Jurisdiction - Singapore
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Singapore – Determining The Arbitrability Of Minority Oppression Claims Under Section 216 Of The Companies Act.

4 August, 2014

 

Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

 

Silica Investors Limited v. Tomolugen Holdings Limited and others [2014] SGHC 101

 

The High Court recently considered, amongst other things, the issue of whether minority oppression claims under Section 216 of the Companies Act are arbitrable under Singapore law. As this was an issue not previously decided by the Singapore courts, the High Court considered the approaches adopted by the English, Australian and Canadian courts in arriving at its decision.


Brief Facts 


The Plaintiff was a minority shareholder of Auzminerals Resource Group Limited (the “Company“), having purchased the shares under a Share Sale Agreement. It commenced legal proceedings under Section 216 of the Companies Act, i.e. a minority oppression claim, against 8 Defendants. The first 7 Defendants were shareholders who collectively held the majority of the Company’s shares and the Company was the 8th Defendant.1


The following reliefs were sought by the Plaintiff: (1) a court order for the 1st Defendant, the 2nd Defendant and/or such other party to purchase its shares in the Company at a value to be independently determined, (2) interim orders and directions to regulate the conduct of the Company’s affairs, (3) alternatively, that the Company be placed under liquidation and (4) that the 3rd to 7thDefendants be found liable for breach of fiduciary duties.

 

 

The Plaintiff and the 2nd Defendant were the only parties to the Share Sale Agreement, which contained an arbitration clause. The 2nd Defendant applied to stay the court proceedings in favour of arbitration pursuant to Section 6(1) of the International Arbitration Act. In determining whether a stay should be granted, the High Court had to determine whether the Plaintiff’s claim fell within the scope of the arbitration clause, and if so, whether the minority oppression claim was arbitrable. 


Holding 


After determining that the Plaintiff’s claim fell within the scope of the arbitration clause, the High Court made the following considerations: 


1. Section 216(2) of the Companies Act provides a Court with a wide range of remedies to bring an end to the matters complained of in a minority oppression claim, which include both inter partes and in rem remedies. 


2. However, the Tribunal is not afforded the same powers under Section 216(2). It may make orders for relief which are inter partes, such as an order for damages, pursuant to its power derived from the parties’ consent to the arbitration. However, remedies which are in rem can only be granted by the courts in the exercise of their powers conferred upon them by the state such as an order to wind up a company. 


3. Further, the Tribunal will not have the general power to order one shareholder-party to buy out another shareholder, when the other shareholders are not parties to the arbitration agreement and are therefore not bound by any arbitral award. 


4. That being said, this does not mean that all minority oppression claims are automatically rendered nonarbitrable. A claim may be arbitrable depending on the facts of the case, the manner in which the claim is framed and the remedy or relief sought.


Based on the forgoing, the High Court observed that many, if not, most of the minority oppression claims under Section 216 of the Companies Act will not be arbitrable. This was unless: (a) all the shareholders were bound by the arbitration agreement; or (b) all relevant parties were parties to the arbitration and the remedies sought only affected the relevant parties. 


In this case, the High Court did not grant a stay of the court proceedings as there were relevant parties who were not parties to the arbitration agreement, such as the other shareholders of the Company. Further, the Plaintiff had also sought remedies which the Tribunal could not grant, such as the liquidation of the Company. 


Recommendations 


It appears from the High Court’s decision that minority oppression claims under Section 216 of the Companies Act are unlikely to be arbitrable, save in limited circumstances. In cases where there are substantial numbers of shareholders and/or companies with extensive share trading histories, it is unlikely that the shareholders would be parties to the same arbitration agreement. 


It should also be highlighted that non-arbitrability is also a ground which a party may rely on to resist enforcement of an arbitral award. Therefore, even if the parties to the arbitration agreement had submitted to the jurisdiction of the Tribunal, there is the risk that the Singapore court may refuse the enforcement of an arbitral award if it involves an action under Section 216 of the Companies Act.

 

End Notes:


1 For purposes of this Article, the term “Defendants” shall be used to refer to the 1st to 7th Defendants.

 

ATMD Bird & Bird

 

For further information, please contact:

 

Yuankai Lin, ATMD Bird & Bird

yuankai.lin@twobirds.com

 

ATMD Bird & Bird Dispute Resolution Practice Profile in Singapore

 

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