High Court Resolves Conflict Between Arbitration Provision And Court Jurisdiction Clause

Transcription

1 High Court Resolves Conflict Between Arbitration Provision And Court Jurisdiction Clause Introduction The disputes between the parties in Transocean Offshore International Ventures Ltd v Burgundy Exploration Corp [2010] SGHC 31 arose against the context of two related contracts each with its own (conflicting) dispute resolution provisions. The Court therefore had to decide: (a) From which of these two related contracts (Contract A or Contract B) did the disputes between the parties arise; (b) Even if the disputes arose from Contract A, whether the language of the dispute resolution provision in Contract B (which provided for arbitration proceedings) was wide enough to cover the disputes and therefore oblige parties to resolve the dispute through arbitration. The Court, in coming to a conclusion, placed emphasis on the phrase this Contract (included within the arbitration agreement) and held that that swung the balance in favour of limiting the application of the arbitration agreement only to disputes proximately arising out of the Drilling Contract. Although the Court did consider that the phrase in connection with (preceding this Contract ) did somewhat extend the scope of the arbitration agreement to contracts other than the Drilling Contract, it held that the other contract, the Escrow Agreement, did not fall within its scope as the Escrow Agreement has at best a tenuous connection with the Drilling Contract. Another interesting point arising out of the judgment is the Court s view that by entering into a subsequent agreement conferring non-exclusive jurisdiction to the Courts, ie the Escrow Agreement, Burgundy (the party seeking stay in favour of arbitration) had waived the agreement to arbitrate contained in the earlier Drilling Contract and was accordingly estopped from insisting on arbitration. This aspect of the judgment has far-reaching implications. It appears that to establish waiver and estoppel, one needs only to look at the chronology of the dates of the agreements (the Escrow Agreement was dated one day later). Companies would do well to take heed not to insert provisions in later or supplemental agreements which may be construed as negating the arbitration provision within the first agreement (unless this is the intention). 1 Rajah & Tann LLP

2 Rajah & Tann LLP s Toh Kian Sing SC, Ian Teo and Aston Lai acted for Transocean Offshore International Ventures Ltd, the plaintiff in this appeal, in successfully persuading the High Court to overturn the decision of the Assistant Registrar to stay the court proceedings in favour of arbitration. Brief Facts (1) Transocean Offshore International Ventures Ltd ( Transocean ) and Burgundy Global Exploration Corp ( Burgundy ) entered into a Drilling Contract whereby Transocean undertook to supply a drilling unit or vessel ( Vessel ) and related drilling services to Burgundy. The Drilling Contract provided for arbitration in the event of disputes between the parties: The following Dispute Resolution shall apply to this Contract. (a) Any dispute, controversy or claim arising out of or in relation to or in connection with this Contract, including without limitation any dispute as to the construction, validity, interpretation.of this Contract.shall be exclusively settled by arbitration... (emphasis supplied) (2) Prior to the Commencement Date, it was a condition precedent that the parties entered into an escrow agreement for the opening of an escrow account in a Singapore bank ( Escrow Agreement ). Burgundy was to deposit an escrow amount ( Escrow Amount ) into the escrow account at a stipulated time, failing which Transocean would be entitled to terminate the Drilling Contract. (3) The Escrow Agreement contained a dispute resolution clause that provided, inter alia, that: Each of the parties irrevocably submits to and accepts generally and unconditionally the non-exclusive jurisdiction of the courts and appellate courts of Singapore with respect to any legal action or proceedings which may be brought at any time relating in any way to this Agreement. (emphasis supplied) (4) Burgundy failed to deposit the Escrow Amount in accordance with the Escrow Agreement and Transocean treated this failure to deposit as a repudiatory breach which it elected to accept. Transocean subsequently issued a letter to Burgundy stating that it had terminated the Drilling Contract pursuant to the relevant provision of the Escrow Agreement. (5) The efforts of the parties to find a suitably workable solution proved futile. Transocean then commenced the instant case claiming, inter alia, damages for Burgundy s breach of the Escrow Agreement. (6) Burgundy sought to stay the action in favour of arbitration. The Assistant Registrar ( AR ) granted the application mainly for the following reasons: 2 Rajah & Tann LLP

3 The Escrow Agreement could not be seen as being separate and distinct from the Drilling Contract. As such, the Drilling Contract could be extended to cover disputes arising out of the Escrow Agreement. The true dispute at hand lay under the Drilling Contract; hence, that matter ought to be stayed in favour of arbitration as provided for in the Drilling Contract. (7) Transocean appealed against the decision of the AR. Issue The central issue was whether, notwithstanding that the claims ostensibly arose out of the Defendant s failure to observe the Escrow Agreement, the disputes between the parties still ought to be resolved in accordance with the arbitration clause under the Drilling Contract such that the present proceedings ought to be stayed in favour of arbitration. Holding Of The Court The Singapore High Court allowed Transocean s appeal and held that the disputes did not arise out of the Drilling Contract. Accordingly, the arbitration clause in the Drilling Contract did not apply and the current proceedings ought not to have been stayed. Burgundy s Breach of the Escrow Agreement Transocean s cause of action fell squarely under the Escrow Agreement because it is premised on Burgundy s breach of the Escrow Agreement. Accordingly, the resolution of the dispute between the parties ought to be governed by the dispute resolution clause found within the Escrow Agreement itself. The Court observed whilst a party may be allowed to depart from a non-exclusive jurisdiction clause (such as the one found in the Escrow Agreement), it should only be allowed to do so if it could show exceptional circumstances amounting to strong cause (S&W Berisford Plc and anor v New Hampshire Insurance Co [1990] 2 QB 631; Bayerische Landesbank Girozentrale v Kok Kong Keong and another action [2002] 1 SLR(R) 485; Bambang Sutrisno v Bali International Finance Ltd and others [1999] SLR(R) 632 and The Hung Vuong-2 [2000] 2 SLR(R) 11). The Court held that Burgundy failed to establish that such strong cause for departure existed. Inapplicability of the Arbitration Agreement in the Drilling Contract The Court then went on to focus on the reasons why the arbitration provision contained in the Drilling Contract did not apply to the present dispute. (i) Escrow Agreement carved out from the Drilling Contract The Court held that parties had intentionally carved out the Escrow Agreement from the Drilling Contract, which meant that the parties had agreed to carve out escrow matters from the Drilling 3 Rajah & Tann LLP

4 Contract and put them in a separate agreement. This evinced a clear intention by the parties to subject claims arising from the Escrow Agreement to the dispute resolution clause found within that particular agreement. Burgundy contended that the two agreements were inextricably linked and that the dispute at hand was in reality an issue that lay under the Drilling Contract. Hence, the applicability of the arbitration clause of the Drilling Contract. It gave as examples the clause in the Escrow Agreement which required Transocean s invoice to be in accordance with the Drilling Contract, and another provision which made repeated reference to the word term, a definition that included the phrase unless terminated in accordance with terms of the Drilling Contract. The Court said that this argument was not plausible as a contract may refer to a separate contract without necessitating the conclusion that these two were inextricably linked with each other. There was also no specific provision in the Escrow Agreement incorporating the arbitration clause of the Drilling Contract into the Escrow Agreement. (ii) Proper construction of the arbitration clause of the Drilling Contract The Court held that the arbitration clause of the Drilling Contract did not extend to the claims in question. In coming to this conclusion, the Court relied heavily on the repeated references to the phrase this Contract in the arbitration provision (see quote above in italics). It placed emphasis on the phrase this Contract (included within the arbitration agreement) and held that that swung the balance in favour of limiting the application of the arbitration agreement only to disputes proximately arising out of the Drilling Contract. Although the Court did consider that the phrase in connection with (preceding this Contract ) did extend the scope of the arbitration agreement to contracts other than the Drilling Contract, it held that the Escrow Agreement did not fall within its scope as the Escrow Agreement has at best a tenuous connection with the Drilling Contract. It would thus appear that clear wording would be required to extend the application of an arbitration provision to disputes arising from contracts other than the contract in which the provision is contained, particularly if parties had specifically stated that the arbitration clause applied to this Contract. (iii) Dispute Resolution Clause of the Escrow Agreement prevailed over the Arbitration Clause of the Drilling Contract The Court held that given the specificity of the dispute resolution clause of the Escrow Agreement which expressly referred to any legal action or proceedings xxx relating in any way to the [Escrow Agreement], this clause which specifically assumes coverage of all disputes arising out of the Escrow Agreement - should override the more generally worded arbitration clause of the Drilling Contract. 4 Rajah & Tann LLP

5 The Court based its conclusion on what it saw as a trite canon of construction that the general should give way to the specific. Given the specificity of the Escrow Agreement, it overrode the arbitration provision within the Drilling Contract. (iv) Waiver of Right to Arbitrate Finally, the Court held that even if the current disputes can be said to fall within the arbitration agreement contained in the Drilling Contract, the arbitration agreement was rendered inoperative by the parties entering into the subsequent Escrow Agreement. By introducing a jurisdiction clause in the subsequent Escrow Agreement, the Court held Burgundy had waived the agreement to arbitrate and accordingly estopped from asserting its rights to insist on arbitration. Contacts Toh Kian Sing SC Partner D (65) F (65) kian.sing.toh@rajahtann.com Ian Teo Ke-Wei Partner D (65) F (65) ian.teo@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is one of the largest law firms in Singapore, with a representative office in Shanghai and an associate firm, Kamilah & Chong, in Kuala Lumpur. It is a full service firm and given its alliances, is able to tap into resources in a number of countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or the Knowledge & Risk Management Group at eoasis@rajahtann.com 5 Rajah & Tann LLP

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