High Court · Decided 16 October 2015

Cassa di Risparmio di Parma e Piacenza SpA v Rals International Pte Ltd

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[2015] SGHC 264Case no. Suit No 1173 of 2013 (Registrar's Appeals Nos 166 and 168 of 2014)

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Vinodh Coomaraswamy J:
Introduction
[1] A contract between a buyer and a seller of goods contains an arbitration agreement. In accordance with the contract, the buyer draws promissory notes in favour of the seller as deferred payment for the goods. The seller negotiates the notes to its bank without recourse and, as part of the same transaction, assigns to the bank its contractual right to receive payment for the goods from the buyer. The bank duly presents the notes for payment. All of the notes are dishonoured. The bank, relying only on its rights as the indorsee and holder of the notes, brings an action against the buyer. Can the buyer use its arbitration agreement with the seller as the basis to stay the bank’s action under s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”)?
[2] That question sets two fundamental principles in competition for primacy. The first is that arbitration is a consensual dispute resolution procedure. That principle has two corollaries. First, no person ought to be compelled to arbitrate a dispute unless he has agreed to do so. Second, a person who has agreed to do so should not be permitted to resile from his agreement or to fragment the resolution of the parties’ dispute by specious or technical arguments as to the scope of the agreement.
[3] The second fundamental principle is that a promissory note, being a subset of bills of exchange, is the equivalent of cash. It is therefore essential for commerce to have certainty that the payment obligation represented by a bill (including a note) is at all times convertible into cash quickly, simply and effectively.
[4] Both of these principles are of high importance in our jurisprudence, and indeed in the jurisprudence of any international commercial and financial centre. Which principle ought to prevail when they compete is therefore of equally high importance.
[5] Not surprisingly, the parties have before me taken diametrically-opposed positions on this issue. Having considered the parties’ submissions, I have held that the seller’s assignment to the bank of its right to receive payment from the buyer under their contract carried with it to the bank, in respect of that right, both the benefit and the burden of the arbitration agreement between the seller and the buyer. But I have also held that it is unarguable that the bank’s claim against the buyer on the promissory notes falls within the scope of that arbitration agreement. I have therefore dismissed the buyer’s application to stay this action in favour of arbitration. The result is that the bank’s claim against the buyer on the promissory notes will be resolved in court and not in arbitration.
[6] The buyer has, with my leave, appealed to the Court of Appeal against my decision. I therefore now set out my reasons.
Factual background
The parties
[7] Cassa di Risparmio di Parma e Piacenza SpA is the bank. It is incorporated in and carries on business in Italy. It is known informally as “Cariparma” and that is how I shall refer to it.
[8] Rals International Pte Ltd (“Rals”) is the buyer of the goods and the maker of the promissory notes. Rals is a company incorporated in Singapore which carries on the business of processing raw cashew nuts and exporting processed cashew nuts.
[9] Oltremare SRL (“Oltremare”) is the seller of the goods and the payee of the promissory notes. Oltremare is a company incorporated in Italy which manufactures and sells machines to process cashew nuts.
[10] Cariparma, as holder and indorsee, sues Rals in this action on eight promissory notes which Rals drew in favour of Oltremare on 23 December 2010. The notes fell due for payment sequentially, every six months from 6 January 2012 to 6 July 2015.
[11] Cariparma commenced this action after the first four of the eight promissory notes had been dishonoured. The substantive relief which it seeks in this action is, broadly speaking, to recover from the defendant the value of the notes.
[12] Cariparma came to be the holder of the eight promissory notes as the ultimate result of four contractual relationships. Those four are, in chronological order:
(a) A supply agreement dated 9 August 2010 between Oltremare and Rals (“the Supply Agreement”);
(b) An assembling and commissioning agreement also dated 9 August 2010 between Oltremare and Rals (“the Services Agreement”);
(c) The eight promissory notes which Rals issued to Oltremare on 23 December 2010; and
(d) A contract between Oltremare and Cariparma dated 19 July 2011 to discount the promissory notes (“the Discount Contract”).
[13] I now summarise in turn the effect and import of each agreement.
The Supply Agreement
[14] Under the Supply Agreement, Oltremare agreed to manufacture and deliver to Rals – and Rals agreed to buy – equipment to shell and process raw cashew nuts. Oltremare was obliged to commence delivery of the equipment at Rals’ factory in Vietnam in December 2010 and to complete it by March 2011.
[15] In exchange for the equipment, Rals agreed to pay Oltremare €1,950,185 in ten instalments of 10% each. The first two instalments were to be paid in cash in October 2010 and November 2010. The last eight instalments were to be paid by the eight promissory notes. The Supply Agreement not only stipulated that the payment mechanism for the last eight instalments would be promissory notes but also stipulated in its Annex C the precise form of the notes.
[16] The first of the eight promissory notes was to fall due for payment six months after the date of the bill of lading for the last shipment under the Supply Agreement. Each of the remaining seven notes was to fall due every six months from that date.
[17] The effect of all of this was that Oltremare granted Rals four years’ credit from the date of the last shipment of equipment under the Supply Agreement to pay in full the final 80% of the purchase price due to Oltremare by eight equal instalments. In exchange for the credit, Rals agreed to pay Oltremare interest of €30,481.50 with each promissory note. The face value of each promissory note was therefore €225,500, being €195,018.50 plus the agreed interest of €30,481.50. The combined face value of the eight promissory notes was €1,804,000.
[18] The Supply Agreement is expressly governed by Singapore law. It also provides expressly for arbitration in the following terms:
The Services Agreement
[19] At the same time as Oltremare and Rals entered into the Supply Agreement, they also entered into the Services Agreement. Under the Services Agreement, Oltremare undertook to assemble and commission at Rals’ factory in Vietnam all of the equipment which it had sold to Rals under the Supply Agreement. Oltremare was obliged to commence the assembly and commissioning in January 2011 and to complete it by May 2011 at the latest.
[20] The Services Agreement did not stipulate a separate price which Rals was to pay Oltremare for the contracted services. Instead, it expressly provided that the price for these services was included in the purchase price stipulated in the Supply Agreement.
[21] Clause 7 of the Services Agreement sets out a separate arbitration agreement in identical terms to Clause 9 of the Supply Agreement (see [18] above).
The promissory notes
[22] On 23 December 2010, Rals duly drew the eight promissory notes in favour of Oltremare. It is not clear why the notes were not delivered within 60 days from the date of the Supply Agreement as required by Clause 5 of that agreement. Nothing, however, turns on this point.
[23] Each of the eight promissory notes is in the form stipulated by Annex C to the Supply Agreement. Each note therefore: (i) has a face value of €225,500; (ii) is expressly issued in Singapore; (iii) is payable “to the order of Oltremare”; and (iv) is payable at the Standard Chartered Bank at Battery Road in Singapore.
[24] Also on 23 December 2010, as stipulated in the Supply Agreement, Rals sent the eight promissory notes to Oltremare’s bank in Italy, Unicredit Banca (“Unicredit”). The notes were accompanied by Rals’ letter of instructions to Unicredit. The form of this letter too was stipulated in the Supply Agreement. In the letter, Rals instructed Unicredit to hold the notes and to release them to Oltremare only against its presentation of certain stipulated documents.
The Discount Contract
[25] In February 2011, Oltremare approached Cariparma seeking to discount the eight promissory notes. As a result, on 19 July 2011, Cariparma and Oltremare entered into the Discount Contract. The Discount Contract is expressly governed by Italian law and confers exclusive jurisdiction over disputes on the courts of the City of Parma, in Italy.
[26] Article 2(1) of the Discount Contract sets out Oltremare’s essential obligation under that contract: to assign the eight promissory notes to Cariparma without recourse. In exchange, and subject to certain conditions precedent, Cariparma agrees under Article 2(4) to pay to Oltremare the value of each note discounted at just under 3.6% per annum and after deducting various taxes and fees.
[27] Under Article 2(3) of the Discount Contract, Oltremare assigns to Cariparma, together with the eight promissory notes, two additional contractual rights. The first right is the receivable of €1,804,000 which Rals owes to Oltremare under the Supply Agreement. The second right is the benefit of an export credit insurance policy issued to Oltremare by Italy’s export credit guarantee agency, Sace S.p.A (“Sace”).
[28] Article 3(1) of the Discount Contract records Oltremare as making certain declarations to Cariparma. These declarations are presumably recorded in order to constitute express representations which carry contractual consequences for Oltremare if they are proven to be false. Of particular relevance are Oltremare’s declarations that, as at 19 June 2011, ie the date of the Discount Agreement: (i) Oltremare’s receivable from Rals arising from the Supply Agreement is in existence and is valid, unencumbered and vested unconditionally in Oltremare; (ii) the receivable is freely assignable and transferable to third parties; (iii) the promissory notes are autonomous and abstract from the receivable; and (iv) the Supply Agreement complies with requirements imposed by Sace in order for Oltremare to transfer to Cariparma the benefit of Sace’s insurance policy.
[29] One of the requirements imposed by Sace was that the Supply Agreement includes an arbitration agreement providing for disputes to be resolved by arbitration in a New York Convention country. The Supply Agreement clearly meets this requirement: it contains an arbitration agreement (see [18] above) providing for arbitration in Singapore and Singapore is a New York Convention country. By Article 3(1)(f)(iii) of the Discount Agreement, Oltremare expressly declared to Cariparma that this requirement had been met. Cariparma therefore accepts that it was aware that the Supply Agreement was subject to an arbitration agreement before it agreed to discount the promissory notes and before it took the assignment of the debt due from Rals under the Supply Agreement.
[30] Articles 4(1) and 5(1) of the Discount Contract read together make it a condition precedent to Cariparma’s obligation to discount the eight promissory notes that Oltremare deliver certain documents to Cariparma. Three of those documents are important for present purposes. The first is a notice from Oltremare to Rals that it has assigned to Cariparma its receivable underlying the notes. The second is a declaration by Oltremare that there are no disputes between Rals and Oltremare as at the date of the Discount Contract. The third and final document is a certificate of acceptance in respect of the supplied equipment.
[31] Oltremare issued or procured each of these three stipulated documents.
[32] First, on 15 July 2011, Oltremare duly gave notice to Rals that it had assigned to Cariparma the receivable underlying the promissory notes. The notice of assignment is in the form stipulated in Article 4(1) of the Discount Contract:
Rals does not dispute having received this notice. It is curious that this notice is dated four days before the Discount Contract and 21 days before the assignment and negotiation under the Discount Contract was to become effective (see [35] below). Neither side, however, takes any point on this discrepancy.
[33] Second, on 20 July 2011, Oltremare duly issued to Cariparma the declaration of absence of disputes. The declaration states:
[34] Finally, on 5 August 2011, Oltremare procured and delivered to Cariparma an original acceptance certificate signed and stamped on behalf of both Rals and Oltremare. The acceptance certificate was in the following terms:
Rals accepts that Mr V Rajkumar, its managing director, signed this acceptance certificate and that he did so with understanding of its contents. Mr V Rajkumar also signed each of the eight promissory notes on behalf of Rals.
Delivery and acceptance of the promissory notes
[35] With all the conditions precedent under the Discount Contract satisfied, Oltremare negotiated the promissory notes to Cariparma pursuant to the Discount Contract on 5 August 2011. The negotiation amounted, in substance, to Oltremare’s statutory assignment to Cariparma of Rals’ payment obligation under the promissory notes subject to statutory conditions and carrying statutory consequences. The two accompanying assignments of contractual rights to Cariparma under the Discount Contract (see [27] above) also became effective on 5 August 2011.
[36] In exchange, Cariparma duly paid Oltremare the discounted sum of €1,657,105.11 on 12 August 2011.
Cariparma commences S 1173/2013
[37] Cariparma presented for payment the four promissory notes which matured on 6 January 2012, 6 July 2012, 6 January 2013 and 6 July 2013. Each of them was dishonoured. Cariparma has yet to receive payment on any of these four notes. That presumably is also the case for the other four notes which have fallen due since Cariparma commenced this action.
[38] Cariparma therefore makes two main claims against Rals in this action:
(a) It seeks to recover €902,000 on the four dishonoured promissory notes; and
(b) It seeks a declaration:
(i) that Cariparma is a holder in due course of the remaining four notes; and
(ii) that Rals is liable to pay to Cariparma on those four notes.
The Assistant Registrar stays this action
[39] The Assistant Registrar who heard Rals’ application under s 6 of the Act in the first instance granted the stay. Her reasons for doing so were as follows. She held, first, that there was at least an arguable case that Cariparma was itself a party to the arbitration agreement in the Supply Agreement by reason of its status as an assignee of Rals’ debt to Oltremare which arose from that agreement. Alternatively, she was of the tentative view that Cariparma came within the extended definition of “a party” in s 6(5)(a) of the Act because Cariparma was claiming “through or under” Oltremare, and because Oltremare was undeniably a party to the arbitration agreement. The Assistant Registrar held, further, that Cariparma’s claim as the holder of the promissory notes fell within the scope of the arbitration agreement: (i) because the notes were the very mode of payment expressly stipulated in the Supply Agreement; and (ii) because Rals’ intended defences to Cariparma’s claim all related to Oltremare’s performance of the Supply Agreement.
[40] In short, the Assistant Registrar held that Cariparma, being Oltremare’s assignee under the Discount Contract, had stepped into Oltremare’s shoes in respect of all its rights and could be in no better position than Oltremare in enforcing any of those rights. That applied not only in respect of Cariparma’s right to recover Oltremare’s receivable arising from the Supply Agreement but also in respect of Cariparma’s right to recover on the notes themselves, Rals having made those notes pursuant to an express stipulation in the Supply Agreement.
[41] I have allowed Cariparma’s appeal and lifted the Assistant Registrar’s stay. I do accept Rals’ argument that Cariparma is “claiming through or under” Oltremare and is hence a party to the arbitration agreement within the extended meaning of that term in s 6(5)(a) of the Act. However, in my view, Cariparma’s claim – which it has legitimately confined to its rights as the holder of the promissory notes – is not within the scope of that arbitration agreement. Rals is therefore not entitled to have this action stayed under s 6(1). Given that Rals does not suggest that I stay this action on any basis other than that provided in s 6(1), the stay imposed by the Assistant Registrar must fall away.
Stay of proceedings pursuant to s 6(1) of the Act
[42] Stripped down to the elements essential for present purposes, s 6 of the Act provides as follows:
[43] Rals and Oltremare are parties to two arbitration agreements, one in Article 9 of the Supply Agreement and the other in Article 7 of the Services Agreement. Cariparma is neither a party to the Services Agreement nor an assignee of any of Oltremare’s rights under the Services Agreement. The only arbitration agreement upon which Rals’ application to stay this action under s 6 can be founded is therefore Article 9 of the Supply Agreement. That is therefore the only arbitration agreement I shall analyse and refer to in the rest of this judgment.
[44] In order to secure a stay of this action under s 6, Rals must establish the following:
(a) Either:
(i) That Cariparma is a party to Article 9 of the Supply Agreement; or
(ii) That Cariparma is, in this action, “claiming through or under” Oltremare;
and
(b) That this action is in respect of a matter which is the subject of Article 9 of the Supply Agreement.
[45] I accept that the burden on Rals in advancing this application is a light one, and that the burden on Cariparma in resisting it is correspondingly heavy. Rals is entitled to a stay if it is at least arguable that the prerequisites of s 6 have been met: Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 (“Tjong Very Sumito”) at [24]. Therefore, if Rals satisfies me that its position on both points (a) and (b) are at least arguable, it is entitled as of right to have this action stayed. If Rals fails to do so on either point, its application for a stay must be dismissed.
[46] The sequence in which I have set out points (a) and (b) requires me to consider first whether an arbitration agreement exists to which Cariparma is a “party” (whether within that word’s core or extended meaning in s 6 of the Act) before considering whether the present dispute is a matter which is the subject of that arbitration agreement. It is equally possible to consider these two points in the reverse sequence. I could consider, first, whether the present dispute is a matter which is the subject of Article 9 of the Supply Contract and then consider whether Cariparma is a “party” to that Article. I prefer, however, the sequence set out at [44] above. It appears to me that ascertaining whether a plaintiff is a party to an arbitration agreement with a defendant is logically anterior to ascertaining whether the plaintiff’s claim falls within the scope of that arbitration agreement. In any event, the sequence in which I have set out and intend to approach these points is the same sequence in which s 6 itself presents them (see also Tjong Very Sumito at [22] and [69(a)]).
A party to the arbitration agreement?
[47] The first question therefore is whether Cariparma is a party to Article 9 of the Supply Agreement. In my view it is not.
[48] The phrase “party to an arbitration agreement” is the central concept of s 6, and indeed forms part of its language. But this phrase is nowhere defined in the Act. Two constituents of the phrase, however, are defined in the Act.
[49] First, s 2 of the Act defines “party” as meaning, so far as is relevant, “a party to an arbitration agreement”. This definition is, however, intended only to distinguish a party to the agreement in the contractual sense from a party to the arbitration in the procedural sense. This definition – even though it is not the tautology it appears to be – offers no assistance in the current inquiry.
[50] The second constituent of the phrase which is defined is “arbitration agreement”. Section 2A of the Act defines that as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not”.
[51] The agreement which s 2A of the Act envisages is necessarily a contractual agreement. The concluding words of the definition modify “legal relationship” and not “an agreement by the parties”. If the word “agreement” is used in its widest sense, of course, a person can have an agreement to submit disputes to arbitration which falls short of being a contract. But non-contractual agreement to arbitrate can, by definition, be withdrawn at any time without legal consequence. Arbitration would cease to be founded upon consent if the law of arbitration were to treat an agreement to arbitrate as binding when that agreement had ceased otherwise to be binding under the general law of obligations. An “arbitration agreement” within the meaning of s 2A of the Act exists only if the parties to the agreement have a contractual right as against each other – and a corresponding contractual obligation owed to each other – to arbitrate disputes falling within its scope.
[52] Given that an “arbitration agreement” within the meaning of s 2A of the Act must be an agreement in the contractual sense, then a “party” to an arbitration agreement must equally be a party in the contractual sense to the agreement. It is axiomatic that only Rals and Oltremare are parties to a contractual agreement – including an arbitration agreement – between Rals and Oltremare. Only they had the meeting of minds out of which sprang the Supply Agreement and of which the arbitration agreement is an integral, albeit separable, component. Only they participated in the exchange of consideration which gives the arbitration agreement its contractual force. And only they signified their assent to the arbitration agreement, amongst its other provisions, by executing the Supply Agreement.
[53] Cariparma’s relationship to the Supply Agreement is merely that of an assignee. An assignee does not, simply by taking an assignment of some or all of the rights of an assignor against an obligor under their bilateral contract, become a party to that bilateral contract: Rumput (Panama) SA And Belzetta Shipping Co SA v Islamic Republic of Iran Shipping Lines (The Leage) [1984] 2 Lloyd’s Rep 259 (“The Leage”) at 261 per Bingham J; Schiffahrtsgesellschaft Detlev Von Appen GmbH v Voest Alpine Intertrading GmbH (The Jay Bola) [1997] 2 Lloyd’s Rep 279 (“The Jay Bola”) at 285 per Hobhouse LJ.
[54] Rals relies on Oltremare’s declaration to Cariparma under Article 3(1)(f)(iii) of the Discount Contract (see [29] above) to argue that Cariparma had knowledge of Article 9 of the Supply Agreement when it took the assignment of Oltremare’s rights under the Supply Agreement and therefore, by that fact alone, agreed to be bound by their agreement to arbitrate. I do not accept this submission. Knowledge that Rals and Oltremare had agreed to arbitrate their disputes cannot, in itself, make Cariparma a party in the contractual sense to that agreement. Cariparma had no meeting of minds with Rals at all, whether on the agreement to arbitrate or otherwise. Cariparma never indicated to Rals that it consented to be bound by Article 9, whether by executing the Supply Agreement or otherwise. Most importantly, Cariparma and Rals never exchanged consideration for any of the suite of contractual promises under the Supply Agreement, including the promise to submit disputes to arbitration in Article 9.
[55] Cariparma is not a “party to an arbitration agreement” in the contractual sense. It is therefore not within the core meaning of that phrase in s 6(1). It can therefore come within that phrase if and only if it comes within the extended definition of “party” under s 6(5)(a) of the Act.
Claiming “through or under” Oltremare?
[56] Section 6(5)(a) extends the meaning of “a party to an arbitration agreement” to include “any person claiming through or under [a] party” to an arbitration agreement. Applying s 6(5)(a) to the facts of this case therefore requires me to determine whether Cariparma makes its claim in this action “through or under” Oltremare.
[57] It is important at this stage once again to guard against conflating points (a) and (b) (see [44] above). It is possible to take the approach that whether Cariparma claims in this action “through or under” Oltremare turns on whether Cariparma brings this action in its capacity as the assignee of Oltremare’s rights under the Supply Agreement or in its own right as the holder of the promissory notes. Unsurprisingly, this was one of the key arguments of the plaintiff.
[58] I do not consider that to be the correct approach. To my mind, points (a) and (b) are distinct inquiries with distinct purposes. The purpose of the inquiry on point (a) is to establish the required connection between the plaintiff and the arbitration agreement which s 6 posits. It is not the purpose of point (a) to establish a connection between the subject-matter of the plaintiff’s action and the scope of the arbitration agreement. That is the purpose of point (b). Therefore, the manner in which Cariparma has framed its action is a matter which I consider appropriate to consider only under point (b).
[59] With this clarification, I return to consider whether Cariparma in this action claims “through or under” Oltremare.
The case law
[60] The words “through or under” are not defined in the Act. The words “through or under” and “under or through” do, however, appear in the stay provisions which are in pari materia with s 6(1) read with s 6(5)(a) of our Act and which appear in successive iterations of the English arbitration legislation and in the Australian arbitration legislation. Three English decisions and one Australian decision have considered the scope of these words in that context: Roussel-Uclaf v GD Searle & Co Ltd [1978] 1 Lloyd’s Rep 225 (“Roussel-Uclaf”), The Mayor and Commonalty & Citizens of the City of London v Ashok Sancheti [2008] EWCA Civ 1283 (“Sancheti”), The Leage and Tanning Research Laboratories Inc v O’Brien (1990) 169 CLR 332 (“Tanning”).
Roussel-Uclaf
[61] In Roussel-Uclaf, a plaintiff brought an action against two defendants. The first defendant was a wholly-owned subsidiary of the second defendant, its parent. The plaintiff had no arbitration agreement with the subsidiary but did have an arbitration agreement with the parent. The subsidiary intended, in defending the action, to rely on matters relating to the agreement between the plaintiff and its parent. The subsidiary sought a stay of the litigation, relying on s 1(1) of the English Arbitration Act 1975 (in pari materia with s 6(1) read with s 6(5)(a) of our Act) and on the arbitration agreement between its parent and the plaintiff. Its alternative ground for a stay was founded on the court’s inherent jurisdiction.
[62] Graham J granted a stay on the alternative ground. Having done so, he then suggested, obiter, that he could also have granted a stay under the English arbitration legislation on the basis that the subsidiary and parent were, on the facts before him, so closely related to each other that the subsidiary was thereby “claiming through or under” the parent its right to carry out the acts in respect of which the plaintiff was suing it (at 231).
Sancheti
[63] The English Court of Appeal in Sancheti disapproved of Graham J’s very wide dictum. In that case, Mr Sancheti owed the City of London arrears of rent. Mr Sancheti, an Indian national, claimed that the United Kingdom had discriminated against him as an inward investor contrary to a bilateral investment treaty between the United Kingdom and India. He therefore commenced arbitration against the United Kingdom under the treaty. One of his complaints in the arbitration related to the City’s conduct in assessing the arrears of rent and in attempting to collect those arrears. While the arbitration was pending, the City sued Mr Sancheti in the County Court to recover the arrears. Mr Sancheti sought to stay the County Court action under s 9 read with s 82(2) of the English Arbitration Act 1996 (in pari materia with s 6(1) read with s 6(5)(a) of our Act).
[64] Mr Sancheti accepted that the City of London was not a party to any arbitration agreement with him. But one of his arguments was that the City was claiming “under or through” the United Kingdom in the County Court action because the City was so closely connected with the United Kingdom that it fell within Graham J’s dictum in Roussel-Uclaf.
[65] Lawrence Collins LJ had no hesitation in rejecting Mr Sancheti’s argument. He held that for a litigant to be claiming “under or through” a party to an arbitration agreement, a mere legal or commercial connection between the litigant and the party to the arbitration agreement is not sufficient (at [34]). In arriving at that conclusion, he rejected Graham J’s dictum in Roussel-Uclaf and held that that case had, on this point, been wrongly decided and should not be followed.
[66] Sancheti has thus rejected the very wide meaning of the words “under or through” suggested in Roussel-Uclaf. But Sancheti does not tell us how much narrower than that very wide meaning the meaning of those words actually is.
The Leage
[67] In The Leage, Bingham J had to consider whether an assignee who takes an assignment of a debt under an agreement between the assignor and obligor which contains an arbitration agreement – and who takes no assignment of any other rights under that agreement – is bound to recover that debt from the obligor only through arbitration. Bingham J held that the assignee is bound to do so because the assignee’s claim to the debt is derived from the assignor and therefore the assignee comes within the words “through or under” in the arbitration legislation (at 262).
Tanning
[68] In Tanning, the question was whether a liquidator of a company who rejects a creditor’s proof of debt is entitled to rely on an arbitration agreement between the company and the creditor set out in the contract out of which the debt arises. The provisions of s 7(2) and 7(4) of the Australian Arbitration (Foreign Awards and Agreements) Act 1974 (Cth) are in pari materia with s 6(1) and s 6(5)(a) of our Act. Brennan and Dawson JJ (Toohey J agreeing on this point) held that “through” and “under” imply a derivative cause of action or ground of defence:
Cariparma is claiming “through or under”
[69] The intent of the extended definition of “party” in s 6(5)(a) is to impose a statutory obligation on a plaintiff to arbitrate even if the plaintiff is not itself a contractual party to an arbitration agreement. But none of these cases lays out a principled approach for ascertaining which plaintiffs ought to be compelled to arbitrate despite not having consented to do so. The scope of this statutory exception to the consensual foundation of arbitration is therefore fraught with difficulty. I therefore return to first principles.
[70] Whatever the true scope of the statutory phrase “through or under” might be, the core of that phrase must lie in the law of obligations. Arbitration is a consensual dispute resolution procedure: Fiona Trust and Holding Corporation and others v Privalov and others [2007] Bus LR 1719 (“Fiona Trust”) at [5]. It is consistent with that principle if, at the very least, a plaintiff who is not a contractual party to an arbitration agreement but who is nevertheless bound by that agreement under the general law of obligations, or who is precluded by law from denying that he is so bound, is taken to claim “through or under” a contractual party to the agreement within the meaning of s 6(5)(a). The operation of s 6(5)(a) of the Act will, in that situation, do no more than mirror the operation of the general law.
[71] On this approach, answering whether Cariparma claims in this action “through or under” Oltremare raises two subsidiary questions:
(a) First, which law should govern whether Cariparma is bound by Article 9 of the Supply Agreement?
(b) Second, does that law consider Cariparma to be bound by Article 9 of the Supply Agreement?
Which law governs?
[72] On the first question, the parties are agreed that Singapore law governs whether Cariparma is bound by Article 9 of the Supply Agreement. However, as this issue is being considered in Singapore for the first time in this case, and as Singapore law plays many roles in this case, it is important to articulate with a little more granularity why that is so.
[73] I have before me a case in which an obligor (in this case Rals) invites a court to compel an assignee (in this case Cariparma) to pursue its rights against the obligor in arbitration rather than in litigation on the grounds that the assignee is bound by an arbitration agreement between the obligor and the assignor (in this case Oltremare).
[74] The law that governs whether Cariparma is bound by Article 9 of the Supply Agreement depends on how one characterises that question. There are five possibilities. First, the court may characterise the question as being purely procedural and apply the lex fori. Second, the court may characterise the question as one determined by the nature and scope of the substantive right which the assignee seeks to enforce and apply the proper law of the agreement out of which that substantive right arises. Third, the court may characterise the question as one relating to the fundamental nature of the arbitration agreement and apply the proper law of that (separate and separable) arbitration agreement. Fourth, the court may characterise the question as one determined by the law which governs the arbitral process and apply the lex arbitri or curial law. Finally, the court may characterise the question as one determined by the scope of the assignment agreement and apply the law which governs that agreement.
[75] In this case, there are only two contenders for the law to be chosen to govern this question: Italian law and Singapore law. The claim of Italian law to govern this question arises from the fact that Cariparma and Oltremare made it the governing law of the assignment agreement between them (ie, the Discount Contract) by express agreement.
[76] The claim of Singapore law to govern this question arises in four ways. First, Singapore law is the lex fori as this question is being considered by a Singapore court. Second, Singapore law is the proper law of Rals’ contract with Oltremare by virtue of the parties’ express choice of law in the Supply Agreement. Third, Singapore law is the proper law of the arbitration agreement between Rals and Oltremare. That is because Singapore law governs the broader agreement between Rals and Oltremare in which the arbitration agreement is found and there is, in this case, no reason to move beyond the starting assumption that the parties intended the same law to govern both agreements (Sulamérica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 (“Sulamérica”) at [11] – [14]). Fourth, Singapore law will be the lex arbitri or curial law of any arbitration commenced under the arbitration agreement. That is because the arbitration agreement specifies Singapore as the parties’ chosen arbitral seat and there is, in this case, no reason to move beyond the starting assumption that the parties intended the law of their chosen seat to be the lex arbitri (Sulamérica at [15] – [17]).
[77] I examine three of these possibilities further in order to eliminate them: (a) the lex fori; (b) the proper law of the assignment agreement; and (c) the lex arbitri.
Lex fori
[78] The lex fori ought not to play a role in determining the question at [71(b)]. I say this for three reasons.
[79] First and fundamentally, it is wrong in principle to characterise the question of whether an assignee is obliged to arbitrate its claim against the obligor as purely procedural. The question is a substantive one which touches on the nature of the contract between the obligor and the assignor and of their arbitration agreement. It is a mere quirk of our law that we give effect to a determination of this substantive question through a procedural device, ie a stay. That does not convert the substantive question into a procedural one, let alone into one which is purely procedural.
[80] Second, a choice of law rule which applies the lex fori to this question encourages forum shopping. It permits the assignee, by his unilateral act in choosing the forum in which to commence litigation, to choose the law which determines whether he is bound by the arbitration agreement. That forum need not have any connection to any aspect of the substantive agreement between the obligor and the assignor or with their arbitration agreement. It may have been chosen by the assignee simply to minimise the chance of being compelled to arbitrate. Further, allowing the lex fori to determine this question means that until the assignee commences action, the law which governs this question is wholly indeterminate. No prediction can even be ventured as to whether the assignee is bound to arbitrate until litigation actually commences. That reduces commercial certainty.
[81] Finally, a choice of law rule which points to a law chosen by the unilateral act of the assignee by commencing litigation carries the highest risk of defeating the parties’ reasonable commercial expectations. The expectations of the parties as at the time of contracting are either manifested in, or objectively ascertainable from, their agreements. Those expectations are very likely to be defeated by attaching legal significance to one party’s unilateral and self-serving subsequent act.
[82] All of these considerations exclude the lex fori as a candidate for a choice of law rule. This is so even though in a particular case, the assignee may choose the forum for legitimate rather than tactical reasons. That is the case here: Cariparma has chosen to sue on the promissory notes in the courts of Singapore because that is the legal system governing all aspects of the notes. But Singapore law cannot, simply because it happens to be the lex fori, govern whether Cariparma is contractually bound by the arbitration agreement between Rals and Oltremare.
Proper law of the assignment agreement
[83] The proper law of the assignment agreement between the assignor and the assignee equally ought not to govern this question.
[84] As between the assignee and the obligor, a choice of law rule which points to the law of the assignment agreement creates a real risk of defeating the obligor’s reasonable commercial expectations. As far as the obligor is concerned, it entered into an arbitration agreement with the assignor as a separable but integral part of their wider bilateral contract. Once invoked, the arbitration agreement operates not only to entitle the obligor and the assignor to resolve their disputes through arbitration but also to oblige them to do so. It is entirely reasonable for the obligor to expect that, even if it is an assignee who brings a particular claim against it under that agreement, the law which determines how that claim is to be resolved will be a law which the obligor had some say in choosing. It appears to me to be wrong in principle that the obligor should find its ability to compel an assignee to arbitrate to be regulated by the proper law of an agreement between assignor and assignee when the obligor is not a party to that agreement; when the obligor may not know of its existence, let alone of its terms; and when the obligor may have had no reason to contemplate an assignment of rights when contracting with the assignor, beyond being a mere theoretical possibility.
[85] Finally, adopting a choice of law rule which points to the proper law of the assignment agreement is not necessary in order to give effect to the assignee’s reasonable commercial expectations. The assignee will have taken the assignment of his rights with every opportunity of ascertaining the terms of the agreement between the obligor and the assignor, including its proper law.
The lex arbitri
[86] The lex arbitri ought not to play a role in determining this question. The lex arbitri is predominantly procedural in its nature and too narrow in its focus. It is therefore ill-equipped to deal with a substantive issue such as whether the assignee is bound to arbitrate his disputes with the obligor.
Conclusion on governing law
[87] By the process of elimination, I am therefore left with only two possibilities for the law which governs the question at [71(b)]: (i) the proper law of the obligor’s and assignor’s substantive agreement (in this case, the Supply Agreement); and (ii) the proper law of the obligor’s and assignor’s arbitration agreement (in this case, Article 9 of the Supply Agreement).
[88] Singapore law governs both the substantive agreement between Oltremare and Rals as well as their separable arbitration agreement. It is therefore unnecessary for me to express a more granular view on the choice of law rule. The choice between these two residual alternatives remains ultimately a question of characterisation (see [73] above). If it had been necessary for me to choose, I would have inclined towards the law which governs the parties’ separable arbitration agreement.
[89] I do express the view, however, that the law which governs this question must be ascertained by a choice of law rule which operates to choose a law rather than to yield a pre-ordained result. I therefore have difficulty in accepting Rals’ submission that this question should be determined by what has been called a “validation principle” which operates to choose whichever law holds the assignee to be bound by the arbitration agreement. That, with respect, would be to allow the tail to wag the dog.
Bound by the arbitration agreement under Singapore law?
[90] The next question is whether, under Singapore law, an assignee of a right against an obligor is bound to submit a dispute over that right to arbitration if the assignor and the obligor would have been bound to do so by virtue of an arbitration agreement between them. If the answer is yes, there can be no doubt that the assignee is – and ought to be – within the meaning of the words “claiming through or under” in s 6(5)(a). The assignee will not only be relying on a right derived from the assignor, the assignee will itself be contractually bound under the general law to arbitrate despite not being a party to the arbitration agreement.
[91] An analysis of the cases cited by both counsel establish the following propositions of law:
(a) Arbitration agreements are, as a class, capable of assignment.
(b) Where an assignor and an obligor have entered into an arbitration agreement, an assignee of a contractual right against the obligor is entitled to exercise all the remedies of the assignor in respect of that right, including the right to arbitrate disputes with the obligor falling within the scope of that arbitration agreement.
(c) Where an assignor and an obligor have entered into an arbitration agreement, an assignee of a contractual right against the obligor is obliged to submit to arbitration all disputes with the obligor falling within the scope of that arbitration agreement, notwithstanding the well-established rule that an assignment can convey to the assignee only contractual benefits and never burdens.
These propositions are all, of course, subject to any express or implied agreement to the contrary.
[92] I now elaborate on each of these three propositions.
Arbitration agreements as a class are capable of assignment
[93] The position in English law on the first of these three propositions took an initial wrong turn but is now well-settled. The English courts’ initial approach held that an arbitration agreement was a personal covenant, and therefore remained vested in the assignor even after he had validly assigned to an assignee all of his other rights under his contract with the obligor: Cottage Club Estates Limited v Woodside Estates Company (Amersham) Limited [1928] 2 KB 463.
[94] In Shayler v Woolf [1946] 1 Ch 320, however, the English Court of Appeal held that: (i) arbitration agreements are, as a class, capable of assignment; and (ii) the presence of an arbitration agreement in a contract which contains rights which are otherwise capable of assignment will not, in itself, prevent the rights under that contract from being assigned, including the rights under the arbitration agreement.
Assignee takes the benefit of the arbitration agreement
[95] The second proposition at [91(b)] above is the result of moving beyond simply reversing the old rule denying the assignability of arbitration agreements and working out the ordinary consequences of an assignment. Thus, the English cases now recognise as a default rule that the assignment of a contractual right carries with it the benefit of an associated arbitration agreement. The contrary result requires contrary agreement.
[96] In Montedipe SpA and another v JTP-RO Jugotanker (The Jordan Nicolov) [1990] 2 Lloyd’s Rep 11 (“The Jordan Nicolov”), an assignor commenced arbitration against an obligor and then assigned its cause of action to an assignee. The assignee gave notice of the assignment both to the obligor and, eventually, to the arbitral tribunal. The assignor continued, however, to be named as the claimant in the arbitration. Even though the assignor’s notice of assignment was in evidence, thereby putting its title to the claim very much in issue, the assignor did not adduce any evidence that it had the necessary title to maintain the claim in arbitration. The arbitrators held that the assignor’s claim was well-founded on the merits, but concluded that they could not award the assignor any relief because it had failed to discharge its burden of proving that it continued to have title to the claim despite the notice of assignment. The question which arose before Hobhouse J was whether the award should be remitted to the arbitrators for them to consider making an award in favour of the assignee rather than the assignor.
[97] Hobhouse J rested his decision in large part on s 136 of the English Law of Property Act 1925 (c. 20). That section is in terms virtually identical to s 4(8) of our Civil Law Act (Cap 43, 1999 Rev. Ed) which provides as follows:
[98] Relying on the English equivalent of this provision, Hobhouse J held that: (i) an assignee of a cause of action takes the benefit of all the remedies associated with that cause of action (at 15); (ii) in the absence of contrary agreement, those remedies will include any right which the assignor may have agreed with the obligor to vindicate that cause of action in arbitration (at 15); (iii) an assignee who takes its assignment while an arbitration of a claim involving the assigned right is ongoing need not start arbitration afresh but is entitled to intervene in the assignor’s existing arbitration after giving notice of assignment to the opposing party and to the tribunal; and (iv) the arbitrators have, in these circumstances, the jurisdiction to grant an award to the assignee (at 19).
[99] This position must, with respect, be correct. I therefore hold that this is also the position in Singapore law.
An assignee is bound by the burden of an arbitration agreement
[100] The preceding analysis (at [95] to [99] above) of the second proposition of law set out at [91(b)] above does not, however, address the third proposition at [91(c)] above. It is the third proposition which is in play in this case. Unlike the second proposition, the third proposition poses a serious conceptual challenge.
[101] This action is not one in which Cariparma is claiming the benefit of Oltremare’s arbitration agreement with Rals to pursue Rals in arbitration. Cariparma is resisting Rals’ attempt to impose the burden of Rals’ arbitration agreement with Oltremare upon Cariparma.
[102] It is well-established at common law that contractual benefits may be transferred by assignment. But it is equally well-established that contractual burdens cannot be transferred by assignment but only by novation (see Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85 at 103E). An arbitration agreement is capable of being seen as both a benefit and a burden, depending on one’s perspective. From Rals’ perspective, the arbitration agreement in Article 9 of the Supply Agreement is a benefit. From Cariparma’s perspective, it is a burden. These perspectives are by no means inevitable as between plaintiff and defendant or as between assignee and obligor. Simply put, an arbitration agreement is a benefit to a party – whether the obligor or the obligee – who wishes to arbitrate. It is a burden to a party – whether obligor or the obligee – who does not.
[103] There is no Singapore authority on this third proposition. But the answer from the English cases, even if the conceptual underpinnings are not immediately obvious, is that an assignment of a contractual right carries not only the benefit of an associated arbitration agreement but also its burden.
[104] In The Jordan Nicolov (see [96] above), Hobhouse J held that an assignee is bound by the assignor’s arbitration agreement with the obligor in the sense that the assignee cannot vindicate the assigned right without also accepting the obligation to arbitrate. This holding was, however, obiter: The Jordan Nicolov was not a case in which the obligor was seeking to impose on the assignee the burden of the arbitration agreement. Instead, as I have explained (at [96] – [98] above), the question was whether an assignee could claim the benefit of an arbitration agreement in order to secure an award in an ongoing arbitration between the assignor and the obligor.
[105] In The Jay Bola, by contrast, an obligor succeeded in imposing the burden of an arbitration agreement on an assignee. In that case, an assignee attempted to pursue its claim against an obligor through litigation in Brazil in circumstances where, if the assignor had been pursuing the claim, it would have been bound by an arbitration agreement. Because the litigation to be restrained in The Jay Bola was in Brazil and not in England, the obligor could not seek from the English court a stay under the English equivalent of s 6 of our Act. Instead, the obligor had to seek from the English court an anti-suit injunction to restrain the assignee from pursuing its litigation in Brazil.
[106] Hobhouse LJ held that the anti-suit injunction should issue, relying again on the English equivalent of s 4(8) of our Civil Law Act (see [97] above). He held that: (i) this provision permits rights of action to be assigned, but subject always to the obligor’s equities; (ii) the obligor’s contractual right to have the claim arbitrated was a right which equity required the assignee to recognise; (iii) the assignee was acting unconscionably by disregarding the obligor’s equitable right and suing it in Brazil; and (iv) the grant of an injunction was the appropriate equitable remedy for the assignee’s unconscionable conduct (at 286).
[107] Hobhouse LJ’s explanation suffices to explain why the equitable remedy of an injunction issued in that case. But it glides over the fundamental distinction in law between transmitting the benefit of a contractual right to an assignee and transmitting its burden. In summarising the effect of his decision, Hobhouse LJ says: “... the application of the [obligor] for an injunction has been made to protect a contractual right of the [obligor] that the dispute be referred to arbitration, a contractual right which equity requires the [assignee] to recognise” (at 286). If the obligor has a contractual right to have the dispute referred to arbitration, then the assignee must have a corresponding contractual obligation to submit to arbitration. And if the assignee breaches that contractual obligation, its breach ought not only to warrant an injunction but also to sound in damages. But Hobhouse LJ rejects categorically the proposition that the assignee could have any liability to the obligor under the arbitration agreement: “The burden of the contract was not transferred. The [assignee] came under no actionable liability to the [obligor]” (at 286).
[108] If arbitration is truly founded upon consent, it is unsatisfactory that an assignee should be compulsorily diverted to litigation if the assignee has never undertaken an obligation to arbitrate. This suggests that the better explanation for why the anti-suit injunction lay in the The Jay Bola is that the assignee was under an actionable obligation to arbitrate, notwithstanding Hobhouse LJ’s protestations to the contrary. So too, that is the better explanation for why the litigation in The Leage was stayed. The challenge in establishing the third proposition is in finding the legal doctrine by which the burden of an arbitration agreement is transmitted to the assignee in the absence of a novation.
[109] A clue, however, to finding the legal basis for such an obligation lies in Hobhouse LJ’s remark in The Jay Bola (at page 286): “The [assignee] is not entitled to enforce its right without also recognising the obligation to arbitrate.” This observation, couched in the language of burden rather than benefit, invokes the doctrine of conditional benefit from the judgment of Megarry V-C in Tito v Waddell (No. 2) [1977] 1 Ch 106 (“Tito”).
[110] Tito is not an arbitration case nor, strictly speaking, an assignment case. It is a case which considers the transmissibility of contractual burdens as a matter of general principle. In Tito, Megarry V-C considers in detail the various mechanisms under English law by which a contractual burden can be transmitted to a successor in title. One of those is the principle of conditional benefit by which a successor in title of a right takes the benefit of that right subject to all of the burdens which are annexed ab initio to that right (at 290):
[111] An arbitration agreement is the archetypal annexed burden. It has no purpose and no value in itself. Its entire purpose and value arises from the substantive rights and obligations to which it is annexed. It is entered into, not as one of the parties’ substantive rights or obligations, but only to prescribe a procedural right and obligation which caters for the possibility of future disputes over their substantive rights and obligations. If those disputes arise, the arbitration agreement prescribes the mode by which they are to be resolved. Thus, in Firma C-Trade SA v Newcastle Protection and Indemnity Association (The Fanti) [1991] 2 AC 1 at 33, Lord Goff referred to an agreement to arbitrate as being inevitably transferred to a transferee of rights under a contract because it was “inseparably connected with” those rights. The result is that the assignee of a substantive right which is subject to an arbitration agreement cannot take that right otherwise than with the obligation to arbitrate because that obligation is annexed ab initio to it.
[112] This principle of conditional benefit is the best explanation for the basis on which English law now recognises that the burden of an arbitration agreement can be transmitted to an assignee. As Professor Gregory Tolhurst says in his book, The Assignment of Contractual Rights (Hart Publishing, 2006), at paragraph 6.118:
[113] The result is that a contractual right which is subject to an arbitration agreement has annexed to it ab initio both the right and the obligation to arbitrate. If the contractual right is assigned, in the absence of any express or implied agreement to the contrary, the assignment operates to transmit to the assignee both the benefit and the annexed burden of arbitration. If the assignee chooses to enforce its assigned right, it is not only entitled by law to do so by arbitration, it is also bound by law to do so by arbitration.
Consequences of the conditional benefit analysis
[114] Four important consequences follow from founding the third proposition at [91(c)] above on the conditional benefit principle.
[115] First, whatever the assignor and assignee may agree in their assignment agreement is irrelevant to the analysis. The assignment agreement comes after the fact as far as the arbitration agreement is concerned. The logic is simple. The assignor and assignee cannot break apart the right and the remedy which the assignor and obligor have created ab inito as a single, indivisible whole in their contract, at least not without the obligor’s consent.
[116] Second, this is yet another reason why it cannot be the proper law of the assignment agreement which determines whether an assignee is obliged to arbitrate (see [83] to [85] above). The legal basis of the assignee’s obligation to arbitrate is fixed at the time the obligor and the assignee contract, long before the assignee and the assignment agreement come on the scene.
[117] Third, it is not necessary on this analysis for the assignee to consent independently to the arbitration agreement, nor indeed to have notice of the arbitration agreement, in order for the assignee to be bound to arbitrate. The obligation to arbitrate is bundled together with the right which the assignee takes. Nothing which the assignee does or knows can result in him receiving or rejecting the obligation to arbitrate separately from receiving the assigned right.
[118] Fourth, this analysis supplies the assignee’s consent to arbitrate. That consent is located in the assignee’s consent to take the benefit of the substantive right in question. That consent operates, in itself, to bring with it the obligation to arbitrate.
[119] How can imputing consent to the assignee in this way be reconciled with the principle that arbitration is a consensual dispute resolution procedure? This point is the cornerstone of Cariparma’s submissions. Cariparma submits that it never consented to arbitration and therefore cannot be bound to arbitrate.
[120] The principle of conditional benefit does not undermine the consensual nature of arbitration whether on the conceptual or the practical level.
[121] On the conceptual level, arbitration is a consensual dispute resolution procedure only in the contractual sense, not in the subjective sense. A subjective desire to arbitrate or a subjective intent to be bound by a promise to arbitrate is quite unnecessary for a party to find itself contractually bound to arbitrate. A court holds a party to perform its contractual promise to arbitrate for the same reason that it holds a party to perform any other contractual promise. It does so because the party’s intent to be bound by that promise can be objectively ascertained from its agreement with its counterparty, construed in light of the surrounding circumstances. A party can therefore find itself contractually bound to arbitrate even if it had no subjective intention or desire to arbitrate. The gap between the subjective and the objective – at least in commercial matters – is simply one of the risks of doing business. Despite this gap, commercial arbitration can still legitimately claim to be founded on consent because a party is bound to arbitrate in the same way it is bound to any other contractual obligation. For the same reason, arbitration is nevertheless consensual even though an assignee can find himself bound to arbitrate by the conditional benefit principle without ever having had a subjective intent or desire to arbitrate.
[122] Further, on a practical level, every assignee has the opportunity to review – before he takes an assignment – the substantive agreement between the assignor and the obligor which sets out the rights to be assigned as well as any arbitration agreement and any express choice of law agreement which may govern all of those rights. The assignee therefore has an opportunity to take all necessary steps, with the benefit of professional advice if necessary, to ascertain his own post-assignment position, to bargain for protections against any post-assignment risks he is unwilling to take, and to price in any such risks which cannot be mitigated by contract. This includes the risk, if that is how the assignee sees it, of being bound by the arbitration agreement. In that sense also, the conditional benefit principle does not undermine the consensual nature of arbitration.
The limits of the conditional benefit analysis
[123] The analysis in the sections above presupposes a substantive right to which is annexed ab initio, as an indivisible whole, an obligation to arbitrate disputes arising from that right. That is the basis on which the conditional benefit principle operates. But the conditional benefit principle recognises that it is also possible, at least in theory, for the assignor and obligor to contract in such a way as to prevent the principle from operating. They can do so by providing in their substantive agreement (expressly or by necessary implication) that the arbitration agreement is not annexed to the substantive rights to which it refers. In such a case, the principle of conditional benefit will be excluded.
Conclusion on whether Cariparma is bound
[124] I return now to the facts of this case. The only substantive obligation of Rals in play in this case is its obligation to pay the price of Oltremare’s equipment under the Supply Agreement. There is nothing in the Supply Agreement which, on its true construction, has the effect of rendering the arbitration agreement between Oltremare and Rals independent of Rals’ obligation to pay that price. Thus, the right to receive the purchase price under the Supply Agreement which has been transmitted by assignment to Cariparma carried with it the burden of Article 9 of the Supply Agreement. Cariparma is therefore contractually bound to arbitrate all disputes which fall within the scope of Article 9 of the Supply Agreement, properly construed.
[125] Cariparma is therefore a party claiming “through or under” Oltremare under s 6(5)(a) even though it is not a party to Article 9 of the Supply Agreement.
[126] Having determined what I have called point (a) (see [44(a)] above) against Cariparma, I turn to consider point (b): whether Cariparma’s action is in respect of a matter which is the subject of the arbitration agreement set out in Article 9 of the Supply Agreement.
Subject of the arbitration agreement?
[127] Section 6(1) of the Act obliges me to stay this action if and only if it is brought “in respect of any matter which is the subject of the [arbitration] agreement” between Rals and Oltremare by which, as I have held, Cariparma finds itself bound. Applying s 6(1) of the Act to the terms of Article 9 of the Supply Agreement (see [18] above), I am therefore bound to stay this action if the subject-matter of this action can be said to “arise in connection with” the Supply Agreement.
[128] There is no doubt that Cariparma’s action would have to be stayed if the action were founded on Cariparma’s right as Oltremare’s assignee to receive the purchase price under the Supply Agreement from Rals. But that is not how Cariparma has framed its claim. It has deliberately confined its claim to the eight promissory notes. On that basis, Cariparma argues that the subject-matter of this action is limited to the statutory contract between Cariparma and Rals comprised in the notes and does not “arise in connection with” the Supply Agreement.
[129] The next stage of my inquiry therefore requires me to construe the arbitration agreement. I begin by restating the applicable principles before applying them to Article 9 of the Supply Agreement to ascertain whether a claim on promissory notes comes within its scope.
The approach to interpreting arbitration agreements
[130] The old judicial approach to arbitration agreements was one of hostility. Three principal strands underpinned this hostility. First, it was – and indeed, still is – contrary to public policy to enter into a private agreement which ousts the jurisdiction of the courts: CKR Contract Services Pte Ltd v Asplenium Land Pte Ltd and another and another appeal and another matter [2015] 3 SLR 1041 at [17] – [18]. Ousting the jurisdiction of the courts is precisely what an arbitration agreement does. Second, it was feared that arbitration was “an inferior process of justice” (Tjong Very Sumito at [28]) which could be unfair in its procedure, inaccurate in its outcome or both. Finally, it was feared that a party with stronger bargaining power could exploit the gap between an objectively-ascertained contractual intent to arbitrate and an actual, subjective desire to arbitrate in order to divert an unwilling and weaker counterparty to arbitration for an ulterior purpose, eg out of a malign desire for confidentiality or to secure the benefit of a tribunal which was impartial only in appearance.
[131] For all these reasons, the old judicial approach treated an arbitration agreement quite differently from any other contractual promise. First, an arbitration agreement was construed narrowly, layering fine semiotic distinctions upon minor semantic differences. Second, a party was in effect permitted to resile unilaterally from a contractual obligation to arbitrate once a dispute had actually arisen. Thus, it was not mandatory to stay an action even if the parties to the action were also parties to an arbitration agreement and the subject-matter of the action fell squarely within the scope of that agreement. Declining to stay an action in these circumstances is the contractual equivalent of declining specific performance of the arbitration agreement and amounts to releasing the unwilling counterparty from the obligation to arbitrate without contractual consequence.
[132] Modern appellate decisions and legislation have swept away the old judicial approach to arbitration agreements: Tjong Very Sumito at [28]. An arbitration agreement is today treated in the same way as any other contractual promise. It is construed in order to give effect to the parties’ intention objectively ascertained in accordance with the contextual approach to contractual construction. And as far as enforcement is concerned, unilaterally resiling from an arbitration agreement is no longer possible, at least under the Act. A stay under s 6 is mandatory so long as the litigants are parties to an effective arbitration agreement and the subject-matter of the action falls within its scope. Indeed, a court is obliged to stay the action even if it cannot come to a conclusion on either of these criteria. It suffices if it is at least arguable that these two criteria are satisfied or if it merely appears that they are satisfied: Tjong Very Sumito at [24]; Malini Ventura v Knight Capital Pte Ltd and others [2015] SGHC 225 at [36].
[133] The new approach to construing arbitration agreements is directed at upholding, rather than defeating, the typical expectations of commercial parties who choose arbitration. It is at least part of their expectation to achieve one-stop dispute resolution through arbitration. Thus, in Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways Ltd (1996) 39 NSWLR 160, Gleeson CJ said (at [165]):
[134] In his leading speech in Fiona Trust, Lord Hoffman emphasises the importance of giving effect to the expectations of commercial parties who choose arbitration (at [12]):
[135] Having set out those general principles, Lord Hoffman concludes that arbitration agreements should be construed from a starting point which meets the expectations of commercial parties by leaning against the fragmentation of dispute resolution (at [13] – [14]):
[136] The Court of Appeal has endorsed and applied this approach. In Larsen Oil & Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) [2011] 3 SLR 414 (“Larsen”), the Court of Appeal cites this passage from Lord Hoffman’s speech before opining in the broadest of terms that: “arbitration clauses should be generously construed such that all manner of claims, whether common law or statutory, should be regarded as falling within their scope, unless there is good reason to conclude otherwise” (at [19] and see also [12] – [14] and [20]).
[137] As the concluding words of qualification in Larsen’s statement of principle suggest, however, this broad principle is not without its limits. But even when a court finds “good reason to conclude otherwise”, that conclusion is arrived at not out of an anachronistic suspicion of arbitration. It is arrived at to meet the expectations of commercial parties in choosing arbitration and to give effect to their contractual intent, objectively ascertained. Indeed, in Larsen itself, the Court of Appeal found “good reason to conclude otherwise” for just that reason. It held (at [20]) that a pre-insolvency arbitration agreement would not ordinarily be construed as encompassing a post-insolvency avoidance claim brought by an insolvency office holder: “Since avoidance claims can only be pursued by [insolvency office holders], there is no reason objectively to believe that a company’s pre-insolvency management would ordinarily contemplate including avoidance claims within the scope of an arbitration agreement”.
[138] The Court of Appeal continued to assimilate the construction of arbitration agreements to the general approach to contractual construction in International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd and another [2014] 1 SLR 130 (“International Research Corp”). In that case, the Court of Appeal rejects the so-called “strict rule” which determined whether an arbitration agreement had been incorporated into a contract by reference. The “strict rule” requires a clear and express reference in one contract to an arbitration agreement in a second contract before the arbitration agreement in the second contract can be held to have been incorporated by reference into the first contract. The Court of Appeal held that it is, in all cases, purely a question of ascertaining the parties’ objective intention through the usual process of contractual interpretation applying the contextual approach (at [34]):

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Cassa di Risparmio di Parma e Piacenza SpA v Rals International Pte Ltd

Laws this judgment relies on

Grounds of decision

Introduction

Factual background

The parties

The Supply Agreement

The Services Agreement

The promissory notes

The Discount Contract

Delivery and acceptance of the promissory notes

Cariparma commences S 1173/2013

The Assistant Registrar stays this action

Stay of proceedings pursuant to s 6(1) of the Act

A party to the arbitration agreement?

Claiming “through or under” Oltremare?

The case law

Roussel-Uclaf

Sancheti

The Leage

Tanning

Cariparma is claiming “through or under”

(a) First, which law should govern whether Cariparma is bound by Article 9 of the Supply Agreement?

(b) Second, does that law consider Cariparma to be bound by Article 9 of the Supply Agreement?

Which law governs?

Lex fori

Proper law of the assignment agreement

The lex arbitri

Conclusion on governing law

Bound by the arbitration agreement under Singapore law?

Arbitration agreements as a class are capable of assignment

Assignee takes the benefit of the arbitration agreement

An assignee is bound by the burden of an arbitration agreement

Consequences of the conditional benefit analysis

The limits of the conditional benefit analysis

Conclusion on whether Cariparma is bound

Subject of the arbitration agreement?

The approach to interpreting arbitration agreements