Under section 6(1)of the Singapore International Arbitration Act (IAA), a party to an arbitration agreement against whom court proceedings have been brought in respect of a matter the subject of the agreement, may apply to the court for a stay of those proceedings, so far as they relate to that matter.

The court must stay the proceedings so far as they relate to the matter, unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed (section 6(2)).

The plaintiff, TS Lines Ltd (the plaintiff) and the defendant, EP Carriers Pte Ltd (the defendant), entered into a charterparty agreement for the use and hire of the vessel TS BANGKOK. The charterparty provided that disputes arising out of the agreement would be referred to arbitration in London. A dispute arose after a grounding incident that resulted in damage to the TS BANGKOK in respect of which the plaintiff sought an indemnity from the defendant and also claimed for outstanding charges and expenses under the hire statement.

The plaintiff commenced proceedings in rem in respect of those claims against another ship belonging to the defendant, with the intention of arresting the ship. However, before the plaintiff's writ for the in rem proceedings had been served on the defendant, it transferred ownership of the ship to Capital Gate. The defendant was placed into provisional liquidation, but notwithstanding this the plaintiff obtained leave to continue with the in rem proceedings and arrest the ship. The plaintiff's application for leave was made expressly without prejudice to the plaintiff's rights to arbitrate the in personam aspects of its claim against the defendant.

The plaintiff arrested the ship and filed an application seeking an order that the ship be appraised and sold. Capital Gate obtained leave to intervene and on the basis that it was the owner of the ship at the time she was arrested, applied to set aside the arrest. This application is currently pending the decision of the Court of Appeal.

The plaintiff then made an application to stay the court proceedings in favour of arbitration under section 6 of the IAA. The assistant registrar granted the stay on the basis that the arbitration agreement was valid and therefore there were no grounds for denying the application.

On appeal, Capital Gate argued that under Singapore procedural law, an application to seize or sell a vessel is recognised as a claim against the ship. By contrast, any claim relying on an arbitration agreement must necessarily be brought against a party to the contract. Section 6 of the IAA gave the court power to stay proceedings so far as the proceedings related to a matter that was the subject of an arbitration agreement. However, that could not apply to the in rem action that Capital Gate was defending. Capital Gate's argument was simply that, whilst the court may be obliged to grant a mandatory stay of the in personam aspects of the claim it was not obliged to grant a stay of the in rem action.

The High Court allowed the appeal.

It agreed with Capital Gate that the in rem claim was not identical to the in personam claim and therefore "it could not be a matter that was a subject of the arbitration agreement" and did not fall "within the ambit of section 6 of the IAA." If the plaintiff and defendant were to proceed to arbitration and the in rem action in Singapore was to be stayed, Capital Gate would not be able to protect its interest as the owner of the ship. Capital Gate would not have any rights in the arbitral process except those voluntarily conferred on it by the plaintiff and defendant.

The court held that, given that the over-arching purpose of the IAA was to promote Singapore's role as a growing centre for international legal services and international arbitration, the drafters of section 6 could not have intended for that provision to be used as a means of depriving third parties of their rights to protect their interests. The court noted that the plaintiff was always free to commence arbitration proceedings in London against the defendant, but it could not then tell Capital Gate that it had no right to participate in the defence because the plaintiff and the defendant had an arbitration agreement.