Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp

Andrew Ang J:

[1] This was an appeal against the decision of the assistant registrar (“the AR”) in Summons No 3009 of 2009 who ordered that all further proceedings in the action brought by the plaintiff against the defendant be stayed in favour of arbitration in Singapore.

[2] The plaintiff, Transocean Offshore International Ventures Ltd, is a company incorporated in the Cayman Islands. Its business includes that of supplying mobile offshore drilling units and providing drilling services for the development of oil and natural gas reserves.

[3] The defendant, Burgundy Global Exploration Corporation, is a company incorporated in the Republic of the Philippines. It was, at all material times, in the business of exploration and development of oil and gas resources in the Philippines.

[4] The plaintiff and defendant were parties to a novated offshore drilling contract dated 29 September 2008 read with Amendment No 1 dated 30 October 2008 (collectively “the Drilling Contract”). As novated, the Drilling Contract provided for the plaintiff to supply a drilling unit or vessel “C Kirk Rhein Jr” (“the Vessel”) and related drilling services to the defendant.

[5] The Vessel was to be made ready and thereafter mobilised from Singapore to the drilling site off the Philippines some time in January 2009. The commencement of such mobilisation by the plaintiff was defined by Art I(b) of the Drilling Contract as the “Commencement Date”. Article 11 of the Drilling Contract then expressly stipulated that prior to the Commencement Date, it was a condition precedent that the plaintiff and defendant entered into an escrow agreement (“the Escrow Agreement”) for the opening of an escrow account (“the Escrow Account”). The Escrow Agreement was backdated to 31 October 2008 to be consistent with the date of Amendment No 1.

[6] The Escrow Agreement provided for the following:

(a) The establishment of the Escrow Account with the Singapore branch of Banco Bilbao in the joint names of the parties (cl 3.1(a)).

(b) The depositing by the defendant of the escrow amount (“the Escrow Amount”) into the Escrow Account. The initial amount to be paid into this account was US$16.5m (cl 3.2(a)) payable on or before 15 December 2008 or 30 days prior to the Commencement Date, whichever was the earlier. Failure to deposit moneys into the Escrow Account in accordance with cl 3.2 entitled the plaintiff to terminate the Drilling Contract (cl 2).

(c) Further funding of the Escrow Account by the defendant on a monthly basis (cl 3.2(b)).

(d) Release of the funds in the Escrow Account to the plaintiff against joint instructions from the parties upon the defendant receiving an original invoice from the plaintiff (cll 4.1 and 4.2).

[7] The defendant failed to deposit the Escrow Amount in accordance with cl 3.2(a). The plaintiff treated the defendant’s failure to deposit as a repudiatory breach which it elected to accept. Accordingly, in accordance with the general law and cl 2 of the Escrow Agreement, which conferred on the plaintiff the right to terminate the Drilling Contract should the defendant fail to deposit the Escrow Amount into the Escrow Account in accordance with cl 3.2(a), the plaintiff issued a letter to the defendant on 22 December 2008 stating that it had:

(a) terminated the Drilling Contract pursuant to cl 2 of the Escrow Agreement; and

(b) accepted the defendant’s repudiation of the Escrow Agreement due to its failure to deposit the Escrow Amount.

[8] Thereafter, the parties entered into correspondence with the aim of finding a “suitably workable solution” but that did not bear fruit. The plaintiff then commenced the current action claiming, inter alia, damages for the defendant’s breach and/or repudiation of the Escrow Agreement. A writ was filed on 29 January 2009 with an Amended Writ and Statement of Claim filed subsequently on 19 March 2009.

[9] Subsequent to the commencement of the suit, the defendant appeared before the AR in Summons No 3009 of 2009 seeking a stay of the action brought by the plaintiff in favour of arbitration. The AR granted the application on the basis that the Escrow Agreement could not be seen as being separate and distinct from the Drilling Contract. Hence, the arbitration clause under the Drilling Contract could be extended to cover disputes arising out of the Escrow Agreement. Further, she also found that the true dispute between the parties lay under the Drilling Contract and, accordingly, that the matter ought to be stayed in favour of arbitration pursuant to Art 25.1 of the Drilling Contract.

[10] What is significant for the purposes of this appeal is that the Drilling Contract and the Escrow Agreement have different dispute resolution clauses.

[11] Clause 6.2(a) of the Escrow Agreement confers non-exclusive jurisdiction in favour of the Singapore Courts. It reads as follows:

[12] Clause 6.2(b) further provides:

[13] The Drilling Contract provides for arbitration in the event of disputes between the parties. In so far as it is material to this appeal, Art 25 (as amended) reads:

[14] After hearing both parties, I allowed the plaintiff’s appeal against the AR’s decision. I set out the grounds of my decision below:

[15] The plaintiff’s cause of action against the defendant was a straightforward claim arising from the defendant’s failure to pay the Escrow Amount into the Escrow Account in accordance with the terms of the Escrow Agreement. Indeed, the defendant did not dispute that it failed to deposit the requisite sum pursuant to cl 3.2(a) of the Escrow Agreement. As such, the claim fell squarely within cl 3.2(a) of the Escrow Agreement. The defendant argued that the termination of the Drilling Contract was premised on a breach of the Drilling Contract. Since Art 25.1 of the Drilling Contract provided that any dispute to the termination or breach would be governed by arbitration, Art 25.1 would also apply to the plaintiff’s claim in this action. I rejected this argument as the reason for the termination was the defendant’s breach of the Escrow Agreement.

[16] The burden then fell on the defendant to establish why the jurisdictional agreement in favour of the Singapore courts should not be honoured. Generally, a party wishing to depart from a non-exclusive jurisdiction clause must show exceptional circumstances amounting to strong cause before it may be allowed to do so: S&W Berisford Plc and another v New Hampshire Insurance Co [1990] 2 QB 631; Bayerische Landesbank Girozentrale v Kong Kok Keong and another action [2002] 1 SLR(R) 485; Bambang Sutrisno v Bali International Finance Ltd and others [1999] 2 SLR(R) 632 (“Bambang Sutrisno”) and The Hung Vuong-2 [2000] 2 SLR(R) 11. In the present matter, it was pertinent for the defendant to establish that such strong cause for departure existed, given that cl 6.2 of the Escrow Agreement conferred non-exclusive jurisdiction in favour of the Singapore courts and waived jurisdictional objection in the same clause; and the Court of Appeal had made it clear in Bambang Sutrisno that the situation involving a non-exclusive jurisdiction clause (cl 6.2(a)) coupled with a waiver of jurisdictional objection (cl 6.2(b)) was akin to that of an exclusive jurisdiction clause in a contract.

[17] The plaintiff relied on The Hung Vuong-2 as authority that the court may examine whether there were any real and genuine defences to the claim in determining whether there was any strong cause for the defendant not to be held to the jurisdictional agreement. In the present matter, the defendant raised two defences. The first defence related to terms allegedly implied into the Drilling Contract and the Escrow Agreement. The defendant alleged that it was not obliged to deposit the Escrow Amount unless and until the following implied obligations or conditions precedent in the Drilling Contract and the Escrow Agreement were satisfied:

(a) the plaintiff had provided various information and documents;

(b) the plaintiff had facilitated the defendant in the conduct of certain feasibility studies;

(c) the parties had reached an agreement on the Commencement Date or delivery date for the mobilisation of the Vessel; and

(d) the defendant had inspected and approved the Vessel.

The second defence was based on Art 19.1 of the Drilling Contract, a clause purporting to absolve the defendant from liability for the plaintiff’s consequential loss:

[18] The plaintiff dealt at length with the two defences. With regard to the implied conditions precedent, the plaintiff argued cogently that there was no room for implying the same. One of the reasons it put forth was that none of these implied conditions precedent were ever alleged prior to the stay application (despite parties having exchanged extensive correspondence prior to the deadline for payment of the Escrow Amount) and that:

Moreover, since, by the defendant’s own argument, the conditions precedent were to be implied into both the Escrow Agreement and the Drilling Contract, there was no reason to stay the action as it would be open to the defendant to rely upon the defence (for what it was worth) in the court proceedings. With regard to Art 19.1 of the Drilling Contract, the plaintiff argued that it was a red-herring. I agreed, though not for all the reasons proffered by the plaintiff.

[19] Mort importantly, the pre-occupation with the defences was, to my mind, based on an unwarranted extrapolation of the holding in The Hung Vuong-2 ([16] supra). Upon a closer reading, I did not think that that case was entirely apropos. The Hung Vuong-2 held that:

(a) a party had to show “strong cause” where it sought to bring an action in a different jurisdiction from that provided for in the jurisdiction clause;

(b) one of the factors which the court would take into account in determining “strong cause” was whether the party, which was seeking to take the action out of the contractual forum, genuinely desired trial in that foreign jurisdiction or was only seeking procedural advantages; and

(c) it would be difficult for that party to contend that he genuinely desired trial if he was unable to show that there was a real dispute, ie, that he had a real defence to the claim and, accordingly, the court was entitled to look into the alleged defence to determine if there was any real substance to it.

The Hung Vuong-2 involved a situation where parties could not agree on the jurisdiction under which the action ought to be brought. In other words, the tussle was between having the matter heard before the courts of one jurisdiction over the courts of another jurisdiction. The present matter, however, did not involve such a transnational element. Parties simply could not agree on whether the action ought to be brought before a court or an arbitration tribunal, both of which are in Singapore. The dispute was hence over the mode of dispute resolution, rather than jurisdiction.

[20] In any event, I was firmly of the view that the defendant had not established a strong cause for departing from the agreement submitting to the jurisdiction of the Singapore courts. To my mind, Art 25 of the Drilling Contract did not apply for four reasons.

[21] First, from a reading of the Escrow Agreement and the Drilling Contract, I was of the view that the parties had intentionally carved the former out from the latter and expressly subjected the former to a non-exclusive jurisdiction clause rather than an arbitration clause. Article 11 of the Drilling Contract demonstrated that the parties had agreed to carve out escrow matters from the Drilling Contract and to put them in a separate agreement. That evinced a clear intention by the parties to subject claims arising from the Escrow Agreement to the dispute resolution clause found within that particular agreement. Counsel for the plaintiff submitted that the motivation behind this move was to ensure quicker relief, in the event that the obligations contained in the Escrow Agreement were breached than if the matter were arbitrated, as there was no procedure under the London Court of International Arbitration Rules for a final interim award. I agreed with that submission as the obligations of the Escrow Agreement were relatively straightforward and non-technical in nature, as compared with those under the Drilling Contract. Counsel for the defendant, on the other hand, highlighted several references made in the Escrow Agreement to the Drilling Contract to support his position that the Escrow Agreement and the Drilling Contract were inextricably linked and that the former could not be seen on its own, separate and distinct from the Drilling Contract. He relied, inter alia, on cl 4.1(b) of the Escrow Agreement, which required the plaintiff’s invoice to be in accordance with Art 13 of the Drilling Contract, and cl 3.2(b) of the Escrow Agreement which made repeated reference to the word “Term” (which definition under cl 1.1 of the Escrow Agreement included the phrase “unless terminated in accordance with terms of the Drilling Contract”). I was not convinced by that argument, as a contract may refer to a separate contract without necessitating the conclusion that both were inextricably linked with each other. Further, it could equally be said that the limited reference to the Drilling Contract supported the view that the Drilling Contract was not intended to apply as a whole. There was no specific provision incorporating Art 25 of the Drilling Contract into the Escrow Agreement. Neither was there any general incorporation clause in the latter. The law provides that distinct and specific words are required to incorporate an arbitration clause into a contract. In L & M Concrete Specialists Pte Ltd v United Eng Contractors Pte Ltd [2000] 2 SLR(R) 852, Choo Han Teck JC stated at [18] that “arbitration clauses like exemption clauses, must be expressly brought to the attention of the other contracting party”. In the present matter, not only was there no clause specifiying that the arbitration clause was to be incorporated into the Escrow Agreement, there was an express clause conferring jurisdiction on the Singapore courts. Accordingly, incorporating an arbitration clause into the Escrow Agreement would be plainly inconsistent with the clear wording of cl 6.2 of the Escrow Agreement.

[22] Second, despite its apparent width, Art 25, as properly construed, did not extend to the claim in question. From the wording of the arbitration clause, it was clear that Art 25 was principally concerned with claims and disputes arising out of or in relation to the Drilling Contract, even though it also extended to those “in connection with” the Drilling Contract. After the general words “[a]ny dispute, controversy or claim arising out of or in relation to or in connection with this Contract”, the examples of the types of dispute included were all those arising out of the Drilling Contract. Article 25.1 made repeated references to the phrase “this Contract”. Further, Art 25.1(a) was preceded by an introductory sentence, which explicitly limited the parameters of the dispute resolution clause to cover claims arising out of the Drilling Contract only, as opposed to the Escrow Agreement: “The following Dispute Resolution provision shall apply to this Contract”. This ought not to be dismissed as mere verbiage. Despite Art 25’s apparent width, a dispute squarely under the Escrow Agreement and having at best a tenuous connection with the Drilling Contract ought not to be governed by Art 25 when cl 6.2 of the Escrow Agreement was clearly by far the more proximate dispute resolution clause.

[23] I was reinforced in my view by Coop International Pte Ltd v Ebel SA [1998] 1 SLR(R) 615 (“Coop International”), a case concerning a subsequent agreement which did not contain an arbitration clause even though the original agreement that was subsequently terminated did. Parallels could be drawn between the arbitration clause in Coop International which covered “any dispute arising out of or in connection with the present agreement …” [emphasis added], and Art 25.1 of the Drilling Contract, in that both were drafted broadly. In construing the arbitration clause, Chan Seng Onn JC held that the arbitration clause in the original agreement did not extend to a dispute which arose out of the subsequent agreement. He rejected the respondents’ argument which was based on the width of the arbitration clause and applied instead a test of “sufficient connection or relation” to the agreement containing the arbitration clause. The following remarks of Chan JC bear repetition:

[24] Chan JC found support for his observations in Kianta Osakeyhtio v Britain & Overseas Trading Co Ltd [1954] 1 Lloyd’s Rep 247 where Morris LJ at 252:

[25] Third, the defendant’s approach to the Escrow Agreement and the Drilling Contract was to look upon the former as an extension of the latter and/or to construe the two together as though they were one document. The implicit assumption of the defendant’s case was that Art 25 was of general application. Even if the Escrow Agreement was regarded as an extension of the Drilling Contract or as one with the latter, the defendant’s position was still untenable. Clause 6.2 of the Escrow Agreement did not purport to deal with any disputes arising out of the Drilling Contract. Instead, it focussed only on claims arising out of the Escrow Agreement. This was clear from the wording of cl 6.2(a), which explicitly provided for the non-exclusive jurisdiction of the Singapore courts:

It is also a trite canon of construction that the general should give way to the specific. Given the specificity of cl 6.2 of the Escrow Agreement, it overrode Art 25 as the claim arose out of the Escrow Agreement.

[26] In addition, I was of the view that where different but related agreements contained overlapping and inconsistent dispute resolution clauses, the nature of the claim and the particular agreement out of which the claim arose ought to be considered. Where a claim arose out of or was more closely connected with one agreement than the other, the claim ought to be subject to the dispute resolution regime contained in the former agreement, even if the latter was, on a literal reading, wide enough to cover the claim. I found judicial support for this view in the English decisions of Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd’s Rep 767 (“Credit Suisse First Boston”) and UBS AG v HSH NordbankAG [2009] 2 Lloyd’s Rep 272 (“UBS AG”). Both cases concerned inconsistent jurisdiction clauses in separate agreements. In the former, a case involving the purchase of a series of bonds by a hedge fund from a bank, the purchase agreement contained an exclusive jurisdiction clause in favour of the English courts but the re-purchase agreement contained a non-exclusive jurisdiction clause in favour of the English courts and entitled either party to bring a claim in a court of competent jurisdiction. The bank made a margin call which the hedge fund was unable to pay, as a result of which the hedge fund became liable to re-purchase the bonds. It failed to pay the re-purchase price and that led the bank to commence proceedings in England. The hedge fund then commenced proceedings in New York against the bank for misrepresentation and fraud, which the bank sought to restrain by way of an anti-suit injunction against the New York proceedings in the English courts. To enable it to obtain the anti-suit injunction to restrain the New York proceedings, the bank had to show that the governing jurisdiction clause was the exclusive English jurisdiction clause found in the purchase agreement. That contention was rejected by Rix J. At 777, the learned judge said:

Rix J further considered whether the complaint in the New York action arose out of the purchase agreement or the re-purchase agreement and decided in favour of the latter. He concluded at 777 that the English jurisdiction clause in the purchase agreement was either inapplicable or, if applicable, overridden by the non-exclusive jurisdiction clause in the re-purchase agreement:

[27] Rix J’s approach was reaffirmed very recently by the English Court of Appeal in the second case of UBS AG ([26] supra) which also involved two jurisdiction clauses, one in favour of England and the other, New York. Lord Collin was of the view at 286 that:

[28] Fourth, the defendant sought to rely on s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”) which provides:

However, I was of the view that this section was not applicable as s 6 could only be invoked if the claim from which the proceedings arose fell within the scope of an arbitration agreement; the Escrow Agreement did not contain an arbitration clause. In Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732 (“Tjong Very Sumito”), the Court of Appeal made it clear at [22] that s 6 of the IAA could only be invoked if the party applying to stay the action could show that the instituted proceedings fell within the scope of an arbitration agreement:

[29] In any event, even if proceedings instituted under the Escrow Agreement did fall within the scope of Art 25.1, that provision had been rendered inoperative by the parties entering into the subsequent Escrow Agreement. By introducing a jurisdiction clause in the subsequent Escrow Agreement, the defendant waived the agreement to arbitrate and was, accordingly, estopped from asserting its rights to insist on arbitration. This was explained by the Court of Appeal in Tjong Very Sumito at [53]: