Singapore courts decide rare appeal against successful early dismissal under the SIAC rules

A recent decision by the Singapore Court of Appeal offers rare insight into how a successful early dismissal application may be treated by the courts in Singapore.

The Singapore International Arbitration Centre Rules, 2016 (SIAC Rules) allow parties to apply for the ‘early dismissal’ of claims under Rule 29. The provision is a powerful tool that can cut short a party’s case in the early stages of an arbitration by way of a simple application claiming either that the claim or defence is ‘manifestly without legal merit’; or that a claim or defence is manifestly outside the jurisdiction of the tribunal.

In reality, the standard of scrutiny for such applications is high and the success rate is low. As a result, despite the rule having been in force for about 8 years, applications for early dismissal are few, and there have been almost no opportunities for the courts to examine the contours of the procedure. This is probably because since the introduction of Rule 29 in 2016, 65 applications for early dismissal were filed before SIAC, of which 33 were allowed to proceed, and only 12 were granted in whole or in part¹.

The recent decision of DBO and others v DBP and others2 (the Judgment) is therefore a welcome decision in so far as it is the first case where the Singapore Court of Appeal (SGCA) has decided an appeal in respect of a tribunal’s decision under Rule 29 and sheds some light on how parties can expect such appeals to be treated going forward.

Background facts and the tribunal’s decision

By a Facility Agreement (the Agreement) dated 26 February 2020, DBR, DBT, and DBV (the Lenders/Respondents) granted a loan facility to DBO and DBQ (the Borrowers/Appellants) for the development of a project (Project). As a result of the Covid-19 pandemic, the sale of the units in the Project and the rental income for the Borrowers was adversely affected, and they were unable to repay the loan.

The Borrowers commenced a SIAC arbitration and contended that the Agreement had been discharged by frustration, on account of the Covid-19 pandemic. In response, the Lenders applied for early dismissal of the Borrower’s claims under Rule 29.1 of the SIAC Rules (the Application) claiming that the Borrower’s contention that the Agreement had been discharged by frustration was manifestly without legal merit.

At the hearing of the Application, the Borrowers sought to raise a new argument that was not part of its pleaded case – that there was an oral collateral contract between the parties to the effect that the funds for repaying the sums due under the Agreement would come from the sales of units in the Project and the income from the Project. The point being made was that since the Covid-19 pandemic had affected the sales, it was not possible to make the loan repayments and therefore the Agreement was frustrated.

The tribunal issued a partial award (the Award) finding that the facts argued by the Borrowers could not be interpreted to conclude that the parties had entered into a collateral agreement providing that only the income from the Project would be used to repay the loans. As a result (and in light of the fact that such a collateral agreement did not exist), the tribunal found that the Borrowers’ argument that the Agreement had been discharged by frustration was manifestly without legal merit. In so doing, the tribunal brought the Borrowers’ arbitration to an early end.

The SICC’s decision

The Borrowers applied to set aside the Award on the basis that the tribunal had failed to assume the existence of the collateral contract when dealing with the application for early dismissal thereby exceeding its jurisdiction.

The Singapore International Commercial Court (SICC) found that the tribunal only had to assume the facts alleged in support of the existence of a collateral contract. The tribunal did assume the existence of those facts and found that a collateral contract providing repayment only from a specific source did not exist based on those facts. The SICC also observed that the tribunal’s decision was not dependent on any disputed underlying facts nor had the tribunal acted in breach of natural justice or in excess of its jurisdiction. On these grounds, the SICC dismissed the Borrowers’ application.

The SGCA’s decision

On appeal, the SGCA held that the tribunal was correct to conclude that the argument in respect of the collateral contract would not enable the Borrowers to defeat the early dismissal application. The SGCA agreed with the tribunal and the lower court that the collateral contract was not an agreement to the effect that the loan would be repaid and serviced only from the proceeds of the Project and rents from the mall. As a result, the SGCA agreed with the tribunal that the amendment to the Borrowers’ case and the collateral contract did not enable the Borrowers to defeat the early dismissal application.

Commentary

Having a clear and cogent case is key to a successful application: A key reason for the early dismissal of the Borrowers’ case was the haphazard manner in which they argued the existence of the collateral agreement. The argument was brought at a late stage, it was not put down in writing and was unclearly pleaded. From the transcript of the arbitration hearing, it appeared that the argument made was that the proceeds from the Project would be used to repay the loans and not that the proceeds would be the only source for repayment. This critical difference led to the success of the application for early dismissal. It is for this reason that the Court of Appeal also commented that the tribunal should have required that the terms of the alleged oral collateral contract be committed to writing. Indeed, doing so would have lent much needed clarity to the Borrowers’ case and may even have allowed them to properly substantiate and flesh out their case.

Chances of success in an appeal: Where a tribunal’s decision to dismiss a case under Rule 29 of the SIAC Rules is made in the form of an award, it will likely be difficult to overturn as it would have to be set aside by the court of the seat of the arbitration. In jurisdictions like Singapore in particular, there are limited grounds to set aside an award. Parties faced with an application for early dismissal against their claims must remain cognisant of this fact.

What amounts to “manifestly without legal merit”?: Interestingly, the SGCA focussed its decision on the peculiar facts of this particular case and did not spend much time exploring the standards that a tribunal may employ to determine whether a claim is ‘manifestly’ without legal merit. The decision does note that the tribunal “accepted that it was only where a claim or defence was undoubtedly legally unsustainable that Rule 29.1 could be properly invoked”, which the SGCA did not appear to disagree with. Hopefully, this is the first of more cases to come, wherein the Singapore courts have the opportunity to further explore the contours of Rule 29.