Case Update: PT Selecta Bestama v Sin Huat Huat Marine Transportation Pte Ltd [2015] SGHC 295 – stay of proceedings, multi-tiered dispute resolution clause, obligation to negotiate and exclusive jurisdiction clause

PT Selecta Bestama v Sin Huat Huat Marine Transportation Pte Ltd [2015] SGHC 295

Significance: stay of proceedings, multi-tiered dispute resolution clause, obligation to negotiate prior to legal proceedings and exclusive jurisdiction clause; reliance on exclusive jurisdiction clause despite challenging validity of contract.

Typically, the party resisting the stay application is the same party who challenges the validity of the contract which contains the exclusive jurisdiction clause. In such cases, the conventional approach taken by the court is to order that the validity of the contract be determined by the forum stipulated in the exclusive jurisdiction clause, and as a consequence, that the proceedings be stayed. Here, the situation was the converse. Can the defendant, who is challenging the validity of the contracts on the ground of misrepresentation, rely on the exclusive jurisdiction clause contained therein to stay the Singapore proceedings? The court found that there was no reason in law or principle why the outcome should be any different in such a situation particularly since, by the plaintiff’s own case, the contracts are valid and therefore the commencement of the Singapore proceedings is ex facie in breach of the exclusive jurisdiction clause. Furthermore, the plaintiff could not rely on its own breach in failing to attempt negotiations to argue that the exclusive jurisdiction clause had not been engaged: [3].

The courts would ordinarily give effect to valid exclusive jurisdiction clauses because, prima facie, contracting parties should be held to their contractual commitment: Golden Shore Transportation Pte Ltd v UCO Bank and another appeal [2004] 1 SLR(R) 6 (“Golden Shore”) at [33]. However, if a party can show “exceptional circumstances amounting to “strong cause” why the court should exercise its discretion in his favour and assist him in breaching his promise to bring the action in the contractual forum”, the court may refrain from ordering a stay in favour of the contractual forum: [28].

Logically, subject to the question of separability, the existence of a valid exclusive jurisdiction clause is dependent on the validity of the underlying contract between the parties. But it is well-established that a dispute relating to the validity of the underlying agreement is nonetheless a dispute arising under the governing exclusive jurisdiction clause: [29].

The plaintiff’s failure to comply with the precondition to negotiate was itself a ground for the Singapore courts to decline jurisdiction. the consequence of the non-compliance with the conditions precedent of referring the dispute to the dispute resolution mechanism contemplated in a exclusive jurisdiction clause is that no other dispute resolution mechanism could be invoked either. It would defy logic and common sense if the parties who were in breach of the conditions precedent in a two-tiered dispute resolution clause could not have recourse to the secondary dispute resolution mechanism mandated by the contract, but could instead proceed with a mode of dispute resolution which was not contractually provided for: [35].

As a matter of principle, the plaintiff cannot circumvent the exclusive jurisdiction clause by relying on its own breach of the contractual requirement to negotiate: [36].

The mere fact that the validity of the contract was challenged by a party would not ipso facto infect the choice of law clause. Additionally, even if it was undisputed that the contract was invalid, it remained critical to examine the substance of the challenge as to whether the factor which led to the invalidity of the contract itself also infected and invalidated the choice of law clause. It would only be in situations where there was clearly no concluded contract at all such as where the parties were ad idem that there was no contract, or where the other party was defrauded into thinking that the contract was of a wholly different nature giving rise to the plea of non est factum, would the choice of law clause be infected to preclude its applicability altogether: [40].

There was no reason why the same principle should not apply in the context of an exclusive jurisdiction clause. The pertinent question was whether the defendant’s challenge vitiates the exclusive jurisdiction clause: [41].

The plaintiff’s case was itself premised on the validity of the Contracts. On the plaintiff’s own case, the exclusive jurisdiction clause was both operative and binding. It would thus have been wrong in principle for the court not to take cognisance of the exclusive jurisdiction clause in considering the stay application when the plaintiff was, ex facie, in breach of a clause which, by its own case, was operative and binding: [45].

The issues relating to the relative ease of enforcement and the place of witnesses were known to the parties at the time the contracts were entered into, and thus these factors did not assist the plaintiff in demonstrating exceptional circumstances amounting to “strong cause”: [53].

A lack of a defence may constitute “strong cause” on the ground that it indicates that the defendant does not genuinely desire a trial in the contractual forum: [54].

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.