Burgundy Global Exploration Corporation v Transocean Offshore International Ventures Ltd

• Judgment Date: 14 May 2014
• Date: 14 May 2014
• Docket Number: Civil Appeals Nos 48 and 55 of 2013
• Court: Court of Appeal (Singapore)

Burgundy Global Exploration Corp

Plaintiff

and

Transocean Offshore International Ventures Ltd and another appeal

Defendant

[2014] SGCA 24

Sundaresh Menon CJ

,

VK Rajah JA

and

Judith Prakash J

Civil Appeals Nos 48 and 55 of 2013

Court of Appeal

Civil Procedure—Judgment and orders—Whether examination of judgment debtor orders could be made against company officers resident overseas—Order 48 r 1 Rules of Court (Cap 322, R 5, 2006 Rev Ed)

Civil Procedure—Service—Whether examination of judgment debtor orders could be served out of jurisdiction without leave of court—Circumstances in which leave would be granted—Order 11 r 8 (1) Rules of Court (Cap 322, R 5, 2006 Rev Ed)

Contract—Remedies—Damages—Parties entering into two separate but interrelated contracts with different dispute resolution clauses—Breach of second contract entitling innocent party to terminate first contract—Innocent party terminating first contract upon breach of second contract—Whether innocent party could recover loss of profits under first contract as damages in action for breach of second contract

The appellant in CA 48/2013 (‘Burgundy’) entered into two separate but interrelated contracts with the respondent (‘Transocean’). Under the first contract (‘the Drilling Contract’), which was governed by an arbitration clause and included certain exclusion causes, Transocean agreed to supply a drilling rig and provide offshore drilling services to Burgundy in return for payment. Under the second contract (‘the Escrow Agreement’), which was governed by a jurisdiction clause in favour of the courts of Singapore, Burgundy agreed to secure its payment obligations under the Drilling Contract by depositing certain amounts into an escrow account following a specified timeline, failing which Transocean was entitled, among other things, to terminate the Drilling Contract.

When Burgundy failed to make the initial deposit required under the Escrow Agreement, Transocean exercised its right to terminate the Drilling Contract and commenced proceedings against Burgundy in the High Court for breach of the Escrow Agreement (leave to serve the writ of summons out of jurisdiction on Burgundy in the Philippines was obtained). Relying on the arbitration clause in the Drilling Contract, Burgundy applied for a stay of proceedings, but was unsuccessful. Transocean eventually obtained summary judgment against Burgundy and damages were assessed by an assistant registrar in the sum of US$105,536,922 plus interest, which represented Transocean's loss of profits under the Drilling Contract.

Transocean then applied for and obtained examination of judgment debtor orders (‘the EJD Orders’) under O 48 r 1 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (‘ROC’) against the directors of Burgundy (‘the Directors’). Although the Directors were resident in the Philippines, Transocean did not apply for leave under O 11 r 8 (1) to serve the EJD Orders out of jurisdiction. After several unsuccessful attempts at serving the EJD Orders on the Directors in the Philippines, Transocean applied for and obtained leave to effect substituted service of the EJD Orders by serving them on Burgundy's Singapore lawyers instead. The Directors applied to set aside the order for substituted service but their application was dismissed by an assistant registrar.

Burgundy appealed against the award of damages while the Directors appealed against the assistant registrar's refusal to set aside the EJD Orders. Upon the dismissal of their appeals by the High Court, both Burgundy and the Directors appealed to the Court of Appeal. Burgundy based its appeal on two main grounds: (a) Transocean's claim for loss of profits under the Drilling Contract was subject to arbitration; and (b) liability for loss of profits was excluded under the Drilling Contract. As for the Directors, they argued that the court should follow the English House of Lords decision of Masri v Consolidated Contractors International (UK) Ltd (No 4) [2010] 1 AC 90 (‘Masri’), which held that under r 71.2 of the Civil Procedure Rules 1998 (SI 1998 No 3132) (UK) (‘CPR’) (which was the English counterpart of O 48 r 1 of the ROC), EJD orders could not be issued against company officers who were resident overseas. The Directors further argued that EJD orders could not be served out of jurisdiction on a foreign company officer.

Held, allowing the appeals:

(1) The main issue in CA 48/2013 was whether Transocean could recover damages for losses due to the termination of the Drilling Contract under a claim that was based on breach of the Escrow Agreement, or whether such claims were subject to arbitration under Art 25.1 of the Drilling Contract. Contrary to Transocean's submission, the dismissal of Burgundy's stay of proceedings application did not render this issue res judicata, as the sole issue in that application was whether Transocean's action should be stayed in favour of arbitration when its cause of action was based on the Escrow Agreement. The court did not consider the further question of whether Transocean could recover the specific losses it claimed to have suffered given its pleaded cause of action, which would have been more relevant at the assessment of damages stage: at [32] and [42] .

(2) Transocean's performance interest under the Escrow Agreement was to obtain security for Burgundy's performance of its payment obligations under the Drilling Contract. This had to not be confused with Transocean's performance interest under the Drilling Contract, which was to make profits from carrying out the contracted services. The true damage caused by Burgundy's breach of the Escrow Agreement was the loss of its security, and not the loss of profits under the Drilling Contract. The latter loss was in fact the result of Transocean's decision not to perform the Drilling Contract without security, and however reasonable a decision that might appear to be, the proper cause of action for recovering those losses was a claim under the Drilling Contract: at [45] .

(3) The fact that cl 3.2 of the Escrow Agreement entitled Transocean to terminate the Drilling Contract upon a breach of the Escrow Agreement did not change the preceding analysis. The contractual right to terminate the Drilling Contract upon a breach of the Escrow Agreement was just that - a right to terminate; it did not serve to import all the obligations under Drilling Contract into the Escrow Agreement and allow Transocean to treat them as a single composite contract. This was a matter of some significance where, as here, each contract had unique features including distinct dispute resolution mechanisms: at [46] .

(4) Transocean's claim for loss of profits required it to establish that: (a) there had been a breach of the Drilling Contract, and (b) liability for loss of profits was not excluded under Art 19.1 or possibly Art 25.1 (c) (ix) of the Drilling Contract. These were plainly matters that, under Art 25.1 (a), were reserved for arbitration. Transocean could not circumvent the parties' agreement to arbitrate those matters by simply packaging its claim for loss of Drilling Contract profits as a claim for damages for breach of the Escrow Agreement: at [48] and [53] .

(5) Burgundy did not waive its right to arbitration by engaging Transocean in the assessment process and taking out adjournment applications to allow itself to do so. To establish a waiver by one party of certain contractual rights, there had to be an unequivocal representation from that party, whether by words or conduct, that it was forgoing those rights. No such representation could be found here; instead, Burgundy had consistently insisted on its right to arbitration: at [55] and [56] .

(6) The holding in Masri should not be applied to O 48 r 1. First, there were key differences between r 71.2 of the CPR and O 48 r 1 of the ROC; the ‘extreme informality’ in r 71.2 that troubled the court in Masri was not present in O 48 r 1. Second, the proper approach to interpreting O 48 r 1 was to consider its object and then decide whether its object would be promoted if it were interpreted to cover the situation at hand. There was no serious doubt that the underlying purpose of O 48 r 1, which was to enable judgment creditors to obtain information about a corporate judgment debtor's finances, would be served by extending it to foreign officers. Third, the public interest analysis used in Masri did not provide a sustainable basis for deciding which laws should be interpreted as having extraterritorial effect, and which not. Fourth, the holding in Masri was fortified by the court's view that English civil procedure did not allow an EJD order to be served on a company officer out of jurisdiction. However, under Singapore law, an EJD order could be served out of jurisdiction on a foreign officer with the leave of the court: at [88] to [92] .

(7) O 11 r 8 (1) did not allow a party to serve EJD orders out of jurisdiction without first obtaining leave. The clause ‘but leave shall not be required in any proceedings in which leave for service of the originating process has already been granted’ was meant to eliminate duplicative applications for leave - where leave to serve the originating process on a defendant abroad had already been granted, the issue of whether it was appropriate to exercise extraterritorial jurisdiction over that particular defendant would have already been considered, and it would have been unnecessary and inefficient to require leave to be sought repeatedly for overseas service of every subsequent document in the proceedings. However, this rationale did not apply to a non-party to the proceedings, in relation to whom the basis for exercising extraterritorial jurisdiction had yet to be established: at [104] to [107] .

(8) In the absence of evidence that a company officer was in fact the alter ego of the company or possibly evidence that the officer in question...