In the recent Singapore High Court (“Court”) case of DJA v DJB [2024] SGHCR 10 (“DJA v DJB”), the Court was tasked with determining the novel question of whether the general legal principles for an application for a case management stay apply when an applicant seeks a case management stay of its own application to set aside an arbitral award in favour of a pending arbitration. The decision in DJA v DJB helpfully demonstrates that parties are empowered to stay their own setting aside application, which might be a useful strategy in circumstances where there are multiple related but separate arbitrations ongoing.
Background Facts
In January 2013, the Defendant contracted to purchase shares in a company from the Claimant in two tranches. The share purchase agreement provided for the purchase consideration to be adjusted depending on the company’s final valuation as computed on several parameters. In accordance with the agreement, the parties appointed a consultancy firm to determine the market benchmarks, and the firm provided a declaration that it had no conflict of interest with either party. Notwithstanding the reports provided by the firm, the parties were not able to agree on the appropriate market benchmarks that should be used to compute the final valuation ahead of the transfer of the second tranche of shares (the “Second Closing”).
In 2017, the Claimant commenced Arbitration A and Arbitration B for various claims including damages for breach of contract, which were subsequently consolidated. The key question for the Tribunal in Arbitrations A and B was what parameters should apply to the final valuation. In 2020, the Tribunal issued the first partial award on the parameters from which the final valuation should be ascertained. The Claimant unsuccessfully sought to set aside this award.
During 2022, evidence of an ongoing relationship between the consultancy firm and the Defendant emerged, and the Claimant raised allegations of fraud against the Defendant regarding its non-disclosure of a conflict of interest during Arbitration A. These allegations were eventually brought in Arbitration C which was commenced in December 2022. In May 2023, Arbitration C was consolidated with Arbitration A and B (collectively, “the Arbitration”).
On 28 July 2023, the Tribunal issued the third partial award which fixed the final valuation and made orders pertaining to the Second Closing (the “Directions”). Despite the Claimant’s attempts to stay the Directions or restrain them from being carried out, the Second Closing was completed on 2 October 2023.
On 27 October 2023, the Claimant applied to set aside the third partial award by filing an originating application known as “OA 1109”. Its main contentions were that the award was induced or affected by fraud or corruption, and enforcement would be contrary to public policy.
On 1 February 2024, the Claimant applied to stay OA 1109 pending the final determination of the Arbitration to avoid duplicative or inconsistent findings in the Arbitration and OA 1109. Accordingly, two issues came before the Court:
- What were the appropriate legal principles for a case management stay; and
- On balance, whether the case management stay should be granted.
Legal Principles for a Case Management Stay
The Singapore Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 (“Tomolugen”) held that a balancing exercise of various factors was needed when determining whether a case management stay ought to be granted and declined to adopt the “rare and compelling” threshold applied in England and New Zealand. The Defendant argued that the “rare and compelling” threshold ought to apply in the case where a party was applying for a stay of its own setting aside application. The Court held that the fact that the Claimant itself was applying for a stay did not alter the threshold as established in Tomolugen.
Decision to Grant Case Management Stay
The Court was satisfied that the parties and the issues between Arbitration C and OA 1109 overlapped. In support of this view, the Court highlighted the overt similarities between the Notice of Arbitration in Arbitration C and the Originating Application in OA 1109.
The Court further observed that the Tribunal’s finding and determination in Arbitration C could be of benefit to the Court in determining OA 1109. Since the Claimant’s allegations of fraud were largely factual, the Court observed that if the parties managed to fully ventilate their concerns at cross-examination before the Tribunal, it would obviate the need for any further cross-examination in relation to OA 1109. This would be beneficial to the determination of OA 1109 given that the default position in an originating application was for it to be decided on evidence adduced by affidavits without cross-examination. Further, having the allegations determined in the Arbitration ahead of OA 1109 would avoid the possible duplication of witnesses.
Additionally, the Court found that there was a real possibility of issue estoppel arising from having the claims in Arbitration C determined ahead of the setting aside application.
The Court was also of the view that any delay of the setting aside application did not tip the balance against the grant of a case management stay. The Court observed that the Tribunal’s familiarity with the issues would aid in an expeditious resolution since the claims in Arbitration C were founded on the Defendant’s conduct in Arbitration A, which the Tribunal was familiar with given its involvement in the Arbitration from its inception. In any case, it was open to the parties to expedite the Arbitration.
Thus, the Court held that a stay should be granted on the facts.
Commentary
The Claimant’s approach in DJA v DJB to stay its own application for setting aside was unorthodox. However, there was a good reason for how the events developed.
The timing of the Claimant’s setting aside application was driven by the statutory three-month time limit under section 48(2) of the Arbitration Act 2001 (2020 Rev Ed) (“Singapore AA”) to commence a setting aside application. Section 48(2) of the Singapore AA states, in relevant part, that “[a]n application for setting aside an award may not be made after the expiry of 3 months from the date on which the party making the application had received the award”. This mirrors Article 34(3) of the UNCITRAL Model Law, which is also incorporated into the Singapore International Arbitration Act 1994. The three-month time limit appears to be a hard limit as recognised by the Court in ABC v XYZ Co Ltd. [2003] SGHC 107 which observed at [9]:
“[i]t appears … that the court would not be able to entertain any application lodged after the expiry of the three month period as Article 34 has been drafted as the all-encompassing, and only, basis for challenging an award in court.”
The Defendant in DJA v DJB sought to argue that the Claimant’s stay application was a blatant abuse of process because the Claimant should have elected to discontinue OA 1109 and proceed only with Arbitration C. The Court did not accept this argument and noted that the Claimant was not obliged to elect between Arbitration C or OA 1109. The Court opined that by commencing OA 1109, the Claimant was merely preserving its statutory right to challenge the third partial award, and this in and of itself was unobjectionable. This was especially so when one considered that the reliefs sought in OA 1109 and Arbitration C are distinct and may not be granted in the opposing fora.
DJA v DJB illustrates the practical challenges of preserving a party’s statutory right to challenge an arbitral award whilst progressing the timeline of the arbitration. In a situation where a party is involved in multiple related but sequential arbitrations, the three-month time limit might pose a serious issue for parties contemplating the setting aside of prior non-favourable awards. Thus, the strategy of immediately applying for a stay following the filing of the application for setting aside is a novel and effective tactic in not only preserving the party’s rights but also providing additional flexibility for the arbitration. This is an effective approach that applicants involved in multiple related arbitrations should consider.
That being said, applicants considering this strategy should be mindful of the fine balance between a well-placed strategic manoeuvre and an abuse of process. Applicants would need to demonstrate to the court that:
- There was identity in the parties and a clear overlap in the issues to be decided between the pending arbitration and the setting aside application;
- The Tribunal’s findings and determinations in any subsequent arbitration would have an impact on the setting aside application; and
- There would be a real possibility of issue estoppel arising from the claims in any subsequent arbitrations.
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