United States: Upholding Parties' Agreement To Arbitrate And Case Management Of Claims Against Multiple Defendants

Executive summary

The appellant, Maybank Kim Eng Securities Pte Ltd (Kim Eng) had commenced an action against its customer and her husband-remisier. The High Court's Assistant Registrar (AR) ordered a stay of proceedings against both the customer and her husband-remisier.

On appeal to the High Court, Kim Eng did not appeal against the decision with respect to the customer. The issue on appeal was whether the court should exercise its case management powers to uphold the stay of proceedings against the customer's husband-remisier as ordered by the AR, pending the resolution of the related arbitration between Kim Eng and its customer.

The judge affirmed the AR's exercise of the case management powers developed by the Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (Tomolugen) and upheld the stay of proceedings, thus dismissing the appeal.

Background facts

Kim Eng is a securities brokerage with which the first respondent (customer) maintained a contracts for difference account (the CFD account). The account permitted the customer to enter into contracts for difference (CFDs) with Kim Eng which in turn allowed her to trade on price movements of an underlying reference security without actually acquiring that underlying security. The second respondent is the customer's husband (husband-remisier) and was an appointed remisier pursuant to a remisier's agreement with Kim Eng (the Remisier's Agreement).

Kim Eng brought an action against the customer and her husband-remisier in respect of trading losses exceeding S$8 million. The claim against the customer was brought under the CFDs contract governed by Kim Eng's general terms and conditions which provided that disputes were to be referred to arbitration in Singapore in accordance with the UNCITRAL Arbitration Rules. As for Kim Eng's claim against the husband-remisier, it was brought under an indemnity (the Indemnity) included in the Remisier's Agreement and which had no arbitration clause.

The claims arose from the CFD transactions (the CFD transactions) which the customer entered into with Kim Eng in July 2015. On 24 August 2015, there was a sharp drop in the value of the underlying securities and a closing out of the CFD transactions, leading to substantial losses. The main dispute on the facts was whether either or both of the customer and her husband-remisier authorised the closing out of the CFD transactions on 24 August 2015 (the Authorisation Issue). Kim Eng claimed that it acted on their express instructions and they were therefore liable for the losses incurred on the CFD account. The customer and her husband-remisier on the other hand contended that Kim Eng was also liable on the basis that the closing out of the CFD transactions was effected without their authorisation.

Kim Eng's commencement of the court action against the customer was in breach of the arbitration clause governing resolution of disputes between them. The AR hence ordered a stay of proceedings against the customer. As regards the claim against the husband-remisier, there was no agreement to refer disputes to arbitration but the AR invoked its case management powers to stay the court proceedings against the husband-remisier pending the outcome of the arbitration between Kim Eng and its customer.

The issues before the judge

There were three issues arising from the appeal:

(1) Whether the court's inherent power to stay court proceedings in the interests of case management pending the resolution of a related arbitration is applicable in cases where the arbitration agreement is governed by the Arbitration Act (AA).

(2) Whether Kim Eng's claim against the husband-remisier under the Indemnity was separate and independent of its claim against the customer under the terms and conditions governing the CFD account (CFD Terms and Conditions) such that the determination of the claim in the arbitration will be irrelevant to the suit against the husband-remisier.

(3) If the answer to (2) is no, whether the court should exercise its inherent power of case management to stay the proceedings against the second respondent.

The judge's decision

(1) The power to stay court proceedings in the interest of case management

With respect to the first issue, the judge held that the court's inherent power to stay proceedings in the interests of case management and the relevant principles as set out in Tomolugen applied equally whether the relevant arbitration is governed by the International Arbitration Act (IAA) or the AA. Tomolugen was a case under the IAA and not the AA.

In broad terms, the court generally has wider discretion when deciding whether or not to stay court proceedings under the AA. On the other hand, the court is obliged to stay court proceedings under the IAA if the pre-requisites for stay are met, i.e. mandatory stay.

In Tomolugen, there were four categories of allegations made in support of a minority oppression claim brought against the various defendants. Even though only one of the allegations fell within the scope of an arbitration agreement between the plaintiff and one of the defendants and was subject to a mandatory stay under section 6 of the IAA, the Court of Appeal exercised its inherent powers of case management and ordered that the rest of the court proceedings be stayed in the interest of case management.

The court in Tomolugen stated that in arriving at a conclusion as to whether the court should stay proceedings relating to the rest of a dispute if one part of it is sent for arbitration, a balance must be struck between three higher-order concerns:

(1) a plaintiff's right to choose whom he wants to sue and where;

(2) the court's desire to prevent a plaintiff from circumventing the operation of an arbitration clause; and

(3) the court's inherent power to manage its processes to prevent an abuse of process and ensure the efficient and fair resolution of disputes.

The judge was of the view that the above higher-order concerns equally applied to AA cases. Even though the court's power to grant a stay in favour of domestic arbitration under section 6 of the AA is discretionary, the burden is on the party who wishes to proceed in court to show sufficient reason why the matter should not be referred to arbitration. Given Singapore's strong policy in favour of arbitration and the desirability of holding parties to their agreement, and assuming an applicant is willing to arbitrate, the court ought to refuse a stay of proceedings only in exceptional circumstances. The judge was also of the view that once a claim has been stayed in favour of arbitration, it should order the other claim to likewise be stayed as a matter of proper case management. The objectives of case management powers are the same whether the arbitration agreement comes under the AA or the IAA, and there is no reason for a different outcome. This is particularly so in the present case since there was no appeal against the AR's decision to stay proceedings against the customer.

(2) Whether the claims against the first and second respondent were independent of one another

Having answered the first question in favour of arbitration, the judge then considered whether Kim Eng's claims against the customer and her husband-remisier were separate and independent such that the outcome of the arbitration had no bearing on the suit against the husband-remisier.

In the end, after undertaking a fact-specific inquiry, the judge formed the view that the two claims were not independent of each other since the husband-remisier's liability under the Indemnity, on the facts, was dependent on the Authorisation Issue. Further, the judge was of the view that the quantum of trading losses incurred on the CFD account was another common issue to be determined by both the court and the arbitral tribunal.

(3) Exercise of the court's discretion to stay proceedings

In light of the significant overlaps in both the arbitration and court proceedings, the judge considered whether he should exercise its inherent powers of case management and stay the court proceedings against the husband-remisier.

After considering the abovementioned three higher-order concerns explained in Tomolugen, the judge concluded that the present case inexorably leans in favour of a stay of court proceedings against the husband-remisier pending the resolution of the related arbitration.

First, the court considered whether Kim Eng's right to sue would be prejudiced. The judge was of the view that the right was not absolute, and it would not be prejudiced because of the temporary nature of the stay. Further, the AR's order allowed for Kim Eng to apply to court to reinstate the proceedings against the husband-remisier if the arbitration did not proceed expeditiously.

Secondly, Kim Eng had contracted to arbitrate with the customer in the event of dispute and this diminished the force of its argument that its right of timely access to the courts was being undermined.

Lastly, the judge, in the context of its duty to ensure the efficient and fair resolution of the dispute, applied several factors in Danone Asia Pacific Holdings Pte Ltd and others v Fonterra Co-Operative Group Limited [2014] NZHC 1681 that were approved in Tomolugen:

  • the factual bases underlying the claims in the two proceedings were essentially the same;
  • there were common issues in both claims, namely the Authorisation Issue, and the quantification of the trading losses incurred on the CFD account;
  • there was a practical risk of inconsistent findings of fact and law between the court proceedings and arbitration given the overlapping issues; and
  • there would be a duplication of witnesses and evidence between the arbitration and the court proceedings.

Given the above, the appeal was dismissed with costs.

Conclusion

This case provides a useful illustration of how the Singapore courts would exercise their powers of case management when faced with the situation where there are two claims that have considerable overlapping if not identical issues and one of the disputes is subject to arbitration. The case also confirmed the application of the Tomolugen principles in the IAA space to arbitrations governed by the AA.

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