AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company)

• Judge: Sundaresh Menon CJ
• Judgment Date: 07 April 2020
• Neutral Citation: [2020] SGCA 33
• Citation: [2020] SGCA 33
• Defendant Counsel: Philip Antony Jeyaretnam SC, Shobna d/o V Chandran, Lee Chia Ming, Ashwin Nair Vijayakumar and Alexander Choo Wei Wen (Dentons Rodyk & Davidson LLP)
• Docket Number: Civil Appeal No 174 of 2018
• Hearing Date: 26 November 2019,31 March 2020
• Plaintiff Counsel: Lee Eng Beng SC, Chew Xiang and Cheong Tian Ci, Torsten (Rajah & Tann Singapore LLP)
• Published date: 10 April 2020
• Court: Court of Appeal (Singapore)
• Date: 07 April 2020
• Subject Matter: Prima facie,Winding up,Standard of review,Companies,Arbitration agreement,Disputed debt

Steven Chong JA (delivering the judgment of the court): Introduction

The jurisprudence governing stay applications in relation to disputes which are subject to arbitration is well settled in Singapore. So long as the parties to the dispute are parties to an arbitration agreement and there is a dispute which falls within the ambit of that agreement, the court would ordinarily stay the court proceedings in favour of arbitration. The court would not embark on any examination of the merits since that would be the role and task of the arbitral tribunal. Such has been termed the prima facie standard of review.

Should the position be any different if the same claimant unilaterally elects to proceed against the same alleged debtor in respect of the same claim by way of a winding-up application instead of an action in court? Two High Court judges separately decided that the position should be no different while the High Court Judge below (“the Judge”), believing that he was bound by a previous decision of this court, adopted a different standard of review, ie, the triable issue standard which typically applies to claims which are not subject to arbitration.

The two contrasting standards of review, ie, the prima facie standard and the triable issue standard, were developed to address different policies and when applied independently of each other, they do not give rise to difficulties. This appeal ultimately concerns the applicable standard of review when the seemingly conflicting policies underpinning the arbitration and insolvency regimes intersect and interact with each other. As a winding-up application directly impacts on the commercial viability and survival of an alleged debtor company with its attendant adverse consequences upon the mere presentation of the application, this appeal provides an opportunity for this court to pronounce on the applicable standard of review in respect of a claim which is subject to arbitration albeit in the context of an insolvency setting.

Facts The relationship between the parties

The appellant is AnAn Group (Singapore) Pte Ltd (“AnAn”), a Singapore holding company. The respondent is VTB Bank (Public Joint Stock Company) (“VTB”), a state-owned Russian bank. On 3 November 2017, AnAn and VTB entered into a global master repurchase agreement (“GMRA”) under which AnAn would sell VTB global depository receipts (“GDRs”) of shares in EN+ Group PLC (“EN+”) and then repurchase the GDRs from VTB at a later date at pre-agreed rates. The pre-agreed rates that AnAn would pay VTB at the date of repurchase amounted in essence to the original purchase price paid by VTB plus interest and other costs. Despite the structure of the transaction as a sale and repurchase, this was in substance a loan from VTB to AnAn.¹

Obligations under the GMRA

According to the GMRA, AnAn was under an obligation to maintain sufficient collateral, with the level of collateral being measured by an indicator known as the Repo Ratio which was essentially calculated based on the purchase price of the GDRs plus accrued interest, divided by the prevailing value of the GDRs. As the value of the GDRs dropped, the Repo Ratio would rise accordingly. Under cl 2(a)(i) of Annex 1 to the GMRA, AnAn was obliged to maintain the Repo Ratio at below 60%.² Should the Repo Ratio exceed 60%, VTB would be entitled under the GMRA to issue a Margin Trigger Event Notice, requiring AnAn to provide sufficient cash to reduce the Repo Ratio to the Initial Repo Ratio of 50%. If AnAn failed to do so, an event of default would be deemed to have occurred under cl 10(b)(xiii) of Annex 1 to the GMRA.³ Separately, the GMRA required AnAn to maintain the Repo Ratio below the Liquidation Repo Ratio of 75%. If the Repo Ratio equalled or exceeded the Liquidation Repo Ratio, a Liquidation Event would be deemed to have occurred, and this would constitute another event of default under cl 10(b)(xxiii) of Annex 1 to the GMRA.⁴

Upon the occurrence of an event of default, the non-defaulting party was entitled to provide a notice to the defaulting party specifying the relevant event of default, and to designate the early termination date. The repurchase date of the GDRs would then be brought forward to the early termination date,⁵ and the non-defaulting party would undertake an exercise to calculate the amounts owed by each party. Where VTB was the non-defaulting party, and since it held the GDRs from the date of purchase, it would first have to determine the default market value of the GDRs held and to ask AnAn for a top up if the value of the GDRs fell short of the repurchase price. Clause 10(f) of the GMRA provided for three possible “routes” by which this default market value could be assessed by VTB:⁶ first, under cl 10(f)(i), VTB could sell the GDRs on or about the early termination date and treat the sale price as the default market value of the GDRs; secondly, under cl 10(f)(ii), VTB could obtain bid quotations from two or more market makers or regular dealers in the appropriate market in a commercially reasonable size, using customary pricing methodology, and treat the price quoted (or the arithmetic mean of multiple quotes) with commercially reasonable adjustments, as the default market value; thirdly, under cl 10(f)(iii), if VTB had endeavoured but was unable to sell the GDRs or obtain quotations for the GDRs, or had determined that it would not be commercially reasonable to sell the GDRs at the prices bidded or to obtain quotations or to use any of the quotations obtained, it could treat the “Net Value” of the GDRs as the default market value. Where this third route under cl 10(f)(iii) was adopted, cl 10(e)(iii) of the GMRA further provided that the “Net Value” refers to “the amount which, in the reasonable opinion of the non-Defaulting Party, represents their fair market value, having regard to such pricing sources (including trading prices) and methods (which may include, without limitation, available prices for Securities with similar maturities, terms and credit characteristics as [the GDRs] as the non-Defaulting Party considers appropriate…)”.⁷

Clause 15(a) of Annex 1 to the GMRA provided that the GMRA is governed by English law while cl 15(b) contains the following arbitration clause:⁸

Any dispute arising out of or in connection with this Agreement, including any question regarding its subject matter, existence, negotiation, validity, termination or enforceability (including any non-contractual dispute or claim) (a “Dispute”), shall be referred to arbitration and finally settled on the following terms: (i) the arbitration shall be conducted in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) which Rules are deemed incorporated into this Clause; […]

The sale of GDRs and subsequent claim for debt

On 7 November 2017, pursuant to the GMRA, AnAn sold 35,715,295 EN+ GDRs for approximately US$249,999,990 to VTB. At the time of the sale, the price of EN+ shares was approximately US$13 per share.

A few months later, on 6 April 2018, sanctions were imposed on major shareholders of EN+ by the United States Treasury’s Office of Foreign Assets Control (“the OFAC sanctions”), causing EN+ shares to plummet to about US$5.60 per share.⁹ On the same day that the OFAC sanctions were imposed (ie, 6 April 2018), VTB issued a Margin Trigger Event Notice, informing AnAn that the Repo Ratio was at approximately 74.57%, thus exceeding the Margin Trigger Repo Ratio of 60%. In this notice, VTB asked AnAn to top up a cash margin of approximately US$85m by 10 April 2018, so as to bring the Repo Ratio to 50% or below.¹⁰ AnAn failed to restore its collateral by transferring the cash margin within the stipulated timeframe.

On 12 April 2018, VTB sent a default notice to AnAn, designating 16 April 2018 as the early termination date of the GMRA. According to this notice, two events of default had occurred – first, the Repo Ratio had exceeded the Liquidation Repo Ratio of 75%, thus constituting a Liquidation Event; second, the Repo Ratio had exceeded the Margin Trigger Repo Ratio of 60% and AnAn had failed to top up a cash margin of approximately US$85m by 10 April 2018 as stipulated in the Margin Trigger Event Notice, and this constituted a further event of default under the GMRA.¹¹

On 24 April 2018, VTB sent a calculation notice to AnAn, stating that a sum of approximately US$170m was owed by AnAn.¹² According to the calculation notice, this figure was arrived at by subtracting the Net Value of the GDRs from the purchase price and interest and costs.¹³ As stated at [6] above, the designation of a Net Value of the GDRs as its default market value was one of three routes available to VTB under cl 10(f) of the GMRA. In this case, VTB stated that it had not sold the GDRs under cl 10(f)(i) of the GMRA, and that it had sought firm bids under cl 10(f)(ii) of the GMRA but “none of the brokers and/or dealers provided [VTB] with a firm quote”.¹⁴ Thus, VTB elected to use the Net Value to determine the default market value of the GDRs pursuant to cl 10(f)(iii) of the GMRA, and arrived at a Net Value of US$2.50 per GDR, which it purported to be an arithmetic average of all the indicative quotes that it had received from market makers and dealers.

On 23 July 2018, VTB served a statutory demand for the sum of approximately US$170m (“the Claimed Sum”), which sum AnAn failed to repay within the three-week period.¹⁵

Procedural history The proceedings below and the findings of the Judge

On 17 August 2018, VTB applied to wind up AnAn on the basis of the statutory demand (“the winding-up application”).¹⁶ AnAn resisted the winding-up application, disputing the debt that was claimed by VTB. In the main, AnAn argued that the OFAC sanctions constituted an event of frustration or, alternatively, a force majeure event.¹⁷ AnAn also argued that the Claimed Sum of about US$170m...