Executive summary

Is a claimant suing on a promissory note obliged to arbitrate because he is also an assignee of a related contract with an arbitration agreement? Recently the Singapore High Court (the “Court”) in Cassa di Risparmio di Parma e Piacenza SpA v Rals International Pte Ltd [2015] SGHC 264 had to consider this question. The Court held that an assignment of the contract carried with it both the benefit and the burden of the arbitration agreement but given the commercial purpose of bills of exchange it was unarguable that the claim on the promissory notes fell outside the scope of the arbitration agreement. Accordingly, the court proceedings on the promissory notes were allowed to continue.

Facts

The arbitration agreement was contained in a contract for the sale of goods (the “Supply Agreement”), between the seller, Oltremare SRL (“Oltremare”) and the buyer, Rals International Pte Ltd (“Rals”) (the defendant in the court proceedings). Rals, pursuant to the Supply Agreement, provided eight promissory notes in favour of Oltremare as deferred payment for the goods. Oltremare negotiated these promissory notes to its bank, Cassa di Risparmio di Parma e Piacenza SpA (“Cariparma”) (the plaintiff in the court proceedings). Upon dishonour, Cariparma sued Rals on the promissory notes in Court proceedings.

Oltremare had also previously assigned its contractual right to payment under the Supply Agreement, to Cariparma under a discount arrangement (the “Assignment”). By reason of the Assignment, Rals claimed that Cariparma was bound by the arbitration agreement in the Supply Agreement as assignee and sought a stay of the court proceedings under section 6 of the International Arbitration Act (Cap 143A) (the “IAA”).

Assignment

It is trite that the benefits of a contract can be assigned not its burdens. Is the arbitration agreement a benefit or a burden? One view would be that it depends on whether the assignee is seeking to arbitrate or litigate.

The Court however concluded after a review of case authorities that an assignment of the contract carried with it both the benefit and the burden of the arbitration agreement. The conceptual underpinning of this conclusion lies in the doctrine of conditional benefit. An instrument may be framed so that it confers only a conditional or qualified right, the condition or qualification being that certain restrictions shall be observed or certain burdens assumed. These restrictions or qualifications are an intrinsic part of the right, therefore the assignee takes the right as it stands, and cannot pick out the good and reject the bad. In such cases, it is not only the original obligor who is bound by the burden, his successors in title are unable to take the right without also assuming the burden. The benefit and the burden have been annexed to each other from inception, and so the benefit is only a conditional benefit.

In any case, by statute (in this instance by section 6 of the IAA), an assignee is bound to arbitrate because it then becomes a party that has to claim through or under the assignor as the original party bound to arbitrate.

However, it bears repeating that Cariparma framed its case entirely on the promissory notes and it did not appear to rely on its status as assignee. As it is trite law that bills of exchange / promissory notes are usually independent of the underlying contract, the Court could quite easily dispose off the case as one in which the Plaintiff was not a party to the arbitration agreement and neither was it claiming under or through the assignor.

Bills of exchange

The Court reiterated that the commercial purpose of a bill of exchange was to function as a payment mechanism that could be used as a substitute for cash. Thus, a payee of a bill of exchange is entitled to independently frame its claim on the bill itself without any reference to the underlying contract. The Court held that unless the parties’ arbitration agreement makes an express provision bringing a claim on a bill of exchange within the scope of that arbitration agreement, a bill of exchange is ordinarily outside the scope of the arbitration agreement even though the bill of exchange was issued pursuant to the contract containing the arbitration agreement. The Court reasoned that the parties’ choice of promissory notes as their payment mechanism appeared to have been a considered decision and not a mere formality or mere coincidence.

The Court distinguished an earlier decision of Piallo GmbH v Yafriro International Pte Ltd [2014] 1 SLR 1028 (“Piallo”) which appeared in principle to be conflicting. In Piallo, pursuant to a settlement of a dispute between parties, one party issued 15 post-dated cheques to the other party, but these were countermanded before presentation. The court in that particular case however stayed the court proceedings in favour of arbitration, and held that the claim in respect of the cheques was well within the scope of the arbitration agreement as the action on the dishonoured cheques was indeed in respect of the matter which was the subject of the arbitration agreement. The difficulty with the court's approach in Piallo is that it requires an examination of the reasons why a cheque is issued and a distinction appears to be drawn between whether it is for the payment of goods or for some other purpose, a distinction which does not appear to be wholly justified. The conclusion would be that the summary remedy in the court proceedings appears only to be available where the cheques were for goods as opposed to being for other obligations, which with respect does not sit comfortably with the commercial understanding of how bills of exchange are to operate as mechanisms for speedy payment.

In the present case the Court held that unlike Piallo where the parties to the dispute were payee and drawer of the cheques and also the counterparties to the underlying contract, Cariparma was an endorsee and it was highly unlikely that Rals and in particular Cariparma originally intended to bring claims related to the notes under the arbitration agreement. The Court also pointed out that on the specific facts of the case that the parties to the proceedings had confined their arguments to those under the Bills of Exchange Act and had not made any arguments that prompted an inquiry into the performance obligations under the underlying contract.

Comment

Arguably, whether the parties are the same should make no difference when bills of exchange are involved as they would form a separate and independent instrument for payment equivalent to cash. The Court perhaps recognising the possible conceptual irreconcilability with the decision of Piallo has raised in its decision a wider ambit for the Court of Appeal’s consideration.