BXH v BXI

• Judge: Sundaresh Menon CJ
• Judgment Date: 02 April 2020
• Neutral Citation: [2020] SGCA 28
• Citation: [2020] SGCA 28
• Defendant Counsel: Toh Chen Han, Chan Yong Neng, Rakesh Nelson and Charlotte Wang (MPillay)
• Published date: 08 April 2020
• Hearing Date: 21 January 2020
• Plaintiff Counsel: Khoo Boo Teck Randolph, Chan Jian Da and Vanessa Chiam Hui Ting (Drew & Napier LLC)
• Docket Number: Civil Appeal No 142 of 2018
• Court: Court of Appeal (Singapore)
• Date: 02 April 2020
• Subject Matter: Arbitration,Recourse against award,Setting aside,Existence of arbitration agreement,Assignment and novation of arbitration agreement,Award,Inconsistency between arbitration agreement and jurisdiction clause,Invalidity of arbitration agreement

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

This appeal arose from an unsuccessful application to set aside an arbitral award which was rendered under a rather convoluted set of agreements involving the assignment, novation and reassignment of rights to certain debts. In the main, the underlying dispute concerned a distributorship and its related agreements.

Owing to the intricate web of agreements, by the time the arbitration was commenced, a dispute had arisen in relation to the respondent’s (the claimant in the arbitration) right to bring the arbitration proceedings against the appellant. The appellant elected not to participate in the arbitration proceedings.

While it is uncontroversial that an assignment of an agreement containing an arbitration clause is effective to assign the right to arbitrate to the assignee, the respondent nonetheless argued that it was entitled to commence arbitration proceedings against the appellant (in relation to a specific debt) on the premise that it was an original party to the underlying agreement. We have no difficulty in agreeing with the High Court Judge’s rejection (“the Judge”) of this argument since such an argument, if accepted, would mean that the legal right to arbitrate would be vested simultaneously in both the assignor and assignee. This is plainly wrong. Notwithstanding the rejection of this argument, this appeal has raised a number of novel issues arising from the assignment, novation and reassignment agreements. First, is a dispute relating to the right of suit following an assignment of the underlying agreement, a dispute that pertains to the scope or existence of an arbitration agreement under the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”)? Second, can such a notice of assignment be validly sent by the assignee instead of the assignor? Third, if a debt is reassigned to the claimant only after the commencement of the arbitration, would the arbitrator have jurisdiction over the dispute given that the arbitrator’s jurisdiction is rooted in the consent of the parties? These are some of the interesting issues that will be examined in this judgment.

Facts Background to the dispute

The respondent, BXI, is a developer and manufacturer of consumer goods. It is a wholly-owned subsidiary of a Singapore company (“the Parent Company”). The appellant, BXH, distributes and markets the respondent’s goods in Russia. The two parties (“the parties”) possess, in the words of the Judge, a “complicated legal relationship”. In order to understand this relationship, regard must be had to eight related contracts, all of which involved at least one of the parties.

The Distributor Agreement

In December 2010, the appellant and the Parent Company entered into the Distributor Agreement.¹ Clause 1.1 of the Distributor Agreement authorised the appellant to sell and market the Parent Company’s Products and Services in Russia.²

The Distributor Agreement also contained cl 25.8, titled “Governing Law, Jurisdiction and Venue”, and cl 25.9 of the Distributor Agreement, titled “Disputes”, which contained the arbitration agreement between the parties. The content of these two clauses will be examined in further detail below.

While the Distributor Agreement was expressed to have an end date of 26 December 2011, it provided that “[u]nless either party notifies the other not less than one (1) month prior to the End Date, this Agreement shall continue after the End Date for a period of one (1) years”.³

The Transition Agreement

The Transition Agreement, which came into effect on 14 January 2013, was an agreement between the respondent and the Parent Company. It purported to enable the respondent to assume the rights of the Parent Company and “fulfill [sic] its obligations” under a number of agreements.⁴ Under the Transition Agreement, the Parent Company was to “assign or novate, as applicable, and transfer all its rights and obligations under the Existing Agreements to [the respondent] as per the Effective Date and [the respondent] shall become party to each Existing Agreement, as applicable, in its own name”.⁵ This included the Distributor Agreement with the appellant.⁶

The Assignment and Novation Agreement

On 25 January 2013, the appellant, the respondent and the Parent Company entered into the Assignment and Novation Agreement. It provided that the Parent Company:⁷

… hereby assigns, conveys, transfers and delivers all of its rights and obligations in and under the Agreements to [the respondent] effective on a date between January 1, 2013 and June 30, 2013, as notified by [the Parent Company] to [the appellant] and [the respondent] not less than thirty (30) days prior to such date (“Effective Date”).

Notably, prior to the Assignment and Novation Agreement, the Parent Company had emailed the appellant on 19 November 2012 enclosing a letter dated 1 November 2012 (which explained its plans to transition its operations to the respondent in the first half of 2013), as well as a template Assignment and Novation Agreement for its business partners to insert their company names, print out, sign and return.⁸ Another email was sent by the Parent Company to its business partners on 14 December 2012, enclosing a letter dated 14 December 2012 confirming that the transition of its operations to the respondent would occur on 14 January 2013.⁹

The Participation Agreement

Following the Assignment and Novation Agreement, on 2 October 2013, the respondent entered into the Participation Agreement with another party (“the Factor”). This was purportedly to improve the respondent’s cash flows.¹⁰ Under cl 2.9.1 of the Participation Agreement, the respondent was to “offer to sell to [the Factor] all its invoices for products and or services”.¹¹ This included the invoices arising from its dealings with the appellant.

If the Factor accepted the offer, the respondent was, pursuant to cl 2.9.6, to transfer to the Factor “the ownership of all [the respondent’s] Invoices and Associated Rights purchased by [the Factor]”. Such ownership would “be complete and unencumbered by any lien or charge or other interest and it shall vest in [the Factor] from the date of [the respondent’s] Invoice”.¹²

Following the Participation Agreement, the invoices that the respondent issued to the appellant and which the Factor had purchased were endorsed with a caution reminding the appellant that its debt to the respondent represented by the invoice could be discharged only by payment directly to the Factor (“the Caution”):¹³

CAUTION: This prof. receivable is transferred to [the Factor] … The payment in full (with all costs on payer) must be done in direct to its bank account … Only the payment to [the Factor] … will be a valid and discharging payment. [emphasis in original omitted]

The Gold Plan Agreement

On 15 November 2013, the appellant and the Factor entered into the Gold Plan Agreement. Pursuant to it, the Factor would provide financing to the appellant in relation to invoices that were issued to the appellant by the Factor. The Factor would also provide financing for supplier invoices that the Factor purchased from other suppliers, under which the appellant would pay the Factor instead of the supplier in question.¹⁴ This included invoices that the Factor had purchased from the respondent. Thus, cl 2.1.2 of the Gold Plan Agreement stated:

APPLIES WHERE SUPPLIER IS NOT [the Factor]: You agree on the terms of this Agreement that you will pay [the Factor], and not the Non [Factor] Supplier, in order to settle Supplier Invoices which [the Factor] from time to time purchase[s] … [emphasis in original]

The respondent claims that it was never party to the agreement, that it had no rights thereunder and that it never purported “to rely on or enforce any right under the Gold Plan Agreement”.¹⁵

The Debt Transfer Agreement

On 12 December 2014, the respondent, the appellant and a Russian corporation (“the Russian Corporation”) entered into the Debt Transfer Agreement. The Russian Corporation was to pay US$32,275,841.78 in invoices (“the Open Debt”) for products ordered by the appellant under the Distributor Agreement.

Under cll 2 and 3 of the Debt Transfer Agreement, if the Russian Corporation made payment within 90 banking days to the respondent’s bank account, the appellant would “be released and discharged from all duties and obligations” to pay the Open Debt.¹⁶ The fourth paragraph, however, stated that the Debt Transfer Agreement would “constitute a novation of the rights, duties and obligations” of the appellant under the Distributor Agreement.

The parties disagree on the impact of the Debt Transfer Agreement on the appellant’s obligation to pay the Open Debt.¹⁷

The Open Debt Agreement

Shortly after the Debt Transfer Agreement, the appellant, respondent and the Russian Corporation entered into the Open Debt Agreement with the Factor. This agreement was dated 22 December 2014.

The Open Debt Agreement, in its first two clauses, noted the conclusion of the Debt Transfer Agreement between the appellant, respondent and the Russian Corporation and the Gold Plan Agreement between the Factor and the appellant. Thereafter, at cll 3 and 4, the agreement stated that as “[the Factor] purchased the receivables under the Open Debt from [the respondent]”, the Russian Corporation was thus instructed by the respondent and the Factor to “pay total amount of Open Debt to [the Factor]”.¹⁸

Clause 7 of the agreement also stated that should the Russian Corporation fail to make payment to the Factor for the Open Debt, the appellant would have to pay the Factor “immediately upon [the Factor’s] instruction to [the appellant]”.¹⁹

The Buy Back Agreement

Subsequently, the Factor decided to withdraw its business operations from Russia. On 23 April 2015, the respondent and the Factor entered into the Buy Back...