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The arbitrability of minority shareholder rights in Singapore

In Maniach Pte Ltd v L Capital Jones Ltd and another [2016] SGHC 6, the Singapore High Court recently handed down a decision concerning a dispute between the shareholders of the international gourmet food business Jones the Grocer. In response to the majority shareholder’s move to have the dispute settled through arbitration, the Court decided that seeking damages for minority shareholder oppression (under the Companies Act) is not arbitral, and that such action must be pursued through the courts.

In reaching its decision, the Court cited Silica Investors Ltd v Tomolugen Holdings Ltd and other [2014] 3 SLR 815, in which the Singapore High Court said that whether a minority oppression action is arbitrable will depend on the facts and circumstances of each case:

The nature of a minority oppression claim and the broad powers of the court under s 216(2) of the CA would mean that a minority oppression claim is one that may straddle the line between arbitrability and non-arbitrability. It would not be desirable therefore to lay down a general rule that all minority oppression claims under s 216 of the CA are non-arbitrable. It will depend on all the facts and circumstances of the case.

This approach is contrasted somewhat to the English approaches in both Exeter City Association Football Club Ltd v Football Conference Ltd [2004] 1 WLR 2910 and Fulham Football Club (1987) Ltd v Richard and another [2012] both of which took an ‘all or nothing’ approach to the arbitrability of statutory minority oppression claims.

In Exeter City, the English High Court held that a statutory minority shareholder oppression claim under English company law is not arbitrable. However, in Fulham the English Court of Appeal held that a statutory minority shareholder claim under English company law is arbitrable even though an arbitral tribunal is unable to grant certain statutory remedies, such as a winding up order or drag along notice, which the statute makes available to a successful plaintiff.

In Maniach, the Singapore High Court departed from its earlier view in Silica, and followed the Exeter City approach.  Contrary to Silica, the Court said that it finds it difficult to accept that “arbitrability is or ought to depend on the facts and circumstances of each case“. Arbitrability, the Court said, is “an overarching concept which has its source outside the International Arbitration Act, outside the Model Law and outside the parties’ arbitration agreement. It is imposed from above in order to give effect to the public policy” of the seat or forum.

The Court said that the answer to the question of whether the statutory minority oppression claim is arbitrable must either be that all claims of this type are arbitrable, or none of them are, and that this is for two reasons:

  • First, arbitrability rests on the “fundamental conceptions of public policy“. The Court considered that it should not be within the power of a party to unilaterally arrange the facts and circumstances of the case for tactical reasons, thereby inviting the intervention of public policy and maximizing the likelihood of disrupting the parties’ bargain. This, in the Court’s view, is exactly what happens when the question of arbitrability is determined on a case by case basis. It allows a party the opportunity to potentially manipulate the outcome of the inquiry into arbitrability.
  • Second, the Court said that a case by case approach to arbitrability “undermines commercial certainty” because it becomes impossible to predict the outcome of the inquiry into arbitrability. The Court further considered that the “very same dispute on the very same underlying facts can suddenly change by a party’s unilateral act from being arbitrable to being non-arbitrable“.

Accordingly, the Court averred that the question of whether this dispute is arbitrable does not depend on the facts and circumstances of the case, but upon the fundamental question of whether a statutory minority oppression claim is indeed arbitrable. The Court was persuaded by the reasoning in Exeter City that a “minority oppression claim, being statutory in nature and being asserted in relation to the affairs of a creature of statute, ought to be supervised and determined by the court in all cases“.