DBO and others v DBP and others

• Jurisdiction: Singapore
• Judge: Chua Lee Ming J
• Judgment Date: 23 November 2023
• Neutral Citation: [2023] SGHC(I) 21
• Court: International Commercial Court (Singapore)
• Docket Number: Originating Application No 6 of 2023
• Hearing Date: 21 August 2023
• Citation: [2023] SGHC(I) 21
• Year: 2023
• Plaintiff Counsel: Reuben Gavin Peter and Hannah Chua (Dentons Rodyk & Davidson LLP)
• Defendant Counsel: Ong Tun Wei Danny, Bethel Chan Ruiyi, Mazie Tan and Yoong Joon Wei, Aaron (Setia Law LLC),Zhuo Jiaxiang and Leo Zhi Wei (Providence Law Asia LLC)
• Subject Matter: Arbitration,Award,Recourse against award,Setting aside
• Published date: 23 November 2023

Chua Lee Ming J (delivering the judgment of the court): Introduction

This was an application to set aside a partial award dated 30 January 2023 (the “Partial Award”) issued by an arbitral tribunal (the “Tribunal”) in arbitration proceedings seated in Singapore (the “Arbitration”). The Arbitration was administered by the Singapore International Arbitration Centre (the “SIAC”) and conducted in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (6th Edition, 1 August 2016) (the “SIAC Rules”).

The Partial Award was made on an application for early dismissal under Rule 29 of the SIAC Rules by the respondents in the Arbitration (the “AED”). A key question before the Tribunal was whether the claimants in the Arbitration (who were the borrowers and guarantors under a facility agreement) could rely on the doctrine of frustration (in the context of the COVID-19 pandemic) to escape their liabilities to repay moneys due under the facility agreement. The Tribunal decided that they could not and granted the AED.

On 21 August 2023, we dismissed the application to set aside the Partial Award. The Applicants have appealed against our decision.

Background facts

On 26 February 2020, the 1st and 2nd Applicants and the 1st to 4th Respondents entered into a facility agreement (the “FA”). Pursuant to the FA, the 2nd to 4th Respondents (the “Lenders”) granted a term loan facility (the “Loan”) to the 1st and 2nd Applicants (the “Borrowers”). The 1st Respondent was the Agent and Security Agent (the “Agent”).

The 3rd and 4th Applicants, and the 5th Respondent were the guarantors (together, the “Guarantors”).

The Borrowers’ obligations under the FA were secured by (among others) assignments, share pledges, powers of attorney and mortgages (the “Security”).

The Loan was taken for the purposes of a construction and development project in the Borrowers’ home country (the “Project”). The 2nd Applicant also owned, operated and managed a shopping mall, also located in the Borrower’s home country (the “Mall”).

In early 2020, the COVID-19 pandemic (the “Pandemic”) struck. Throughout 2020, several control orders were issued by the relevant governmental authorities that restricted movement and business activities in the Borrowers’ home country. The Pandemic adversely affected the sales of units in the Project as well as the 2nd Applicant’s income from the Mall. The Borrowers claimed that consequently they were unable to repay the Loan when it matured on 26 March 2021.

Sometime in late 2021, the Agent and the Lenders took over the operation and control of the 5th Respondent. The Applicants’ position was that the Agent and the Lenders took over control of the 5th Respondent unlawfully.¹

On 30 November 2021, the Lenders commenced restructuring proceedings against the Borrowers in the courts of the Borrowers’ home jurisdiction (the “Restructuring Proceedings”). Two applications were taken out by the Lenders in furtherance of the Restructuring Proceedings, but both applications were dismissed on the basis that there was an arbitration agreement in the FA.²

The arbitration proceedings

The FA contained an arbitration agreement that provided for disputes to be resolved by arbitration in accordance with the SIAC Rules. The arbitration tribunal was to consist of three arbitrators, one nominated by the claimants, one by the respondents and the third by the two arbitrators, failing which the President of the Court of Arbitration of the SIAC was to appoint the third arbitrator. The seat of the arbitration was to be Singapore.³

On 6 December 2021, the Borrowers served a Notice of Arbitration on the Agent and Lenders.⁴ The Agent and Lenders will henceforth be referred to collectively as the “Arbitration Respondents”.

On 21 December 2021, the Arbitration Respondents submitted their Response to Notice of Arbitration.⁵ The Arbitration Respondents also applied for the Guarantors to be joined as claimants in the Arbitration. On 25 March 2022, the Court of Arbitration of SIAC granted the application for joinder pursuant to Rule 7.4 of the SIAC Rules.⁶ The Borrowers and Guarantors will henceforth be referred to collectively as the “Arbitration Claimants”.

The arbitration tribunal (the “Tribunal”) was duly constituted on 26 April 2022, comprising Mr Govindarajalu Asokan, Sir Bernard Eder and Mr VK Rajah SC (as presiding arbitrator (the “Chairman”), after he was jointly nominated by Mr Asokan and Sir Eder).

On 4 July 2022, the Arbitration Claimants filed their statement of claim.⁷ Essentially, the Arbitration Claimants claimed that the FA had been discharged by frustration and that consequently, the Arbitration Respondents had no rights under the FA or the Security documents. The Arbitration Claimants’ case was that the FA was discharged by frustration based on the following:⁸ It was an express term of the FA that the repayment of the Loan would be from a specific source of funds, ie, from the sale of units in the Project. The express term could not be performed because of the Pandemic and/or the various laws, governmental decrees and orders passed as a result of the Pandemic (the “Frustrating Event”). It was a condition (implied or otherwise) that the servicing of the Loan was to be sourced from the income of the Mall. The condition could not be performed because of the Frustrating Event. Alternatively, there was a condition and/or implied term that could not be performed because of the Frustrating Event. One such implied term was that the servicing of the Loan was to be sourced from the income of the Mall. The parties had negotiated the FA on the common assumption that the repayment of the Loan would be from a specific source of funds, being the moneys from (i) the sales of the units in the Project during the term of the FA, and (ii) the income of the Mall. The sale of the units did not take place as a result of the Frustrating Event and the same removed the income from the Mall.

On 15 August 2022, the Arbitration Respondents filed their defence and counterclaim.⁹ The Arbitration Respondents denied that the FA was frustrated and counterclaimed against the Arbitration Claimants. The Arbitration Respondents sought, among other things, a declaration that the FA was valid and enforceable, and for payment of the total amount due and payable under the FA.

On 5 September 2022, the Arbitration Claimants filed their reply and defence to counterclaim.¹⁰ On 26 September 2022, the Arbitration Respondents filed their reply to the defence to counterclaim.¹¹

The AED

On 18 October 2022, the Arbitration Respondents filed the AED in which they sought, among other things:¹² a dismissal of the Arbitration Claimants’ claim that the FA had been discharged by frustration, and consequently, a dismissal of the Arbitration Claimants’ other claims and defences; a declaration that the FA was valid and enforceable (save for a determination in due course of the Arbitration Claimants’ claim that a particular clause in the FA was unenforceable as a “penalty clause”); and an order that the Arbitration Claimants were jointly and severally liable to the Arbitration Respondents for all sums due under the FA.

The AED was made pursuant to Rule 29.1 of the SIAC Rules, which states as follows: 29.1 A party may apply to the Tribunal for the early dismissal of a claim or defence on the basis that: a. a claim or defence is manifestly without legal merit; or b. a claim or defence is manifestly outside the jurisdiction of the Tribunal.

As stated at [15] above, the Arbitration Claimants’ case that the FA was frustrated was based on the alleged express term, condition, implied term and/or common assumption. The common thread in all of these was the Arbitration Claimants’ claim that payment under the FA was to be made only from specific sources of funds.

The Arbitration Respondents’ case in the AED was that the Arbitration Claimants’ arguments on frustration were manifestly without legal merit. In particular, the Arbitration Respondents submitted that:¹³ The doctrine of frustration could not be lightly invoked because of its drastic consequences. Changes in economic conditions, financial difficulties or inconveniences or market movements, including the adverse economic impact of COVID-19 restrictions, were not frustrating events. The Borrowers’ obligation to repay the Loan and interest was plainly unconditional. An unconditional payment obligation could not be frustrated; the debtor would be expected to locate an alternative source of funds. Under the FA, the parties had expressly allocated to the Borrowers the risk of their subsequent inability to repay the Loan and interest. There was plainly no scope for the implication of any term/condition as to the availability of a specific source of funds.

The Arbitration Claimants contested the AED. In summary, they submitted that:¹⁴ The jurisdiction under Rule 29.1 was only for the consideration of legal merit; it had to be a purely legal issue. Rule 29.1 was intended “only to apply undisputed or genuinely indisputable rules of law to uncontested facts”. The question as to whether the Pandemic had caused a contract to be frustrated had to go to trial. The dispute dealt with the express term, condition, implied term and common assumption as pleaded. The payment obligations were not unconditional and these were issues to be established by a full hearing on the evidence, both oral and written. A multi-factorial approach had to be applied when determining whether a particular contract had been discharged by frustration. Such an approach had to delve thoroughly into the disputed facts. Under this approach, the determination of frustration of a contract inherently meant there could not be a dismissal under Rule 29.1.

The Tribunal heard oral submissions on the AED on 16 December 2022.¹⁵ During the hearing, the...