Arbitration Case Update

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Singapore International Arbitration Blog

We had previously discussed the case of Piallo GmbH v Yafriro International Pte Ltd, [2013] SGHCR 20 (“Yafriro (AR)”). The issue was whether a claim on certain dishonoured cheques paid pursuant to a Distributorship Agreement could avoid a stay of court proceedings for reference to arbitration pursuant to an arbitration clause in that agreement.

On the facts of that case (see our previous post: “Can a claim on dishonoured cheque(s) avoid a stay for arbitration”), the learned Assistant Registrar held that there was a valid dispute between the parties that had to be referred to arbitration. The learned Assistant Registrar therefore stayed the proceedings in court, notwithstanding that the proceedings were ostensibly founded on a claim of various dishonoured cheques. Piallo appealed.

The Honourable Justice Belinda Ang (“Ang J”) dismissed its appeal in Piallo GmbH v Yafriro International Pte Ltd, [2013] SGHC 260 (“Yafriro (HC)”).

Conflicts of law

In our previous post, we noted a conflict of laws issue that had not been addressed before the learned Assistant Registrar. We wrote:

“It is interesting that neither party had adduced evidence on Swiss law despite the fact that the arbitration clause was a Swiss arbitration clause and the underlying contract was governed by Swiss law. The learned authors of Dicey, Morris & Collins: The Conflict of Laws (15th ed) stated at [16-075] that:

“Once the party seeking the stay has established that the parties agreed to arbitration and that their dispute falls within the scope of that agreement, the court must grant a stay unless the other party satisfied the court that there is a good reason why a stay should be refused (for example, because the arbitration agreement is null and void). The question whether an arbitration agreement is wide enough to cover the dispute between the parties depends on the principles of interpretation of the law applicable to the arbitration agreement. Before granting a stay under s.9, the court must be satisfied that there is an arbitration agreement between the parties and that the subject of the action is within the scope of the agreement.”

In the Nova case, the House of Lords considered both English as well as German law in coming to its decision that the claim on the bills of exchange did not fall within the arbitration clause. However, both English and German law came to the same result. Likewise, the Hong Kong Court of Appeal noted in Pacific Forex,

“…

The issue fell to be considered in the light of German law as well as English law and the Court found there to be no significant difference in the approach to Bills of Exchange. One of the most authoritative German works included:

“In the case of bills given by merchants in payment of the price of goods it cannot, if there is any doubt, be assumed that a clause providing for submission of disputes to arbitration applies to claims under the bills.”

The German expert gave as his view on the authorities that

“A very plain manifestation of intention to extend an arbitration clause to claims under bills of exchange is needed to rebut the presumption that businessmen neither wish nor expect bills of exchange to be taken into arbitration.”

…”

This issue was picked up and addressed in fuller detail by the High Court. Ang J (noting the same points that we had) held that whether or not the dispute fell within the scope of the arbitration agreement was a matter to be determined by Swiss law.

The important point to note here is that the High Court held that it was for Yafriro (the party arguing for the stay) to prove what the position under Swiss law was. However, since Yafriro was content to assume that Swiss law was the same as Singapore law in construing the scope of the arbitration clause and both parties proceeded on that assumption, the High Court was similarly content to do so (see paragraph [24] and [25]).

High Court’s analysis

The High Court confirmed the basic position that “a bill of exchange is itself a contract separate from the underlying contract, and that a claim for unliquidated damages based on the underlying contract cannot operate as a defence or set-off to the claim based on the bill of exchange” (see paragraph [26]).

In this respect, Piallo had argued that the claim on the dishonoured cheques did not fall within the scope of the arbitration clause. It sought to argue that clear words were needed before such claims would be caught by the arbitration clause (see paragraph [14]).

Presumption of arbitration

The High Court disagreed and held that the converse was actually true. Ang J considered that in light of recent cases (see paragraphs [32] to [35]), the Singapore courts have moved away from a “presumption against taking bills of exchange into arbitration”.

In our previous post, we had also noted the shift in the English position with respect to the construction of the scope of an arbitration clause.

“The High Court’s comment that the arbitration clause in this case was wider than that of the Nova case also raises an interesting point of history. Prior to the case of Premium Nafta Products Ltd (20th Defendant) & Ors v. Fili Shipping Company Ltd & Ors [2007] UKHL 40, the English courts had undertaken semantic distinctions as to whether a claim fell within an arbitration clause on the basis of whether the clause referred to disputes “arising out of“, “arising under” or “in connection with” the contract. With the Premium Nafta (aka Fiona Trust) case, the English courts will start from the presumption that in the absence of clear words to the contrary, commercial parties are taken to likely have intended to have all their disputes resolved in a single forum (arbitration).”

The High Court held that if commercial parties chose to include an arbitration clause, there was a presumption that those parties intended all of their disputes to be resolved in a single forum (citing the English Court of Appeal in Fiona Trust & Holding Corporation v Privalov [2007] 2 Lloyd’s Rep 267 at [17]) (see paragraph [38]).

Accordingly, while Ang J held that “the presumption [taking bills of exchange into arbitration] may be rebutted if there are clear words in the arbitration clause to include claims involving the bill of exchange contract like in the case of a dishonoured cheque” (see paragraph [36]), Ang J also considered that the arbitration clause contained “sufficiently wide and general words” so as to include a claim on dishonoured cheques. This was particularly so given that any contractual dispute would “so closely [be] connect[ed] together on the facts” with a bill of exchange dispute (see paragraph [38]).

Critically, on an examination of the clauses in the Distributorship Agreement, the High Court considered that it had been within the parties’ contemplation that there might be a dispute on dishonoured cheques. As such, it was actually the converse of Piallo’s submission i.e. “if a cause of action under a bill of exchange is to be excluded [from the arbitration agreement]…it would have to be expressly stated” (see paragraph [39]).

Stay in any event on other grounds

In any event, the defences raised by Yafriro in respect of estoppel (paragraph [42]) and misrepresentation (see paragraph [47] and [48]) were good grounds for a stay of the court proceedings. Ang J considered that these defences were so intrinsically tied up to the Distributorship Agreement, its termination and the issuances of the cheques in question, that a stay should be granted.

Dispute between parties even if there were earlier unequivocal admission

The learned Assistant Registrar had dismissed Piallo’s argument that there was no dispute between the parties because of an earlier unequivocal admission by Yafriro of its debt owing to Piallo. The learned Assistant Registrar held that there was in fact no unequivocal admission by Yafriro as to quantum or liability (see paragraph [48] of that decision).

Ang J agreed,

“Even accepting here that the Cheques were initially a clear and unequivocal admission of Piallo’s claim, the circumstances before and after the Cheques were issued showed that Yafriro subsequently denied the claim.” (see paragraph [54])

Ang J reasoned that this was sufficient for a stay because those defences demonstrated “at the very least that Yafriro believed it had grounds for not paying Piallo”. After all, the validity of Yafriro’s allegations was irrelevant at this stage of a stay application (see paragraph [57]).

Conclusion

We have written about the different laws governing an arbitration agreement (see also The Proper Law of the Arbitration Agreement). This case is a good example of how a Singapore court need not only apply Singapore law in determining legal issues involving a Singapore seated arbitration.

This case also reinforces a very robust view of the ambit of arbitration clauses and arbitration as a one-stop shop for commercial parties to resolve all their disputes, even where the dispute involves bills of exchange. It would be interesting to see what views the Court of Appeal might have on this issue should the case be appealed further.

Commercial parties might also want to bear in mind that suing in court on a dishonoured cheque may no longer be a straight forward matter where the underlying contract contains an arbitration clause.