EXXA Network Pte Ltd v SQ2 Fintech Pte Ltd [2021] SGHCR 9

This judgment concerns an application to stay court proceedings in favour of mediation and arbitration, pursuant to s 8 of the Mediation Act 2017 (Act 1 of 2017) (“Mediation Act”) and s 6 of the Arbitration Act (Cap 10, 2002 Rev Ed) (“Arbitration Act”). I grant the stay for the reasons elaborated upon in this judgment.

Background Facts

The Plaintiff, EXXA Network Pte Ltd (“the Plaintiff”), is in the business of information technology and computer service activities. The Defendant, SQ2 Fintech Pte Ltd (“the Defendant”), provides credit card and cryptocurrency services, and also develops fintech applications.

The Superwallet Platform Quote

In 2019, the Plaintiff sought the Defendant’s services to construct a platform for cryptocurrency trading (called the “Superwallet Platform”) with an artificial intelligence trading bot (called “DEVO+”) (collectively, “the Project”). On 20 April 2019, the Defendant sent to the Plaintiff a quote setting out the framework for the development of the Superwallet Platform and DEVO+. The parties referred to this as the “Superwallet Platform Quote” (“SPQ”). There is no need to go into detail on the clauses of the SPQ, save to observe that (a) the preamble to the SPQ states that “a detail[ed] software development agreement will be prepared after the acceptance of this quotation”; and (b) the SPQ does not contain any jurisdiction or dispute resolution clause.

The Shareholders’ Agreement

The Plaintiff, the Defendant and the then-shareholders of the Plaintiff subsequently entered into a “Founders Shareholders’ Agreement” dated 12 August 2019 (“SHA”). Of particular relevance for present purposes is that the SHA referred to the SPQ, or the subject matter of the SPQ, in three main ways:

(a) First, the term “Business Plan” in the SHA was defined in Clause 1.1 of the SHA as a reference to the business road map of the Plaintiff that “includes the execution, development of the IP Assets by [the Defendant] for the purpose of the Business…” (emphasis added). The term “IP Assets”, in turn, was defined to include “… the mobile Superwallet blockchain platform, utilising the [Defendant’s] AI Trading Robot as one of the product offering, such AI Trading Robot refers to the proprietary crypto-trading engine that [the Defendant] owns and provides as a service. The IP Assets would also include [the Defendant’s] contribution to such technology infrastructure… necessary for the Business, such contribution as more particularly known as [the SPQ] …” (emphases added). Reference is clearly made to the Superwallet Platform and DEVO+, which were the subject matter of the SPQ.

(b) Second, Clause 13.2 of the SHA provided for each party’s further covenants and undertakings. The Defendant is stated as being responsible for “developing and providing to the [Plaintiff] the IP Assets, utilising the [Defendant’s] AI Trading Robot as one of [the Defendant’s] product offering, a proprietary crypto-trading engine that [the Defendant] owns and provides as a service.”

(c) Third, the Defendant provided a warranty in Clause 15.2(c) of the SHA that the performance of the Defendant’s obligations “do not and shall not infringe upon or misappropriate the intellectual property rights of any third party”. This expressly reverses the previous position taken under Clause 5.2 of the SPQ, where it was expressly provided that the Defendant made no warranty against infringement of intellectual property rights of a third party. The relevance of this point is mentioned at [14(b)] below.

Three other aspects of the SHA are relevant to the present application:

(a) First, Clause 16.3 of the SHA, which relates to the termination of the SHA, provides that:

(b) Second, Clause 20.6 of the SHA is an entire agreement clause (“Entire Agreement Clause”), which provides that:

(c) Third, Clause 25 of the SHA sets out a multi-tiered dispute resolution framework (“Dispute Resolution Clause”). Under the Dispute Resolution Clause, “all disputes, controversies or differences… arising out of or in connection with” the SHA shall first be referred to mediation and, failing resolution by mediation, at a party’s option to arbitration. Clauses 25.1, 25.2, 25.3 and 25.4 of the SHA provide as follows:

The Dispute and the Stay Application

In October 2019, difficulties arose between the Plaintiff and the Defendant concerning the Project. In gist, the Defendant’s Chief Director of Information Technology left the Defendant’s employment, and the Defendant could no longer support the Plaintiff in relation to DEVO+. While the parties presented different accounts of the subsequent attempts to part ways amicably, it is undisputed that the Defendant eventually transferred its shares in the Plaintiff to another of the Plaintiff’s shareholders.

On 26 March 2021, the Plaintiff served the writ in the present suit on the Defendant, claiming – amongst other things – that the Defendant had breached the SPQ by its failure to deliver DEVO+ (“the Dispute”). The suit was initially stayed because the Defendant commenced voluntary winding up proceedings. In July 2021, the Plaintiff sought and obtained the leave of the Court to continue the suit. While granting leave to continue the suit, the Court expressly allowed the Defendant to apply to stay the suit on the basis of the Dispute Resolution Clause. This resulted in the present application to stay court proceedings in favour of mediation and arbitration.

Applicable Legal Principles

A dispute resolution clause expresses the parties’ agreement on the appropriate forum for resolving any disputes which fall within the ambit of that clause. Where such a clause seeks to avoid dispute resolution in a court by having the matter proceed to arbitration, this intention ought to be upheld (see, eg, Ling Kong Henry v Tanglin Club [2018] 5 SLR 871 (“Ling Kong Henry”) at [25]). The principle underlying judicial non-intervention in such situations is the respect for the parties’ agreement on how their disputes will be resolved; or, as succinctly observed in Ling Kong Henry, “the premise of the court’s intervention lies in the bargain struck between parties”. This policy rationale finds legislative expression in the provisions relating to a stay of court proceedings in s 8 of the Mediation Act and s 6 of the Arbitration Act.

The principles governing the Court’s exercise of power in the context of a stay of court proceedings in favour of arbitration have been clearly set out by the Court of Appeal in Tomolugen Holdings Ltd v Silica Investors Ltd [2016] 1 SLR 373 (“Tomolugen”) and Sim Chay Koon and others v NTUC Income Insurance Co-operative Ltd [2016] 2 SLR 871 (“Sim Chay Koon”). The principles of especial relevance to the present application are:

(a) First, as a general rule, the Court undertakes a restrained review of the facts and circumstances in determining whether it appears on a prima facie basis that there is an arbitration clause and that the dispute falls within the ambit of that clause (Sim Chay Koon at [5]). This is in the light of the kompetenz-kompetenz principle, which is legislatively expressed in s 21(1) of the Arbitration Act as follows:

(b) Second, while the arbitral tribunal generally has the right to first determine the matters mentioned in s 21(1) of the Arbitration Act, an aggrieved party may subsequently seek relief from the Court through prescribed avenues (eg, an application under s 48 of the Arbitration Act to set aside an arbitral award).

(c) Third, the Court will stay proceedings in favour of arbitration, except where the arbitration clause is “clearly invalid or inapplicable” (Tomolugen at [68]) (emphasis in original).

(d) Fourth, the Court has the discretion to refuse a stay of proceedings in favour of arbitration (see s 6(2)(a) of the Arbitration Act). However, this discretion should be exercised “sparingly and in a principled way” (Sim Chay Koon at [7]).

The points mentioned in [9] above apply similarly to multi-tiered dispute resolution clauses. For instance, in Ling Kong Henry at [25], the Court observed that the same policy rationale (ie respecting parties’ intentions as expressed in a dispute resolution clause) applies “with equal force” to clauses which include conciliatory steps. In Tan Wee Tin and others v Singapore Swimming Club [2017] SGHCR 21 at [66]-–[69], the Court granted a stay pending an agreed multi-tiered dispute resolution process which required the parties to first attempt mediation of any disputes that arise.

Issues

The issues arising in the present application are:

Whether the Dispute falls within the ambit of the Dispute Resolution Clause

The first issue is whether, on a prima facie basis, the Dispute falls within the ambit of the Dispute Resolution Clause.

The parties present diametrically opposed characterisations of the SPQ. The Defendant’s position is that the SPQ was merely a quotation issued for the Plaintiff’s consideration and was never intended to be a standalone contract that could be enforced on its own. The Plaintiff’s position is that the SPQ was a standalone “contract for services” between the Plaintiff and the Defendant, which is “wholly capable of being enforced on its own”. As such, the Plaintiff contends that because the Dispute arises out of the SPQ (rather than the SHA), it does not fall within the ambit of the Dispute Resolution Clause. The Plaintiff’s arguments on this issue may be summarised as six points:

I start by expressing some difficulties I have with the arguments at [13(d)] and [13(e)] above.

(a) In relation to the argument at [13(d)], I note that the Plaintiff’s director had, in the same affidavit, provided a separate explanation of the intentions behind the SHA. The Plaintiff allegedly entered the SHA due to its concerns about its vulnerability in the Project, given that the Defendant’s work was highly specialised and technical, with a “significant amount of discretion in the way [the Defendant] conducted the project”. According to the Plaintiff’s director, the SHA was intended to ensure that the Defendant was “incentivised to take ownership of the risks of the project”, and to take “responsibility of the risks [the Defendant] created”. Seen in this light, far from having nothing to do with the SPQ, the SHA conversely appears very much linked with the Project and the SPQ.

(b) In relation to the argument at [13(e)] above, it is unclear why the Entire Agreement Clause ought to be read narrowly, when such clauses are often precisely intended to supersede the parties’ various arrangements in the lead up to the final agreement. On a prima facie basis, the Defendant’s explanation that the SHA was intended to be the definitive agreement governing all aspects of the relationship between the parties appears reasonable. This is buttressed by the following three points:

Despite the above points, I make no conclusive finding on the true relationship between the SHA and the SPQ, and whether the SPQ is subsumed within the SHA. This is because it is sufficient to proceed on the basis of the observations in this paragraph. On a restrained review of the facts and circumstances, I find that the Dispute falls within the ambit of the Dispute Resolution Clause. The operative phrase in Clause 25.2 of the SHA expressly states that “all disputes, controversies or differences… arising out of or in connection with [the SHA]… shall first be referred to mediation…” (emphasis added), while Clause 25.3 of the SHA provides that if mediation is unsuccessful, each party “may, at its option, refer and resolve the Disputes by arbitration in Singapore…”. Even if I were to accept the Plaintiff’s contention that the SPQ is technically a standalone contract, at the very least, the Dispute has prima facie arisen “in connection with” the SHA. This is because the SHA clearly contains numerous references to the subject matter of the SPQ (see [4] above), including the specific subject matter of the Dispute (ie the Defendant’s failure to deliver DEVO+). For completeness, I note that the word “connected” and the phrase “connected with” have been found sufficiently broad to include any subject matter with a prima facie connection to the arbitration agreement, including matters that did not “arise under” (or, for present purposes, “aris[e] out of”) the contract in question (see Maniach Pte Ltd v L Capital Jones Ltd and another [2016] 3 SLR 801 at [145], referred to in BMO v BMP [2017] SGHC 127 at [53]).

Whether the Dispute Resolution Clause remains valid or applicable

The second issue is whether the Dispute Resolution Clause remains valid or applicable vis-à-vis the Defendant, given that the Defendant is no longer a shareholder in the Plaintiff. On this issue, the Plaintiff contended that Clause 16.3 of the SHA meant that the Dispute Resolution Clause no longer applied to the Defendant as the Defendant had transferred the entirety of its shares and was accordingly released from all obligations under the SHA.

This issue concerning validity and applicability of the Dispute Resolution Clause should, at first instance, be decided by the arbitral tribunal. As provided in s 21 of the Arbitration Act, the arbitral tribunal “may rule on its own jurisdiction, including … any objections to the existence or validity of the arbitration agreement” (emphasis added). The Court intervenes to determine this issue at first instance only when the Dispute Resolution Clause is “clearly invalid or inapplicable” (see [9(c)] above). However, there is no clear invalidity or inapplicability in the present case, for three reasons:

I therefore find that the Dispute Resolution Clause is not clearly invalid or inapplicable and, as such, the issue of validity or applicability of the clause ought to be determined by the arbitral tribunal at first instance.

Whether the Court should exercise discretion to refuse a stay

The third issue is whether discretion should be exercised to refuse a stay. As set out at [9(d)] above, such discretion should be exercised sparingly and in a principled way.

On this issue, two points arise from a reading of the Plaintiff’s written submissions and the affidavit of the Plaintiff’s representative.

First, in the Plaintiff’s written submissions, the Plaintiff contended that the Court should refuse a stay in view that the Plaintiff had obtained a judgment in default of Defence against the Defendant (on the same day that the present application was filed), and that allowing the dispute to proceed to arbitration may potentially result in a conflicting outcome from that obtained in Court. This submission is puzzling. The default judgment had already been set aside, by consent of the parties, six weeks prior to the hearing of the present application. It is thus unclear what inconsistency in outcome the Plaintiff was referring to, or why this would provide a reason for refusing a stay.

I therefore find no basis to exercise discretion in refusing a stay of these proceedings.

Whether any conditions should be imposed on the stay

I decline to impose the condition sought, for three reasons:

Conclusion

For the foregoing reasons, I order that: