Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 06 February 1999
• Neutral Citation: [1999] SGCA 11
• Date: 06 February 1999
• Subject Matter: Arbitration clause in joint venture agreement,Whether sufficient reason for court not to grant stay,Appellant and respondent joint venture partners,Respondent presents winding up petition against joint venture company,Whether arbitration clause precludes statutory right to wind up,Arbitration,ss 7(1) & 7(2) Arbitration Act (Cap 10),Stay of court proceedings,s 253 Companies Act (Cap 50),Appellant applies for stay of winding up proceedings,Whether court should exercise inherent jurisdiction to grant stay,Whether pre-conditions for application for stay under s 7(1) Arbitration Act fulfilled
• Docket Number: Civil Appeal No 272 of 1998
• Published date: 19 September 2003
• Defendant Counsel: Ronnie Quek and Francis Mok (Allen & Gledhill)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Tan Bar Tien (BT Tan & Co)

Judgment:

LP THEAN JA

(delivering the grounds of judgment of the court): This was an appeal against the decision of Lim Teong Qwee JC in which he dismissed an application by the appellants for, inter alia, a stay of the winding up proceedings in CWU 219/98 initiated by the respondents against the company, Four Pillars-Beiersdorf Pte Ltd. We dismissed the appeal and now give our reasons.

2. The facts

The appellants are a company incorporated in Taiwan and the respondents a company incorporated in Germany. Both companies are involved in the development, manufacture and sale of adhesive tapes. In 1994 they decided to enter into a joint venture in which they would share their expertise and products as well as their markets for adhesive tapes in Asia. On 30 November 1994, they concluded their negotiations and entered into a joint-venture agreement (`JV agreement`). In pursuance of the JV agreement the respondents purchased from the appellants 50% of the shares of a company known as Four Pillars Holdings Pte Ltd which, at the time, was wholly owned by the appellants. In consequence of the respondents` acquisition of the 50% of the shares, the name of the company was changed to Four Pillars-Beiersdorf Pte Ltd (`the JVC`). The JVC was structured as a holding and management company with several wholly owned subsidiaries operating in Singapore, Malaysia, Hong Kong, Shenzhen, Shanghai and Tianjin.

3.The joint-venture, in the early stages, was a success and the relationship between the two parties was good. However, some time in the second half of 1997 the JVC began to encounter problems with liquidity, and differences between the two parties soon began to emerge. The parties then negotiated for a termination of the joint venture but the negotiations were unsuccessful. On 7 August 1998, the respondents as a creditor and shareholder of the JVC presented a winding up petition in CWU 219/98 seeking an order to wind up the company on the grounds that the company was insolvent and that it was just and equitable that the company should be wound up. The respondents in the petition set out the basis of the joint venture between them and the appellants and the management structure of the JVC as created pursuant to the JV agreement, and alleged various matters to show that there were no longer any mutual trust and co-operation between the appellants and the respondents which were required for the JVC to continue operating and remain viable. These matters included the following: (a). differences in the views between the appellants and the respondents on the manner in which working capital for the JVC and its subsidiaries should be obtained;

(b). the alleged suspension by the appellants of raw material supplies to the JVC`s subsidiaries as a result of the differences in the views between the appellants and the respondents regarding the period of credit which each of the shareholders would be expected to extend to the JVC and its subsidiaries;

(c). disputes as to the accuracy of minutes of board meetings of the JVC;

(e). disputes between the appellants and respondents on the validity of resolutions passed at board meetings of the Malaysian subsidiary of the JVC;

(f). differences in their views as to whether it would be in the interest of the JVC to conduct business in the consumer market;

(g). differences in their views on the competence of an appointee of the appellants to the board of the Malaysian subsidiary and the appointment of a sale director for the South East Asian operations of the JVC and its subsidiaries;

(h). the fact that both the appellants and the respondents agreed that the joint venture relationship between them should be terminated; and

(i). the absence of any realistic prospect of the appellants and respondents reaching agreement on the termination of the joint venture.

4.The appellants were opposed to the winding up of the JVC by the court and they served on the respondents a notice of their intention to appear and oppose the winding up petition under r 28 of the Companies (Winding Up) Rules (`the Winding Up Rules`). Following that, they took out an application in OS 1173/98 seeking, inter alia, an order for a stay of the winding up proceedings pursuant to s 7 of the Arbitration Act and also an order requiring the respondents to refer all disputes referred to in the winding up petition to arbitration in accordance with the terms of the JV agreement. The application was heard before Lim Teong Qwee JC, who dismissed it. Against his decision this appeal was brought.

5. The appeal

Under the JV agreement the parties agreed to refer to arbitration all disputes (except disputes referred to in cl 9.15 thereof) which might arise under the agreement which could not be resolved amicably as provided therein. It is convenient at this stage to set out, in so far as relevant, cl 9.1 which is as follows:

Governing Law, Submission to Jurisdiction and Arbitration

The parties hereby agree that except for any dispute referred to in subsection 9.15 which shall be referred exclusively to the courts of Singapore, all disputes which may arise under, out of, or in connection with or in relation to this JVAgr and its Exhibits and which cannot be resolved amicably as provided in this JVAgr shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre for the time being in force which rules are deemed to be incorporated by reference into this clause. The arbitration tribunal shall consist of three arbitrators, one to be appointed by 4P, one to be appointed by BDF, and the third to be appointed by the two appointed arbitrators failing which the third arbitrator shall be nominated by the Chairman of the Singapore International Arbitration Centre.

Any decision of the arbitrators shall be final and binding, and there shall be no right of appeal whatsoever. The proceedings shall be held in English.

6.Relying on this provision the appellants contended that a stay of the winding up proceedings should be granted, as the matters referred to in the winding up petition fell within the ambit of the arbitration agreement. In particular, the respondents in the petition referred to various differences or disputes between the parties in order to establish that it was just and equitable that the JVC should be wound up. These differences or disputes fell within the ambit of cl 9.1, and accordingly the proper forum for the resolution of the differences or disputes was the arbitration tribunal. Therefore, so the appellants contended, the matters should go to arbitration, and for that reason the winding up proceedings should be stayed.

7.The respondents, on the other hand, contended that a stay of proceedings was correctly refused by the learned judicial commissioner. In the first place, the respondents had a statutory right to petition to wind up the JVC which could not be validly restricted or excluded by an agreement. Secondly, they contended that the pre-conditions in s 7 of the Arbitration Act had not been satisfied with respect to the appellants` application and in consequence that section could not be invoked. Lastly and in any event, the court should exercise its discretion to refuse a stay on the ground that the respondents had shown `sufficient reasons` why a stay should not be allowed.

8. Statutory right to present the winding up petition

We turn first to the right of the respondents to present a petition for the winding up of the JVC under s 253 of the Companies Act (Cap 50, 1994 Ed). Counsel for the respondents submitted that a party`s right under this section could not be restricted or excluded by an agreement. He relied on the case of Re Peveril Gold Mines Ltd [1898] 1 Ch 122. In that case, the articles of association contained a provision to the effect that no petition was to be presented or proceeded with by a member to wind up the company, unless (i) by consent in writing of not less than two members of the then board of directors or (ii) in pursuance of a resolution passed at a general meeting or (iii) the petitioner held not less than one-fifth of the issued capital of the company in respect of which all calls had been paid. It was held that such an article was invalid on the ground that it was contrary to the provisions of the Companies Act. Lindley MR said at p 131:

Any one who is familiar with the Companies Acts knows perfectly well that these registered limited companies are incorporated on certain conditions; they continue to exist on certain conditions; and they are liable to be dissolved on certain conditions. The important sections of the Act of 1862, with regard to dissolution, are ss 79 and 82. Section 79 states the circumstances under which such a company may be dissolved by the court, and s 82 states the persons who may petition for a dissolution. Any article contrary to these sections - any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s 79 exist, or which limits the right of a contributory under s 82 to petition for a winding-up, would be an attempt to enforce on all the shareholders that which is at variance with the statutory conditions, and is invalid.

It is significant that the court deliberately left open the question whether a valid contract could be made between the company and an individual shareholder to the effect that he should not present a petition to wind up the company: see the observations of Lindley MR (at p 131) and Chitty LJ (at p 132).

9.We do not find that case of any assistance. In our opinion, counsel for the respondents had really missed the point. Clause 9.1 of the JV agreement did not restrict or exclude the respondents from exercising their statutory right to present a winding up petition against the JVC. The court here was not concerned with the question whether the...