Jurisdiction - Singapore
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Singapore – When Two Claimants Are Better Than One.

5 March, 2013

 

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

 

INTRODUCTION


The question of whether the correct parties are taking part in an arbitration is a matter which the arbitration tribunal can resolve as part of the arbitration. 

This point was established by Drew lawyers, Foo Yuet Min and Kong Man Er, when they recently overcame an objection brought by the Respondent that one of their clients ought to be excluded from an arbitration. 


THE DISPUTE


The dispute arose in the context of a billion-dollar project which was being spearheaded by the Claimants, who sub-contracted some of their rights to the Respondent through a license agreement. The agreement contained a clause expressly allowing for novation and the agreement was later novated from the 2nd Claimant to the 1st Claimant. Subsequently, the Respondent failed to renew the license agreement and was also in arrears on the payments due to the Respondent.

 
Post the termination of the license agreement, the Claimants corresponded with the Respondent for several months, requesting that the Respondent cleared its outstanding debt with the Claimants. Parties’ lawyers were also involved in the exchange of correspondence. These efforts came to naught when the Respondent stopped replying to the Claimants. 


The license agreement contained a tiered dispute resolution clause which required parties to attempt in good faith to resolve any dispute by good faith negotiations for a period of 14 days before commencing arbitration. Not having heard from the Respondent for almost two months and with the significant debt still outstanding, the Claimants commenced arbitration in Singapore under the 2010 Arbitration Rules of the Singapore International Arbitration Centre (“2010 SIAC Rules”). 


THE JURISDICTIONAL CHALLENGE


Before the Tribunal was constituted, the Respondent objected to the inclusion of both Claimants in the arbitration saying that only one of them could be the Claimant, not both. The Respondent also argued that good faith negotiations had not been conducted and so arbitration proceedings had been commenced prematurely. 

When the SIAC informed the Respondent that the Tribunal, when constituted, would be able to deal with its objections, the Respondent invoked Rule 25.1 of the 2010 SIAC Rules, asking the SIAC to constitute a Committee of the Board to decide whether it is “prima facie satisfied that an arbitration agreement under the SIAC Rules may exist”. Based on written submissions from parties, the SIAC decided to accept prima facie jurisdiction of the arbitration under the SIAC Rules and proceeded to appoint an arbitrator to constitute the Tribunal. 


When the Respondent finally submitted its Response to the Notice of Arbitration, it commenced a counterclaim for damages three times the amount claimed by the Claimants. The Respondent also maintained its preliminary objections as to jurisdiction. This eventually led to an oral hearing in Singapore following two rounds of written submissions. 


THE HEARING ON PRELIMINARY OBJECTIONS


While the Respondent accepted that the Tribunal had jurisdiction to determine whether a valid novation of the agreement had in fact occurred, it argued that there could not be two claimants in the arbitration reference. If the novation was valid, then one of the Claimants would have the right to bring the arbitration. If the novation was not valid, the other Claimant would be able to commence arbitration. 

According to the Respondent, there was no scenario where both Claimants could avail themselves of the arbitration agreement at the same time. 


The Claimants disagreed with the Respondent’s legal arguments, and further argued that the position taken by the Respondent was impractical as it might result in two consecutive arbitrations and a waste of time and costs. It was much better to have all the parties before the Tribunal for all the substantive issues to be dealt with, including the validity of the novation. 


On the issue of good faith negotiations, the Respondent argued that it was the Claimants’ duty to conduct good faith negotiations before commencing arbitration even if the Respondent was unwilling to come to the negotiating table. 

 

The Respondent also argued that correspondence between legal counsel and lawyers did not constitute good faith negotiations. 


The Claimants, on the other hand, relied on the extensive correspondence between parties which spanned more than three and a half months, in challenging the Respondent’s allegation that the requirement of good faith negotiations had not been met. 

THE TRIBUNAL’S DECISION


The Tribunal dismissed the Respondent’s objections and dismissed the jurisdictional challenge. 

 

In a written award, the Tribunal considered the dispute on novation as a dispute as to the implementation of the novation clause in the license agreement, a matter expressly included for determination by arbitration in the relevant dispute resolution clause. Both Claimants were therefore jointly concerned for the purposes of determining whether there was a valid novation of the agreement. 


Having taken the position that the novation was invalid, the Tribunal saw no merit in the Respondent’s objection to the 2nd Claimant’s involvement in the arbitration. 

As regards the issue of good faith negotiations, the Tribunal was of the opinion that an “attempt” to resolve any dispute by good faith negotiations was an obligation shared by both the Claimants and the Respondent. 


The Tribunal was particularly concerned with the Respondent’s repeated failure to respond to the Claimants’ letters at important junctures, when the Claimants’ express invitations to negotiate a resolution were ignored by the Respondent. 

The Tribunal took a pragmatic and commonsensical approach in reading parties’ correspondence and concluded that while both parties initially appeared to be attempting to enter into good faith negotiations, the Respondent’s attempts ceased while the Claimants’ attempts continued. 

 

The arbitration was therefore allowed to continue with both Claimants remaining as proper parties, and the Respondent was ordered to pay costs to the Claimants. 

The Claimants were ultimately successful because there was a conscious effort on their part to comply with the requirement for pre-arbitration good faith negotiations, and these efforts were diligently documented. 


The Respondent’s unsuccessful jurisdictional challenge nonetheless delayed the arbitration by more than eight months. On the other hand, had the inclusion of the 2nd Claimant for the purposes of the Respondent’s dispute on novation not been vindicated by the Tribunal, the Claimants would have had to re-commence the arbitration, which would have caused even more delays. 


The Claimants’ pragmatic approach of having both Claimants before the Tribunal so that all substantive issues could be dealt with together resonated with the Arbitrator, hence successfully averting a halt in proceedings for the Claimants.

 

 
For further information, please contact:

 
Kong Man Er, Drew & Napier
maner.kong@drewnapier.com
 
Foo Yuet Min, Drew & Napier
yuetmin.foo@drewnapier.com

 

Drew & Napier Dispute Resolution Practice Profile in Singapore

 

 

 

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