Deutsche Bank Ag v Tongkah Harbour Public Company Ltd

Under Arbitration Act 1996, s 9, a stay is mandatory where court proceedings concern a matter referred to arbitration under a valid arbitration agreement. The court identifies the matter by examining the substance of the controversy, rather than the formal contractual claim or remedy pleaded.

Where related agreements form part of one commercial arrangement and claims arise from the same breach, claims under different agreements may be aspects of the same matter for s 9 purposes. A party exercising an option to arbitrate cannot pursue parallel court proceedings concerning that matter. However, a guarantee containing no arbitration agreement may proceed in court, even where it raises overlapping issues with arbitration against the principal debtor.

Deutsche Bank brought Commercial Court proceedings against Tungkum Limited for sums allegedly due under a facility agreement and against Tongkah Harbour Public Company Limited under a guarantee. It also commenced LCIA arbitration against Tungkum for an early termination amount under a connected export contract.

The defendants applied for stays under s 9 of the Arbitration Act 1996, alternatively under the court’s inherent jurisdiction or case management powers. They argued that the facility and export contract claims concerned the same dispute and that the guarantee claim should await the arbitration. The central issues were the scope of the matter referred to arbitration and whether overlapping issues justified staying the guarantee proceedings.

1. The applications were allowed in part. The proceedings against Tungkum were stayed under s 9 of the Arbitration Act 1996. The application concerning Tongkah’s guarantee was dismissed.

2. In construing arbitration clauses, the court may start from the assumption that rational business parties intend disputes arising from their relationship to be determined by the same tribunal. In related agreements containing different jurisdiction provisions, however, the allocation of jurisdiction remains a matter of contractual construction. The relevant authorities included Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, Norscot Rig Management PVT Ltd v Essar Oilfields Services Ltd [2010] EWHC 195 (Comm), UBS AG v HSH NordBank AG [2009] 2 Lloyd's Rep 272 and Sebastian Holdings Inc v Deutsche Bank AG [2011] 1 Lloyd's Rep 106.

3. The question under s 9 was what matter had been referred to arbitration. That required attention to the substance of the controversy rather than the formal nature of the proceedings. The facility agreement and export contract were closely interconnected: the export contract supplied the mechanism for repayment of the facility, and both claims arose from the same alleged events of default. Although the sums claimed were different and arose under different agreements, they were aspects of the same matter. Once Deutsche Bank exercised its contractual option to arbitrate, parallel litigation concerning that matter was subject to a stay. The court applied the approach in PT Thiess Contractors Indonesia v PT Kaltim Prima Coal [2011] EWHC 1842 (Comm), NB Three Shipping Ltd v Harebell Shipping Ltd [2005] 1 All ER (Comm) 200 and Royal Bank of Canada v Cooperative Centrale Raiffeisen-Boerenleenbank BA [2004] EWCA Civ 07.

4. The guarantee was materially different because it contained no arbitration agreement. Tongkah’s liability was based on its own covenant to pay as guarantor. Overlap with the principal debtor’s liability did not justify a stay under inherent jurisdiction or case management powers. It could be commercially rational for the guarantee claim to proceed despite some fragmentation in the overall dispute, as explained in Sebastian Holdings Inc v Deutsche Bank AG [2011] 1 Lloyd's Rep 106.