Singapore High Court: Applicable Standard for Granting Injunction To Restrain The Commencement of Winding Up In Favour Arbitration

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In BWF v BWG [2019] SGHC 81, the Singapore High Court decided the applicable standard for determining whether an injunction to restrain the commencement of winding up in favour of arbitration. The High Court considered earlier rulings on the subject and found that in the present case the existence of a bona fide prima facie dispute was sufficient for the court to grant the injunction. Thus, while granting the injunction, the High Court inter alia held that where parties have an agreement to refer disputes arising out of their contract to arbitration, and any dispute occurs within the ambit of that arbitration clause, even one easily resolved, their contractual bargain should be given effect. Detailed case analysis given below:

Factual Matrix

BWF and BWG signed a contract through facsimile for the sale and purchase of crude oil. The contract contained a dispute resolution clause which stipulated that issues should be construed in accordance with English law, and disputes referred to arbitration in London.

BWG alleged that BWF had failed to pay BWG despite its performance of its obligations under the contract. BWG served a statutory demand on BWF. BWF disputed the debt claim, requesting that the dispute be referred to arbitration, and for BWG to desist from winding-up proceedings. In the present case, BWF sought to restrain BWG from bringing winding up proceedings against it, being of the view that the contract between parties obliged them to proceed to arbitration to deal with their various disputes.

Parties Contentions

BWF submitted that in the present case, where a claim for a disputed debt falls within the scope of an arbitration clause, the applicable standard for determining whether an injunction should be granted to restrain the commencement of winding up proceedings is whether there is a bona fide prima facie dispute that is subject to an arbitration agreement. BWG, on its part, contended that notwithstanding the arbitration clause, the correct standard is that of a triable issue.

Applicable Standards

To determine the applicable standard applicable for the grant of stay in favour of arbitration, the High Court analysed several landmark cases and standards described thereto. These cases are discussed below in brief.

Bona fide prima facie dispute / Genuine defence / Strong Cause

The Jian He – [1999] 3 SLR(R) 432

In this case, the plaintiff sold goods that were shipped on board the defendants’ vessel. The goods were delivered to a third party instead of the consignee upon the production of a false bill of lading. The plaintiff brought an action against the vessel. The original bill of lading included an exclusive jurisdiction clause which conferred jurisdiction on certain maritime courts in China. The defendants applied in Singapore for a stay on this basis. The Singapore Court of Appeal refused to grant a stay on the principal basis that there was no genuine defence to the claim. The Court observed that defendant’s lack of a genuine defence constituted ‘strong cause’ justifying a refusal by the Court to stay Singapore proceedings.

Tjong Very Sumito and others v Antig Investments Pte Ltd [2009] 4 SLR(R) 732

In this case, the respondent applied for a stay of court proceedings commenced by the appellant in favour of arbitration under Section 6 of the International Arbitration Act of Singapore. The appellant submitted that in deciding whether there was a ‘dispute’ to be referred to arbitration, the court should assess whether there was a bona fide dispute – in other words, whether there was a genuine defence. The Singapore Court of Appeal disagreed with appellant and ruled that “a merely asserted dispute suffices to warrant a stay of court proceedings without any inquiry into the genuineness or merits of the defence”.

Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589

In this case, the key issue before the English Court of Appeal was whether the petition to wind up a company on the ground of its inability to pay its debts should be stayed, where the underlying debt arose out of a contract containing an arbitration agreement. The court first considered whether Section 9 of the English Arbitration Act 1996 applied. If so, then the grant of a stay in favour of arbitration was mandatory.

The Court held that Section 9 of the English Arbitration Act did not apply to a winding up petition brought on the basis of the company’s inability to pay its debt since such a petition was not a “claim” for the payment of the debt. The Court noted that it was “highly improbable that Parliament, without any express provision to that effect, intended Section 9 to confer on a debtor the right to a non-discretionary order striking at the heart of the jurisdiction and discretionary power of the court to wind up companies in the public interest where companies are not able to pay their debts”. Accordingly, a mandatory stay in favour of arbitration under Section 9 of the English Arbitration Act could not be granted.

Nonetheless, the Court held that the court’s discretionary power to wind up a company under the English Insolvency Act 1986 ought to be exercised consistently with the legislative policy embodied in the English Arbitration Act. Accordingly, the English Court of Appeal dismissed the appeal and maintained the stay of the winding up petition.

BDG v BDH [2016] 5 SLR 977

In this case, the plaintiff sought an injunction to restrain the defendant from presenting a winding up application, on the basis that there was a dispute between them that was governed by an arbitration clause. The plaintiff argued that the position in Salford should be adopted because it was consistent with Singapore’s pro-arbitration policy, and accordingly that a different standard of proof ought to apply where an application to enjoin the presentation of a winding up application is made on the basis that there is a dispute between the parties which is subject to an arbitration clause. The Singapore High Court followed Salford and agreed with the plaintiff.

Lasmos Limited v Southwest Pacific Bauxite (HK) Limited [2018] HKCFI 416

In that case, the Hong Kong Court of First Instance took the same position and held that a winding up petition should generally be dismissed where:

  • the company disputes the debt relied on by the petitioner;
  • the contract under which the debt is alleged to arise contains an arbitration clause that covers any dispute relating to the debt; and
  • the company takes the steps required under the arbitration clause to commence the contractually mandated dispute resolution process and files an affidavit in opposition to the winding up petition.

Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] 2 SLR 1271

In this case, the Singapore Court of Appeal decided to depart from previous authorities laid down by the Court. It held that where there was an exclusive jurisdiction clause, Singapore courts, when considering whether there was strong cause to refuse a stay (‘the strong cause test’), should disregard the merits of the parties’ cases.

This marked a departure from a long line of Singapore decisions that began with The Jian He [1999] 3 SLR(R) 432 wherein (as noted above) it was held that a relevant factor under the strong cause test was whether the party seeking a stay had a genuine defence.

The court highlighted that “the rule in The Jian He is inconsistent with the central principle of party autonomy that pervades the law in this field”, and that dismissing an application for a stay of proceedings based on an exclusive jurisdiction clause simply because there is no genuine defence would fail to give effect to the parties’ agreement. The Court of Appeal also alluded to the desirability of coherence in the law achieved by aligning the law governing exclusive jurisdiction clauses, forum non convenience and International Arbitration Act applications: across these various areas, the merits of the defence would be irrelevant on the issue of a stay.

Triable issue

Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268

In this case, the respondent served a statutory demand on the appellant requiring it to pay an undisputed debt. Subsequently, the appellant applied to the Singapore High Court for an injunction to restrain respondent from presenting a winding up petition until appellant’s claim for damages against respondent arising under a sale-and-purchase agreement had been determined in arbitration. Critically, it was common ground between the parties that the arbitrator was the proper adjudicator of this issue.

The Singapore High Court held that appellant had a genuine cross-claim based on substantial grounds in that it did not invent the cross-claim in order to ward off the threatened winding up proceedings. Nonetheless, the injunction application was dismissed on the basis that the security held in escrow for any claims against respondent under the sale-and-purchase agreement reduced the quantum of the cross-claim to the extent that it was not equal to or in excess of the undisputed debt.

On appeal, the Singapore Court of Appeal agreed with the High Court that appellant had a genuine cross-claim based on substantial grounds. However, the Court of Appeal went on to explore the question of what standard of proof the debtor-company should be required to meet in a “cross-claim” situation. The Court observed that Singapore, England and Australia uniformly took the position that in order for an injunction restraining the filing of a petition to be granted, the debtor-company must show that there is a likelihood that the winding up application may fail or that it is unlikely that a winding up order would be made.

Mohd Zain bin Abdullah v Chimbusco International Petroleum (Singapore) Pte Ltd [2014] 2 SLR 446

The case involved guarantors of a loan and the creditor. Creditor had issued a call on the guarantees, but the guarantors ignored the call and the subsequent statutory demands. The guarantors resisted bankruptcy proceedings on the basis of an allegation that there were oral representations that the guarantees were meant to be mere formalities and not binding on the parties. The judge below granted a conditional stay of bankruptcy proceedings as he found triable issues, albeit shadowy in nature. The Singapore High Court, with whom the Court of Appeal agreed, found that the dispute was incapable of resolution through affidavit evidence alone, given the equivocal documentary evidence, and the fact that the allegations pertained to oral representations made.

It was held by the Court of Appeal that the standard for obtaining a stay or a dismissal of bankruptcy proceedings was no more than that for resisting a summary judgment application, ie, a debtor need only raise triable issues. However, the Court of Appeal was also careful to note that one could not stave off bankruptcy proceedings merely by alleging that there is a substantial and bona fide dispute over the debt claimed by the applicant-creditor. The court has to take into account the protection of the interests of a meritorious creditor and minimization of wastage of court resources.

VTB Bank v Anan Group [2018] SGHC 250

In this case, the defendant relied on BDG and Salford Estates to argue that a lower standard of proof (i.e. Bona fide prima facie) ought to apply where a dispute between two parties was governed by an arbitration clause.

The plaintiff argued that the High Court was bound by Metalform wherein the Singapore Court of Appeal ruled that the test was not any different because the underlying contract was subject to arbitration.

The Singapore High Court (without considering Vinmar) held that it is bound to follow the Singapore Court of Appeal’s decision in Metalform that the standard of proof that a debtor-company is required to meet in a disputed debt case is that of triable issues, regardless of whether that dispute is governed by an arbitration agreement.

Judgement

The Court distinguished the Metalform (triable issue) line of authorities observing that the significance of an arbitration clause was not directly engaged in Metalform and held that in the present case the relevant standard applicable for determining whether an injunction to restrain the commencement of winding up in favour arbitration should be granted was that of a bona fide prima facie dispute. Based on this view, the Court held that BWF should be granted an injunction to restrain BWG from taking out winding up proceedings.

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