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New Singapore arbitration decisions

23 April 2010

Two recent decisions from Singapore underscore the difficulties that can arise when disputing parties disagree over the forum for the dispute.

Transocean Offshore v Burgundy Global provides some guidance on how common law jurisdictions will deal with overlapping dispute resolution clauses.  In short, the dispute resolution clause in the contract most closely connected to the dispute is likely to apply, although – depending on the level of overlap – a later agreement might be treated as an amendment/replacement of an earlier.

Transocean concerned two related contracts pertaining to drilling services.  The two contracts had different dispute resolution provisions: 

  • the Drilling Contract stated that disputes “in connection with” the Drilling Contract would be submitted to arbitration in Singapore, whereas

  • the Escrow Contract (entered into as a condition precedent to the Drilling Contract) contained an irrevocable submission to the jurisdiction of the courts of Singapore.

The defendant failed to deposit funds in accordance with the Escrow Agreement; this failure allowed the plaintiff to terminate the Drilling Contract.  The parties disagreed over which resolution procedure applied.

The Singapore High Court held that the arbitration agreement in the Drilling Contract did not cover the plaintiff’s resulting claim for damages for breach of the Escrow Agreement.  The Court cited four reasons:

  • escrow matters had been intentionally carved out of the Drilling Contract

  • the words “in connection with” were not broad enough to cover breaches of the Escrow Agreement, when viewed in context.  The Judge considered that the breach of the Escrow Agreement had “at best a tenuous connection with the Drilling Contract”

  • the Escrow Agreement was the more specific agreement, and therefore prevailed under ordinary principles of interpretation, and 

  • the Escrow Agreement, which was entered into after the Drilling Contract, operated as a waiver of any right to arbitrate under the Drilling Contract.

Arguments about such overlaps are increasingly likely given the contemporary trend towards liberal construction of arbitration clauses (and to this extent, the Judge’s conclusion that the words “in connection with” did not cover the escrow dispute might be considered conservative when compared with the House of Lords’ judgment in Fiona Trust).  Accordingly, very careful drafting is advisable where related agreements contain different dispute resolution procedures, including consideration as to whether different procedures are really necessary or advisable.

The “Engedi” concerned a vessel originally named the ‘Eagle Prestige’, but hastily sold and renamed ‘The Engedi’ when the plaintiff sought to commence proceedings in rem (an action relating directly to property) against the vessel in order to recover an indemnity in respect of damage to another ship.  The contract relating to that other ship contained an arbitration agreement. 

The Singapore High Court was faced with an insolvent defendant and a property action against a vessel now owned by an entity that was not party to the arbitration agreement, or to the original dispute.  Also, the vessel was mortgaged to a bank, which had instituted proceedings disputing the plaintiff’s priority in respect of the vessel.

The Court declined to refer the parties to arbitration.  The Court found that Singapore’s arbitration legislation did not require it to grant a stay of proceedings in these circumstances because the action in rem was not covered by the arbitration agreement.  The Court was disinclined to grant a stay as a matter of discretion, because the new owner of the ship was not party to the arbitration agreement.  The plaintiff had indicated that it would consent to the intervener (the new owner) joining the arbitration, but the intervener preferred to litigate, and the Court said that a third party should not be forced into arbitration. 

The conflict of arbitral and insolvency proceedings remains a hot topic internationally.  In this context, the judgment makes some useful comments about the limits of a policy in favour of arbitration:

“The overarching purpose of the [International Arbitration Act] is to promote Singapore’s role as a growing centre for international legal services and international arbitration … I did not think that the drafters of s 6 of the [International Arbitration Act] intended for that provision to be used as a means of depriving third parties of their right to protect their interests.”