A STEP IN THE PROCEEDINGS
Beltran, Julian Moreno and another v Terraform Labs Pte Ltd and others [2023] SGHC 340 concerned two appeals against the decision of the learned Assistant Registrar (“the AR”) dismissing the respective applications by the defendants (“the Stay Applications”) to stay the action (“the Suit”). Hri Kumar Nair J dismissed the appeals, having found that the first defendant, Terraform, had taken “a step in the proceedings”.
Facts. The application by the first defendant (“Terraform”) was for a stay in favour of arbitration, on the basis that there was an arbitration agreement between it and the claimants (at [1]). The other defendants applied for “case management stays” which were predicated on Terraform obtaining an arbitration stay (at [1]; [183]).
One of the issues was whether Terraform had taken a step in the proceedings within the meaning of s 6(1) of the International Arbitration Act 1994 (2020 Rev Ed) (“IAA”) in the context of the Rules of Court 2021 (“ROC 2021”) (at [3]; [35(a)]).
IAA. S 6(1) of the IAA provided that any party to an arbitration “may, at any time after filing and serving a notice of intention to contest or not contest and before delivering any pleading (other than a pleading asserting that the court does not have jurisdiction in the proceedings) or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter” (at [36]; emphasis added by High Court).
Pre-ROC 2021. The High Court considered case law which, although decided before the enactment of the ROC 2021, continued to be relevant (at [37] – [46]).
The starting point was that “an act which indicates an intention that the court proceedings should proceed instead of arbitration” would be a “step in the proceedings” (at [37]).
The key is whether the conduct of the defendant is “objectively inconsistent” with the defendant’s challenge of the court’s jurisdiction (at [38]). The High Court stated as follows (at [44]):
“44 Thus, a truer compass may be found in the statement in Carona Holdings (at [55]) that a “step in the proceedings” will be deemed to have been taken if the defendant “employs court procedures to enable him to defeat or defend [the] proceedings on their merits” [emphasis in original retained; emphasis added]. The focus is not on whether the act itself goes toward the merits of the action, but whether it enables, or advances, a future engagement of the merits of the action.”
ROC 2021. The High Court stated that “the applicable legal principles … remain the same”, but added that “the application of these principles to the new statutory context under the ROC 2021 may produce different results” (at [47]).
This was because, while the old rules may have required a defendant to file its defence (while making clear its reservations to challenge jurisdiction), the new rules allow a defendant to file a defence on the jurisdiction without filing a defence on the merits (at [48] – [50]).
“48 Prior to the ROC 2021, a defendant seeking to challenge the jurisdiction of the court had no option to file a defence objecting to jurisdiction alone (as opposed to a defence on the merits). The effect was to place a defendant in a difficult position: a failure to file a defence within the stipulated deadline exposed him to the risk of judgment in default being entered: see Australian Timber Products Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd [2005] 1 SLR(R) 168 (“Australian Timber”) at [16]. The onus was therefore on the defendant to be proactive by applying for a stay quickly and seeking an extension of time to file the defence, an urgent hearing of the stay application (Australian Timber at [16]), or a subsidiary stay of the proceedings (including the running of the timeline to file and serve the defence) until the main stay application could be disposed of (Carona Holdings at [38]). Such applications would invariably be allowed and were therefore a waste of costs and the court’s resources.
…
50 The ROC 2021 addresses these issues by allowing a defendant to file a defence contesting jurisdiction only (“a Defence (Jurisdiction)”): see O 2 r 5(2) and O 6 r 7(4). With that filing, no judgment in default of a defence can be entered: O 6 r 7(7). Further, filing a Defence (Jurisdiction) is expressly provided to not amount to a submission to the court’s jurisdiction: see O 2 r 5(4) and O 6 r 7(6). Section 6(1) of the IAA was also amended to state that delivering “a pleading asserting that the court does not have jurisdiction in the proceedings” will not preclude parties to an arbitration agreement from applying to stay the court proceedings.”
(emphasis added by the High Court)
Application to the facts. This change in the rules was important.
On the facts, Terraform had, among others, filed its Defence which was not limited to challenging jurisdiction, but which “included its defence on the merits of the claims as well as a Counterclaim for various declarations” (at [20]).
However, Terraform also pleaded reservations for both its Defence and Counterclaim (collectively, “the Reservations”), to say that the filing of the same were made “without prejudice” to their position that the court had no jurisdiction to hear the case, and that the filing was “not to be construed as a submission to the jurisdiction of the Court” (at [20]).
So, was the defence filed by Terraform a Defence (Jurisdiction), bearing in mind the Reservations?
The High Court held that the phrase “need not” in O 6 r 7(4) “simply clarifies that a defendant challenging jurisdiction only needs to file a Defence (Jurisdiction) and not a Defence (Merits) – it does not give an option to do both.” (at [54])
The High Court then held that while Terraform’s Defence may have been construed to be a “neutral step” under the old position, this would not be the case under the ROC 2021 (at [59] – [62]).
We set out the High Court’s reasoning at [60] – [62] below:
“60 However, even in the pre-ROC 2021 context, the making of a reservation was not by itself determinative of the question of whether an act constituted a step in the proceedings. The court still had to consider whether such reservation was disingenuous (Carona Holdings at [93]), and whether notwithstanding the reservation, a party’s conduct clearly and unequivocally signified a submission to jurisdiction (Shanghai Turbo at [38]). The court in Shanghai Turbo (at [36]) was careful to note that the remarks in Australian Timber “did not lay down any blanket rule that no conduct would ever amount to a submission to jurisdiction if it was accompanied by a reservation of that party’s right to challenge jurisdiction” [emphasis in original].
61 Importantly, Australian Timber and Chong Long were decided in the pre-ROC 2021 context. As noted above at [48], there was no option pre‑ROC 2021 to file a Defence (Jurisdiction). In that context, the filing of a Defence (Merits) within the stipulated deadline, coupled with an express reservation, could be fairly construed as a neutral step performed to protect the defendant’s position by preventing the entering of judgment in default. Such an act preserved the status quo, similar to an application for an extension of time to file a defence to avoid judgment in default being entered (Carona Holdings at [100]–[101]), and could be construed as a pre-emptive act of self‑defence, done in the interest of “parrying a blow from the plaintiff”: see International SOS Pte Ltd v Overton Mark Harold George [2001] 2 SLR(R) 777 at [6] and Shanghai Turbo at [41]).
62 However, under the ROC 2021, there is little, if any, reason for a defendant challenging jurisdiction to file a Defence (Merits) with a reservation. Indeed, as seen above at [51], the ROC 2021 expressly mandates that the jurisdictional challenge be (quickly) disposed of first before the merits of the action are dealt with, if necessary.”
(emphasis added in bold)
The High Court also considered that there were good reasons why a defendant should not file a Defence (Merits) coupled with a reservation (at [63]). These include, among others, time and cost savings, bearing in mind the Ideals in O. 3, r. 1 of the ROC 2021.
But the High Court stated that while “reservations are no longer relevant or necessary” for pleadings under the ROC 2021, such reservations may remain useful for other contexts such as affidavits, though “a reservation is not a panacea” (at [64]).
On the facts. The High Court found that Terraform’s filing of the defence on the merits and the counterclaim constituted a “step in the proceedings”, and this was “confirmed or reinforced by its subsequent conduct” (at [117]). According to the High Court, Terraform’s various acts (at [117] – [118]):
“117 … plainly demonstrate that Terraform had employed court procedures to enable it to defeat or defend the Suit on the merits (L Capital Jones Ltd at [77]); affirmed the correctness of the court proceedings and its willingness to go along with the court’s determination (Australian Timbers at [19]); and waived its right to object to the court’s jurisdiction (Zoom Communications at [43]).
118 Terraform’s multiple reservations did not alter this conclusion – they were simply at odds with the way the applications sought to advance the court proceedings and demonstrated approbation and reprobation on the part of the defendant which should not be countenanced: Shanghai Turbo at [36], citing Carona Holdings at [101].”
These findings disposed of Terraform’s appeal, and consequently, the other defendants’ applications for case management stays (at [119]) which were predicated on Terraform obtaining an arbitration stay (at [183]).
Significance. This decision makes clear that a defendant must carefully consider what to do when a claim is made against the defendant in court.
It is important to bear in mind the differences between the old procedure in the pre-ROC 2021 regime and the ROC 2021 regime. Under the former regime, it may be regarded as a “neutral” step if a defendant files a defence on the merits with the appropriate reservations.
But this decision makes clear that the ROC 2021 regime does not allow this. As the High Court stated at [62], “there is little, if any, reason for a defendant challenging jurisdiction to file a Defence (Merits) with a reservation.”
So, under the ROC 2021 regime, if a defendant intends to challenge the court’s jurisdiction, the defendant should in general only file a Defence (Jurisdiction). Points dealing with the substantive dispute, including any counterclaims, should be raised only if the jurisdictional objection fails.
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