Singapore Court of Appeal clarifies when non-contractual claims are covered by an arbitration agreement

The decision COSCO Shipping Specialized Carriers Ltd v PT OKI Pulp & Paper Mills and Others [2024] was based on the following facts: The plaintiff (COSCO Shipping Specialized Carriers Co Ltd) operated and managed ships as part of its business. A port complex in Indonesia owned and operated by the first defendant (PT OKI Pulp & Paper Mills and others) included a jetty and a trestle bridge connecting the jetty to the mainland. A vessel was chartered by the plaintiff (the shipowner) to the second defendant (the principal charterer). In this arrangement, the sub-charterer was the first defendant. The bills of lading containing the contracts of carriage between the plaintiff and the first defendant were the source of the parties' disagreement. "Any dispute arising out of or in connection with this contract, including any question as to its existence, validity or termination, shall be referred to and finally settled by arbitration in Singapore," according to the arbitration agreement contained in each of the bills of lading. The vessel departed the pier with its cargo on May 31, 2022. As a result of the subsequent collision with the vessel, a portion of the trestle bridge collapsed. On August 4, 2022, the plaintiff filed a lawsuit in Singapore to reduce its liability for the incident. 

The first defendant filed a claim for damages for the incident in an Indonesian court. In response, the plaintiff applied to the High Court for an injunction restraining the defendant from continuing the proceedings in Indonesia as they were covered by the arbitration agreement.

The High Court dismissed the claimant's application. In support of its decision, the court held that the alleged damages were not covered by the arbitration agreement because they did not arise "out of or in connection with" the contracts of carriage. The High Court concluded that the claim for damages was solely a tort claim, which was not covered by the contractual arbitration agreement. Therefore, the defendant was not precluded from pursuing its claim in Indonesia.

The plaintiff appealed this decision. The Court of Appeal granted the appeal and held that the arbitration agreement had been breached by the commencement of the Indonesian proceedings. According to the recent decision of the Court of Appeal, the assessment of whether a dispute is covered by an arbitration agreement must be carried out in two steps. The first step is to determine what issues or disputes have been raised or are likely to be raised in the foreign proceedings. In the second step, the court must then determine whether these matters fall within the scope of the arbitration clause.

The court noted that there are several approaches to interpreting when a non-contractual claim falls within the scope of an arbitration agreement. The arbitration agreement should be interpreted with common sense and in a manner consistent with reasonable businessmen.

According to the Court of Appeal, the parties must have considered that an arbitration agreement should be used to resolve a pure tort claim for damage to the trestle bridge that occurred during the performance of the parties' transportation contracts and where the parties' foreseeable lines of defense included reliance on the terms of those contracts. This was due to the contractual provisions relating to the loading of the vessel at the pier with the trestle bridge and the allocation of the risk of loss resulting from careless navigation. Thus, under the "causal connection" or "closely knit" test, the parties' dispute arose out of or had something to do with the contracts of carriage: the first defendant's tort claim, the plaintiff's contractual defense of "negligence in navigation," and the plaintiff's counterclaim for breach of the safe harbor warranty were all related to the cause of the collision. The trial judge erred in treating the contractual defense and counterclaim as separate issues from the tort claim. The court held that the issues raised by the parties in the Indonesian proceedings fell within the scope of the arbitration agreement. As a result, it declared that the Indonesian proceedings had been commenced in breach of the arbitration agreement and granted the anti-suit injunction sought by the plaintiff.