The question of whether an anti-suit injunction (“ASI”) should be granted to restrain court proceedings when the parties to the court proceedings are not parties to the arbitration agreement was addressed by Singapore Court of Appeal on appeal from the Singapore International Commercial Court in the latest decision in the long running saga between Asiana Airlines and Gate Gourmet[1].
The decision is important not only for its statement as to the principle of the applicable law, but also for the lesson that transaction lawyers should draw on when preparing bespoke arbitration clauses.
Background
The very simplified background facts of the case are as follows:
- The Appellant in the appeal and the respondent to the original application is Asiana Airlines (“Asiana”), the Korean airline. The Respondents to the appeal are Gate Gourmet Switzerland (“GGS”), Gate Gourmet Korea (“GGK”) a joint venture vehicle set up by Asiana and GGS, and the current and former CEOs of GGS (the “Directors”).
- In December 2016, Asiana and GGS entered into a Joint Venture Agreement (“JVA”) to set up GGK, and GGK and Asiana entered into a Catering Agreement (“CA”) pursuant to which GGK paid an exclusivity fee of KRW 53.33 bn which was set off against Asiana’s capital contribution towards the establishment of GGK. Both the JVA and CA contained arbitration clauses. The JVA and CA are collectively referred to as the “Package Deal”.
- A dispute arose between GGK and Asiana and GGK commenced an arbitration against Asiana under the CA. GGK were successful and obtained a final award in Feb 2021. Asiana attempted to set aside the award but were unsuccessful.
- In August 2022 the CEO of Asiana, Park was convicted in Korea for embezzlement, breach of trust and violation of the Monopoly Regulation and Fair Trade Act relating to the Package Deal.
- In October 2022 Asiana commenced court proceedings in Seoul against GGS and the Directors arguing that the Directors, as employees of GGS were actively involved in the unlawful conduct of Park and were liable in tort under Korean law, and that GGS were vicariously liable for the acts of the Directors, also under Korean law.
- In 2023, the Respondents applied for the ASI in respect of the Seoul proceedings and the court granted it on the basis that the proceedings were prima facie in breach of the arbitration agreement. Asiana appealed the decision.
Parties’ arguments
The main argument raised by Asiana on the appeal was that the ASI should not extend to the directors as they were not parties to the arbitration agreement in the JVA and CA.
The Respondents relied on 2 grounds for the ASI:
- That the institution of the court proceeding was in breach of the arbitration agreements; and
- That the court proceeding was vexatious and oppressive.
The Decision as to the Law
As a preliminary point, the court observed that ASIs are granted to restrain proceedings commenced in breach of exclusive jurisdiction clauses just as they are granted to prevent a party from breaching an arbitration agreement. There is no practical difference between the 2 as exclusive forum clauses[2].
The Court went on to state the law in Singapore as follows: a party to the exclusive forum clause (“A”) may apply for an ASI to prevent another party to the exclusive forum clause (“B”) from pursuing proceedings against a non-party (C”) where A can show either:
- That the exclusive forum clause intended to cover the non-party, i.e. that B agreed with A that B would only sue C in the exclusive forum agreed between A and B; or
- That the real purpose of suing C is to by-pass the exclusive forum clause making the court proceedings vexatious and oppressive between A and B.[3]
To the extent that C was able to show that the court proceedings were vexatious and oppressive to allow the court proceedings to continue against it, C was able in its own right to seek an ASI against B. However, it is not sufficient for the applicant to just show that it had a sufficient interest in obtaining the ASI, e.g. the proceedings against C might entail the consequential liability of A[4].
Whilst the courts take a generous approach towards the construction of arbitration agreements[5], absent plain language to the contrary, the contracting parties are likely to have intended to neither benefit nor prejudice non-contracting third parties[6].
The risk of forum fragmentation is inherent in the context of arbitration agreements and cannot be used as an argument to either prevent parties from arbitrating their dispute, or prevent a party from pursuing claims by other means absent the arbitration agreement.
The granting of an ASI to prevent vexatious or oppressive conduct will face a high threshold. Examples of such instances identified by the court were as follows:
- Where the proceedings were instituted in bad faith, or for no good reason, or were bound to fail, or would cause extreme inconvenience;
- Where the proceedings amounted to an unlawful attack on the applicant’s legal rights e.g. where the proceedings frustrate his rights to limitation;
- Where the foreign proceedings are duplicate to Singapore proceedings, there is no presumption that a multiplicity of proceedings is inherently vexatious or oppressive, something more is needed such as the ASI respondent voluntary participation in the local proceedings, or that the local proceedings had progresses before the commencement of the foreign proceedings[7].
The above list is not exhaustive, and the broad underlying principle is that the foreign proceedings will be said to be vexatious or oppressive if the conduct of the ASI respondent in suing the non-party is unconscionable, such as the real purpose of suing the non-party is to frustrate or subvert the existing obligation under the exclusive forum clause[8].
Decision on the facts
The Court of Appeal found that although the suits against GSK and GSS were in breach of the arbitration agreements, there was nothing in the arbitration agreements to suggest that it was intended by Asiana and GSS/GSK to apply to the Directors. Accordingly, it could not be said that the action against the Directors was in breach of the arbitration agreements[9]. The Court of Appeal further ruled that the Respondents had failed to show that that the Seoul proceedings had the effect or purpose of frustrating or subverting the arbitration agreement in the JVA[10]. It was open to Asiana to sue the Directors in Korea since there was a possibility that the Directors might be personally liable but yet GGS might not be vicariously liable[11]. To grant the ASI in respect of the Directors would unduly prejudice Asiana if it was simply on the basis that it had entered into an arbitration agreement with GGS. If Korea was the only natural forum that the Directors could be held personally liable, the grant of the ASI would insulate them from liability[12].
The Court concluded that while parties are free to enter into arbitration agreements, it is not for the court to compel the participation of non-parties in arbitral proceedings or to prevent disputes being pursued against non-parties in arbitral proceedings in the interest of preventing forum fragmentation.
Accordingly, the ASI in respect of the proceedings against GGS and GGK were upheld, but the ASI against the Directors was set aside.
Conclusion
There is an increasing trend of parties to arbitration agreements involving non-parties in the dispute. Given the difficulty in relying on vexatious or oppression as a ground for ASI, the onus is on transaction lawyers to make it clear that the arbitration clause in agreements is drafted to ensure that it covers appropriate non-parties. An example of such a clause is as follows:
“Any and all persons or entities that perform work or services for [Party Name] in connection with this contract, including employees, officers, agents, subcontractors, and affiliates, shall be referred to hereinafter as Beneficiaries. All rights, benefits, protections, and limitations of liability afforded to [Party Name] under this contract, including but not limited to the arbitration agreement, shall extend to the Beneficiaries, and all claims or disputes arising under or related to this contract shall be resolved in accordance with the arbitration agreement contained herein.
By entering this contract, the parties expressly agree that the Beneficiaries shall be entitled to enforce the terms and conditions of this contract, including the arbitration agreement, as if they were original parties to the contract. This clause is intended to confer a benefit upon the Beneficiaries, and it is expressly agreed that the Beneficiaries shall have the same rights to compel arbitration and to limit their liability as [Party Name] under the terms of this contract.”
Disclaimer: The above clause is provided solely as an example and does not constitute legal advice. It should not be relied upon without seeking specific legal advice tailored to your circumstances. This example has not been endorsed by the court.
For further information, please contact:
S Suressh
Partner & Head, International Arbitration
Suressh@harryelias.com
+65 6361 9883
Andy Lem
Partner & Co-Head, Civil and Commercial Litigation
AndyLem@harryelias.com
+65 6361 9340
[1] Asiana Airlines v Gate Gourmet Korea & Ors [2024] SGCA(I) 8
[2] Ibid at [80] and [83]
[3] Ibid at [84]
[4] Ibid [84] and [85]
[5] Larsen Oil v Petroprod [2011] 3 SLR 414 at [19] – [20]
[6] Team YR Holdings v Ghossoub [2017] All ER (D) 81 (Nov) at [82]
[7] Aisana Airlines v Gate at [89]
[8] Ibid at [90]
[9] Ibid at [102]
[10] Ibid at [103]
[11] Ibid at [104]
[12] Ibid at [106]