CASE UPDATE. Singapore Court Considers Basis To Order a Party to be Joined to an Arbitration. Introduction

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1 Singapore Court Considers Basis To Order a Party to be Joined to an Arbitration Introduction Facts 1. The Singapore Court in The Titan Unity (No 2) [2014] SGHCR 4 recently dealt with the difficult question of when a third party (a non-party to an arbitration agreement) could be joined to an arbitration. In the same case, the Court also considered issues relating to the consolidation of disputes that were concurrently before the courts and before an arbitral tribunal. 2. In this case, the Court declined to set aside and strike out an action commenced in the courts by a party to an arbitration agreement against a non-party to that arbitration agreement, even though the subject matter of the dispute in the litigation was related to another dispute between the parties to the arbitration agreement. 3. The Court s analysis provides useful guidance in similar situations, which are likely to arise more frequently in the future. The Court recognized that the growing sophistication of international commercial transactions has led to two-party dispute scenarios fast becoming the exception rather than the norm. Consequently, arbitration increasingly faces difficult issues relating to the joinder of third parties and the consolidation of disputes. 4. The plaintiff ( Portigon ), a German bank, provided financing for the purchase of a cargo of fuel oil. Subsequently, Portigon commenced a writ for misdelivery of cargo against both the defendants, Oceanic (the demise charterer) and Singapore Tankers (the shipowner). 10 February 2014 For further legal updates, please visit Lee & Lee s website at For any queries relating to this article, please contact the following persons: Christopher Tan Partner Litigation and Dispute Resolution DID: christophertan@leenlee.com.sg Authors: Christopher Tan (with thanks to Tan Jin Yong) Disclaimer: The copyright in this document is owned by Lee & Lee. No part of this document may be reproduced without our prior written permission. The provision of the information herein does not constitute our giving legal advice and should not form the basis of any decision as to a particular course of action, as it is only intended to provide you with an indication of some of the potential legal issues which you should be aware of. You must seek specific, detailed legal advice in respect of the individual requirements and circumstances applicable to you. Please note also that the information herein is based on the laws of Singapore. The position in other jurisdictions may differ. 5. Between Portigon and Oceanic, the Court stayed the court proceedings in favour of arbitration after finding that an arbitration agreement existed between them. This was reported in the earlier case of The Titan Unity [2013] SGHCR 28. Page 1 of 6

2 6. In this case, Singapore Tankers sought to set aside and strike out Portigon s writ against them. Singapore Tankers based its application on the time bar found in Article III Rule 6 of the Hague-Visby Rules that applied to the contract between Portigon and Oceanic. 7. The Court ultimately dismissed Singapore Tanker s application. However, the Court also explicitly gave time for the parties to consider whether they would like to have a joint discussion with a view to add Singapore Tankers as a party to the arbitral proceedings, as well as for Singapore Tankers to consider whether it wishes to be joined to the arbitral proceedings and if so, what necessary recourse it ought to seek before arbitral tribunal. Jurisdictional Challenge to Portigon s Writ 8. Singapore Tankers argued that Portigon s claim against them should be set aside on the basis of that the court has no jurisdiction over the claim. 9. The Court recognized that Singapore Tankers were in effect attempting to avail itself of the benefit of the arbitration agreement between Portigon and Oceanic. In other words, Singapore Tankers were seeking to argue that Portigon s claim in court should properly be the subject matter of the arbitral proceedings between Portigon and Oceanic, such that the time bar under the Hague-Visby Rules applies. 10. However, in the Court s view, this was not a valid basis to dispute the jurisdiction of the Singapore court, and was not a basis that warranted the setting aside of Portigon s claim against Singapore Tankers. Striking out Portigon s Writ 11. The Court also declined to strike out Portigon s writ against Singapore Tankers. The position taken by Singapore Tankers - that Portigon s claim in court should properly be the subject matter of the arbitral proceedings between Portigon and Oceanic such that the time bar under the Hague-Visby Rules applies - was not a basis to strike out the writ. Page 2 of 6

3 12. The Court stated that taking the case put forth by Singapore Tankers at its best, even if the suit brought against Singapore Tankers is not a competent one because it was brought in breach of the arbitration agreement between Portigon and Oceanic, there is no authority submitted by Singapore Tankers to show why the remedy for such a situation would be to strike out the writ filed in court. The more usual remedy for such a situation (a court action commenced in breach of an arbitration agreement) was to stay the court action, and not strike out the action. Joining Singapore Tankers to Arbitral Proceedings 13. The Court then considered whether Singapore Tankers should be joined to the arbitral proceedings between Portigon and Oceanic. 14. The Court analyzed the decision of the Court of Appeal in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2013] SGCA 57 and commented that the judicial philosophy on according due significance to the principle of party autonomy would apply with no less compelling force. 15. Therefore, even though there are legitimate advantages and procedural efficiencies that would be gained with a forced joinder, these considerations do not provide the Court with the authority to derogate from the principle of party autonomy in the absence of any express statutory provisions to that effect. 16. The Court was of the view that a third party could only be joined to an arbitration pursuant to an agreement to arbitrate formed amongst parties. In other words, consent is the necessary condition for a joinder (save perhaps for the unique situation where parties to the arbitration agreement have unequivocally agreed that one or all of the parties to the arbitration agreement need not consent to the joinder of persons who are not parties to the arbitration agreement). Page 3 of 6

4 17. Therefore, for a party to be joined, it should either : (a) Be a contracting party to the arbitration agreement; or (b) Consent to be bound by an arbitration agreement that it was not a party to and the parties to that arbitration agreement consented to extend their agreement to it. 18. On the facts, Singapore Tankers was not a party to the arbitration agreement between Portigon and Oceanic. The issue was therefore whether Portigon and Oceanic had consented to extend their arbitration agreement to Singapore Tankers, and whether Singapore Tankers accepted that it was bound by that arbitration agreement. 19. The Court considered US case law and concluded that the case law illustrated the principle that : where the objective circumstances and parties conduct reveal that the parties to the arbitration agreement have consented to extend the agreement to a third person who is not a party to the agreement, and that third person has shown by its conduct to accept to be bound by the agreement, parties can be found to have impliedly consented to form an agreement to arbitrate where this has been clearly and unequivocally shown be the parties objective intention. 20. On the facts, the Court was of the view that the parties have impliedly consented to have the dispute resolved before an arbitral tribunal. 21. Singapore Tankers had accepted to be bound by the arbitration agreement as it attempted to avail itself to the benefit of the arbitration agreement. Portigon had also consented to have its claim against Singapore Tankers arbitrated. It had always regarded Singapore Tankers as the contractual carrier in its pleadings. The very basis of its cause of action against Singapore Tankers lie in the contract in which the arbitration agreement was found. 22. Nevertheless, the Court declined to join Singapore Tankers to arbitration, taking the position that any such joinder should be decided by the tribunal in the arbitration between Page 4 of 6

5 Portigon and Oceanic. This was because there was already an express agreement (between Portigon and Oceanic) on the mechanism to join a non-party. 23. Specifically, Portigon and Oceanic had expressly agreed upon the mechanism to join a person who is not a party to the arbitration agreement, by agreeing to the rules of the Singapore Chamber of Maritime Arbitration ( SCMA ). Rule 32.2 of the SCMA Rules provided that : If the parties so agree, the Tribunal shall also have the power to add other parties (with their consent) to be joined in the arbitration and make a single Final Award determining all disputes between them. 24. The Court was of the view that since the parties have expressly agreed upon a mechanism in the arbitral rules to join a person who is not a party to the arbitration agreement, the court should defer any views it has on the parties implied consent to joinder, to the arbitral tribunal s determination of its own jurisdiction pursuant to that mechanism. 25. The Court noted that with this approach, a court would in practice seldom order a person to be joined to arbitral proceedings based on implied consent, given that many arbitral rules which arbitrants subscribe to provide mechanisms for joinder. This is especially so where the applicable arbitral rules provide for the requirement of written consent for joinder. 26. The Court was also mindful of the following difficulty - the arbitral tribunal would have necessarily been appointed without the say of Singapore Tankers by the time in which a decision had been made by the tribunal on whether it should be joined to the arbitration. 27. However, in the Court s view, this difficulty highlighted was not an intractable one. Among other things, the Court noted that Art V(1)(d) of the New York Convention did not prescribe that the tribunal must be appointed by the arbitrants, but only that the composition of the arbitral tribunal be made in accordance with the agreement of the parties. The Court also Page 5 of 6

6 pointed out that modern arbitral rules have more than capably shown that an arbitrant may agree to a tribunal s composition without having appointed it. 28. The Court therefore declined to strike out Portigon s claim against Singapore Tankers, but also declined to order Singapore Tankers to be joined as a party to the arbitration between Portigon and Oceanic. Page 6 of 6