required of the applicant when seeking an ASI on the basis of breach of an arbitration agreement was a prima facie case.  The Court was concerned to respect the principle that, in the first instance, arbitral tribunals should determine their own jurisdiction (the ‘kompetenz-kompetenz’ principle).
  1. STM’s claim was brought in contract, under the CUA, which contained the Arbitration Agreement. That bound STM to arbitrate a dispute in relation to the CUA and, by virtue of the Assignment, Hai Jing was, therefore, entitled to compel STM to arbitrate its claim. Thus, the Court held that the Arbitration Agreement encompassed STM’s claim against Hai Jing even though the latter was not a party to the CUA or the Arbitration Agreement.
  1. Further or alternatively, on the basis of Sea Premium, STM was obliged to pursue its claims in arbitration because, even if Hai Jing was not a party to the Arbitration Agreement, any claims against it (ostensibly) under the CUA would have to be brought pursuant to the Arbitration Agreement.

Comment

The court’s primary finding that the Sharjah proceedings were vexatious or oppressive turned on the facts of the case and is therefore of limited significance for future cases. The most interesting aspects of the Court’s decision are its conclusions at (3) and (4) above. When strictly analysed, those conclusions were reached obiter. They are, however, worthy of comment. But, first, we address the Court’s analysis of the necessary standard of proof.

The standard of proof

The Court’s decision to adopt the ‘prima facie case’ standard of proof on the issue of whether there is a binding arbitration agreement is questionable. In deciding to adopt this threshold, the Court placed emphasis on not interfering with the arbitral tribunal’s role in determining its own jurisdiction. But the Court was not being invited to interfere with that. Rather, the Court was being asked to determine whether STM should be enjoined from pursuing the Sharjah proceedings. If the Court so ordered, and if the order were effective until after any arbitral hearing, it would be only before the arbitral tribunal that the enjoined party could dispute the existence of a binding agreement to arbitrate. If the tribunal heard that argument but dismissed it, concluding that there was an effective arbitration agreement, the enjoined party would (assuming it were to comply with the tribunal’s order) have no other forum in which to dispute the arbitration agreement’s existence. Any ASI therefore amounts to a powerful de facto block on the foreign court’s jurisdiction (a point the Court expressly noted as a reason for caution, citing Lakshmi Anil Salgaocar v Jhaveri Darsan Jitendra [2019] SGCA 42 at [108]).

It is for these reasons that, under English law, an ASI applicant must show more than just a prima facie case; instead it must show a ‘high degree of probability’ that there is a binding arbitration agreement between the ASI applicant and the ASI respondent (see e.g. Transfield Shipping Inc v Chiping Xinfa Huayu Alumina Co Ltd [2009] EWHC 3629 (QB) per Christopher Clarke J, applied e.g. by the Court of Appeal in Ecobank Transnational Inc v Tanoh [2015] EWCA Civ 1309; [2016] 1 WLR 2231.)

Although unconstrained by any Singaporean authority, there is no indication in the Hai Jing decision that the Court was referred to any English or other common law authorities supporting the ‘high degree of probability’ threshold.

The position of an assignee of the benefit of an arbitration agreement

The Court’s decision that Hai Jing was entitled to compel STM to arbitrate its claim by virtue of the Assignment may be viewed as controversial: there was no novation of the CUA; there was no novation of the Arbitration Agreement; and Hai Jing had not become a party to the CUA. Hai Jing had merely taken an assignment of the benefits under the CUA. As such, Hai Jing could not be sued under the CUA at all, whether in an arbitration or otherwise.

Further, it is trite that an assignment cannot transfer rights which the assignor did not possess. Although, through the Assignment, Hai Jing gained the benefit of what had been LCS’s rights under the Arbitration Agreement prior to the Assignment, those rights did not include a right to compel STM to pursue claims against third parties (such as Hai Jing) by way of arbitration. It follows that the Assignment was not effective to transfer to Hai Jing any right to compel STM to arbitrate claims under the Arbitration Agreement save for those against LCS. There may, therefore, be a question over whether there really was a prima facie case that Hai Jing was entitled to compel STM to arbitrate its claim against Hai Jing under the Arbitration Agreement.

The analysis may have been different had Hai Jing been claiming against STM under the CUA, for then it would probably have taken the benefit of the CUA subject to the obligation to refer to arbitration any dispute arising under the CUA (cf. The Jay Bola [1997] 2 Lloyd’s Rep. 279). Indeed, it is for those very reasons that the English High Court developed the principle in the Sea Premium, to which we now turn.

The Sea Premium principle

The Court’s final ground for its decision is the most interesting and probably the most orthodox. In Sea Premium, the English High Court held that:

‘… a claimant whose cause of action arises under a contract remains bound by the dispute resolution clause in that contract when pursuing a claim thereunder, albeit against someone who is not a party to that contract…’.

That principle was developed by the English High Court by analogy with the position of an insurer subrogated to a claim who is viewed to take an assignment of the benefit of a contract with the burden of the arbitration agreement (as in The Jay Bola, cited above). That principle has been applied in a number of decisions since, on the apparent basis that it emerges from the court’s equitable jurisdiction to restrain conduct which is unconscionable and/or vexatious and oppressive, viz. bringing proceedings against the non-party without respecting the arbitration agreement. (It may, alternatively, have a free-standing ‘quasi-contractual’ basis, but that has not been fully worked out in the cases and may lack clear doctrinal rationale.)

In Hai Jing, the Court held (albeit obiter), consistently with the Sea Premium principle, that it should restrain STM from pursuing its claim against Hai Jing in the Sharjah court, compelling it to bring its claim under the Arbitration Agreement. In view of its pedigree in England, and its consideration in Hai Jing, it is likely that the Sea Premium principle will be applied in future in Singapore.  Further, although certain aspects of the Hai Jing decision may be open to debate, the Singaporean Court’s desire to put a stop to the circumvention of an arbitration agreement is further evidence of a clear pro-arbitration approach in that jurisdiction.

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