BWG v BWF

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 16 April 2020
• Neutral Citation: [2020] SGCA 36
• Docket Number: Civil Appeal No 12 of 2019
• Date: 16 April 2020
• Published date: 18 April 2020
• Plaintiff Counsel: Nish Kumar Shetty and Han Guangyuan, Keith (Cavenagh Law LLP)
• Defendant Counsel: Tan Chuan Bing Kendall, Ting Yong Hong, Aleksandar Anatoliev Georgiev and Lim Wee Teck, Darren (Rajah & Tann Singapore LLP)
• Court: Court of Appeal (Singapore)
• Hearing Date: 26 November 2019
• Subject Matter: Arbitration agreement,Standard of review,Winding up,Companies,Inconsistent positions,Abuse of Process,Abuse of process,Disputed debt

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

This appeal was heard together with Civil Appeal No 174 of 2018. Both appeals involved the same legal issue: what is the standard of review when a dispute that is subject to an arbitration arises in relation to a debt which forms the basis of a winding-up application? This court’s decision on this issue is set out in full in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33 (“VTB Bank”). In short, we held that when a court is faced with either a disputed debt or a cross-claim that is subject to an arbitration agreement, the prima facie standard of review should apply, such that the winding-up proceedings will be stayed or dismissed so long as (a) there is a valid arbitration agreement between the parties; and (b) the dispute falls within the scope of that arbitration agreement, provided that the dispute is not being raised by the debtor in abuse of the court’s process (VTB Bank at [56]). We also held that the doctrine of abuse of process is an appropriate measure to check against possible abuses of the prima facie standard. We stressed that in determining whether there has been an abuse of process, the court must be wary not to engage in the merits of the parties’ dispute, as the court is not the proper forum to adjudicate the dispute between the parties which is subject to arbitration (VTB Bank at [100]).

In transactions involving the sale of commodities, back-to-back contracts or a string of contracts are commonplace. Quite often, the physical supplier or the original seller might not know the identity of the ultimate receiver or buyer. Between these two parties there would typically be a chain of intermediaries whose sole interest is to earn some commission or a modest price differential. If the transaction goes smoothly, everyone down the line will be paid. Serious difficulties will, however, be encountered in the event of a default by one of the parties in the string of contracts. Parties who are intermediaries would by definition be both sellers and buyers albeit to different parties and would quite often find themselves “between the devil and the deep blue sea”. Vis-à-vis their buyer, they could adopt one position while vis-à-vis their seller, they may well adopt a different and somewhat inconsistent position.

This was precisely the quandary faced by the respondent in the present case. It is difficult for an intermediary such as the respondent to anticipate how the litigation involving separate parties would eventually pan out. In the meantime, such an intermediary would be expected to take steps to best protect their own interest and in the process, may find themselves adopting inconsistent positions as against different parties in the chain.

This appeal thus raises an interesting question as to whether the enforcement of a settlement agreement, in separate proceedings against a third party, which is premised on claims mirroring those faced by the debtor in a winding-up context, constitutes an adoption of inconsistent positions as against the creditor such as to amount to an abuse of process. The ultimate purpose of this inquiry is to determine whether the court should restrain the commencement of a winding-up application against the debtor.

This judgment will also examine the scope and nature of the abuse of process doctrine when it is invoked to prevent a defendant from raising an inconsistent defence. This is particularly germane when there are competing policy imperatives in play. Should a court prevent a defendant from raising the defence of illegality on the basis of abuse of process if the effect of doing so would enable the claimant to enforce an illegal claim? In our view, as abuse of process is a discretionary doctrine, its application must necessarily be premised on a proper balancing exercise to prevent the greater risk of injustice.

Facts Contracts

There was a string of contracts involving X, the appellant, and the respondent, which concerned the sale and purchase of the same cargo of crude oil (“the Cargo”). The first contract was between X and the appellant, with X as the seller and the appellant as the buyer (“the X-appellant contract”). The second contract was between the appellant and the respondent, with the respondent as the buyer (the appellant-respondent contract”). As it turned out, there was another contract downstream between the respondent as the seller and X as the buyer (“the respondent-X contract”). Thus, in this string of contracts, X was both the ultimate seller and the ultimate buyer of the Cargo.

The timelines for payment under the three contracts bear highlighting as they have a material bearing on the true purpose behind the string of contracts. First, the appellant would pay X, by way of a letter of credit, within 30 days upon tender of a notice of readiness (“the NOR”) at the discharge port. Then, X would pay the respondent within 89 days of the tender of the NOR. Lastly, the respondent was obliged to pay the appellant within 90 days of the tender of the NOR. Under these timelines, X was to pay the respondent before the respondent was due to pay the appellant, despite the fact that the respondent was due to receive the Cargo from the appellant prior to its purported delivery to X.

We also draw attention to the different prices of the Cargo under the various contracts in the chain. In the X-appellant contract, the Cargo was sold for US$29,945,600. In the appellant-respondent contract, the respondent was obliged to pay the appellant a sum of US$30,245,600 while in the respondent-X contract, X was obliged to pay the respondent a sum of US$30,253,600. Therefore, under this string of contracts, the respondent would make a modest gain of US$8,000 while the appellant stood to gain around US$300,000.

Based on the above timelines, the respondent was due to pay the appellant by 11 July 2018. However, the respondent did not make payment by this date because its position was that it was obliged to pay the appellant only upon being paid by X. There is no dispute that X failed to pay the respondent by 10 July 2018, as required under the respondent-X contract.

Negotiations

The respondent’s failure to pay the appellant by 11 July 2018 was preceded and followed by a number of discussions involving representatives of the respondent, the appellant and X.

On 2 July 2018, Shi (an oil trader with X) and two senior employees of X (Muda and Machida) requested to meet Anh, the Deputy Director (Head of Training) of the respondent, who was partially involved in arranging the deal with the respondent and X. Anh was informed by Shi that X would not be able to make payment to the respondent for the Cargo by 10 July 2018.

Anh agreed to meet X’s representatives on 3 July 2018. The meeting was attended by Anh, Thanh (the respondent’s finance manager), Machida and X’s Chief Operation Officer, Jun. There appears to have been some discussion on an “alternative” payment plan by X to the respondent. A second meeting also took place on 3 July 2018, but this time involving Chew, a trader in the appellant’s Singapore office, with Machida and Jun.

On 4 July 2018, a further meeting took place between Anh and Chew. It appears that it was during this meeting that the respondent first became aware that the appellant had initially bought the Cargo from X, and that the appellant had procured its bank, UBS, to issue a letter of credit to X. In other words, it was during this meeting that the respondent found out that X was both the ultimate buyer and the ultimate seller of the Cargo. In a second meeting on 4 July 2018, the respondent’s representatives again met with X’s representatives together with Chew of the appellant. According to Chew, all the parties had discussed payment by way of instalments by X to the respondent. These sums would in turn be paid by the respondent to the appellant.

Pursuant to these discussions, on 12 July 2018, the respondent entered into a settlement agreement with X for the unpaid sum of US$30,253,600 (“the Settlement Agreement”). It is worth reiterating that the appellant was privy to the specific discussions leading up to the Settlement Agreement. In particular, Chew was present during the meeting on 4 July 2018 when representatives of X and representatives of the respondent discussed the plan to make delayed payment by way of instalments. Indeed, as we mention below at [20], Chew would later acknowledge that he received a copy of the “payment proposal” by X on 6 July 2018.

In essence, the Settlement Agreement required X to pay the outstanding sum over four instalments from 10 August to 9 November 2018. The Settlement Agreement also contained an undertaking for Sit, the Chief Executive Officer of X, to execute a personal guarantee for the outstanding sums under the Settlement Agreement. Under the Settlement Agreement, the first payment fell due on 10 August 2018. X, however, only made part-payment of US$50,000 each on 17 and 30 August 2018, and thereafter failed to make payment of the remaining sums.

What should be emphasised is that, during these discussions, the respondent appeared to accept that it should pay the appellant, but only after it was paid by X under the respondent-X contract. On 3 May 2018, a WhatsApp exchange took place between Shi and Anh, and Shi informed Anh as follows: Shi: … pls only pay [the appellant] after you get payment from [X] Shi: [X] has issued chairman’s gurantee [sic] to [the respondent], which may protect [the respondent] just in case

Thereafter, on 3 July 2018, one day before Anh’s meeting with Chew, Shi again informed Anh that the respondent was to pay the appellant only after it was paid by X. The WhatsApp conversation between Anh and Shi reads as follows: Anh: [X] Anh: Said they want to do 6 months instalment

…

Anh: And we pay money first to [the...