BMO v BMP

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 26 May 2017
• Neutral Citation: [2017] SGHC 127
• Citation: [2017] SGHC 127
• Date: 2017
• Published date: 17 October 2018
• Hearing Date: 10 March 2017,06 February 2017,13 February 2017
• Plaintiff Counsel: Philip Antony Jeyaretnam SC, Paras Manohar Lalwani and Chua Weilin (Dentons Rodyk & Davidson LLP)
• Docket Number: Originating Summons No 501 of 2016
• Defendant Counsel: Yogarajah Yoga Sharmini and Subashini d/o Narayanasamy (Haridass Ho & Partners)
• Court: High Court (Singapore)
• Subject Matter: Arbitration,Estoppel,Arbitral tribunal,Repudiation,Agreement,Jurisdiction,Waiver

Belinda Ang Saw Ean J: Introduction

Originating Summons No 501 of 2016 (“OS 501”) is an application filed by the plaintiff, BMO, pursuant to s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”) opposing the ruling of a sole arbitrator (“the Tribunal”) on his jurisdiction (“Decision on Jurisdiction”) to adjudicate on disputes in an arbitration brought under the auspices of the Singapore International Arbitration Centre Arbitration on 12 March 2015 (“the Arbitration”). The defendant in OS 501 is BMP, a Malaysian incorporated company that was placed in receivership on 30 November 2006, and is acting through individuals appointed as receivers and managers (“the Receivers”).

Prior to commencing the Arbitration on 12 March 2015, the defendant sued the plaintiff and two individuals in the British Virgin Islands on 22 July 2014 (“the BVI litigation”). At some stage during the BVI litigation, the defendant gave notice of its intention to stop the BVI litigation in order to move to arbitration instead. This judgment will consider the principal question as to whether or not there is still a binding or operative arbitration agreement between the parties despite participation in the BVI litigation; and if the answer is in the affirmative, the next question that arises is whether the claims made in the Arbitration are within the ambit of the arbitration agreement.

Related to the principal question is the enquiry that examines whether there is a point of no return beyond which a party participating in litigation would be held to have either no right to arbitrate or to compel the other to arbitrate. For instance, under what circumstances has a party that wishes to switch from litigation to arbitration waived its contractual right to compel arbitration of the same dispute? The plaintiff argues that the defendant’s commencement of the BVI litigation constituted: (a) a waiver of the defendant’s right to arbitrate the dispute and that waiver rendered the arbitration agreement inoperative; and/or (b) a repudiation of the arbitration agreement which was accepted by the plaintiff and that acceptance brought to an end the contractual obligation to arbitrate. The plaintiff’s further argument is that the defendant is estopped by its conduct in the BVI litigation from relying on the arbitration agreement.

Whilst the defendant’s submissions mainly addressed the plaintiff’s arguments as described, the defendant also pointed out that the focus of the doctrines of waiver/election or waiver by election ought to “rest” with the plaintiff and not with the defendant. In other words, the focus should not be on the conduct of the defendant (as argued for by the plaintiff), but on the plaintiff’s conduct after the defendant’s breach of an agreement to arbitrate. All said, whether there is or has been litigation between the parties is not alone sufficient to indicate a waiver/election or waiver by election. A deeper enquiry has to be done in order to determine the nature of the parties’ participation in the judicial forum, including whether there has been conduct demonstrating an intent to waive arbitration.

The dispute

The substantive dispute in the BVI litigation and the Arbitration concerns the defendant’s ownership of the share capital of its subsidiary in Vietnam (“the Vietnam Subsidiary”). The defendant’s complaint against the plaintiff and two individuals, who are brothers and former directors of the defendant, is that through a series of share transfers that took place in 1999, 2007 and 2008 (collectively, “the Share Transfers”), the defendant’s shareholding in the Vietnam Subsidiary was substantially reduced to 0.19% whereas the plaintiff ended up as the major shareholder with 99.7 % interest in the Vietnam Subsidiary. The remaining 0.11% of the share capital is owned by a company incorporated in the British Virgin Islands (“BVI Company 1”). It is the defendant’s case that the brothers were responsible and complicit in the unauthorised and unlawful share transfers that eventually resulted in the plaintiff becoming the majority shareholder in the Vietnam Subsidiary. It is not disputed that, at all material times, the brothers were and are still the shareholders of the plaintiff. I will refer to the brothers individually as Shareholder 1 and Shareholder 2. The plaintiff has one director and he is Shareholder 2. The defendant’s case against the plaintiff is that the latter dishonestly assisted the brothers in respect of the Share Transfers thereby depriving the defendant of the bulk of its shares in the Vietnam Subsidiary. Furthermore, the plaintiff received those shares wrongfully with knowledge of the brothers’ breach of fiduciary duties and breach of trust.

The brothers were shareholders in several related companies that were incorporated in Taiwan, and they are identified here as Taiwan Company 1; Taiwan Company 2 and Taiwan Company 3. At all material times, Shareholder 1 was the controlling shareholder of these companies. He was also the Chairman of Taiwan Company 3.

Changes to the Vietnam Subsidiary’s charter

The Vietnam Subsidiary was first incorporated on 30 December 1993, and upon incorporation, a company charter was entered into (“the 1993 Charter”). In the 1993 Charter, the defendant was identified as the sole shareholder of the Vietnam Subsidiary, and was regarded as the defendant’s wholly-owned subsidiary. At all material times, Shareholder 1 was the Chairman of the Vietnam Subsidiary.

In February 2008, Shareholder 1 (purportedly acting for the defendant), the representative of the plaintiff and the representative of Taiwan Company 1 caused the Vietnam Subsidiary to be re-registered for the purposes of obtaining an amended investment certificate and changing the Vietnam Subsidiary’s corporate form. A new Charter (“the Revised Charter”) was adopted. The Vietnam Subsidiary, previously a wholly-owned private enterprise, became a limited liability corporation (“LLC”), with the defendant, the plaintiff and Taiwan Company 1 reflected in the Revised Charter as its members.

The arbitration agreement sought to be invoked in the Arbitration is Article 22(2) of the Revised Charter. Both the plaintiff and the defendant have adduced separate versions of the Revised Charter which contain differently-worded versions of Article 22(2). The variants of Article 22(2) will be addressed later in this judgment (see [56] below).

Events leading to the Due Diligence Report

The defendant suffered a liquidity crisis in late 1999, and sought from its creditors a moratorium on the repayment of its debt. Eventually, this led to the creditors’ approval of a scheme of arrangement on 25 August 2004. In addition, a debenture dated 27 August 2004 was furnished in favour of the Named Debenture Holder as trustee for the secured creditors. This debenture was subsequently amended. As the defendant’s financial situation did not improve, it was put into receivership on 30 November 2006, pursuant to the terms of the debenture. As stated, the defendant now acts through its Receivers.

After 30 November 2006, the Receivers were able to get hold of the defendant’s audited accounts from 1998 to 2005. The Receivers also began the lengthy process of understanding, amongst other things, the defendant company, details of all of the defendant’s assets and liabilities, its physical books and records, as well as its accounting system and internal controls. During this process, the Receivers discovered that there were unexplained reductions in the defendant’s share capital in the Vietnam Subsidiary. There were also other significant non-cash transactions that did not tally with the amounts stated in the defendant’s accounts. These discrepancies prompted the Receivers to commission a legal due diligence report. A Vietnamese law firm, IndoChine Counsel: Business Law Practitioners (“IndoChine Law”), was engaged in the matter.

On 3 February 2009, IndoChine Law’s proposed scope of service in respect of the Vietnam Subsidiary was, inter alia, “to obtain corporate records/legal documents related to the Company, including but not limited to: (a) Investment licenses/certificates and any amendments; (b) Company Charter or any amendment; (c) Latest information/documents on the shareholders/members of the Company and directors of the Company”. This proposal was accepted by the Receivers on 5 February 2009. IndoChine Law’s report dated 19 June 2009 (“the Due Diligence Report”) was sent to the Receiver’s under cover of IndoChine Law’s letter on 1 July 2009.

Two sections of the Due Diligence Report are relevant to the present application. First, Section 1.4 of Part A states that one of the purposes of the Due Diligence Report was to “[advise] on consequences and legal redress under the laws of Vietnam in respect of the transaction of transfer of the capital from [the defendant] to [the plaintiff] in the view that the authorized representative of the [defendant] is not authorized to act or has acted ultra vires.” The representative of the defendant who was not authorised is none other than Shareholder 1 (see [8] above).

Second, Section 6.2 of Part C states, in relation to the transfer of capital from the defendant to the plaintiff, the defendant has “the right to bring this matter to the authorized court/arbitration against such unauthorized representative in order to request the court to consider and judge invalidity of such fabricated capital assignment transaction.” Again, the unauthorised representative is Shareholder 1.

Prior to the appointment of IndoChine Law, the Receivers were embroiled for two years in litigation brought by the former directors of the defendant in Malaysia in January 2007 (“the Malaysian litigation”). In that litigation, the Receivers and the debenture holders were sued. The Malaysian litigation was finally struck out on 11 February 2009.

The Receivers commenced the BVI...