DAY v DAZ [2023] SGHC 185

Case Details

• Citation: [2023] SGHC 185
• Court: General Division of the High Court of the Republic of Singapore
• Decision Date: 5 July 2023
• Coram: Chua Lee Ming J
• Case Number: Originating Application No 189 of 2023 (Registrar’s Appeal No 77 of 2023); SUM 860/2023
• Hearing Date(s): 15 May 2023
• Claimants / Plaintiffs: DAY
• Respondent / Defendant: DAZ
• Counsel for Appellant (Defendant): Aw Hon Wei, Adrian and Anand Shankar Tiwari s/o Sivakant Tiwari (Resource Law LLC)
• Counsel for Respondent (Claimant): Vergis S Abraham SC, Zhuo Jiaxiang and Veluri Hari (Providence Law Asia LLC)
• Practice Areas: Arbitration; Stay of court proceedings; Mandatory stay under International Arbitration Act

Summary

The decision in DAY v DAZ [2023] SGHC 185 addresses a critical jurisdictional tension often encountered in complex commercial contracts: the interplay between a broad general arbitration agreement and specific, narrow carve-outs for alternative dispute resolution mechanisms. The dispute arose from a litigation funding arrangement where the parties had agreed to a general arbitration clause (GT 14.1) but excluded matters "subject to" a specific mechanism (ST 3.3 and 3.4) designed to resolve disagreements over settlement proposals. When the claimant (DAY) sought specific performance of the settlement-disagreement mechanism in court, the defendant (DAZ) moved for a mandatory stay under Section 6 of the International Arbitration Act (2020 Rev Ed) ("IAA"), asserting that the threshold question of whether the carve-out even applied was itself a dispute that must be arbitrated.

The High Court was tasked with determining whether a dispute over the applicability of a carve-out falls within the scope of the primary arbitration agreement. The Assistant Registrar had initially dismissed the stay application, presumably finding that the dispute fell within the carve-out. However, on appeal, Chua Lee Ming J reversed this decision. The court held that the defendant had established a prima facie case that the dispute—specifically, whether the settlement-disagreement mechanism applied to the enforcement phase of an arbitral award—was a matter of contractual interpretation falling squarely within the broad language of the general arbitration agreement. This judgment reinforces the principle that where parties have evinced a clear intention to arbitrate "any dispute" arising out of an agreement, the court will adopt a generous interpretation of that scope, even when faced with complex exclusionary language.

The doctrinal contribution of this case lies in its clarification of the "dispute about the dispute resolution clause" problem. It establishes that a disagreement over whether a specific condition precedent or a specific alternative forum (like expert determination or a Law Society referral) has been triggered is, in itself, a dispute "in relation to or arising out of" the main agreement. Unless the carve-out explicitly includes disputes about its own scope, such "gateway" questions remain the province of the arbitral tribunal. This ensures that the mandatory stay provisions of the IAA are not easily circumvented by a party framing its claim as a narrow enforcement of a non-arbitral dispute resolution term.

Ultimately, the High Court allowed the appeal, set aside the Assistant Registrar's decision, and granted a stay of the court proceedings in OA 189. The decision underscores the Singapore judiciary's robust support for the prima facie standard in stay applications, emphasizing that the court's role at this stage is not to reach a final determination on the merits of the jurisdictional argument, but to ensure that the parties are held to their bargain to have such matters decided by an arbitral tribunal.

Timeline of Events

1. 28 October 2019: The claimant (DAY), the defendant (DAZ), the defendant’s related company (“RelCo”), and the defendant’s parent company (“HoldCo”) enter into a litigation funding agreement (the “LFA”).
2. 4 March 2020: DAZ commences arbitration proceedings against a third-party company, Co1, in accordance with the LFA's funding objectives.
3. 16 September 2021: A final award is issued in the arbitration between DAZ and Co1, resulting in a victory for DAZ.
4. 14 October 2021: Co1 files an application in the English High Court seeking to set aside parts of the final award.
5. 11 January 2022: The English High Court dismisses Co1’s set-aside application; DAY funds the costs of DAZ’s defense in these proceedings.
6. 21 September 2022: DAZ sends a draft settlement agreement (the “Draft Settlement Agreement”) to Co1 regarding the enforcement of the award.
7. 22 September 2022: DAZ provides the Draft Settlement Agreement to DAY; DAY confirms the draft is acceptable.
8. 26 September 2022: DAZ informs DAY that it will not enter into the Draft Settlement Agreement unless DAY agrees to share the first instalment payment.
9. 11 October 2022: DAY asserts that a "disagreement" has arisen under the LFA and requests DAZ to follow the mechanism in ST 3.3.
10. 13 October 2022: DAZ rejects the application of ST 3.3, arguing the clause does not apply to the current situation.
11. 14 October 2022: DAY reiterates its demand for the ST 3.3 process.
12. 20 October 2022: DAZ maintains its position that the dispute is not subject to the ST 3.3 mechanism.
13. 21 November 2022: DAZ formally rejects the proposal to refer the matter to the President of the Law Society of Singapore.
14. 1 March 2023: The claimant files its first affidavit in support of an originating application.
15. 2 March 2023: DAY files OA 189 seeking specific performance of the ST 3.3 mechanism.
16. 27 March 2023: DAZ files SUM 860 seeking a stay of OA 189 in favor of arbitration under s 6 of the IAA.
17. 12 April 2023: The Assistant Registrar (AR) dismisses the stay application in SUM 860.
18. 18 April 2023: DAZ files RA 77 appealing the AR's decision.
19. 15 May 2023: Substantive hearing of the appeal before Chua Lee Ming J.
20. 5 July 2023: Judgment delivered; appeal allowed and stay granted.

What Were the Facts of This Case?

The dispute originated from a Litigation Funding Agreement (the "LFA") executed on 28 October 2019. The parties to this agreement were DAY (the funder), DAZ (the defendant), RelCo (a related company of the defendant), and HoldCo (the defendant's parent company). Under the terms of the LFA, DAY agreed to provide funding and project support services to DAZ and RelCo to facilitate the pursuit of legal claims against two specific entities, referred to as Co1 and Co2. In consideration for this funding, DAY was entitled to receive a portion of any "Settlement" or "Judgment Sum" obtained from these claims. The specific proceedings relevant to this case involved DAZ’s claim against Co1.

Following the commencement of arbitration against Co1 on 4 March 2020, DAZ successfully obtained a final award on 16 September 2021. The costs of this arbitration were borne by DAY pursuant to the LFA. Subsequently, Co1 attempted to set aside parts of the award in the English High Court, an application that was dismissed on 11 January 2022. Again, DAY funded DAZ’s legal costs in defending the award. The focus then shifted to the enforcement of the award and the potential for a negotiated settlement regarding the payment of the awarded sums.

In September 2022, DAZ and Co1 negotiated a "Draft Settlement Agreement." On 22 September 2022, DAZ shared this draft with DAY, and DAY expressed its approval of the terms. However, a rift developed on 26 September 2022 when DAZ informed DAY that it would not sign the Draft Settlement Agreement unless DAY agreed to a redistribution of the first instalment payment. DAZ proposed that it should receive a share of this initial payment, which DAY refused. This refusal led DAZ to decline to execute the settlement with Co1.

The LFA contained two distinct dispute resolution frameworks. General Term 14 ("GT 14") provided for mandatory arbitration under the SIAC Rules for "[a]ny dispute, controversy or claim in relation to or arising out of this Agreement... which is not subject to Specific Term 3.3 and 3.4." Conversely, Specific Terms 3.3 and 3.4 ("ST 3.3" and "ST 3.4") provided a specialized mechanism for "disagreements" regarding whether to agree to a "Settlement." If the parties could not agree on a settlement, the matter was to be referred to a Senior Counsel for an opinion, and if they still disagreed, to the President of the Law Society of Singapore for a final determination.

DAY contended that the current impasse—DAZ's refusal to sign the Draft Settlement Agreement—constituted a "disagreement" under ST 3.3. Consequently, DAY initiated OA 189 on 2 March 2023, seeking an order for specific performance to compel DAZ to refer the disagreement to the President of the Law Society. DAZ resisted this, arguing that the ST 3.3 mechanism only applied to settlements of "Claims" or "Proceedings" as defined in the LFA. DAZ maintained that since the arbitration against Co1 had already concluded with a final award, the Draft Settlement Agreement concerned the enforcement of that award, which did not fall within the narrow definitions of "Claims" or "Proceedings" used in ST 3.3. Therefore, DAZ argued, the dispute over whether ST 3.3 applied was itself a general dispute about the LFA that must be arbitrated under GT 14.

The procedural history involved a stay application by DAZ (SUM 860) filed on 27 March 2023. The Assistant Registrar dismissed this application on 12 April 2023, leading to the present appeal (RA 77). The core of the factual controversy was thus not the merits of the settlement itself, but the threshold contractual question of which dispute resolution forum had the authority to decide if the settlement-disagreement mechanism had been properly invoked.

What Were the Key Legal Issues?

The primary legal issue before the High Court was whether the dispute raised in OA 189 fell within the scope of the arbitration agreement contained in GT 14 of the LFA, thereby necessitating a mandatory stay of the court proceedings under Section 6 of the IAA.

To resolve this, the court had to address several sub-issues grounded in contractual interpretation and arbitration law:

• The Scope of the Arbitration Agreement: Whether a dispute regarding the applicability of a specific carve-out (ST 3.3 and 3.4) is a dispute "in relation to or arising out of" the LFA. This required the court to determine if the "gateway" question of jurisdiction over the settlement dispute was itself an arbitrable matter.
• The Interpretation of the Carve-out: Whether the phrase "which is not subject to Specific Term 3.3 and 3.4" in GT 14.1 meant that any dispute relating to those terms was excluded from arbitration, or only those disputes that were actually governed by the substance of those terms.
• The Prima Facie Standard: Whether the defendant had met the requisite burden of proof under Section 6 of the IAA. In Singapore, a party seeking a stay need only show a prima facie case that a valid arbitration agreement exists and that the dispute falls within its scope. The court had to decide if DAZ's interpretation of the LFA was sufficiently plausible to meet this threshold.
• The Definition of "Claims" and "Proceedings": Whether the settlement disagreement mechanism in ST 3.3 was limited to the pre-award phase of litigation/arbitration, or whether it extended to the post-award enforcement phase.

How Did the Court Analyse the Issues?

The court began its analysis by restating the established three-stage test for a mandatory stay under Section 6 of the IAA, as articulated by the Court of Appeal in Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373 at [63]. The court must be satisfied that: (a) there is a valid arbitration agreement between the parties; (b) the dispute in the court proceedings (or any part thereof) falls within the scope of the arbitration agreement; and (c) the arbitration agreement is not null and void, inoperative, or incapable of being performed.

The court emphasized that the standard of proof at this stage is only a prima facie one. As noted at [23], the court should grant a stay unless it is "clear that the dispute does not fall within the scope of the arbitration agreement." This deferential standard ensures that the arbitral tribunal's competence-competence is respected.

The Interpretation of GT 14.1 and the Carve-out

The crux of the analysis involved the wording of GT 14.1, which stated:

"Any dispute, controversy or claim in relation to or arising out of this Agreement, including any question about its existence, validity, meaning, performance or termination or the rights, duties and liabilities of any party to it and which is not subject to Specific Term 3.3 and 3.4 (Dispute) must be resolved in accordance with this General Term 14." (at [25])

The claimant (DAY) argued for a broad reading of the carve-out. They contended that any dispute that "related to" ST 3.3 and 3.4—including a dispute about whether those terms were even engaged—was "subject to" those terms and thus excluded from arbitration. Under this view, the court in OA 189 was the correct forum to decide if the settlement mechanism applied.

The defendant (DAZ) argued for a narrower reading. They submitted that a dispute over the applicability of ST 3.3 and 3.4 was not a dispute "subject to" those terms. Instead, it was a dispute about the "meaning" or "performance" of the LFA generally, which fell squarely within the primary scope of GT 14.1. Only if it were determined (by an arbitrator) that the settlement mechanism applied would the substantive disagreement then be "subject to" ST 3.3 and 3.4.

The Court's Reasoning on Scope

Chua Lee Ming J agreed with the defendant. The court reasoned that the dispute in OA 189 was fundamentally about whether the Draft Settlement Agreement fell within the definitions of "Claims" or "Proceedings" as used in ST 3.3. This was a matter of contractual interpretation. The court observed at [34]:

"In my view, a dispute as to whether ST 3.3 and ST 3.4 were even engaged was not a dispute that was 'subject to ST 3.3 and 3.4'. In my view, the defendant had shown a prima facie case that such a dispute was not carved out from GT 14 and therefore fell within the scope of GT 14."

The court drew support from Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71. In that case, a dispute resolution clause required parties to "attempt to settle the dispute at the Singapore Mediation Centre" before proceeding to arbitration. The court in Maxx Engineering had to decide whether there was a legal obligation to mediate. Chua Lee Ming J noted at [33] that the court in Maxx Engineering did not consider that the disagreement over the interpretation of the dispute resolution clause itself had to be determined by the secondary mechanism (mediation); rather, it was a threshold legal question.

Similarly, the court considered the Australian case of Seeley International Pty Ltd v Electra Air Conditioning BV [2008] FCA 29. There, a clause allowed a party to terminate for "material breach" but required a 60-day notice period. A dispute arose as to whether a material breach had occurred. The court there held that the question of whether the condition (material breach) was met was a question for the court (or the primary DR forum), not something that could be bypassed. Chua Lee Ming J applied this logic to the LFA: the "disagreement" mentioned in ST 3.3 is a condition for the application of that specific mechanism. Whether that condition is met is a dispute "arising out of" the LFA.

The "Broad Interpretation" Rejected

The claimant had relied on the principle that dispute resolution clauses should be interpreted broadly to give effect to the parties' intentions. However, the court noted that this principle usually supports arbitration. At [38], the court cited Silverlink Resorts Ltd v MS First Capital Insurance Ltd [2021] 3 SLR 1422 and BXH v BXI [2020] 1 SLR 1043, affirming that where parties evince a real intention to have matters resolved by arbitration, the court should give effect to it.

The court found that the claimant’s interpretation would lead to an illogical result where the "carve-out" swallowed the "gateway." If every dispute about the carve-out was also carved out, the arbitrator would be stripped of the power to determine their own jurisdiction regarding the scope of that carve-out. This would contradict the broad "any dispute... including any question about its... meaning" language in GT 14.1.

What Was the Outcome?

The High Court allowed the appeal in RA 77 and set aside the decision of the Assistant Registrar. The court's primary order was a mandatory stay of the proceedings in OA 189 pursuant to Section 6 of the IAA. The operative conclusion of the court was stated as follows:

"I allowed the appeal and ordered that OA 189 be stayed pursuant to s 6 of the IAA." (at [48])

In addition to the stay, the court made the following consequential orders regarding costs:

• The claimant (DAY) was ordered to pay the defendant’s (DAZ) costs of the initial stay application in SUM 860, which were fixed at $10,391 (inclusive of disbursements).
• The claimant was ordered to pay the defendant’s costs of the appeal in RA 77, which were fixed at $10,750.80 (inclusive of disbursements).

The effect of the judgment is that the parties must now refer their dispute—specifically the question of whether the ST 3.3 settlement mechanism applies to the Draft Settlement Agreement—to arbitration under the SIAC Rules as provided in GT 14. The court proceedings remain stayed indefinitely pending the outcome of that arbitration. If the arbitral tribunal determines that the dispute does fall within ST 3.3, the parties will then be required to follow the Law Society President referral process. If the tribunal determines it does not, the tribunal will likely have jurisdiction to resolve the underlying dispute regarding the settlement and the first instalment payment itself.

Why Does This Case Matter?

DAY v DAZ is a significant decision for practitioners involved in drafting and litigating complex dispute resolution "waterfalls" or "carve-outs." Its importance can be categorized into three main areas: the application of the prima facie standard, the interpretation of exclusionary language in arbitration clauses, and the reinforcement of the competence-competence principle.

1. Robust Application of the Prima Facie Standard

The judgment reaffirms that the Singapore courts will not conduct a full-blown trial on the merits of a jurisdictional dispute at the stay application stage. By granting the stay based on a "plausible" interpretation of the LFA, the court adhered strictly to the Tomolugen framework. This provides certainty to international commercial parties that Singapore courts will not easily allow a party to bypass an arbitration agreement by raising complex arguments about the scope of carve-outs. If there is a "prima facie" case that the dispute belongs in arbitration, the court will step aside.

2. Interpreting "Disputes about the Dispute Resolution Clause"

The case provides a clear rule of thumb: a dispute over whether a specific, non-arbitral mechanism (like expert determination or referral to a third party) applies is generally a dispute "arising out of the agreement" and falls within the main arbitration clause. Practitioners often assume that if they are suing to enforce a specific DR term, the court is the natural forum. DAY v DAZ clarifies that unless the carve-out is drafted so broadly as to include "any dispute regarding the interpretation or application of this specific term," the general arbitration clause remains the "default" forum for resolving such gateway questions.

3. Precision in Drafting Carve-outs

For transactional lawyers, this case is a cautionary tale. The use of the phrase "subject to" created the ambiguity. If the parties had intended for the court to decide whether a "disagreement" under ST 3.3 had arisen, they should have explicitly stated that disputes regarding the applicability of ST 3.3 were excluded from GT 14.1. Without such explicit language, the broad "any dispute... including meaning or performance" language of the arbitration clause will prevail. This highlights the need for "watertight" drafting when creating bifurcated dispute resolution paths.

4. Support for Competence-Competence

By staying the court proceedings, the High Court effectively remitted the jurisdictional question to the arbitral tribunal. This is a classic application of the principle of competence-competence. It ensures that the tribunal, rather than the court, is the first port of call for determining the boundaries of its own jurisdiction and the scope of the arbitration agreement. This aligns Singapore with best practices in international arbitration and maintains its reputation as a pro-arbitration jurisdiction.

5. Impact on Litigation Funding Agreements

As litigation funding becomes more common in Singapore, the specific terms of LFAs are coming under increased judicial scrutiny. This case shows that the courts will treat LFAs like any other commercial contract, applying standard principles of interpretation and arbitration law. Funders and funded parties alike must be aware that the procedural mechanisms they build into their agreements (such as settlement-veto or disagreement-resolution clauses) will be subject to the overarching arbitration agreements they sign.

Practice Pointers

• Drafting Carve-outs: When drafting a carve-out from a general arbitration clause (e.g., for expert determination or mediation), explicitly state whether the applicability of that carve-out is to be determined by the arbitrator or the court. Use phrases like "including any dispute as to the scope or engagement of this clause" to provide clarity.
• The "Subject To" Trap: Avoid using "subject to [Clause X]" as the sole method of carving out disputes from an arbitration agreement. This phrasing is often ambiguous as to whether it excludes the subject matter of Clause X or any dispute relating to Clause X.
• Prima Facie Strategy: In stay applications, focus on demonstrating a "plausible" or "arguable" interpretation that brings the dispute within the arbitration clause. You do not need to prove the interpretation is correct, only that it is prima facie valid.
• Defining "Claims" and "Proceedings": Ensure that definitions in an LFA or commercial contract clearly distinguish between the "merits" phase (the underlying claim) and the "enforcement" phase (post-award/judgment). As seen here, failing to include "enforcement" in the definition of "Proceedings" can lead to disputes over whether settlement mechanisms apply post-award.
• Specific Performance of DR Clauses: Be aware that seeking specific performance of a non-arbitral DR clause (like a Law Society referral) in court is highly susceptible to a stay application if there is a broad general arbitration clause in the same contract.
• Cost Risks: Parties should carefully weigh the risks of resisting a stay. The claimant in this case was ordered to pay over $21,000 in costs across two levels of the judiciary for unsuccessfully arguing that the dispute fell outside the arbitration agreement.

Subsequent Treatment

As of the date of this analysis, DAY v DAZ [2023] SGHC 185 stands as a recent and authoritative application of the prima facie standard for stays under Section 6 of the IAA. It follows the doctrinal lineage of Tomolugen Holdings and reinforces the High Court's tendency to favor arbitration in cases of jurisdictional ambiguity. It has been cited in subsequent practitioner commentary as a key example of the court's refusal to allow narrow carve-outs to undermine the efficacy of broad arbitration agreements.

Legislation Referenced

• International Arbitration Act (2020 Rev Ed), Section 6

Cases Cited

• Applied: Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373
• Considered: Maxx Engineering Works Pte Ltd v PQ Builders Pte Ltd [2023] SGHC 71
• Considered: Seeley International Pty Ltd v Electra Air Conditioning BV [2008] FCA 29
• Referred to: Silverlink Resorts Ltd v MS First Capital Insurance Ltd [2021] 3 SLR 1422
• Referred to: BXH v BXI [2020] 1 SLR 1043

Source Documents

• Original Judgment (PDF)
• eLitigation Case Summary