Tjong Very Sumito and Others v Antig Investments Pte Ltd

V K Rajah JA (delivering the grounds of decision of the court):

[1] “Dispute” is a protean word that derives its meaning from its context. The word is deceptively simple to understand in everyday usage but elusively difficult to explain as a legal term. It has (together with its other less frequently used legal cousins such as “differences” and “controversies”) particular significance in the field of arbitration as most arbitration clauses stipulate that before a reference to arbitration can be made, a dispute must exist. As a consequence, it is commonplace for legal challenges to be made on: (a) whether a “dispute” exists; and (b) whether a court or an arbitral tribunal has jurisdiction to hear a particular matter. Not surprisingly, such challenges are also usually accompanied by heated debates about whether the alleged dispute is bona fide.

[2] Unfortunately, the common law courts, particularly those in England, have generated not entirely consistent strands of thought on the meaning of the word; apparently for historical reasons. These historical reasons need not detain us at this juncture; see below at [36]. While the current position appears to be more settled, it continues to be a matter of importance to the arbitral community that there should be clarity as to what constitutes a “dispute”. However, attempts to define what constitutes a “dispute” with hard-edged precision will necessarily be unsuccessful, given the infinite circumstances in which disputes may arise or cease to exist. That said, the Sisyphean nature of the task should not deter measured judicial attempts to further illuminate how this word (and like words) may be ordinarily interpreted with the proviso that all cases must fall to be decided on their own special facts and the frank acknowledgement that further glosses will arise. In these grounds, we explore the existing case law on this topic and the genesis of the present approach to the interpretation of the word “dispute” in Singapore. We shall also elaborate on the current judicial philosophy towards arbitration.

[3] This case concerns the granting of a stay of proceedings in favour of arbitration under ss 6(1)-6(2) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) where a party to an arbitration agreement had, despite the existence of the arbitration agreement, commenced proceedings in court.

[4] The appellants and the respondent entered into a Shares Sale and Purchase Agreement (the “SPA”) on 23 November 2004, under which the appellants agreed to sell and the respondent agreed to buy 72% of the entire paid-up share capital of PT Deefu Chemical Indonesia (“PT Deefu”), a company with interests in coal mining in Indonesia. Section 11.06 of the SPA required the parties to resolve any dispute by arbitration if it could not be resolved by negotiation:

[5] Between 3 January 2005 and 19 August 2005, the parties entered into four further agreements (collectively “the supplemental agreements”):

(a) a Supplemental Agreement dated 3 January 2005 (“SSPA”);

(b) a Second Supplemental Agreement dated 18 February 2005 (“Second SSPA”);

(c) a Third Supplemental Agreement dated 19 July 2005 (“Third SSPA”); and

(d) a Fourth Supplemental Agreement dated 19 August 2005 (“Fourth SSPA”).

[6] Each of these agreements was expressed to be supplemental to the SPA. In particular, the Second SSPA, Third SSPA and Fourth SSPA specifically stated that they were “supplemental to and an integral part of the SPA and the terms and conditions of the SPA are hereby amended, modified, added to and/or varied accordingly to the extent provided herein”. The Fourth SSPA also incorporated the terms of the SPA and the first three supplemental agreements in its preamble:

[7] The appellants and the respondent were the only parties to the SPA and the four supplemental agreements. For the purposes of this appeal, only the Fourth SSPA was relevant. The Fourth SSPA purported to “vary the payment terms of the purchase consideration payable by the [respondent] to the [appellants] for the Sale Shares” (at cl (2)(B)). More particularly, cl 2.2 of the Fourth SSPA provided:

[8] Aventi Holdings Limited (“Aventi”) is a company incorporated in the British Virgin Islands, and was controlled by the original owner of the shares sold by the respondent to the appellants. Under cl 2(e)(i) of the Fourth SSPA, US$2m would become due 12 months after the completion date of 13 June 2006 (ie, 13 June 2007). However, on 20 July 2006, Aventi requested early settlement of the US$2m and offered the respondent a discount of 6% in consideration for the early settlement. The respondent, without notifying the appellants, acceded to Aventi’s request and was granted a discount equivalent to US$120,000.

[9] Under cl 2(e)(ii) of the Fourth SSPA, US$3m would become due 24 months after the completion date of 13 June 2006 (ie, 13 June 2008). In late September 2007, Aventi again requested early settlement, of the US$3.7m, in return for a discount of 5.6%. The respondent agreed and released the aggregate sum of US$3,492,800 (less the discount of US$207,200) without notifying the appellants.

[10] On 12 November 2007, the first appellant, Mr Sumito, wrote to the respondent requesting “final settlement of the Balance Purchase Price”:

[11] The respondent accordingly paid $1,630,038.24 to Mr Sumito by way of a cheque dated 12 November 2007. The next day, on 13 November 2007, the respondent’s parent company, Magnus Energy Group Ltd (“Magnus”), announced over SGXNet that Antig had “completed the settlement of the balance purchase price for the acquisition of 72% equity interest in [PT Deefu]”, setting out the agreed payment arrangement in sub-cll (i) and (ii) of the Fourth SSPA (see [7] above), and, pursuant to Aventi’s requests, early settlement of the US$2m and US$3.7m at a 6% and 5.6% discount respectively.

[12] Almost six months later, on 9 April 2008, the appellants’ solicitors, out of the blue, notified the respondent that the sum of US$3.7m was to be paid to the appellants, and that no further payments were to be made to Aventi. The respondent did not respond to this letter. The appellants’ solicitors sent a reminder on 30 April 2008, but this too failed to elicit any reaction from the respondent. On 8 May 2008, the appellants’ solicitors gave notice that court proceedings would be initiated if payment was not made to their clients. Again, there was no response. On 20 May 2008, the appellants commenced proceedings for an injunction to restrain the respondent from effecting payment of the US$3.7m to any party other than the appellants, as well as for damages. It is common ground that the proceedings were not in aid of arbitration proceedings. On 26 May 2008, after service of the writ, the respondent’s solicitors, DLA Piper, replied (at para 3):

[13] The appellants’ solicitors replied in a letter dated 28 May 2008:

[14] There was no response to this letter. Instead, the respondent entered appearance on 28 May 2008, and applied for a stay of court proceedings in favour of arbitration on 13 June 2008. The Assistant Registrar (“the AR”) dismissed the respondent’s stay application on 13 August 2008. However, on 13 October 2008, the respondent’s appeal was allowed by Choo Han Teck J (“the judge”), who gave his succinct reasons in Tjong Very Sumito v Antig Investments Pte Ltd [2009] 1 SLR 861 (“the GD”).

[15] The AR considered the present case to be similar to the case of Dalian Hualiang Enterprise Group Co Ltd v Louis Dreyfus Asia Pte Ltd [2005] 4 SLR 646 (“Dalian”), where Woo Bih Li J (“Woo J”) held that the dispute in question was not referable to arbitration because it did not arise in connection with the contract in which the arbitration agreement appeared. The AR was of the opinion that the payments made to Aventi were distinct from the respondent’s obligation under the SPA, and “recourse [could] be had against Aventi in separate proceedings”. She found that the respondent’s payment to Aventi did “not extinguish the [respondent’s] liability to pay the [appellants], in accordance with the [SPA] and its 4 Supplements”. In these circumstances, the AR decided that there was no dispute in connection with the SPA and dismissed the stay application.

[16] At the outset, the judge restated the principles set out by Woo J in Dalian, emphasising in particular (at [4] of the GD) that “if the defendant at least makes a positive assertion that he is disputing the claim … then there is a dispute even though it can be easily demonstrated that he is wrong” [emphasis in original]. The judge then rightly distinguished the present case from the facts in Dalian (at [6] of the GD):

[17] Further, the judge noted (at [7] of the GD) that “far from admitting the claim, the defendant asserted that ‘the plaintiffs’ claim is clearly devoid of any merit’”. Citing the proposition in Halki Shipping Corporation v Sopex Oils Ltd [1998] 1 WLR 726 (“Halki”) at 761, that “there is a dispute once money is claimed unless and until the defendants admit that the sum is due and payable”, the judge held (at [7] of the GD):

[18] Thus, the judge concluded (at [8] of the GD) that a dispute referable to the SPA existed; and that the respondent had made a positive assertion challenging the appellants’ claim, albeit after the commencement of court proceedings. Since either of these grounds would justify a stay of proceedings in favour of arbitration, the judge allowed the appeal.

[20] The sole issue before us was whether the appellants’ claim was embraced by the arbitration agreement in the SPA under s 6 of the IAA, which provides:

[21] The phrase “[n]otwithstanding Article 8 of the Model Law” is not relevant to the present case; in Dalian ([15] supra) at [18], Woo J explained that it applied “primarily to the second part of Art 8(1) regarding the stage when an application for a stay may be made”. Similarly, the learned authors of Robert Merkin and Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009) (“Merkin and Hjalmarsson”) note at p 19:

[22] Section 6 of the IAA acknowledges the primacy of the specific arbitration agreement in question. In order to obtain a stay of proceedings in favour of arbitration under s 6, the party applying for a stay (“the applicant”) must first show that that he is party to an arbitration agreement, and that the proceedings instituted involve a “matter which is the subject of the [arbitration] agreement”. In other words, the applicant has to show that the proceedings instituted fall within the terms of the arbitration agreement. If the applicant can show that there is an applicable arbitration agreement, then the court must grant a stay of proceedings unless the party resisting the stay can show that one of the statutory grounds for refusing a stay exists, ie, that the arbitration agreement is “null and void, inoperative or incapable of being performed”.

[23] If the arbitration agreement provides for arbitration of “disputes” or “differences” or “controversies”, then the subject matter of the proceedings would fall outside the terms of the arbitration agreement if: (a) there is no “dispute”, “difference” or “controversy” as the case may be; or (b) where the alleged “dispute” is unrelated to the contract which contains the arbitration agreement. In the present case, the arbitration agreement provided for “all disputes, controversies, and conflicts arising out of or in connection with [the SPA] or its performance” to be resolved by arbitration. Thus, the issue of whether the appellants’ claim was a matter which is the subject of the arbitration agreement under s 6(1) of the IAA turned on a two-fold question. First, did the claim constitute a dispute, controversy or conflict; and second, if the claim did constitute a dispute, controversy or conflict, did it arise out of or in connection with the SPA? Before we discuss these two questions, it is useful to set the context with some prefatory observations.

[24] A preliminary point which may sometimes arise (but which was not in issue before us) is whether the court has the jurisdiction to decide whether there is a matter which is the subject of the arbitration agreement. The learned author of Robert Merkin, Arbitration Law (Informa, 2008) (“Merkin”) observes, at paras 8.21 and 8.24, that “it might be argued” that the principle of non-intervention indicates that the arbitrators should be allowed to deal with the question of jurisdiction and that the court should not seek to reach its own determination on the matter until an award on the point has been made or an appeal has been lodged against the award. We recognise that the principle of “kompetenz-kompetenz” encapsulated in Art 16 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”) may be eroded if the courts take an expansive view of their role when such challenges arise. Unfortunately, there is no silver bullet that can resolve this tension and the best approach to resolving this conceptual difficulty is the robust application of judicial common sense, whilst always bearing in mind the limited role that the courts are expected to play in matters that appear to have been referred to arbitration. We noted that both Woo J in Dalian and Lightman J in Nigel Peter Albon v Naza Motor Trading Sdn Bhd (No 3) [2007] EWHC 665 (Ch) (in the context of whether an arbitration agreement had been concluded) took the position that it is the court that determines whether the arbitration agreement applies; although Woo J was quick to add the important caveat that if it was at least arguable that the matter is the subject of the arbitration agreement, then a stay of proceedings should be ordered. We agree with the measured approach taken by Woo J since the question of whether a matter is the subject of an arbitration agreement is the very threshold to the application of s 6 of the IAA itself. However, it is only in the clearest of cases that the court ought to make a ruling on the inapplicability of an arbitration agreement. The court’s jurisdiction to grant a stay is satisfied once the prerequisites of s 6 appear to have been met. If there is no binding arbitration agreement or if the arbitration agreement has no application, then the court has no jurisdiction to grant a stay under s 6 of the IAA, although it is of course open to the court to do so under its inherent jurisdiction. This ability to decide on its threshold jurisdiction works in much the same way as the court having the jurisdiction to determine whether an arbitration agreement is “null and void, inoperative or incapable of being performed”.

[25] Before we clarify, at [33]-[46] below, the contours of what constitutes a “dispute” that must be referred to arbitration, it would be apposite that we first pause to sketch the relevant statutory setting and prevailing judicial policy towards arbitration in Singapore so as to provide some context to our discussion.

[26] While the word “dispute” does not appear in the language of ss 6(1) or (2) of the IAA, the prevalence of its usage in arbitration agreements has generated vigorous (but inconclusive) legal debate on what qualifies as a “dispute.” The word “dispute” also appeared in the Explanatory Statement to the International Arbitration Bill (Bill 14 of 1994), which described the proposed s 6 as:

[27] The second reading of the International Arbitration Bill in Parliament (Singapore Parliamentary Debates, Official Report (31 October 1994) vol 63 at cols 624-629 (Associate Professor Ho Peng Kee, Parliamentary Secretary to the Minister for Law) (“Assoc Prof Ho”)) noted the widespread adoption of the Model Law. Assoc Prof Ho said:

[28] There was a time when arbitration was viewed disdainfully as an inferior process of justice. Those days are now well behind us. An unequivocal judicial policy of facilitating and promoting arbitration has firmly taken root in Singapore. It is now openly acknowledged that arbitration, and other forms of alternative dispute resolution such as mediation, help to effectively unclog the arteries of judicial administration as well as offer parties realistic choices on how they want to resolve their disputes at a pace they are comfortable with. More fundamentally, the need to respect party autonomy (manifested by their contractual bargain) in deciding both the method of dispute resolution (and the procedural rules to be applied) as well as the substantive law to govern the contract, has been accepted as the cornerstone underlying judicial non-intervention in arbitration. In essence, a court ought to give effect to the parties’ contractual choice as to the manner of dispute resolution unless it offends the law.

[30] As an aside, it should be remembered that the domestic arbitration regime in Singapore is premised on somewhat different policy considerations from that currently applicable in the United Kingdom. Redfern and Hunter at para 1–51, commenting on the position in the United Kingdom, note:

[31] In England, however, there is no distinction between international and domestic arbitrations – a stay is mandatory in both instances. Merkin (24 supra) explains, at para 8.3, that this distinction was abolished as a dramatic solution to the problem raised by Art 12 of the European Community Treaty, which outlaws any conduct by a member state which discriminates between nationals of member states on the ground of their nationality. There is no such prohibition in Singapore, and the regimes for international and domestic arbitrations remain bifurcated and are governed by distinct statutory regimes. Given the different underlying philosophies between the domestic and international statutory frameworks in Singapore, the courts here do have a somewhat wider role and broader judicial latitude in domestic arbitration; though even this is to be exercised in a guarded manner: see Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86.

[32] Having sketched the contextual background in which the present appeal must be viewed, we now turn to examine more closely the law on what constitutes a dispute for the purposes of arbitration agreements in relation to s 6 of the IAA.

[33] We have found one of the most helpful suggested approaches in construing how the word “dispute” and its legal cousins ought to be interpreted in Michael J Mustill and Stewart C Boyd, The Law and Practice of Commercial Arbitration in England (Butterworths, 2nd Ed, 1989) (“Mustill and Boyd”) at p 118-119:

[34] In a similar vein, the learned author of Gary B Born, International Commercial Arbitration (Kluwer Law International, 2009) (“Born”) notes, at p 1093, that “most national courts have [in recent years] sensibly adopted broad interpretations of the terms ‘dispute’, ‘difference’ and ‘controversy’” [emphasis added]. Merkin and Hjalmarsson ([21] supra) summarise the current position in Singapore as follows (at pp 21–22):

[35] Citing, inter alia, The Dai Yun Shan [1992] 2 SLR 508 (“Dai Yun Shan”), Coop International Pte Ltd v Ebel SA [1998] 3 SLR 670 and Dalian, Merkin and Hjalmarsson conclude, at p 21, that:

At p 22, they add that, an “admission by a defendant would, generally speaking, be contrary to a finding of a dispute but not every admission would necessarily avoid a stay order”. We agree with the contents of this useful summary and shall elaborate on our reasons for this below. Further, we shall also attempt to iron over some creases that have now become apparent.

[36] Woo J in Dalian ([15] supra) at [39]- [40], helpfully quoted at length the judgment of Swinton Thomas LJ in Halki ([17] supra) at 754-756 and 761-763, which had set out the legislative history leading to s 9(4) of the English Arbitration Act 1996 (c 23), which we will not reproduce here (see also Merkin ([24] supra) at paras 8.35–8.42.2). It would suffice, for the present discussion, for us to point out that the English Arbitration Acts of 1950 (c 27) and 1975 (c 3) directed the court to stay proceedings “unless satisfied that the arbitration agreement is null and void, inoperable or incapable of being performed or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred” [emphasis added]. The phrase “or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred” was deliberately omitted from s 9(4) of the English Arbitration Act 1996 (c 23), with the result being that the grounds for refusing a stay under this section are identical to those in s 6(2) of the IAA. Merkin summarises the effect of Halki thus ([24] supra at para 8.42.1):

[37] Merkin cites (at para 8.42.1), inter alia, Getwick Engineers Limited v Pilecon Engineering Limited [2002] 1020 HKCU 1 (“Getwick”) as an example of “cases decided under the Model Law [where] it has been assumed that an admission of liability prevents any dispute from arising”. We will address this case, as well as the significance and effect of an admission, at [56]-[59] below. Before we do so, we shall examine more closely Woo J’s opinion in Dalian.

[38] In Dalian, the first plaintiff, DHE, entered into a contract (“the Armonikos contract”) with the defendant, LD. DHE then assigned it to the second plaintiff, DJOM. DHE and DJOM sued LD for sums payable under the Armonikos contract, pointing to an admission by a member of LD’s China office. LD had also admitted, in its own statement of account, that the sums claimed were payable (see Dalian ([15] supra) at [14]). LD applied for a stay of proceedings in favour of arbitration, relying on the arbitration agreement in the Armonikos contract. LD also argued that it had a right of set-off against another company, Fuhong, under a different contract (“the Hanjin Tacoma contract”), alleging that Fuhong had a running account with DHE and DJOM. Woo J’s decision to refuse a stay boiled down to his finding, at [30], that:

The appeal against Woo J’s decision was heard and dismissed by the Court of Appeal on 27 January 2006. However, no grounds of decision were given by this court.

[39] Woo J, in allowing the appeal made to him, observed that “the jurisdiction of the court under s 6(2) IAA became academic” (Dalian at [31]). Nevertheless, Woo J, in an in-depth forensic analysis, carefully examined the jurisprudence on the circumstances in which the court must order a stay of proceedings in favour of arbitration. He first noted that the mandatory stay under s 6(2) of the IAA was different from its discretionary counterpart, also numbered s 6(2), in the domestic Arbitration Act (Cap 10, 2002 Rev Ed) (“AA”), and made the following important observations (Dalian at [75]- [77]):

[40] It is clear that the positions in Dalian and Halki are in accord in so far as the merits of the dispute are irrelevant to the existence of a dispute. Where these two cases diverge is in relation to the effect of a defendant’s admission or silence, and whether the former should be inferred from the latter.

[41] Before we address this legal fork, it would be helpful to consider the rationale for the common holding in Dalian and Halki, bearing in mind that counsel for the appellants would have this court revert to the pre-1996 English position of considering whether there was “in fact” a dispute, or a bona fide or genuine dispute. This brief overview will also equip us to address the current, live controversy in relation to the significance of a defendant’s admission or silence.

[42] The common holding in Dalian and Halki is best explained with reference to the conceptual basis of judicial non-intervention in arbitration, stemming from the principle of party autonomy over dispute resolution particularly in commercial contracts, see [30] above. Redfern and Hunter ([29] supra), at para 1–36, concisely sum up the tension between the efficient disposal of seemingly indefensible claims and the rigorous and scrupulous enforcement of agreements to arbitrate:

[43] One ready and persuasive reply to those inclined to press for concurrent court jurisdiction may be found in Lord Saville’s The Denning Lecture 1995, “Arbitration and the Courts” at p 13 (quoted in Redfern and Hunter at p 20, note 97):

[44] This extract echoed the essence of Lord Saville’s earlier more comprehensive but no less forceful reasoning (sitting as a High Court judge) in Hayter v Nelson Home Insurance Co [1990] 2 Lloyd’s Rep 265 (“Hayter”) (cited in Dalian at [64]). Hayter should, however, be read with the caveat, highlighted by Woo J in Dalian at [61], that the decision was made under the pre-1996 English Arbitration Act. It was observed at 267-269:

[45] While in an open-and-shut case the first of Saville J’s answers might not invariably hold true (especially where, as here, three arbitrators must first be appointed to constitute the tribunal), the second and third answers present a principled, sound basis which require parties to be firmly held to their arbitration agreement, despite any practical difficulties, or, possibly, the higher expenses of instituting an arbitral tribunal, even where the arbitration agreement calls for more than one arbitrator or arbitrator(s) with particular expertise. The parties must be held to their original bargain in the absence of a compelling legal basis allowing one of them to unilaterally rewrite their agreement to arbitrate. We do not, therefore, share Hirst LJ’s scepticism as articulated in his dissenting opinion in Halki ([17] supra) at 742-743, with regard to the second and third reasons:

[46] We need only say that these inchoate responses to Saville J’s reasons undermine parties’ freely-agreed arbitration clauses and are contrary to established and fundamental principles of contract law, as well as the practice of international commercial arbitration. Having considered the development of the post-1996 position that a merely asserted dispute suffices to warrant a stay of court proceedings without any inquiry into the genuineness or merits of the defence, we unhesitatingly endorse the judge’s application of this approach from Dalian and Halki. However, it must be noted that the question of whether there is a dispute is not entirely redundant even when it can be shown that there has been an admission. We will examine this issue after disposing of the appellants’ arguments on the first point.

[47] The error of the appellants’ characterisation of the issue and the applicable legal principles should now be patently obvious. The appellants had boldly framed the issue and the applicable principles in their case in the following way:

The appellants’ sheet anchor was that a mere positive assertion by a defendant denying the claim was insufficient to give rise to a dispute. According to the appellants, there was a distinction between a defendant merely asserting a dispute and the court adjudicating as to whether there was in fact a dispute. To take disputes at face value, based on the conduct of the defendant, would be to allow any defendant to obtain a stay simply by saying baldly, “I dispute the claim”. The appellants submitted instead that “The principle of law is that there must be a dispute. Asserting a dispute and the adjudication by the Court as to whether there is in fact a dispute are not synonymous.” Further, the appellants submitted, there was no dispute in the present case because the respondent had accepted:

(a) the validity of the SPA;

(b) that payment of the US$3.7m was due on 13 June 2008;

(c) that there could be no variation of the SPA without the written consent of the parties; and

(d) that Aventi was not a party to the SPA.

[48] The appellants variously referred to a dispute “in fact” or “at law” or a “bona fide” dispute, citing dated cases such as Baltimar Aps Ltd v Nalder & Biddle Ltd [1994] 3 NZLR 129 (“Baltimar Aps”), Dalian, Uni-Navigation Pte Ltd v Wei Loong Shipping Pte Ltd [1993] 1 SLR 876 (“Uni-Navigation”), Kwan Im Tong Chinese Temple v Fong Choon Hung Construction Pte Ltd [1998] 2 SLR 137 (“Kwan Im Tong”), and The Jian He [2000] 1 SLR 8 (“Jian He”), as authority for “what is considered a dispute at law and how the Court sifts the material to ensure that a Defendant who has no bona fide dispute does not abuse the process of Court to stay proceedings when he is aware that he has no defence to the claim”. However, the appellants could not, when pressed, credibly explain how even these cases supported their assertion. We noted that Uni-Navigation and Kwan Im Tong were cases falling within the ambit of the AA (not the IAA) while Jian He involved a stay of proceedings on the ground of an exclusive jurisdiction clause (not a stay in favour of arbitration). As such, these cases were of limited relevance to the present appeal. The appellants placed particular reliance on the following passage from the case of Baltimar Aps at 135:

However, as the respondent rightly pointed out, in Baltimar Aps, summary judgment was set aside and a stay of court proceedings was granted. More importantly, the New Zealand court declined to adopt the pre-1996 English position and instead endorsed Mustill and Boyd’s ([33] supra) “strong criticism” of the English courts’ delving into the reality of the dispute as a result of the Report of the Committee on the Law of Arbitration (Cmd 2817, 1927) (MacKinnon Report). Like Woo J, who euphemistically described the cited paragraph from Baltimar Aps as “rather interesting” (see Dalian at [59]), we too would not set too much store by this reference to bad faith.

[49] The short answer to these arguments, and to the crux of the present appeal, is that it is sufficient for a defendant to simply assert that he disputes or denies the claim in order to obtain a stay of proceedings in favour of arbitration. This much is amply clear from Woo J’s decision in Dalian where he undertook a thorough survey of the English cases, including the case of Halki where it was held that, at least after the amendments to s 9 of the English Arbitration Act 1996 (c 23), the court is not to examine whether there is “in fact” a dispute, or a genuine dispute. This point is well illustrated by Saville J’s famous example of the argument over who won the University Boat Race (see above at [44]). A dispute that a claimant was always likely to succeed in remains, until adjudicated on, none the less a dispute.

[50] Furthermore, the language of the arbitration agreement in the SPA extended beyond “disputes” to include “controversies and conflicts”. While “controversies” may be practically synonymous with “disputes”, the addition of these two terms in the arbitration agreement obviously affirms a broad intention to refer all manner of contentious matters to arbitration. The ordinary meaning of both “dispute” and “conflict” overlap here and must include any sort of disagreement. We should also add for completeness that the phrase “arsing out of or in connection with” that appears in the subject clause has a wide ambit that extends to all manner of issues that have a relationship with the SPA. A generous interpretation should be given to such a phrase: see Mustill and Boyd ([33] supra) at p 119 and Sabah Shipyard (Pakistan) Ltd v Government of the Islamic Republic of Pakistan [2004] 3 SLR 184 at [14]. As a matter of principle, general words such as those mentioned above should be generously interpreted when they appear in arbitration agreements. In this regard, Born ([34] supra) notes, at p 1092:

[51] The issues that were being contested in the present case were plain to us. We agreed with the judge that there was a dispute, indeed, likely several disputes, and that the respondent’s positive assertion challenging the appellants’ claim warranted a stay of proceedings in favour of arbitration. While the respondent’s silence prior to the issuance of the writ might have been equivocal, the matter clearly morphed into a dispute when DLA Piper wrote to the appellants averring that their suit was “without merit and misconceived”. The AR’s decision was erroneous in that the fact alone that the respondent was making assertions to the effect that it had discharged its obligations, was a dispute, controversy or conflict which should properly be resolved by arbitration.

[52] Before we examine the significance of a defendant’s admission or silence, it is useful to briefly consider the circumstances in which a stay of court proceedings will not be granted. The circumstances, in which a stay should be refused, as stated below, are not exhaustive, but they are of a very different nature from the considerations for a summary judgment application. The Court of Appeal of British Columbia provided some examples in Gulf Canada Resources Ltd v Avochem International Ltd 66 BCLR (2d) 114 at 120-121 per Hinkson JA (cited in Dalian at [21]):

[53] To these illustrations we would add cases where the party applying for a stay has waived or may be estopped from asserting his rights to insist on arbitration, such as where the parties have agreed subsequently that disputes may be resolved by litigation. The facts of such a case would fall to be decided in accordance with the usual contractual analysis of estoppel and or waiver on the basis that the arbitration agreement is “inoperative”, see s 6(2) of the IAA. There are no impediments, under the IAA, preventing the parties to an arbitration agreement from agreeing to resolve the matter in any other manner that they may find more convenient. In such a case, the agreement to arbitrate will be treated as having been waived as the parties are free to modify their agreement at any time. Generally speaking, a successfully-resisted stay application under s 6(1) of the IAA on the grounds of admission (as opposed to s 6(2) or where the arbitration clause was inoperative because one of the parties had lost the right to refer a matter to arbitration: see Halvanon Insurance Co Ltd v Companhia de Seguros do Estado de Sao Paulo [1995] LRLR 303, cited in Merkin ([24] supra) at para 8.33.2) would necessarily precede a successful summary judgment application, but not every claim that could succeed on summary judgment would result in the court’s refusal to grant a stay. The merits of the case, in other words, have absolutely no bearing on the granting of a stay unless the defendant actually admits (by unequivocal words or conduct) the claim.

[54] The inapplicability of the arbitration agreement is thus to be distinguished from its inoperability (or whether it is null, void, illegal, waived or incapable of being performed). To hold that there is no dispute (or controversy or conflict, as the case may be) arising in connection with the arbitration agreement in question is to, figuratively speaking, walk the thin line between finding an admission despite the defendant’s presumable averments to the contrary and scrupulously holding parties to their pre-agreed dispute resolution mechanism.

[55] We now turn to address the issue of the significance and effect of a defendant’s admission or silence.

[56] The relationship between an admission by a defendant and the existence of a dispute had been alluded to by Goh Joon Seng J in the Dai Yun Shan where he pragmatically noted that “so long as the claim is not admitted, a dispute exists” ([35] supra at 511, [12]).

Or, as Templeman LJ stated with admirable brevity in Ellerine Brothers (Pty) Ltd v Klinger [1982] 1 WLR 1375 (“Ellerine Brothers”) at 1383:

Implicit in these attractively concise and oft-quoted statements, however, is the converse proposition that where there has been an admission, there is no longer any dispute and the arbitration agreement does not apply. This raises the problem envisaged by Saville J in Hayter ([44] supra) and Clarke J in Halki ([58] infra): that logically, the arbitral tribunal would not have jurisdiction to hear the claim or make an award, and that a mischievous and recalcitrant defendant might use precisely the argument that its defence was hopeless to thwart the arbitration. As Saville J perceptively pointed out, the conundrum created by the analysis that the arbitration agreement does not apply to the claim at hand because the defendant has made a clear and unequivocal admission giving rise to often-inevitable summary judgment, is that, by the same token, the arbitral tribunal would have no jurisdiction and the claimant would only be able to commence litigation proceedings.

[57] We now pause to examine the decision of Getwick ([37] supra). There, the plaintiff was the defendant’s sub-contractor and claimed for outstanding amounts under six payment certificates for works done under the sub-contract. The defendant wrote a draft letter stating its intention to make payment of a certified sum (which the plaintiff claimed was less than the amount owing) by three post-dated cheques; the letter also said, “The exact amount of further payment shall be agreed after the completion of our final account to this subcontract.” (at [10]). Three cheques were indeed issued to the plaintiff, two were honoured. The plaintiff sought summary judgment for, inter alia, its claim in the amount stated in the dishonoured cheque. Geoffrey Ma J ordered a stay of proceedings for all of the plaintiff’s other claims but granted summary judgment for the amount in the dishonoured cheque. Despite holding that interim payment certificates were not clear and unambiguous admissions of liability for work done, but merely referred to interim payments which did not involve final acceptance by the defendant either that the work done by the plaintiff was up to standard or that the amount stated in the payment certificate was ultimately unequivocally and indisputably due, Ma J held, at [26(4)], that the dishonoured cheque was:

We agree with Ma J’s robust approach in assessing the effect of dishonoured cheques in such limited circumstances.

[58] The analysis of an “admission” is also unsatisfactory if one construes “dispute” to mean “unsatisfied claim”, regardless of whether liability is admitted, as Clarke J suggested in Halki Shipping Corporation v Sopex Oils Ltd [1997] 1 WLR 1268 at 1272:

[59] For our part, we would recognise an exception to judicial non-intervention and refuse to grant a stay only in obvious cases such as Getwick ([37] supra) (or, more exemplary, in the case envisaged by Woo J where the defendant had admitted liability but was simply unable to pay, in which case a stay application really ought not to be made at all) where there has been a clear and unequivocal admission. This is not to say that the claimant would be unable to prosecute its claim in arbitration; given the competence of the arbitral tribunal to decide whether it has jurisdiction. The only commonsensical response to the recalcitrant defendant envisaged by Clarke J would be for the arbitral tribunal to rule that it has jurisdiction and to make a summary award. Under the IAA, such an award, even if technically contrary to the logic of Clarke J’s reasoning in Halki ([58] supra), would not be impeachable for an error of law alone, and indeed we cannot imagine a court entertaining any challenge to such an award by a defendant who had admitted liability but refused to pay and then resisted arbitration on the ground that there was no dispute because of its own admission. It is, thus, not an inevitable conclusion that the arbitration agreement would be inapplicable and the deplorable state of affairs envisaged by Clarke J above would come to pass. The proper analysis of a claim brought in spite of an arbitration agreement where there has been clear and unequivocal admission by the defendant, therefore, is as an exception to the scrupulous enforcement of arbitration agreements. This exception will only be made where there has been a clear and unequivocal admission, and it can thus be said that there exists no dispute mandatorily referable to arbitration.

[60] We now consider the effect of silence on the part of the defendant. In Ellerine Brothers ([56] supra) (affirmed in Hayter ([44] supra) and Halki ([17] supra)), the English Court of Appeal held that silence on the defendant’s part did not amount to an admission of liability and thus did not preclude the existence of a dispute. Templeman LJ elaborated on this point at 1381, stating:

[61] With respect, we prefer Templeman LJ’s reasoning and approach to Woo J’s general dicta on the effect of silence in Dalian, which has been set out above at [39]. In our view, a defendant’s silence (even in the face of repeated claims against it), without more, may be insufficient to constitute the clear and unequivocal admission necessary to exclude the existence of a dispute (or controversy or conflict). We note with interest that pursuant to Art 25(b) of the Model Law, even if the respondent fails to submit its statement of defence, the arbitral tribunal is required to continue the proceedings “without treating such failure in itself as an admission of the claimant’s allegations”. In our view, non-admission is not constituted only by an express denial or rejection of the claim, but may also be inferred from previous inconclusive discussions between parties, prevarication and even silence. Silence, on its own, is often equivocal at best. We accept, as Woo J pointed out in Dalian at [75], that a party may be silent because he has no money to pay or may even want to delay a just resolution of a claim. Even so, there may be good reasons why a party remains silent. A failure by a party to respond is equivocal, especially when there are unresolved issues or there has been earlier prevarication: see Amec Civil Engineering Limited v The Secretary of State for Transport [2004] EWHC 2339, affirmed in Amec Civil Engineering Ltd v Secretary of State for Transport [2005] 1 WLR 2339; and Collins (Contractors) Ltd v Baltic Quay Management (1994) Ltd 2004 [2005] BLR 63 (Court of Appeal, UK). Further, in some cases, a party may think (rightly or wrongly) a claim so preposterous that “silent treatment” is the most appropriate response. In other cases, a party may view the need to place its stand on record unimportant or even disadvantageous. For example, a defendant who adopts a policy of “masterly inactivity” has not made an admission. Judges must also bear in mind that commercial persons usually do not accord the same importance and urgency to documenting responses as lawyers do. One must also be particularly mindful when dealing with cross border transactions, since there may even be cultural reasons for silence: in certain societies, a non-confrontational approach is prized. It is impossible to generalise on the effect of silence and each matter must be assessed contextually. In essence, we are of the view that generally speaking, the court ought to be ordinarily inclined to find that there has been a denial of a claim in all but the clearest of cases. It should not be astute in searching for admissions of a claim.

[62] What about the case where the defendant prevaricates; first making an admission and then later purporting to deny the claim on the ground that the admission was mistaken, or fraudulently obtained, or was never made? In such a case, there might well be a dispute before the court, both over the substantive claim as well as over whether the defendant can challenge the alleged earlier admission, and the matter should ordinarily be referred to arbitration. Thus, the lack of a meritorious defence does not entitle a claimant to bypass the prior agreed dispute resolution mechanism unless the defendant has admitted the claim, and an open-and-shut case must be distinguished from an admission, with summary judgment almost always being the inevitable logical conclusion of a refusal to stay proceedings on the ground that there has been an admission (though not every single admission will necessarily be enough to avoid a dispute; s 60(2) of the Evidence Act (Cap 97, 1997 Rev Ed) provides that the court may, in its discretion, require that facts admitted to be proved otherwise than by such admissions). The line between an admission and an open-and-shut case may sometimes blur or become very fine, especially when the court prefers the evidence of an admission over a defendant’s subsequent prevarications. The court, recognising that a finding of no dispute is to some extent artificial because the fact remains that the defendant is resisting in some way the claimant’s claim, will therefore be very slow to allow a claimant to circumvent the arbitration agreement unless there has indeed been a clear and unequivocal admission by the defendant. Indeed, Merkin ([24] supra) notes at para 8.42.2:

[63] As discussed above at [59], if a defendant makes an unequivocal admission extending to both liability and quantum (where relevant), then there is no dispute mandatorily referable to arbitration; and the claimant may apply to a court for summary judgment. However, a claimant seeking to obtain summary judgment in court despite a valid arbitration agreement would be well advised to come armed with compelling evidence of the defendant’s admission, because once that admission is challenged by the defendant with any semblance of credibility, the court will ordinarily be inclined to decide that a “dispute” has arisen and order a stay of proceedings for the arbitral tribunal to resolve the “dispute”. This is effectively a limited exception to judicial non-intervention in arbitration. To some extent, this would also be what Hirst LJ referred to in Halki ([17] supra), at 742, as the law taking a “very pragmatic view, whatever the theoretical objections”, as evidenced by the innumerable cases of uninhibited concurrent arbitration and court proceedings. In our view, however, there is only a very narrow scope for circumventing an arbitration agreement (see [43]-[46] above). Even admitted (but unsatisfied) claims may evolve into disputes that warrant arbitration in accordance with the existing agreement to arbitrate. The precise scope and effect of each individual arbitration clause will then be a matter for parties to assess based on their specific concerns.

[64] In contrast, if a defendant makes a clear and unequivocal admission as to liability but not to quantum, then there is a dispute referable to arbitration. In this respect, we agree with the observations made by Ma J in Getwick ([37] supra) where he stated, at [23(3)]:

That there must be an admission as to both liability and quantum before a dispute ceases to be a dispute has also been recognised in Glencore Grain Ltd v Agros Trading Co [1999] 2 Lloyd’s Rep 410: see Merkin and Hjalmarsson ([21] supra) at p 22. In our view, a dispute as to quantum is as much a dispute as a dispute as to liability. As long as a claim is not admitted in full, the parties should be held to their contractual bargain, and the dispute should be resolved by arbitration.

[65] The appellants argued that the payment arrangement with Aventi was not inextricably linked to the SPA because Aventi was not a party to the SPA and could not vary the terms of the SPA without the appellants’ written consent. This argument is a non-starter. It was undisputed that the Fourth SSPA was “supplemental to and an integral part of the SPA” and that cl 2.2 of the Fourth SSPA, providing for the respondent to make payment to Aventi and expressly authorising Aventi to receive such payment, was an integral part of the same agreement between the appellants and the respondent which provided for all disputes, controversies and conflicts to be resolved by arbitration. The respondent’s assertion that it had settled with Aventi earlier and at a discount, as well as whether the respondent was entitled to come to such an arrangement (in relation to payment dates and quantum) with Aventi, were thus both issues striking at the very core of the payment obligation in the Fourth SSPA, and plainly exemplified the kind of controversy an arbitral tribunal should decide.

[66] Unlike in Dalian ([15] supra), the respondent here did not raise a separate and distinct contract to set off against an admitted claim. Rather, it was disputing the claim head-on under the same contract. Emmanuel Gaillard and John Savage, Fouchard, Gaillard, Goldman on International Commercial Arbitration (Kluwer Law International, 1999) describe a situation involving groups of contracts (at para 520):

[67] We agree with the judge that the Fourth SSPA could not exist independently without the SPA; nor would it make any sense on its own. Like the first three supplemental agreements, its purpose was to supplement and/or modify certain terms of the SPA. The appellants rightly did not argue that the arbitration clause in section 11.06 of the SPA did not apply. In our view, there is equally no question that the dispute arose in connection with the SPA.

[68] Finally, while we agree with Woo J’s decision in Dalian, we would note too that the analysis of whether the defendant’s legally erroneous defence is a basis for finding that the arbitration agreement does not apply because the dispute at hand is not “in connection with” the contract in which the arbitration agreement is contained, may also potentially undermine the robustness of the approach we have outlined above. Indeed, whether the defence raised is weak, a sham, or completely unrelated to the contract, may often involve a question of law relating to issues such as privity of contract or separate legal personality. On this point, until such a case comes before us, we would reiterate our preferred common-sense approach in enforcing arbitration agreements without delving into the merits of the case.

[69] We cannot overemphasise the fact that it will ultimately be the precise terms of the relevant arbitration agreement and the context that will determine how the parties are to resolve matters. Nevertheless, in approaching the question of whether a stay of proceedings pursuant to s 6 of the IAA must be granted, the following propositions should form the broad canvas against which an application to court ought to be evaluated:

(a) In order to obtain a stay of proceedings in favour of arbitration, the party applying for a stay (“the applicant”) must show that he is party to an arbitration agreement and that the proceedings instituted fall within the terms of the arbitration agreement (see [22] above).

(i) If the applicant fails to show this, the court should refuse to grant a stay of proceedings (unless there is some other legal basis for granting a stay, eg, forum non conveniens).

(ii) If the applicant can show this, the court must (in accordance with s 6 of the IAA) grant a stay of proceedings unless the party resisting the stay can show that one of the statutory grounds for refusing a stay exists, ie, that the arbitration agreement is “null and void, inoperative or incapable of being performed” (see [22] above).

(b) If the arbitration agreement provides for arbitration only if “disputes” or “differences” or “controversies” exist, then the subject matter of the proceedings would fall outside the terms of the arbitration agreement if:

(i) there is no “dispute”, “difference” or “controversy” as the case may be (see [23] above); or

(ii) the alleged “dispute” is unrelated to the contract which contains the arbitration agreement (see [23] above).

(c) In line with the prevailing philosophy of judicial non-intervention in arbitration, the court will interpret the word “dispute” broadly (see [28], [29], [33] and [34] above), and will readily find that a dispute exists unless the defendant has unequivocally admitted that the claim is due and payable (see [56] and [59] above). The court should not be astute in searching for an admission of a claim, and would ordinarily be inclined to find that a claim is not admitted in all but the clearest of cases (see [61] above).

(d) There is undoubtedly a “dispute” referable to arbitration if the defendant expressly asserts that he denies the claim (see [49] above).

(e) The court will not assess the merits of a denial/defence or the genuineness of a “dispute” since these matters should properly be left to the arbitrator to assess (in accordance with the parties’ contractual bargain to arbitrate) (see [40] and [49] above).

(f) Apart from an express denial or rejection of the claim, the court can also infer that the claim is not admitted from the previous inconclusive discussions between parties, prevarication or even silence (see [61]) above.

(i) There is prevarication where a defendant unequivocally admits the claim, but then later purports to deny the claim on the ground that the admission was mistaken, or fraudulently obtained, or was never made. In such a case, there might well be a “dispute” before the court, both over the substantive claim as well as over whether the defendant can challenge the alleged earlier admission, and the matter should ordinarily be referred to arbitration (see [62] above).

(ii) The defendant’s silence (even in the face of repeated claims against it), without more, is often equivocal at best and may be insufficient to constitute the clear and unequivocal admission necessary to exclude the existence of a “dispute”, since there may be good reasons why a party remains silent. For example, a party may think (rightly or wrongly) a claim so preposterous that “silent treatment” is the most appropriate response (see [61] above).

(g) If a defendant makes an unequivocal admission extending to both liability and quantum (where relevant), then there is no dispute mandatorily referable to arbitration; and the claimant may apply to a court for summary judgment. However, the claimant must come armed with compelling evidence of the defendant’s admission, because once that admission is challenged with any semblance of credibility, the court will ordinarily be inclined to decide that a “dispute” has arisen, and order a stay of proceedings for the arbitral tribunal to resolve the “dispute” (see [63] above).

(h) If a defendant makes a clear and unequivocal admission as to liability but not to quantum (where relevant), then there is a dispute referable to arbitration (see [64] above).

[70] In response to our question about why the present appeal was brought, counsel for the appellants explained that they had no alternative but to initiate court proceedings and to take out the application for an injunction because the respondent did not reply to the appellants’ letters dated 9 April 2008, 30 April 2008 and 8 May 2008. This might explain the application before the AR, but it could not justify the present appeal from the judge’s lucidly reasoned decision. If it was indeed the respondent’s silence that gave the appellants no choice but to seek an injunction, why then did the appellants pursue the appeal when it was clear that the respondent had, by then, made a positive assertion that it was disputing the claim?

Appellants’ Core Bundle (Vol 2) at p 105.

Appellants’ Core Bundle (Vol 2) at p 85.

Appellant’s Core Bundle (Vol 2) at p 99.

Appellants’ Core Bundle (Vol 2) at p 100.

Appellants’ Core Bundle (Vol 2) at p 40.

Appellants’ Case at paras 35-36.

Appellant’s Case at para 40(1).

Appellant’s Case at para 40(3).

Ibid.