Jurisdiction - Singapore
Reports and Analysis
Singapore – International Arbitration: Silica Investors Limited V Tomolugen Holdings Limited & Ors [2014] SGHC 101.

7 August, 2014

 

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

 

Claim for minority oppression held to be non-arbitrable because not all the shareholders in the company were party to the arbitration clause and the minority shareholder was seeking remedies that the arbitral tribunal could not grant, e.g., winding up:
— Silica Investors Limited v Tomolugen Holdings Limited & Ors [2014] SGHC 101 (Singapore, High Court, 29 May 2014)

 

Facts


The plaintiff, Silica Investors Limited (“Silica Investors”), entered into a Share Sale Agreement and a Supplemental Agreement with Lionsgate Holdings Pte Ltd (“Lionsgate Holdings”) for the purchase of shares in Auzminerals Resource Group Limited (“Auzminerals Resource”), a company incorporated in Singapore.


The defendants were other shareholders of Auzminerals Resource, including Lionsgate Holdings and its sole shareholder, Tomolugen Holdings Limited (“Tomolugen Holdings”); together, Tomolugen Holdings and Lionsgate Holdings were the majority and controlling shareholders of Auzminerals Resource.


Silica Investors alleged that the defendants had conducted the affairs of Auzminerals Resource in an oppressive manner, and commenced an action in the Singapore courts under section 216 of the Companies Act (“CA”). The reliefs sought by Silica Investors from the Singapore courts included:

 

  • An order for the purchase of Silica Investors’ shares in Auzminerals Resource by Tomolugen Holdings and/or Lionsgate Holdings and/or such other parties as the Court may direct;
  • Orders and directions in the interim to regulate the conduct of the affairs of Auzminerals Resource; and
  • Alternatively, an order that Auzminerals Resource be placed under liquidation.

Lionsgate Holdings then applied for a stay of proceedings in favour of arbitration on the basis that the Share Sale Agreement contained an agreement for any dispute arising out of or in connection with the Share Sale Agreement to be resolved by arbitration in Singapore (the “Arbitration Clause”).


The Singapore High Court had to consider these issues:

 

  • Whether Silica Investors’ claim fell within the scope of the Arbitration Clause; and
  • If so, then whether a claim of minority oppression under section 216 of the CA is arbitrable.

Whether Silica Investors’ Claim Fell Within The Scope Of The Arbitration Clause


Section 6(1) of the International Arbitration Act (“IAA”) provides for the stay of proceedings “in respect of any matter which is the subject of the [arbitration] agreement”.
After considering the pleadings and the underlying basis of the claim to ascertain the essential dispute between the parties, the Court considered that the “matter” to be determined was whether the affairs of Auzminerals Resource were being conducted and managed by the defendants in a manner oppressive towards Silica Investors as a minority shareholder. The specific allegations made in support of the minority oppression claim were mere issues to be decided if Silica Investor’s claim was made out.


The Court then concluded that Silica Investors’ entire claim had to be treated as falling within the scope of the Arbitration Clause because the Arbitration Clause was very widely drafted with no indication that the parties had intended to exclude statutory claims, the Share Sale Agreement also governed the relationship between Silica Investors and Lionsgate Holdings as shareholders, and the factual allegations underlying Silica Investors’ claim had a “sufficiently close connection” with the Share Sale Agreement.


Whether A Claim Under Section 216 Of The CA Is Arbitrable


The Court first noted that statute-based reliefs may affect third parties or the public at large such that they can only be granted by the courts in the exercise of their powers conferred upon them by statute. This is in contrast to the relief that can be granted by an arbitral tribunal—the inherent consensual nature of arbitration necessarily limits its application to third parties and the arbitral tribunal cannot exercise the coercive powers of the courts.


However, the mere fact that a statutory claim may be remedied by an order only available to the courts does not mean that the claim is non-arbitrable. To determine if the claim is arbitrable or not, the court has to look at the facts of the case, the manner in which the claim is framed, and the remedy or relief being sought.


The Court considered minority oppression claims to straddle the line between arbitrability and non-arbitrability because the remedy sought can affect the arbitrability of the claim. It then surveyed the approaches adopted in other jurisdictions, which indicated that there are four possible approaches to determine if a claim under section 216 of the CA is arbitrable:

 

  • Leaving the arbitral tribunal to make all the necessary findings of fact; and if the tribunal finds there is oppression, then the oppressed minority shareholder can carry on with the minority oppression claim before the court for the appropriate relief;
  • Allowing all minority oppression claims to go for arbitration; if the arbitral tribunal is of the view that a winding up or buy-out order is appropriate, then the parties can go to court to obtain the necessary orders and the court would adopt the findings and remedies proposed by the arbitrator;
  • Allowing shareholders bound by an arbitration agreement to proceed to arbitration and then staying all proceedings in relation to those shareholders not bound by the arbitration agreement until the award is made, and only then proceeding with the section 216 claim in court; or
  • Stipulating that all minority oppression claims are, as a matter of public policy, non-arbitrable.

The Court was of the opinion that the fourth approach would be applicable in Singapore because arbitral tribunals lack the general power to order remedies which are often sought by the claimants in minority oppression claims (section 216(2) of the CA states a non-exhaustive list of remedies that may be ordered by the court, e.g., ordering a buyout, or making orders regulating the future conduct of the affairs of the company). However, it declined to lay down a general rule that all minority oppression claims are non-arbitrable.


Whether a claim under section 216 of the CA would be arbitrable depends on all the facts and circumstances; and while the remedy or relief asked for should be considered, they should not assume overriding importance as that would enable litigants to manipulate the process and evade obligations to refer their disputes to arbitration. An instance where a minority oppression would be arbitrable would be where all relevant parties (including shareholders and third parties whose interest may be affected) were parties to the arbitration, and the remedy or relief sought was one that only affected the parties to the arbitration.


On the present facts, the Court decided that Silica Investors’ claim was nonarbitrable, and declined to stay any part of the claim: there were relevant parties (including other shareholders) not parties to the arbitration and the remedies sought by Silica Investors could not be granted by an arbitral tribunal.


Our Comments / Analysis


This is the first instance the Singapore High Court has ruled on whether minority oppression claims are arbitrable. The conclusion is that there is no blanket answer; instead, the Court set out the approach to be applied in determining this question.


Parties are advised to involve their legal advisors at an early stage of the dispute to get an objective assessment of what would likely be within the scope of their arbitration agreement, and to take particular care in considering how the claim should be framed and what remedy or relief should be sought from the Singapore court.

 

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For further information, please contact:

 
Sean Yu Chou, Partner, WongPartnership
seanyu.chou@wongpartnership.com

 

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