When does starting a court action end the right to arbitrate
Lukas Lim
Parties are sometimes advised that the choice between arbitration and litigation is final, and that taking one path permanently excludes the other. In BMO v BMP [2017] SGHC 127 (“BMO”), however, the Singapore High Court (“Court”) clarified that this is not always the case. The defendant in BMO had initially filed court proceedings against the plaintiff in breach of an arbitration agreement (“Agreement”), but later abandoned them in favour of arbitration. At the arbitration and subsequently in Court, the plaintiff argued unsuccessfully that the tribunal did not have the jurisdiction to hear the matter, as the defendant’s prior pursuit of litigation now barred it from arbitrating the dispute.
Waiver by election The plaintiff’s first contention was that the defendant, by electing to litigate rather than arbitrate, had taken a position inconsistent with its right to arbitrate. This constituted a “waiver by election” of its right to arbitrate and rendered the Agreement inoperative. As the Court explained, however, a waiver by election could only arise as a response by one party to the conduct of the other – typically when an innocent party elected between two inconsistent rights in response to a counterparty's wrongful conduct. In the present case, the party breaching the arbitration agreement by initiating litigation was the same party re-asserting the right to arbitrate. There was therefore no conduct by the plaintiff that the defendant was responding to, and no election that could give rise to a waiver. Contractual repudiation The plaintiff’s second contention was that the defendant’s commencement of litigation amounted to a repudiatory breach of the Agreement, which the plaintiff had accepted by participating in the litigation proceedings, thus bringing the arbitration agreement to an end. The Court noted that there were two requirements for repudiation to be established, neither of which was satisfied: ● First, it had to be shown that the defendant no longer intended to be bound by the Agreement. However, the Court accepted that the defendant's actions in filing the court proceedings did not point to such an intention, as the defendant was not aware of the Agreement when litigation commenced. ● Second, even if the defendant intended to repudiate the Agreement, it had to be demonstrated that the plaintiff accepted the repudiation. On this point, the Court found that the actions taken by the plaintiff in the litigation were not "steps in the proceedings" (i.e. acts that advance the hearing of the matter in court), and therefore did not constitute unequivocal acceptance of a repudiatory breach.