Incorporation of arbitration clause by course of conduct and stay of proceedings on case management grounds
BASF Intertrade AG Singapore Branch v H&C S Holding Pte Ltd [2017] SGHCR 10 is a very neat case that ties together existing Singapore case law on (1) incorporation of arbitration clauses by virtue of the parties' previous course of conduct and (2) a stay of proceedings on case management grounds when an existing court suit comprises of various disputes that fall both within and outside of the arbitration clause.
Disputes arose between 2 commodities trading companies which had engaged in a number of contracts involving the trading of petrochemicals since 2015. As the learned Assistant Registrar noted, the dispute between the parties could be broadly divided into 2 categories (see [3] and [4]).
The so-called Category 1 Agreements basically involved pairing off contracts such that parties netted off their positions and obviated the need for physical delivery of any cargo (see [5] to [7]). This also included a "Circle-Out Agreement" which essentially involved a series of contracts to net-out a tripartite position such that, again, no physically delivery was needed (see [8]).
The Category 2 Agreements comprised 2 sales contracts and 2 purchase contracts between the parties for consignments of Benzene to be delivered within the month of April 2017.
The Defendant's application for a stay of the Singapore court proceedings initiated by the Plaintiff was predicated on the fact that its (the Defendant's) standard terms and conditions contained an arbitration clause. It was further argued that the course of conduct between the parties "showed a tacit agreement between the parties that all the Purchase and Sale Contracts would be on the Defendant’s standard terms" (see [24]).
The Plaintiff's arguments, amongst other, were that for the Category 2 Agreements, none of the agreements contained an arbitration clause. Further, that the industry practice is that the sale and purchase of goods is generally done on the seller’s terms. Since the Defendant alternated between being the buyer and seller of goods, it could never be the case that all contracts between the parties would be governed solely by the Defendant’s standard terms (see [27]). There was in any event no such thing as the Defendant's "standard terms" or any reference to such terms in the agreement (see [28]).
On the course of conduct argument, the Plaintiff argued that there was none and that the Defendant's evidence was lacking, although the learned AR did note that there might have been some misapprehension on the Plaintiff's as to the nature of the documents that the Defendant did rely on.
For the Category 2 Agreements, the Honourable Court relying on the Honourable Court of Appeal decision in R1 International Pte Ltd v Lonstroff AG [2015] 1 SLR 521 was satisfied that the arbitration clause which was part of the Defendant's standard terms had been incorporated as part of the agreements which formed the Category 2 Agreements. I have written about the R1 v Lonstroff decision(s) elsewhere. It suffices to cite the portions that the learned AR had relied on at [37]:
(a) First, an objective approach is to be adopted towards the question of contractual formation and the incorporation of terms. This would turn on ascertaining the parties’ objective intentions gleaned from their correspondence and conduct in light of the relevant background which includes the industry parties are in, the character of the document which contains the terms in question and the course of dealing between the parties.
(b) Second, it is not uncommon for parties to first agree on a set of essential terms which bind the parties even while there may be ongoing discussions on the incorporation of other detailed terms.
(c) Third, although silence by one party may not by itself constitute acceptance of the terms sent by the other party, silence is not fatal to a finding that the terms sent have been accepted. The effect of silence is context-dependant and the parties’ positive, negative or even neutral conduct can evince acceptance.
In coming to her decision on the parties course of conduct, the learned AR found that there was consistent practice between the parties which justified the finding that the arbitration clause was incorporated. The learned AR findings included the following:
- [40]: The Defendant has produced documents which show that 27 transactions were entered into between the parties, all of which were prepared on the Defendant’s standard terms, which included the arbitration clause. There was no evidence that Plaintiff had objected.
- [41]: In previous transactions, where the Defendant omitted to produce an agreement, the Plaintiff had specifically requested that the Defendant prepare the contracts, which were prepared on the Defendant's standard terms.
- [43]: industry practice did not supersede parties' conduct and intention.
- [44]: the Plaintiff's failure to sign the contracts was not determinative of the "contractual force" of the agreements.
However, the learned AR found that the Category 1 Agreements did not incorporate the arbitration clause notwithstanding the finding regarding the Category 2 Agreements on the underlying Sale and Purchase Contract. The learned AR found at [78] that the intention of the parties in entering into the Category 1 Agreements was to "extinguish all the rights and obligations such as the delivery under the Sale and Purchase Contracts save for the difference in price which parties had agreed to under the Category 1 Agreements". And as such, "the dispute concerned only the Category 1 Agreements and is not connected with any of the terms of the underlying Sale and Purchase Contracts".
Nonetheless, the Honourable Court exercised its discretion to stay the proceedings on case management grounds in respect of the Category 1 Agreements. Citing Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373 (see my articles here and here) and Maybank Kim Eng Securities Pte Ltd v Lim Keng Yong [2016] 3 SLR 431, the learned AR held at [89] that,
the Plaintiff’s right to proceed in court is not absolute. This right is not unduly prejudiced by the temporary nature of the stay. If the arbitral tribunal decides it does not have jurisdiction, then the court proceedings in respect of the Category 1 Agreements will resume and the Plaintiff may exercise its full rights in the court proceedings
Pertinently, the factors which the Singapore courts would consider whether to grant a stay on case management grounds:
…
(c) Finally, dealing with the court’s duty to ensure the efficient and fair resolution of the dispute, I note that the following factors in favour of a stay, identified in Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Limited [2014] NZHC 1681 and approved in Tomolugen Holdings Limited (at [188]), are present in this case:
(i) the factual bases underlying the claims in the two proceedings are essentially the same;
(ii) there are common issues in both claims …
(iii) there is a practical risk of inconsistent findings of fact and law between the court proceedings and the arbitration given these overlapping issues; and
(iv) there would be a duplication of witnesses and evidence between the arbitration and the court proceedings.
The Honourable Court found at [91] that the facts of the case met all of the 4 factors identified.