Equinox Offshore Accommodation Ltd v Richshore Marine Supplies Pte Ltd

Teo Guan Siew AR:

GROUNDS OF DECISION:

[1] This originating summons raised the question of whether a party to an arbitration agreement is able to obtain an order from the court for pre-arbitral discovery, ie discovery prior to and for the purpose of commencing arbitration proceedings.

[2] The plaintiff, Equinox Offshore Accommodation Limited, and the defendant, Richshore Marine Supplies Pte Ltd, had entered into an agreement under which the defendant was appointed as the plaintiff’s sole and exclusive agent in Singapore for the purchase of goods of a certain description (“the Agreement”). In consideration of the services provided, the defendant was entitled to payment based on a 12 percent mark-up on the price of such goods purchased on behalf of the plaintiff. Under clause 3(iii) of the Agreement, the defendant agreed that it would:

The Agreement contained an arbitration clause which stated that any dispute arising out of or in connection with the Agreement shall be referred to arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”).

[3] The plaintiff brought this originating summons, pursuant to O 24 r 6(1) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed), to seek discovery of the accounts and records falling within the definition in clause 3(iii) of the Agreement, from 1 January 2008 to date. The basis of the application was that the plaintiff had grounds to believe that the defendant had overcharged the plaintiff in respect of the goods purchased on its behalf, in breach of the terms of the Agreement. In the alternative, the plaintiff sought to enforce its contractual right under clause 3(iii) to inspect the same category of documents. In response, the defendant initially filed a summons (SUM 49/2010) to stay the entire originating summons proceedings in favour of arbitration. Subsequently however, the defendant filed another summons (SUM 589/2010) to amend SUM 49/2010, so as to restrict the stay application to only the plaintiff’s prayer for inspection of documents pursuant to clause 3(iii) of the Agreement, and to seek instead for the dismissal of the plaintiff’s prayer for discovery under O 24 r 6(1).

[4] In resisting the defendant’s application for stay under s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”), the plaintiff cited the case of Navigator Investments Services Ltd v Acclaim Insurance Brokers Pte Ltd [2010] 1 SLR 25 (“Navigator Investments”), wherein the Court of Appeal decided that an application for pre-action discovery does not fall within the scope of s 6 of the IAA. This is because the earliest point in time at which a stay application can be made is when a substantive claim has already been crystallised, which would not be the case where the application is for discovery prior to the bringing of a claim. However, the plaintiff’s reliance on Navigator Investments for this point was misplaced in the context of the present case because leave had been granted to the defendant to amend the summons such that the stay application only related to the alternative prayer to exercise the plaintiff’s contractual right of inspection. The defendant was not seeking to stay the application for discovery, but rather to ask the court to dismiss it.

[5] Section 6 of the IAA provides that any party to an arbitration agreement to which the Act applies may, “at any time after appearance”, apply to stay the court proceedings. The Court of Appeal in Navigator Investments clarified (at [51]) that even though no appearance is required to be entered in respect of all originating summons following amendments to the Rules of Court in 2006 (see in particular O 12 r 9), this does not mean that originating summonses cannot now be stayed. The plaintiff was clearly, by its alternative prayer, contending that the defendant was in breach of its contractual obligation under clause 3(iii) of the Agreement to allow the plaintiff to inspect the relevant accounts and records. The defendant, on the other hand, argued that the plaintiff was not entitled to such inspection under the terms of the Agreement as the plaintiff had already made payment and accepted the goods as purchased by the defendant. In this situation, there was, in my view, a dispute which fell within the scope of the arbitration clause in the Agreement. It should also be mentioned that the plaintiff’s counsel did not seriously pursue the alternative claim for inspection under the contract, choosing instead to focus primarily on the issue of discovery. I therefore granted the defendant’s application to stay in favour of arbitration the aspect of the originating summons which sought to enforce the contractual right of inspection. The other aspect of the originating summons which pertained to discovery was less straightforward, and necessitated a consideration of when the court can grant discovery where the parties before the court have an arbitration agreement.

[6] The plaintiff’s counsel referred to the approach of the Court of Appeal in Navigator Investments, which was to facilitate and promote arbitration wherever possible. This extended to recognising the availability of pre-action discovery even where there is an arbitration clause prima facie applicable to the potential dispute between the parties involved. Following such a robust approach, it was argued, there is no longer a need to maintain a distinction between what may be classified as pre-action discovery and what may be classified as pre-arbitral discovery. This argument was, in my view, untenable in light of the Court of Appeal’s express recognition in the same case that this distinction still exists (at [64]):

[7] The Court of Appeal in Navigator Investments also referred to its own earlier decision in Woh Hup (Pte) Ltd v Lian Teck Construction Pte Ltd [2005] SGCA 26 (“Woh Hup”), in which the court had explained as follows (at [21]):

[8] Thus, where one party to a contract with an arbitration clause believes that he may have a cause of action against the other contracting party but which falls outside the scope of the arbitration clause, and he brings an application under O 24 r 6(1) to try and determine whether it is viable to commence that cause of action in court, it would be an application for pre-action discovery. That was the situation in Woh Hup, where the party seeking discovery took the view that the arbitration clause in the parties’ agreement was not of universal application to all of its claims, and therefore intended to institute legal proceedings in the High Court. This is in contrast to a case where the party applying to court for discovery does so with the intention of ascertaining whether it would have a viable cause of action to pursue in arbitration. This latter scenario involves an application for pre-arbitral discovery. In the former case of pre-action discovery, if the party seeking discovery subsequently commences an action in court based on the strength of the documents discovered, it of course remains open for the other party to apply to court to stay the proceedings in favour of arbitration.

[9] In the present case, despite the prayer in the originating summons being couched as one for pre-action discovery, there was little doubt that what the plaintiff sought was in fact pre-arbitral discovery. The Chief Operating Officer of the plaintiff stated in his affidavit as follows:

[10] Similarly, the affidavit of the plaintiff’s Legal and Commercial Director stated that:

[11] It was thus clear that the purpose of seeking discovery of the accounts and records of purchases was to enable the plaintiff to determine whether it had a viable claim for which to commence arbitration proceedings. There was no suggestion at all in the affidavits filed on behalf of the plaintiff or during submissions by its counsel that the plaintiff’s possible claim against the defendant for overcharging under the Agreement might fall outside the scope of the arbitration clause and be the subject of a court action.

[12] Counsel for the plaintiff did allude to the possibility that the plaintiff might also have a claim against the defendant’s director, one Mr David Sim. To the extent that Mr Sim was obviously not a party to the Agreement and accordingly was not bound by the arbitration clause therein, the argument made was that the documents were therefore sought also with a view to ascertaining whether to commence court proceedings against Mr Sim. With respect, this argument was tenuous. Nowhere in the several affidavits filed by the plaintiff in support of the application was there any mention of a possible claim against the individual directors such as Mr Sim. The assertion was made only in the reply written submissions, after the plaintiff’s counsel became aware of the defendant’s objection on the ground that this court has no jurisdiction to order pre-arbitral discovery. In the circumstance, I found persuasive the submission by the defendant’s counsel that Mr David Sim was added into the picture more as an afterthought to justify the plaintiff’s position that this application was for pre-action discovery, so as to get around any difficulties of jurisdiction as to pre-arbitral discovery. In this regard, it was telling that no indication whatsoever was given by the plaintiff as to what would be the nature of the possible cause of action against Mr Sim, short of alleging that several email correspondences suggested it was suspicious why Mr Sim was reluctant to allow for the audit of the defendant’s accounts. It was clear to me that any claim for overcharging had to be against the defendant and not its directors. The plaintiff was seeking disclosure of documents to ascertain the viability of such a cause of action, which would be within the scope of the arbitration clause. This was an application for pre-arbitral discovery.

[13] The question of whether the court has the power to order pre-arbitral discovery has not been resolved by our courts. In Woh Hup, the Court of Appeal considered the issue but left it open because the court reached the conclusion that the application before it was in fact for pre-action discovery.

[14] The plaintiff’s application for discovery was based on O 24 r 6(1), which reads as follows:

Rule 3 of the same Order states that:

[15] The pertinent question would be whether the word “proceedings” in O 24 r 6(1) is restricted to court proceedings, or whether it encompasses proceedings in arbitration. The requirement in rule 6(3) that the supporting affidavit state whether the respondent to the application is likely to be party to “subsequent proceedings in Court” suggests that O 24 r 6(1) is only concerned with discovery prior to the commencement of a court action. Professor Pinsler has expressed a similar view, by tracing the court’s power to order discovery under the Rules of Court back to the primary Act (see Jeffrey Pinsler, “Is Discovery Available Prior to the Commencement of Arbitration Proceedings” [2005] SJLS 64 (“Professor Pinsler’s article”) at 65):

[16] The Professor’s view was described by the Court of Appeal in Navigator Investments as “persuasive not only because of the detailed arguments set out in this learned article, but also because it would be most appropriate for the courts (if it is at all possible) to leave the entire conduct of arbitration proceedings in the hands of the arbitral tribunal”. Based on a reading of O 24 r 6 itself, and adopting as well Professor Pinsler’s reasoning, I decided that O 24 r 6(1) does not grant the court the power to order discovery prior to the institution of arbitration proceedings.

[17] Although the originating summons prayed for relief specifically under O 24 r 6(1), the plaintiff’s counsel went further during submissions to argue that the court also has the inherent jurisdiction to order discovery in aid of anticipated arbitration proceedings. The invocation of the court’s inherent jurisdiction under O 92 r 4 was considered by the Court of Appeal in Wee Soon Kim v Law Society of Singapore [2001] 2 SLR(R) 821. Chao Hick Tin JA, in delivering the judgment of the court, made the following general comment on when the court should exercise such inherent powers (at [27]):

[18] Chao JA went on to explain why the court was of the view that there was no such “need” for the court to exercise its inherent jurisdiction so as to allow the two solicitors in that case, against whom complaints were made, to be able to intervene in the disciplinary proceedings instituted against them:

[19] It is therefore insufficient to merely show that you have an interest or desire that the court exercises its inherent jurisdiction under O 92 r 4. A real “need” of sufficient gravity must be shown. It also will not suffice to show that no prejudice will be caused to the other party. The requirement is one of “strong and compelling reasons” for the court to exercise its inherent powers. In particular, if a statutory regime with detailed rules already exists to govern the procedure in that particular area, it is unlikely that such necessity would arise (see also Jeffrey Pinsler, “Inherent Jurisdiction Re-visited: An Expanding Doctrine” (2002) 14 SAcLJ 1).

[20] In the present case, the arbitration clause in the Agreement referred to the SIAC rules, and it was common ground that this meant that the lex arbitrii was the IAA. The IAA, and the corresponding O 69A of the Rules of Court, contain detailed rules regulating the procedural rights and reliefs connected to international arbitration, including inter alia the procedures for setting aside of arbitral awards and enforcement of arbitral awards by the court. However, the IAA and O 69A do not make provision for obtaining discovery from the court prior to the institution of arbitration proceedings. In fact, the effect of recent amendments to the IAA was to remove the power of the court to grant discovery orders even in relation to existing arbitration proceedings.

[21] One key reason for amending the IAA was to allow the court to make interim orders such as Mareva injunctions to support arbitrations conducted outside Singapore. At the same time however, the court’s power to make orders relating to matters that concern the actual conduct of the arbitration was curtailed. In particular, the previous s 12(7) of the IAA (which provided for the court to have the same power as the arbitral tribunal in making orders for, inter alia, discovery) was replaced by a new s 12A which specifically omits discovery from the types of orders that the court is empowered to grant in aid of arbitration. During the Second Reading of the International Arbitration (Amendment) Bill (Singapore Parliamentary Debates, Official Report (19 October 2009) vol 86), the Minister for Law explained the changes as such:

[22] Given that there are specific legislative provisions dealing with the types of court-ordered measures that can be granted in aid of arbitration, it would appear that there is no “need” for the court to exercise its inherent jurisdiction. Furthermore, with the recent amendments to the IAA which restrict the court’s power to make orders in relation to the actual conduct of arbitration, it would seem more consistent with Parliament’s intention for the court not to be granting pre-arbitral discovery.

[23] Having said that, it may conceivably be argued that pre-arbitral discovery is a different type of relief from the interim measures contemplated by these legislative provisions, and hence should be regulated by other rules. Such discovery orders are by their very nature made prior to the commencement of any arbitration proceedings and in that sense, it may be contended, do not impact the actual conduct and outcome of the arbitration. The flaw in such an argument has however been convincingly pointed out (see Professor Pinsler’s article at 66):

[24] If the issue of pre-arbitral discovery is one that ought properly to fall within the purview of arbitration legislation, could this be a case where there has been a “gap”, in that the IAA and O 69A have failed to provide for the same, such that there is a need for the court to intervene by its inherent jurisdiction? Counsel for the plaintiff argued that his client was in the position of a putative claimant, and needed the assistance of the court to determine if it had a viable claim to pursue against the defendant in arbitration proceedings. If relief similar to that under O 24 r 6(1) was unavailable, should the court not exercise its inherent powers to order discovery in aid of such a putative claimant who needed to know whether to commence arbitration?

Second, if the concern is that there is no mechanism for compelling the disclosure of documents prior to the institution of arbitration proceedings, as Professor Pinsler also pointed out, it surely is for the parties to make the necessary contractual provision for such a pre-arbitral process of discovery. If commercial parties contractually chose arbitration as the form of their dispute resolution, then they should be bound by the arbitration rules and procedure to which they had subscribed.

[26] Indeed, the Court of Appeal in Woh Hup, although not expressing any conclusive view on whether the court could order pre-arbitral discovery, commented as follows (at [36]):

Importantly, the court further noted the potential for abuse, in the context of pre-action discovery:

[27] The court in Woh Hup was concerned with the possible abuse in that a party to an arbitration agreement may be able to obtain documents from the other side by an application to court (which at that juncture would not consider whether the arbitration clause applies), and then subsequently making use of those documents for the purpose of initiating arbitration proceedings instead. That would appear to be precisely the effect if an order for pre-arbitral discovery is granted by the Court.

[28] Taking into account all the above considerations, I reached the view that the court has no power, whether under O 24 r 6(1) or pursuant to its inherent jurisdiction, to make an order for pre-arbitral discovery in relation to arbitration that may but have not been commenced.

[29] I proceeded further to consider what the result ought to be in the event that I was wrong and the court does have the power to order pre-arbitral discovery.

[30] In Bayerische Hypo- und Vereinsbank AG v Asia Pacific Breweries (Singapore) Pte Ltd [2004] 4 SLR(R) 39, Belinda Ang J refused to order pre-action discovery primarily on the basis that the applicant banks had not shown sufficient grounds for the application. Ang J explained (at [25]):

[32] The above principles should be equally applicable to an application for pre-arbitral discovery, whether under O 24 r 6(1) or pursuant to the court’s inherent jurisdiction (assuming my primary conclusion is wrong and such relief is available). Despite submissions to the contrary by the plaintiff’s counsel, this was, in my view, not a case where the claimant was unsure and needed to ascertain the nature of its claim. As pointed out by the defendant’s counsel, the plaintiff had stated the basis of its possible claim against the defendant, namely that of overcharging and claiming for interest which the defendant was allegedly not entitled to under the Agreement. The plaintiff also possessed sufficient evidence on which to mount a claim in arbitration against the defendant. In particular, it had competing quotes from other suppliers, which upon a comparison with the prices charged by the defendant allegedly showed that the defendant had inflated the prices. Of course, inspection of the defendant’s accounts and records of purchases would assist the plaintiff, but discovery prior to the commencement of proceedings should not be ordered to enable the plaintiff to formulate a better claim. It should only be ordered to assist a claimant who is in the dark as to what claim to pursue. As stated in Singapore Civil Procedure 2007 (at paragraph 24/6/5), where the plaintiff has sufficient evidence to commence a claim, he is generally not entitled to discovery before action in order to fully plead his case.

[34] In the result, I dismissed the plaintiff’s discovery application, primarily on the basis that the plaintiff was in fact seeking not pre-action discovery but rather pre-arbitral discovery, for which the court has no jurisdiction to order.