Yes, in many cases the arbitration clause will decide where your fight happens. The Court of Appeal has held that an oppression claim under section 216 of the Companies Act 1967 can be arbitrable, so if the shareholders’ agreement sends disputes to arbitration and the claim falls within the clause, the court will usually stay your court case rather than hear it. Winding up and relief that only a court can give stay with the court. Check the clause, who signed it and which claims you actually need before you file anything.
Why does the forum clause matter once a shareholder is in breach?
When a co-shareholder breaks the agreement, most owners think about remedies first: damages, an order to perform, an injunction or a buy-out. The forum comes second, but it decides everything that follows, including cost, speed, privacy and which judge or tribunal hears the case.
The company constitution and the shareholders’ agreement work differently here. The constitution binds the company and every member under section 39 of the Companies Act 1967. The shareholders’ agreement is a private contract, so its dispute clause binds only the people who signed it. Our guide to the shareholders’ agreement and the constitution explains the split. If the agreement says “any dispute arising out of or in connection with this agreement shall be referred to arbitration”, a claim framed as breach of contract is squarely inside it.
The harder question is the statutory claim. Many breaches are pleaded both as a contract claim and as unfairly prejudicial conduct under section 216. Our article on breach of a shareholders’ agreement and section 216 oppression covers when a breach becomes oppression. This article covers the step before that: whether the court will hear it at all.
What did the Court of Appeal decide about arbitration and oppression?
The leading decision is Tomolugen Holdings Ltd v Silica Investors Ltd [2015] SGCA 57, available on eLitigation. A minority investor sued under section 216 after buying shares under a share sale agreement that contained an arbitration clause. The points that matter to owners are these:
- Oppression claims are not off limits to arbitration. The court held that a section 216 claim does not engage the public policy concerns that make insolvency disputes unsuitable for arbitration, so it can be arbitrable.
- The stay test is light. On an application to stay court proceedings under section 6 of the International Arbitration Act 1994, the applicant needs to show a prima facie case that a valid arbitration agreement exists, that the dispute falls within it, and that the agreement is not void or incapable of being performed. The tribunal then rules on its own jurisdiction.
- Winding up stays with the court. A dispute over liquidating a company is not arbitrable, and an arbitrator cannot order a company to be wound up.
- A tribunal’s limited powers do not defeat arbitrability. If some relief is beyond the tribunal, the tribunal can decide the underlying dispute and the court can grant the relief that remains.
The decision concerned the International Arbitration Act. Domestic arbitrations run under the Arbitration Act 2001 and, depending on the parties’ choices, the same principles are likely to be argued. Ask your adviser which Act governs your clause rather than assuming.
Which claims go to arbitration and which stay in court?
The table below is a starting map, not a prediction. The wording of your clause and the facts will change it.
| Claim or relief | Likely forum where the clause covers the dispute | Why |
|---|---|---|
| Damages for breach of the agreement | Arbitration | Plain contract claim between signatories |
| Order to perform an obligation, such as to sell or transfer shares | Arbitration, with court help for enforcement | A tribunal may grant remedies the High Court could grant, and the court can assist if needed |
| Section 216 oppression between signatories | Usually arbitration if within the clause | Tomolugen: oppression is capable of arbitration |
| Winding up on the just and equitable ground | Court | Not arbitrable |
| Urgent interim relief before a tribunal is formed | Court or emergency arbitrator | See our guides on court interim measures in aid of arbitration and emergency arbitrators |
| Claims against someone who did not sign the agreement | Court, possibly paused | No arbitration agreement binds that person |
What if some defendants did not sign the shareholders’ agreement?
This is common. The company itself, a director, a family member or a new shareholder may be in the dispute without having signed the agreement. In Tomolugen some defendants were not bound by the arbitration clause. The Court of Appeal identified three ways to handle a mixed case: stay the whole court case, stay only the arbitrable part and sequence the rest, or let both run in parallel. It declined to set the bar for a case management stay as high as “rare and compelling”, and said a stay of the non-arbitrable claims can be made subject to the non-parties agreeing to be bound by the tribunal’s findings.
In practice, this means a claimant cannot avoid arbitration simply by adding a non-signatory to the court claim. It also means a non-signatory defendant who asks for a stay may be held to the outcome of the arbitration. Whether the company can enforce, or be bound by, the agreement is a separate question that depends on its terms, and we would not guess at it without the document.
What should you do before filing in court?
- Read the dispute clause in full. Note the seat, the rules, the number of arbitrators and whether it requires negotiation or mediation first. Our article on dispute resolution clauses in SME contracts explains these parts.
- List the signatories. Check whether every person you want to claim against signed, and whether the company is a party.
- Separate the claims. Decide which relief you need: damages, performance, a buy-out, an injunction or winding up. Each has a natural home.
- Send a written notice of the breach that follows any notice and cure steps in the agreement, and keep proof of delivery.
- Consider urgent protection. If shares are about to be transferred or assets moved, ask your adviser about interim relief before the main case is settled. See also our guide on injunctions for a shareholders’ agreement breach.
- Do not ignore the clause and sue anyway unless you have advice. The other side can apply for a stay, and the delay and cost of a failed court filing are wasted.
- Explore settlement. Arbitration and court both carry cost. Our guide to mediation before litigation covers the usual options.
Which documents should you gather?
- The signed shareholders’ agreement, every amendment and any deed of adherence.
- The company constitution and the ACRA business profile showing current shareholders and directors.
- Board and shareholder resolutions that relate to the alleged breach.
- Emails, messages and notices showing the breach and your attempts to resolve it.
- Share transfer forms, registers and financial statements, where value or loss is in issue.
- Any earlier agreement, term sheet or side letter that may have a different dispute clause.
Example: a co-founder sells to a competitor
Example (hypothetical): Three founders sign a shareholders’ agreement that gives each a right of first refusal and sends all disputes to arbitration. One founder transfers her shares to a competitor without offering them first. The other two want the transfer reversed and, if that fails, damages. Their claim for breach of the pre-emption clause is covered by the arbitration clause. The buyer never signed the agreement, so a claim against the buyer sits outside it. The two founders ask a lawyer whether to start arbitration against the seller and apply to the court for interim protection over the shares, while deciding whether the buyer should be bound to the result. If the dispute later became so serious that winding up was the only way out, that application would have to go to court.
Frequently asked questions
Can a shareholder choose court instead if the agreement says arbitration?
Not freely. If the claim is inside a valid clause, the other side can apply to stay the court case, and under the test in Tomolugen the stay is usually granted where the prima facie requirements are met. The parties can, however, agree afterwards to litigate.
Does the arbitration clause stop me from asking for the company to be wound up?
No. The Court of Appeal treated disputes about liquidating a company as not arbitrable. Winding up remains a court matter, but it is a drastic remedy and usually not the first one to consider.
Is an oppression claim always arbitrable?
No. It is capable of being arbitrated, but whether your claim is within your clause depends on its wording, the parties and the relief sought. Claims against non-signatories are the usual complication.
Can the company be a claimant in the arbitration?
Only if it is a party to the arbitration agreement or has otherwise become bound. Many shareholders’ agreements are signed only by the shareholders, so check the signature pages and whether the company signed.
What if there is no arbitration clause at all?
Then court proceedings are the default. Our article on specific performance of a shareholders’ agreement covers what the court can order.
Need help with a shareholders’ agreement dispute?
If your company, or you as a director or shareholder, is dealing with a shareholders’ agreement dispute, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles shareholder and arbitration disputes. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
Willie Tan, Raffles Corporate Services