International Research Corp. PLC vs. Lufthansa Systems Asia Pacific Pte. Ltd.

and
another
[2013] SGCA 55

Facts:

Lufthansa and Datamat entered into an agreement whereby Lufthansa was to supply,
deliver, and commission a new maintenance, repair and overhaul system which is a
component of the electronic data protection system that Datamat had agreed to provide
Thai Airways under another agreement. The agreement contained a dispute resolution
mechanism which prescribed that any dispute shall first be resolved by (1) a specified
mediation procedure, failing which, the dispute shall be resolved by (2) arbitration.

Datamat was under financial duress and was unable to settle outstanding payments
due. Thus, Datamat eneterd into a Supplemental Agreement with International
Research Corp. whereby the latter assumed responsibility for Datamat’s obligations to
Lufthansa. Unlike the first agreement, the Supplemental Agreement does not contain
any multi-tiered dispute resolution mechanism. Lufthansa subesquently launched
arbitration proceedings against Datamat and IRCP for nonpayment of outstanding
sums. International Research Corp. challenged the jurisdiction of the Tribunal on the
basis that (i) it was not a party to the arbitration agreement in the Cooperation
Agreement; and (ii) Lufthansa had failed to comply with the preconditions for the
commencement of arbitration proceedings, that is, to go through mediation first.

Issue:

Is International Research Corp. bound by the arbitration agreement in the Cooperation

Agreement? YES.

Ratio:

The parties used the phrase “This Supplemental Agreement No. 2 is hereby annexed to and
made a part of the Agreement specified above…”. In applying the contextual interpretation
to this wording, the Court took into account the following factors:
i.) The parties had entered into the Supplemental Agreements as a consequence
of Datamat’s non-performance of its payment obligations to Lufthansa;
ii.) There was clearly an interdependence between the obligations in the
Supplemental Agreements and the obligations in the Cooperation
Agreement; and
iii.) International Research Corp. had contracted with knowledge of the terms of
the Cooperation Agreement, including the Dispute Resolution Mechanism,
when it entered into the Supplemental Agreements.
The Court therefore took this phrase as an indication that the parties had intended
the same Dispute Resolution Mechanism to bind all three parties to the
Supplemental Agreements. The Court was persuaded that it made little commercial
sense for a dispute between Lufthansa and Datamat to be resolved according to the
Dispute Resolution Mechanism but for that same dispute involving all three parties to
be subject to court proceedings.

The Court emphasized that whether an arbitration agreement is incorporated is a

matter of the parties' objective intentions, even if the strict rule that express words are
required to incorporate an arbitration agreement into another is occasionally
compromised. In other words, parties which do not use specific words of incorporation
may nonetheless be bound by an arbitration agreement in a different contract if the
parties' intentions are otherwise made clear. In addition, in the absence of a clear and
express indication to the contrary, the Singapore courts will not easily find that it was
the commercial intention of parties for the same disputed issue under closely related
agreements to be resolved both before an arbitration tribunal and before the courts.

The Court, however, noted that where a pre-arbitration negotiation procedure has not
been adhered to, and even if it can be shown that further negotiations would not
resolve the dispute, a mere stay of arbitration proceedings would not be the correct
order. In such circumstances, the Tribunal simply has no basis to assert jurisdiction.
Parties to dispute resolution mechanisms involving negotiation procedures – and in
particular parties to Asian commercial contracts – should therefore ensure that such
procedures are carefully observed. Otherwise, the jurisdiction of any arbitral tribunal
appointed subsequently is liable to be revoked by the Court.

PT Selecta Bestama vs. Sin Huat Huat Marine Transportation Pte. Ltd.

[2015] SGHC 295

Facts:

PT Selecta commenced the present suit to recover sums it claimed were due to it from
the defendant under two signed contracts dated 25 September 2013 for the building of
two barges (“the Contracts”). The Contracts were identical. Under each of the Contracts,
the plaintiff was to build a single barge for the defendant at a price of $1.33m. In the
said contracts, a clause containing the obligation to mediate before resorting to court
procedures existed.

Issue:

Whether the Singapore Courts should decline jurisdiction due to failure of the Plaintiff
to comply with the pre-condition to negotiate.
Held:

YES. 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.

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. 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.