The “Engedi”

Judith Prakash J:

[1] This was an appeal by Capital Gate Holdings Pte Ltd (“the intervener”) against the assistant registrar’s decision in Summons No 2101 of 2009, granting the application of T.S. Lines Ltd (“the plaintiff”) to stay Admiralty in Rem No 233 of 2008 (“the Action”) in favour of arbitration in London pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”). EP Carriers Pte Ltd (“the defendant”) was not a party to the appeal.

[2] On 22 May 2007, the plaintiff as disponent owner entered into a charterparty with the defendant as charterer for the use and hire of the vessel TS BANGKOK. The charterparty provided that disputes arising out of the agreement would be referred to arbitration in London:

[3] A dispute arose between the plaintiff and defendant after a grounding incident on 10 November 2008 that resulted in damage to the TS BANGKOK relating to claims against the plaintiff by the registered owner of TS BANGKOK in respect of which the plaintiff sought an indemnity from the defendant. The plaintiff claimed, in addition, a sum of US$42,753.94 as outstanding charges and expenses under the hire statement. On 2 December 2009, the plaintiff commenced proceedings in rem in respect of those claims against the “EAGLE PRESTIGE” which was a vessel then belonging to the defendant (“the Vessel”). However, in late December 2008, after the issue of the plaintiff’s writ but before it was served, the defendant transferred ownership of the Vessel to the intervener for US$1.00 and “other good and valuable consideration”. The Vessel was renamed the “ENGEDI”. Just before the transfer the vessel was mortgaged to the United Overseas Bank Ltd (“UOB”) and more than US$8m was outstanding under the mortgage. I am given to understand that upon the transfer this mortgage was discharged and subsequently the intervener granted a new mortgage in favour of UOB.

[4] On 17 February 2009, the defendant was placed in provisional liquidation. Notwithstanding the defendant’s insolvency, the plaintiff obtained leave of court on 27 February 2009 to continue with the in rem proceedings and to arrest the Vessel. Its ex parte application for leave was expressly made without prejudice to the plaintiff’s rights to arbitrate. The plaintiff arrested the Vessel on 27 February 2009. The defendant entered appearance on 9 March 2009. Later that same month, on 31 March 2009, the plaintiff filed an application seeking an order that the Vessel be appraised and sold pendente lite (“the Sale Application”).

[5] The intervener obtained leave to intervene on 14 April 2009. On the basis that it was the owner of the Vessel at the time she was arrested, the intervener applied, inter alia, to set aside the arrest (Summons No 1777 of 2009) (“the Setting Aside Application”). While that application succeeded before the assistant registrar, it was overturned on appeal. It is now pending the decision of the Court of Appeal. Meanwhile, on 5 June 2009, the Sale Application was heard and allowed. The Vessel has since been sold for S$2,525,000.00.

[6] Presently, there are also two other ongoing matters related to the action.

(a) On 3 March 2009, following the arrest of the Vessel, UOB lodged a caveat against the release of the Vessel and payment out. UOB claims as mortgagee of the Vessel under the new mortgage granted by the intervener. Its claim exceeds the sale proceeds available. It brought an action on 3 September 2009 seeking judgment against the defendant and the Vessel and a declaration that the Vessel was encumbered by the mortgage securing moneys due to it (Admiralty in Rem No 302 of 2009). The defendant did not enter appearance. The plaintiff intervened in those proceedings on 4 November 2009 and is defending UOB’s claim. The plaintiff disputes the assertion that UOB’s claim as mortgagee ranks above its claim in terms of priority.

(b) The plaintiff and the registered owners of the TS BANGKOK are engaged in arbitration proceedings relating to the grounding incident in which that vessel sustained damage.

[8] In response, it was argued that the stay should not be granted because the plaintiff had not sought leave of court before commencing arbitration proceedings against the insolvent defendant even though s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) required that leave be sought. It was also argued that the arbitration agreement was incapable of being performed because its performance would affect the intervener’s rights and as such a stay could not be granted under s 6 of the IAA. Further, the intervener argued that s 6 of the IAA referred to the court’s power to stay the proceedings “so far as the proceedings relate to the matter” and those words could not refer to the in rem action which the interveners were defending. In other words, the court was not obliged to grant a mandatory stay of the in rem action even if it was obliged to grant a mandatory stay of the in personam aspects of the claim.

[9] The assistant registrar did not accept that s 299 of the Companies Act required parties to seek leave before commencing arbitration against a company after the commencement of a creditor’s voluntary winding up. He held that that section only applied to actions and proceedings in a court. The assistant registrar also rejected the submission that there were two separate claims, one in rem and the other in personam. He held that the “matter” to be stayed would include the in rem aspect of the claim as that was not divisible from the in personam aspect. On the basis that the plaintiff had not taken a fresh step in the proceedings in the present Action, and on the basis that the arbitration agreement was neither inoperative nor incapable of being performed, the assistant registrar allowed the application and granted the stay of this action.

[10] On appeal before me against the assistant registrar’s decision to grant the stay, the intervener reiterated its arguments based on s 299 of the Companies Act and the effect s 6 of the IAA had on the in rem and in personam aspects of the plaintiff’s claim. It also submitted that the appeal ought to be allowed because the parties to the arbitration agreement were different from the parties to the Action and the interveners could not be compelled to arbitrate even though the plaintiff had, belatedly, indicated willingness to let the intervener participate in the London arbitration.

[11] The plaintiff’s case was that the appeal ought to be dismissed because s 6 of the IAA provided for a mandatory stay except where the arbitration agreement was null and void, inoperative or incapable of being performed. Since the assistant registrar had not found any of those exceptions to exist on the facts, the court could not refuse to grant the stay. It submitted that it did not require leave of court under s 299 of the Companies Act, and in any event, the necessary leave of court had already been obtained when the court allowed it to proceed with the Action even after the defendant went into provisional liquidation. Furthermore, as the plaintiff’s claim was against the defendant and not the interveners, the intervener had no locus standi to defend the claim at arbitration. In any case, the parties to the action were not different from the parties to the arbitration as the intervener’s defences were limited to those available to the defendant.

[12] After hearing the parties’ arguments, I decided that the appeal ought to be allowed in so far as the proceedings had been stayed. The stay order granted below was set aside. I now state my reasons.

[13] Section 6 of the IAA provides:

[14] Subsection (1) sets out the threshold requirements that need to be met before the court is bound to grant a stay of legal proceedings in favour of international arbitration. First, an international arbitration agreement must exist. Second, a party to that agreement must institute court proceedings against another party to the same agreement. Third, the proceedings must be in respect of a matter which is the subject of the agreement. Fourth, the party seeking a stay must have entered appearance in the court proceedings. Fifth, the party seeking a stay must do so before delivering any pleading or taking any other step in the proceedings.

[15] Once these requirements are met, the court will be obliged to grant a stay of court proceedings unless it can be shown that the arbitration agreement is (a) null and void, (b) inoperative or (c) incapable of being performed. While the stay is mandatory, the court may grant the stay on such terms or conditions as it thinks fit. Importantly, however, the court’s power to stay the proceedings only extends so far as the proceedings relate to matters which are the subject of the arbitration agreement between parties. It has no power under s 6 of the IAA to stay proceedings that fall outside that ambit.

[16] Under this head, the intervener submitted that the in rem claim was not a matter that was the subject of the arbitration agreement between the plaintiff and the defendant and as such the court was not obliged to grant a stay of the in rem claim pursuant to s 6 of the IAA even if the in personam claim against the defendant ought to be arbitrated in London. In response, the plaintiff submitted that it was artificial to maintain a distinction between the in rem claim and the in personam claim when doing so would lead to a multiplicity of proceedings in regard to what was essentially the same claim. Counsel for the plaintiff argued that as the threshold requirements under s 6 of the IAA had been proved and none of the exceptions applied, a stay of further proceedings in the Action ought to be granted.

[17] In coming to my decision on this issue, I was conscious of the traditional distinction maintained between an admiralty action in rem and an action in personam. The action in rem operates only against the res, but once the defendant enters an appearance, he submits to the jurisdiction of the court and from then onwards the action continues as an action in rem against the res and in personam against the shipowner defendant (see The “Damavand” [1993] 2 SLR(R) 136 at [18]; The Fierbinti [1993] SGHC 319; The August 8 [1983] 2 AC 450). While an action in personam and an action in rem may involve the same cause of action, it must be stressed that the defendants of the respective actions are regarded as different parties. In Kuo Fen Ching and Another v Dauphin Offshore Engineering & Trading Pte Ltd [1999] 2 SLR(R) 793 at [23], the Court of Appeal specifically rejected the proposition of the House of Lord in Republic of India and another v India Steamship Co Ltd (No 2) [1998] 1 AC 878 that in substance the owner of the res, and not the res itself, was the defendant to an action in rem.

[18] Having determined this, I turned to consider whether the threshold requirements in s 6(1) of the IAA had been fulfilled in respect of the action in rem. In this evaluation, I took cognisance of s 7 of the IAA which provides:

[20] In the present instance, however, I regarded the distinction to be of the utmost importance because the owner of the res was no longer the defendant, but the intervener. In other words, the in rem claim was not identical to the in personam claim. If the plaintiff and defendant were to proceed to arbitration, and the in rem action in Singapore were to be stayed, the intervener would not be able to protect its interest. The intervener would not have any rights in the arbitral process except those voluntarily conferred on it by the plaintiff and the defendant, ie, the parties to the arbitration agreement. This was important particularly since the defendant was insolvent and was unlikely to defend the arbitration in London. At the time parties appeared before me, the defendant had not participated in the arbitration proceedings. Also, although the plaintiff indicated at a late stage of the proceedings (only on the adjourned hearing) that it was willing to let the intervener participate in the arbitration, the process of arbitration is a consensual one and a party may not be forced to arbitrate against its will. The intervener had indicated that it wanted to proceed with litigation in Singapore, not arbitration in London. In any event, the arbitral tribunal would have no jurisdiction to hear the in rem claim. In my view, therefore, the in rem claim could not be a matter that was a subject of the arbitration agreement between the plaintiff and the defendant falling within the ambit of s 6 of the IAA.

[21] On another note, as summarised in Singapore Court Practice 2009, (Jeffrey Pinsler gen ed) (Singapore: LexisNexis, 2009) at para 70/16/2, the purpose of the procedure for intervention is to enable a party, who is not already a party to the in rem action but with an interest either in the property under arrest or the sale proceedings in court representing the property arrested or whose interest may be affected by any order made in the in rem action, to intervene in the action for the purpose of protecting his own interest. An intervener does not prosecute his own claim in an action in which he intervenes but protects his interest in the property by defending the action in rem. The intervener is permitted to set up such defences as the owner of the ship could have set up had it defended the action (The "Sin Chuen No 112" (Union Bank of Taiwan and others, interveners) [2007] SGHC 72 at [6]). The purpose of the procedure for intervention would not be achieved if the plaintiff here was able to exclude the intervener from participating in the defence by removing the dispute to arbitration despite arresting property owned by the intervener or in which it had an interest capable of permitting an intervention.

[22] The overarching purpose of the IAA is to promote Singapore’s role as a growing centre for international legal services and international arbitration (see Singapore Parliamentary Debates, Official Report (31 October 1994) vol 63 at col 627 (Associate Professor Ho Peng Kee, Parliamentary Secretary to the Minister for Law)). I did not think that the drafters of s 6 of the IAA intended for that provision to be used as a means of depriving third parties of their right to protect their interests. The plaintiff was always free to commence arbitration proceedings in London against the defendant. However, having acted to arrest the Vessel which was owned by the intervener, it could not, in my view, then turn around and tell the intervener (or, for that matter, any other party who intervened) that it had no right to participate in the defence because the plaintiff and defendant had an arbitration agreement which provided for arbitration in London. In some sense, if there is a risk of a multiplicity of proceedings, that has been created by the plaintiff’s choice to commence an action in rem against a res which may be subject to the rights of others. In other words, the plaintiff cannot eat its cake and have it too.

[24] The intervener drew my attention to the case of The “Soeraya Emas” [1991] 2 SLR(R) 479 to support the proposition that the in rem claim could be heard separately from the in personam claim. In that case, the defendant shipowners had consented to a judgment being entered against them. After the consent order was obtained, an interested party obtained leave to intervene. The intervener then applied to set aside the consent order and, in the alternative, it asked for a declaration that the order was not binding on it. Karthigesu J held that the intervener could not be bound by the consent order as at the time the order was made, it had not entered appearance and did not give its consent to the judgment.

[25] In response, the plaintiff cited the case of Pemunya Kapal MV Brihope & Others v Emmanuel E Okwuosa & Others [1997] 1 MLJ 453. Shankar JCA, delivering the judgment of the court, rejected the decision in The “Soeraya Emas”. He dismissed the intervener’s appeal to set aside a judgment passed against the defendant on the ground that the intervener could have intervened before the application for summary judgment was heard but elected not to do so. He held that if the intervener had come in good time, he could have defended the action in place of the shipowner should the shipowner himself fail to appear. However, as the intervener was attempting to set aside a final judgment to which he was not a party, he could not take defences which the owner had not taken because he was no longer defending the claim in place of the shipowner. He could only assert his interest and the judgment in rem had to stand.

[26] I did not have to reconcile the above decisions as neither dealt directly with the issue before me. Instead, both cases dealt with the situation where the intervener was attempting to set aside a judgment after it had been entered. The issue in the case before me was entirely different. The intervener was asserting his right to defend the in rem action despite an agreement between the plaintiff and defendant to arbitrate an in personam claim based on the same facts. At the time of the hearing, no judgment had been passed on either claim, whether in the Singapore courts or by the arbitral tribunal in London. There are, however, some passages from the judgment of Karthigesu J, himself a very experienced admiralty lawyer, which I found fortified the view I had taken. At [29] and [31] of his judgment, Karthigesu J stated:

The foregoing passage serves to underscore my view that s 6 of the IAA can have no application to the present situation because vis-à-vis the intervener the Action was an admiralty action in rem. The intervener, as a party to the action in rem only, was not a party to any arbitration agreement with the plaintiff and could not therefore be forced to litigate in another forum.

Whether the plaintiff had to seek leave under s 299 of the Companies Act and the effect that has on its application to stay under s 6 of the IAA

[27] Having decided not to grant the stay on the basis of the reasons given in the above section, there was no need for me to go further to decide the issues relating to s 299 of the Companies Act. Perhaps, however, I should state my views.

[28] The main argument mounted against the grant of the stay under this head was that the arbitration agreement was null and void because the plaintiff did not seek the court’s leave pursuant to s 299 of the Companies Act to commence foreign arbitration proceedings against the defendant.

[29] The simple answer to that argument was that even if the arbitration proceedings commenced in London were null and void because leave was required but not obtained from the Singapore courts, the arbitration agreement itself was still valid. Parties could nonetheless still seek a stay of court proceedings under s 6 of the IAA unless there was some reason why they could not thereafter apply to the court for leave to arbitrate and start arbitration proceedings afresh. After all, the threshold requirements in s 6(1) of the IAA require the existence of an arbitration agreement and not the existence of the arbitration per se. Nothing in the provision prevents parties from seeking a stay as a preliminary measure prior to the commencement of the arbitration itself.

[30] In any case, I would, most likely, have held that no leave was required under s 299 of the Companies Act to commence foreign arbitrations.

[31] Section 299(2) provides:

VK Rajah JC noted in Korea Asset Management Corp v Daewoo Singapore Pte Ltd (in liquidation) [2004] 1 SLR(R) 671 at [43]:

Earlier in his grounds of decision (at [36]), he explained that the reason for s 299 and other similar provisions:

[32] Even though the words “action or proceeding” ought to be read widely, they are not without limits. For example, it is well established that foreign proceedings are not affected by s 299. The reason is that the courts of one country have no jurisdiction over the affairs of another country. Sir George Jessel M.R. held in Re International Pulp and Paper Co (1876) 3 Ch D 594 at 599:

This was echoed in Re Oriental Inland Steam Co (1874) LR 9 Ch App 557 at 560:

The same sentiment was expressed again in Re Vocalion (Foreign) Ltd [1932] 2 Ch 196 where it was held that provisions of the UK Companies Act 1929 had no application to actions or proceedings in foreign courts.

[33] The issue before me was not whether s 299 applied to foreign court proceedings, but whether it applied to international arbitrations.

[34] In interpreting the substantive equivalent of s 299 in the Companies Act 1948, Lord Simon opined in Herbert Berry Associates Ltd v Inland Revenue Commissioners [1977] 1 WLR 1437 at 1446:

On the basis of this reasoning, it would appear that one does not need to obtain leave before proceeding in arbitration against a company in a creditors’ voluntary winding up. However, it ought to be noted that Lord Simon’s observations were only obiter dicta and there is a line of authority to the contrary.

[35] In Re Taylor (A Bankrupt) [2007] 2 WLR 148 at [56], in the context of the UK Insolvency Act 1986, Kershaw QC, sitting in the High Court, opined:

This position was echoed in Australia, where the words “action or other legal proceeding” and “action or other civil proceeding” have been interpreted to include arbitration (see Re Vassal Pty Ltd (receivers and managers appointed) (in liquidation) (1984) 2 ACLC 53, Mowbray College v Exhib Design & Construction Pty Ltd (in liquidation) (1987) 5 ACLC 478 (“Mowbray College”), Doran Constructions Pty Limited (in liquidation) v Beresfield Aluminuim Pty Limited [2002] NSWCA 95). In Mowbray College, Nathan J opined at 479:

[36] In my view, the word “proceeding” should be interpreted to encompass the process of arbitration, which in this day and age is a well-established means of dispute resolution. To exclude arbitrations from the ambit of s 299 would be to create a gaping exception to the process of preserving the assets of an insolvent company from dissipation. Yet, just as foreign court proceedings are excluded from the ambit of s 299, I would take the tentative view that foreign arbitrations are also probably not caught by the provision. This is because the local court has no power to control or direct the conduct of foreign arbitrations. It may have the power to refuse to uphold a judgment awarded by an arbitrator or to restrain a party from participating in the arbitration via an anti-suit injunction but that is an entirely separate matter from the power to control the arbitration itself. As such, if I had had to decide the matter, I would likely have held that the plaintiff was not required to seek leave, and arguments along this line could not assist the defendant and intervener. Nonetheless, as already mentioned above, my decision did not turn on this point and I do not express a concluded view on this issue.