Singapore Case Update: Test for Stay of Arbitral Proceedings (AYY v AYZ and another [2015] SGHCR 22)

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Case Name: AYY v AYZ and another [2015] SGHCR 22 (available here)
Court: Singapore High Court
Coram: Colin Seow AR<br></br>
Date Delivered: 15 December 2015

In this decision, the Singapore High Court considered the proper test for a stay of arbitral proceedings where parties have appealed to the courts to determine whether an arbitral tribunal has jurisdiction. In accordance with section 10(9)(a) of the International Arbitration Act, the Court held that a “stay of arbitration will generally be ordered if an applicant is able to demonstrate with reasonable and credible substantiation that a refusal of stay would result in detriment in respect of which the applicant could not later be adequately restituted”. IAA Student Editor for Singapore Srruthi Ilankathir reports.

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I.  INTRODUCTION

Parties

AYY was the applicant while AYZ and AZA were the respondents in this stay application.

Background

The case arises from an existing arbitration between AYY, AYZ and AZA. The arbitral tribunal decided that it had jurisdiction over the parties’ substantive dispute. AYY subsequently commenced an action at the High Court challenging the tribunal’s affirmative ruling on its jurisdiction (“the Action”) pursuant to section 10(3) of the International Arbitration Act[2] (“the IAA”). AYY then sought a stay of the arbitral proceedings pending the High Court’s decision on the tribunal’s jurisdiction. AYY made the stay application pursuant to section 10(9)(a) of the IAA.

Proceedings

Relevant portions of section 10 of the IAA are reproduced below:-

 

Appeal on ruling of jurisdiction

10.—(1)  This section shall have effect notwithstanding Article 16(3) of the Model Law.

(2)  An arbitral tribunal may rule on a plea that it has no jurisdiction at any stage of the arbitral proceedings.

(3)  If the arbitral tribunal rules —

(a) on a plea as a preliminary question that it has jurisdiction; or

(b) on a plea at any stage of the arbitral proceedings that it has no jurisdiction,

any party may, within 30 days after having received notice of that ruling, apply to the High Court to decide the matter.

 

(9)  Where an application is made pursuant to Article 16(3) of the Model Law or this section —

(a) such application shall not operate as a stay of the arbitral proceedings or of execution of any award or order made in the arbitral proceedings unless the High Court orders otherwise; and

(b) no intermediate act or proceeding shall be invalidated except so far as the High Court may direct.

An arbitral tribunal in a Singapore-seated arbitration has the power to decide on its own jurisdiction over the parties’ substantive dispute. However, the parties have the right to challenge the tribunal’s jurisdictional ruling at the High Court under section 10(3) of the IAA. An appeal made to the High Court pursuant to section 10(3) does not operate as a stay of the arbitral proceedings unless the High Court orders as such. The arbitration can thus continue while the High Court decides on the tribunal’s jurisdiction. Consequently, it is necessary for the parties to make a separate application to engage the court’s discretion[3] and stay the arbitral proceedings (if they wish to do so). This is the effect of section 10(9)(a).


II.  KEY ISSUES 

The issue before the court was determining the proper test to be applied for a stay of arbitral proceedings under section 10(9) of the IAA and whether such a stay should be ordered in the present circumstances.

 

The court noted the dearth of case authorities relating to applications made under section 10(9)(a). Assistant Registrar Colin Seow sought to “sow some jurisprudential seeds” in this area in order to guide future applications.

The test for ordering a stay of arbitral proceedings pursuant to Section 10(9)(a)

 

To determine the proper test for a stay under section 10(9)(a), the court adapted the established principles applicable to a stay of execution of court judgments pending appeals.[4] In doing so, the Learned Assistant Registrar found the following to be an appropriate test:

That “the court ought to see whether the party’s challenge against the arbitral tribunal’s jurisdictional ruling, if successful, would be incapable of providing a full and consummate redress”.[5]

In the words of the court, this means,

“stay of arbitration will generally be ordered if an applicant is able to demonstrate with reasonable and credible substantiation that a refusal of stay would result in detriment in respect of which the applicant could not later be adequately restituted”.[6]

The court found section 10(7) of the IAA relevant to this analysis. Section 10(7):

In making a ruling or decision under this section that the arbitral tribunal has no jurisdiction, the arbitral tribunal, the High Court or the Court of Appeal (as the case may be) may make an award or order of costs of the proceedings, including the arbitral proceedings (as the case may be), against any party. [7]

This provision allows the court to ‘at the appropriate juncture make an appropriate costs order in relation to the arbitral proceedings’ to any of the parties if it decides that the arbitral tribunal had no jurisdiction.[8]

Whether a stay of arbitral proceedings should be ordered in the present circumstances

The above test for a stay was applied in light of the court’s compensation powers under section 10(7). Assistant Registrar Seow held that:

  1. AYY had not made any suggestion ‘that AYZ and AZA would be incapable or unable to satisfy any costs order made pursuant to section 10(7)’ if AYY succeeded in the jurisdictional challenge before the High Court in the Action. [9]
  2. AYY also did not satisfy the court ‘that the continuance of the Arbitration would result in any other form of detriment or prejudice that could not be adequately compensated by a costs order under section 10(7)’ if AYY succeeded in the jurisdictional challenge.[10]

The court thus decided that there was no detriment to AYY arising from a refusal of the stay that could not later be adequately compensated.[11] Consequently, a stay was not ordered.

III.  COMMENTARY 

The value of this decision lies in its demonstration of two types of arguments an applicant may make for a stay of arbitral proceedings pending an appeal on jurisdiction:

  1. Show that the applicant will suffer a detriment that is non-compensable if the arbitral proceedings continued while the High Court decides on the former’s jurisdiction. (“First Argument”)
  2. In the alternative, show that the respondent will not be able to satisfy a costs order made by the High Court if it decides that the tribunal had no jurisdiction. (“Second Argument”)

The court’s illustration under the First Argument, of what amounts to a detriment that cannot be compensated by a costs order, is useful here. Where the applicant challenging the tribunal’s jurisdiction “is compelled to disclose confidential and/or sensitive information (such as trade secrets or price­sensitive information) in order to defend the arbitral proceedings commenced against him or her by an industry competitor)”, a stay may be ordered.[12] The example shows that the exercise of discretion is peculiar to the facts and circumstances of a particular case.

 

Further, by way of legislative history, section 10 of the IAA was heavily amended in 2012.[13] Section 10(9)(a) is a new addition to the IAA regime. It was inserted “to clarify that any appeal to the High Court on jurisdiction ruling will not operate as a stay of the arbitral proceedings”.[14] This strengthens the court’s default pro-arbitration position, as proceedings can continue even when the tribunal’s jurisdiction is challenged.

Finally, the learned Registrar’s approach to stay applications under section 10(9)(a) secures the efficiency of the arbitral process by limiting the situations in which the arbitration can be stayed. The test adopted aligns with section 10(7) as well. Section 10(7) provides that a court may make an order of costs (including the costs of the arbitral proceeding) against any party in the event that it finds that the tribunal has no jurisdiction.[15] The IAA thus already provides recourse in terms of costs for applicants making jurisdictional challenges. By only extending the aid of a stay when the detriment is non-compensable, the possible reasons applicants could provide to stay proceedings under section 10(9)(a) reduces greatly. The pro-arbitration stance adopted in this case is consistent with Singapore’s efforts under the IAA regime to ensure it remains an attractive and efficient seat for international arbitration.


This article may be cited as follows: Srruthi Ilankathir, “Singapore Case Update: Test for Stay of Arbitral Proceedings (AYY v AYZ and another [2015] SGHCR 22)” International Arbitration Asia (28 February 2016) <http://www.internationalarbitrationasia.com/Singapore-test-for-stay-of-arbitral-proceedings>.

[1] [2015] SGHCR 22.

[2] Cap 143A, 2002 Rev. Ed.

[3] AYY v AYZ [2015] SGHCR 22 at [9].

[4] AYY v AYZ [2015] SGHCR 22 at [6].

[5] AYY v AYZ [2015] SGHCR 22 at [6].

[6] AYY v AYZ [2015] SGHCR 22 at [7].

[7] AYY v AYZ [2015] SGHCR 22 at [8].

[8] AYY v AYZ [2015] SGHCR 22 at [7].

[9] AYY v AYZ [2015] SGHCR 22 at [8].

[10] AYY v AYZ [2015] SGHCR 22 at [8].

[11] AYY v AYZ [2015] SGHCR 22 at [8].

[12] AYY v AYZ [2015] SGHCR 22 at [8].

[13] International Arbitration (Amendment) Bill 2012 (Bill 12 of 2012) cl 4 [“IAA Ammendment Bill”].

[14] Explanatory Statement to the IAA Ammendment Bill at 14.

[15] Explanatory Statement to the IAA Ammendment Bill at 14.

 

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