Singapore Court of Appeal clarifies when conditions may be imposed for stay of court proceedings in favour of arbitration

20 December 2021

The “Navios Koyo” [2021] SGCA 99

In The “Navios Koyo”, the Singapore Court of Appeal set out the circumstances under which conditions on a stay of proceedings in favour of arbitration may be imposed.

Facts

In July 2019, the appellant entered into a memorandum of understanding (“MOU”) with Amrose Singapore Pte Ltd (“Amrose”) for the financing of Amrose’s purchase of pine logs. Under the MOU, the appellant would procure its financier, the Bank of Baroda, to issue letters of credit to Amrose’s supplier, TPT Forests Limited, for shipments of pine logs from New Zealand to India on board the MV Taikoo Brilliance. In return, Amrose would repay the appellant with interest. The carriage of the cargo of pine logs (“Cargo”) was made pursuant to four bills of lading (collectively, “Bills of Lading”). The appellant received the Bills of Lading as security for its financing arrangements on or about 12 September 2019.

At the material time, the Taikoo Brilliance had been on time charter from the respondent to China Navigation Co (“CNC”). CNC in turn had sub-chartered the vessel to TPT Shipping Ltd (“TPTS”).

The reverse side of the Bills of Lading provided for the incorporation of all terms and conditions of the “Charter Party” dated 3 July 2019 (which was a reference to the voyage charter between CNC and TPTS), “including the Law and Arbitration Clause”. They also provided that the Bills of Lading were “to be used with charter-parties”.

On 18 August 2020, the appellant commenced proceedings in the Singapore High Court against the respondent (“Admiralty Actions”). In essence, the appellant objected to the Cargo (which was its security for the loans extended to Amrose) having been discharged, allegedly without its knowledge. The appellant subsequently procured an order for the arrest of the Navios Koyo, another vessel owned by the respondent but unconnected with the events set out above.

On 23 September 2020, CNC’s solicitors sought confirmation from the appellant’s solicitors on the sum of security sought for the release of the Navios Koyo. They also mentioned that the charterparty which the Bills of Lading referred to provided for arbitration in London. On the same day, the appellant’s solicitors requested a copy of the charterparty. This was provided on 24 September 2020. It was undisputed that the arbitration clause had been incorporated into the terms of the Bills of Lading and that any claims made by the appellant in relation to the Cargo would be time-barred if they had not been commenced by 23 September 2020.

On 6 November 2021, the respondent applied to stay the Admiralty Actions in favour of arbitration on the basis of the arbitration clause which had been incorporated into the Bills of Lading. The Assistant Registrar granted an unconditional stay. The appellant’s appeal against the Assistant Registrar’s decision was dismissed by the High Court. The appellant appealed the High Court’s decision to the Court of Appeal.

Decision of the Court of Appeal

In the Court of Appeal, the appellant, while acknowledging that its claims were subject to a valid arbitration clause, argued that the stay in favour of arbitration should be conditional on the respondent waiving its right to rely on a defence of time bar in the London arbitration.

Following a survey of the relevant case law, the court observed that whether the court’s discretion to impose a condition ought to be exercised depends on the true nature of the condition(s) sought, in the context of the relevant circumstances.

The condition which the appellant sought to impose was a waiver of an accrued defence of time bar. In the court’s view, this condition was markedly different from administrative conditions such as imposing a timeline to commence arbitration, requiring a party to appoint a solicitor to accept service, or ordering parties not to frustrate the appointment of the tribunal. Such conditions were essentially orders consequential upon the stay order, and sought to give effect to the arbitration agreement. They did not purport to decide any substantive issue which was rightly reserved to the arbitration. By contrast, the question of whether a party is entitled to rely on a time bar is typically an issue which rightly should be determined in the arbitration.

The court added that the exercise of the court’s discretion to impose conditions on a stay must be informed by the justice of the case. This entails consideration of whether the party seeking the stay is able to provide a proper justification for the imposition of any condition. In determining whether such justification is established, the court stated that regard should be had to (a) the reasons for the conditions being sought, and whether those reasons could have been obviated by the applicant’s own conduct, (b) whether the need for any of the conditions was contributed to or caused by the conduct of the respondent, and (c) the substantive effect on the parties of any condition that the court may impose.

Applying the above considerations to the facts of the case, the court decided that it had no legal basis to exercise its discretion in favour of the appellant to grant the condition sought. This was because the appellant had known from the outset that there was a potential arbitration clause which would govern disputes arising under the Bills of Lading, but had chosen not to take any step to verify or find out about the clause.

The court also rejected the appellant’s arguments attributing its failure to commence arbitration proceedings in time to Amrose’s failure to provide a copy of the charterparty, and the fact that the appellant was in commercial negotiations with Amrose over Amrose’s overdue payment. In addition, the court dismissed as speculative and outrageous the appellant’s explanation that the respondent would have tried to evade the appellant’s claim if the appellant had approached the respondent for the charterparty earlier.

In the court’s view, the appellant simply did not bother to obtain a copy of the charterparty until the very last minute. The appellant took the risk in not finding out about the terms of the Bills of Lading, which it recognised were its security, with the consequence that it commenced the Admiralty Actions in breach of the arbitration clause and found its claims under the Bills of Lading potentially time-barred in the arbitration. Having taken that risk, it did not lie in the appellant’s mouth to assert that it should be insulated by the courts from the consequences of its own omissions.

For the above reasons, the Court of Appeal dismissed the appeal.

Reference materials

The judgment and a summary of it are available on the website of the Singapore Supreme Court www.judiciary.gov.sg.