You're (not) welcome to the arbitration! The Singapore court considers powers to order joinder

In The Titan Unity (No. 2) [2014] SGHCR 04, an Assistant Registrar refused to grant, amongst others, a party's application for an order that it be allowed to join arbitration proceedings that were on foot.  The Singapore court refused the application on the basis that it should not override the joinder mechanism that parties to that existing arbitration had already agreed to, which required their express consent to be obtained before any other entity could be joined.

In its reasoning, the court considered whether parties to an arbitration agreement had, by their conduct or otherwise, consented to extend the agreement to a non-party and if that non-party had agreed to be bound accordingly.

The decision raises interesting issues relating to the court's power under the Singapore International Arbitration Act (IAA) and the UNCITRAL Model Law on International Commercial Arbitration (Model Law) to order joinder. It also ultimately affirmed the Singapore courts' appreciation of the primacy of parties' consent in arbitration. The decision serves as an important reminder that parties should consider the complex issues created by multi-party and multi-contract scenarios when drafting their agreements to avoid multiplicity of proceedings and ensure that potential disputes could be dealt with in an efficient way in arbitration.

 Background

The Titan Unity was a vessel owned by Singapore Tankers (SGT). Pursuant to a demise charterparty between SGT and Oceanic (Oceanic), the vessel was chartered by Oceanic who in turn entered into a time charterparty agreement with Onsys Energy Pte Ltd (Onsys) to transport a cargo purchased by Onsys.  The plaintiff (Portigon) provided financing for the purchase of Onsys's cargo and was the holder of the bill of lading.

The cargo was nonetheless delivered without the bill of lading and Portigon brought an action against SGT and Onsys for misdelivery of cargo and obtained an order for the arrest of the vessel. Oceanic then applied for, and successfully obtained, an order staying the proceedings brought by Portigon against it in favour of arbitration. The Assistant Registrar found in the earlier decision of The Titan Unity [2013] SGHCR 28 that the bill of lading which Portigon relied on validly incorporated the arbitration agreement found in the time charterparty between Oceanic and Onsys. The arbitration agreement provided for arbitration in accordance with the Arbitration Rules of the Singapore Chamber of Maritime Arbitration (SCMA Rules).

As a result of that decision, SGT applied in the present case to set aside and strike out Portigon's action against it, or alternatively, order that SGT should be joined to the arbitration proceedings between Portigon and Oceanic.

The decision

The Assistant Registrar found that the IAA was silent on the issue of joinder. He referred to the Model Law and its commentary and concluded that consent of the parties to the existing arbitration and the party seeking to join or be joined to the arbitration was a necessary condition for there to be joinder. 

Portigon and Oceanic took the position that SGT was not a party to the arbitration agreement that gave rise to the on-going arbitration and that no consent to joinder had been given. The Assistant Registrar then considered whether Portigon and Oceanic had, by their conduct, extended the arbitration agreement to SGT and whether SGT had, by its conduct, agreed to be bound by that arbitration agreement.  The Assistant Registrar confirmed past decisions of the Singapore court that it must look at the objective circumstances to determine if consent by conduct may be implied.

The Assistant Register held that SGT had objectively consented to be bound by the arbitration agreement between Portigon and Oceanic. With respect to Oceanic, he found that it had not objected to the extension of the arbitration agreement to SGT. With respect to Portigon, he found that Portigon had always regarded SGT as the contractual carrier under the bill of lading and that it was closely related to Oceanic. Thus, objectively, Portigon must have intended for the dispute with SGT to be arbitrated as well.

Having concluded that Portigon, Oceanic and SGT had impliedly consented to be bound by the arbitration agreement, the Assistant Registrar did not take this line of reasoning further.  Rather, he then turned to the SCMA Rules and noted that Rule 32.2 of the SCMA Rules provided that the Tribunal may order other parties to be added (with their consent) to an arbitration provided that the parties to that arbitration agree. He held that this express mechanism had been agreed by the parties (by their selection of the SCMA Rules) and it must trump any views the court may have about the parties' implied consent to join SGT to the existing arbitration. The application by SGT was dismissed, although the Assistant Registrar directed the parties to try to come to an agreement about joining SGT to the arbitration between Portigon and Oceanic.

Comment – does the Singapore court have the power to compel parties to an arbitration to allow a third entity to join the arbitration?

The Assistant Registrar took the view that the IAA was "silent" on the question of whether the court has the power to consider the order requested by SGT. Despite this, the court still undertook a detailed analysis of whether the parties had impliedly consented to arbitrate. Further, the judgment appears to indicate that, were it not for the express joinder provision in the SCMA Rules, the Assistant Registrar may have been minded to conclude that Portigon and Oceanic had impliedly consented to have SGT joined in the arbitration between them and SGT, by its application, consented to be joined. Again, while not stated in the judgment, the approach certainly appears to suggest that the court may have been minded to make an order for joinder in the light of the parties' implied consent.

However, it is open to question whether the Singapore court has the power to make an order for joinder, regardless of the parties' consent or the applicable rules in the arbitration. Article 5 of the Model Law, which forms part of the lex arbitri (Schedule 1 of the IAA) clearly states that "[i]n matters governed by this [Model] Law, no court shall intervene except where so provided in this [Model] Law". The Court of Appeal in LW Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd and another appeal [2013] 1 SLR 125 held that "[t]he effect of Art 5 of the Model Law is to confine the power of the court to intervene in an arbitration to those instances which are provided for in the Model Law and to "exclude any general or residual powers" arising from sources other than the Model Law… The raison d'être of Art 5 of the Model Law is not to promote hostility towards judicial intervention but to satisfy the need for certainty as to when court action is permissible." Presumably therefore, silence in the IAA should be taken to mean that the court lacks authority to order anything outside the IAA's scope. Given that the IAA does not expressly authorise the court to order joinder, the Assistant Registrar's decision to provide a strongly worded opinion on the parties' implied consent to joinder is questionable. This is particularly so when a court judgment of this nature may have the potential to impact upon the arbitral tribunal's own consideration of this issue. 

Given the lack of an express power to order joinder, SGT's decision to make this particular application to the Court is curious. SGT may well have been better off seeking a stay of the action against it by Portigon on the basis of an arbitration agreement between it and Portigon (and Oceanic). This would have forced Portigon to consider if it would be worthwhile to commence separate proceedings against SGT or to allow it to be joined to the existing one.

This case illustrates the complexities relating to multi-party and/or multi-contract disputes and the issues that arise concerning possible on joinder or consolidation of multiple proceedings. Unlike court proceedings where the courts have inherent powers to consolidate proceedings or order parties to join existing proceedings, arbitration is founded on consent. Where consent is absent, it may not be possible to consolidate two arbitrations or to join non-consenting parties to an existing arbitration. Parties should, even at the drafting stage, consider these issues with their lawyers to avoid multiplicity of proceedings and ensure that potential disputes could be dealt with in an efficient way in arbitration. This is done through a variety of ways, including building effective joinder and consolidation provisions in the contract, selecting a favourable seat, or choosing institutional rules that deal with joinder and consolidation. We have previously covered this issue in our post on "Dealing with Multi-Party and Multi-Contract Arbitration Issues" which can be accessed here.

For further information, please contact Alastair Henderson, Partner, Gitta Satryani, Senior Associate, Daniel Waldek, Associate, or your usual Herbert Smith Freehills contact.