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The Court of Appeal of Singapore has confirmed that minority shareholder claims under s. 216 of the Singapore Companies Act (Cap 50, 2006) (the Companies Act) are arbitrable, and that there is generally a presumption that all claims (including those arising under statute) which fall within an arbitration clause are arbitrable (Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57). The Court of Appeal also held that the standard for review for ordering a stay of court proceedings in favour of an arbitration is the prima facie standard. This is consistent with the approach taken in other regional jurisdictions, and confirms Singapore’s position as an arbitration-friendly jurisdiction.

Background

In 2013, Silica Investors Limited (Silica), a minority shareholder in Auzminerals Resource Group Limited (AMRG), brought a minority oppression claim in the Singapore courts under s. 216 of the Companies Act  against AMRG, the majority shareholders in AMRG (Lionsgate Holdings Pte Ltd (Lionsgate) and Tomolugen Holdings Limited (THL)), and several other shareholders of the company. Silica alleged that, amongst other things, AMRG had issued shares in breach of AMRG’s memorandum and articles of association, diluting Silica’s shareholding by more than 50%, and that Silica had denied its entitlement to participate in the management of AMRG.

Lionsgate, one of the majority shareholders in AMRG, applied for a stay of the court proceedings in favour of arbitration under Section 6(1) of the International Arbitration Act (Cap. 143A) (the IAA). Section 6 of the IAA, which is largely based on the UNCITRAL Model Law on International Commercial Abitration, permits the court to order a stay of proceedings if it is “satisfied” that there is no “sufficient reason” why the matter should not be arbitrated. Lionsgate sought a stay on the basis that Silica’s dispute fell within an arbitration agreement contained in the Share Sale and Purchase Agreement (SPA) between Silica and Lionsgate, under which Silica had originally acquired its shares in AMRG. This agreement provided for SIAC arbitration, seated in Singapore, in relation to “any dispute arising out of or in connection with” the SPA.

High Court decision

The Singapore High Court, at first instance, dismissed all of the stay applications. First, the High Court held that the dispute was non-arbitrable given that the claim arose under statute. Section 216 of the Companies Act provided the court with broad remedial powers as necessary, to potentially bind third parties or utilise its coercive powers. As any arbitral tribunal would be precluded from exercising such a broad range of powers, it was determined that, on the facts, the minority oppression claim was not arbitrable. The High Court also considered the procedural complexity of the matter was a further factor that militated against arbitration of Silica’s claims against Lionsgate. In particular, the Court was concerned that many of the parties and aspects of the dispute were not caught by the arbitration agreement. Lionsgate appealed.

Court of Appeal

The Court of Appeal allowed the appeal, overturning the High Court decision not to grant the stay of proceedings in favour of arbitration. Chief Justice Menon, speaking for the Court, commented that “[t]he role of [s. 216 of the Companies Act] was, and still remains, that of remedying differences which sometimes inevitably arise as a consequence of persons associating for an economic purpose through the corporate form of a company. … It seems to us that if those persons choose to have their differences resolved by an arbitral tribunal, they should be entitled to do so. There is, in general, no public element in disputes of this nature which mandate the conclusion that it would be contrary to public policy for them to be determined by an arbitral tribunal rather than by a court”.

In reaching its decision, the Court of Appeal noted that:

  • The Court, when considering a stay application under s. 6 of the IAA, must be satisfied that there is a valid arbitration agreement which covers the scope of the dispute and is not null and void, inoperative or incapable of being performed. The standard of review for this test is a prima facie standard, not a balance of probability standard. The Court should not engage in a full review or consideration of whether a valid arbitration agreement exists, as this would be contrary to the principle of kompetenz-kompetenz embodied in the IAA (i.e. that arbitral tribunals should have the power to determine their own jurisdiction).
  • The Court is not required to stay proceedings where it determines that the subject matter of a dispute is not arbitrable, this being an exception to the regime under s. 6 of the IAA. In considering arbitrability, if the Court has already determined that there is a valid arbitration agreement which covers the subject matter of the dispute, then there will be a presumption that the subject matter is arbitrable. This presumption can only be rebutted by showing that Parliament had intended to preclude a particular type of dispute from arbitration or that it would be contrary to public policy to resolve that type of dispute in private arbitration.
  • The Court of Appeal rejected the High Court’s concerns of remedial inadequacy and procedural complexity in determining the arbitrability of a minority oppression claim. Where there are overlapping court and arbitral proceedings arising from the incomplete coverage of the arbitration clause to the dispute, this does not in itself justify refusal of a stay under s. 6 of the IAA. Considering the strong legislative policy in favour of arbitration, the Court took a practical case management approach. The Court ordered that the stay would be conditional upon the arbitration being administered expeditiously. In the event of any undue delay in resolving the arbitration, any party to the arbitration can apply to the Court for the stay to be lifted and for the court proceedings in respect of the remaining issues to proceed.

Comments

This case confines matters of non-arbitrability to those that strictly run contrary to public policy, such as the liquidation of an insolvent company. Yet minority oppression claims are not similarly non-arbitrable as the core of the claim centres upon upholding the agreement between shareholders. Furthermore, the Court surveyed other jurisdictions such as Australia, the British Virgin Islands and Canada to find that there was no jurisdiction which expressly regarded minority oppression claims as non-arbitrable. This decision places Singapore’s position on arbitrating minority oppression claims on par with other jurisdictions, while also limiting the subject-matter of disputes considered non-arbitrable.

Additionally, this case definitively establishes Singapore’s stance on the prima facie standard of review in stay applications under the IAA and confirms previous cases such as The Titan Unity [2013] SGHCR 28, in which Wong & Leow LLC successfully acted, and Malini Ventura v Knight Capital Pte Ltd and others [2015] SGHC 225. The Court reviewed the position in various jurisdictions and, while England adopts a full merits review, both Hong Kong and Canada, which are also Model Law jurisdictions, utilise the prima facie standard of review. Of note, the Court also welcomed an amicus curiae submission on the proper standard of review for Singapore to adopt from the academic perspective. This consistency and rigour to keep apace with legal developments elsewhere further establishes Singapore as an attractive seat for international arbitration.

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