Larsen Oil and Gas Pte Ltd v Petroprod Ltd
Jurisdiction | Singapore |
Judge | Chan Sek Keong CJ |
Judgment Date | 11 May 2011 |
Neutral Citation | [2011] SGCA 21 |
Published date | 18 May 2011 |
Date | 11 May 2011 |
Year | 2011 |
Hearing Date | 28 September 2010 |
Plaintiff Counsel | Chen Leng Sun, Goh Kok Leong and Ng Weiting (Ang and Partners) (Instructed by Leonard Chia (Asia Ascent Law Corporation)) |
Citation | [2011] SGCA 21 |
Defendant Counsel | David Chan, Koh Junxiang and Carol Teh (Shook Lin and Bok LLP) |
Court | Court of Appeal (Singapore) |
Docket Number | Civil Appeal No 122 of 2010 |
Arbitration and insolvency processes embody, to an extent, contrasting legal policies. On the one hand, arbitration embodies the principles of party autonomy and the decentralisation of private dispute resolution. On the other hand, the insolvency process is a collective statutory proceeding that involves the public centralisation of disputes so as to achieve economic efficiency and optimal returns for creditors. The appeal before us raised an interesting and novel point of law relating to the interfacing of these two policies where private proceedings could have wider public consequences. To what extent ought claims involving an insolvent company be permitted to be resolved through the arbitral process? We now give the reasons why we dismissed this appeal with costs.
Background facts The facts of this case are relatively straightforward and have been succinctly summarised by the judge at first instance (“the Judge”) in his grounds of decision (“GD”) in
The respondent, Petroprod Ltd (“Petroprod”), a Cayman Islands company, and its four wholly-owned subsidiaries (“the four subsidiaries”), which had no employees, entered into a Management Agreement (“the MA”) with the appellant, Larsen Oil and Gas Pte Ltd (“Larsen”) on 21 December 2006. Pursuant to the MA, Larsen was to provide management services to Petroprod and the four subsidiaries. Petroprod pleaded that as a result of the MA and subsequent amendments, Larsen gained control over its finances as well as those of the four subsidiaries. Petroprod also claimed to be a creditor of the four subsidiaries.
On 17 July 2009, Petroprod was placed in official liquidation in the Cayman Islands by an Order of the Grand Court of the Cayman Islands. It was subsequently placed in compulsory liquidation in Singapore by an order of the High Court on 3 August 2009. On 3 September 2009, the Singapore liquidators of Petroprod commenced proceedings against Larsen:
On 2 December 2009, Larsen filed a summons applying for a stay of all further proceedings brought by Petroprod pursuant to s 6(2) of the Arbitration Act (Cap 10, 2002 Rev Ed) (“AA”). The basis of its application was that an arbitration clause (cl 18) in the MA (“the Arbitration Clause”) required the parties to resolve their disputes through arbitration. The Arbitration Clause reads as follows:
Larsen’s application for a stay of further proceedings was heard by the Judge on 26 March 2010, and judgment was given together with the GD on 30 June 2010. The Judge dismissed Larsen’s stay application on the basis that the issues were (a) non-arbitrable; and, further, that (b) Petropod’s claim pertaining to s 73B CLPA should be resolved in the same forum (see GD atThis Agreement shall be construed and enforced in accordance with and governed by the laws of Singapore. Disputes which cannot be resolved amicably shall be resolved by arbitration in Singapore in accordance with the provisions of the Singapore Arbitration Act, Chapter 10.
The issues that arose in the appeal were as follows:
Larsen contended that Petroprod’s claims against it were founded on Larsen’s alleged breach of the MA, and that such a claim fell within the scope of the Arbitration Clause. It claimed that Petroprod could only show that the payments made to Larsen by Petroprod and the four subsidiaries were preferential payments by relying on the terms of the MA, and proving that the payments were made with the intent to prefer Larsen over the other creditors rather than in accordance with the MA. As a corollary, Larsen also argued that Petroprod could only show that the payments made to Larsen by Petroprod and the four subsidiaries were undervalue transactions/fraudulent conveyances if the amounts paid were more than what Petroprod (and the four subsidiaries) were obliged to pay under the MA. Therefore, all of Petroprod’s claims were intimately connected to the MA and any disputes relating to the payments under the MA fell within the scope of the Arbitration Clause.
The Judge rejected Larsen’s arguments. He held at
[T]he rights created by the avoidance provisions exist for the benefit of the general body of creditors in an insolvency or insolvency-related context. This is why avoidance rights may be exercised even if the relevant transaction is binding under general law on the company. It is also pertinent to note that undervalue transactions and undue preferences can be avoided only when the company is being wound up. In my view, the policy underlying the avoidance provisions in question would be compromised if their enforcement is subject to private arrangements, including an agreement to arbitrate, between the company and the wrongfully advantaged creditor or transferee. In this regard, a company’s rights under the avoidance provisions should be contrasted with its rights under the general law.
We agreed with the Judge’s characterisation of Petroprod’s claims against Larsen. Petroprod’s Statement of Claim against Larsen revealed that Petroprod did not allege that Larsen had breached the MA by causing Petroprod to make the payments to Larsen. Rather, all that Petroprod claimed was that it had made certain payments to Larsen within two years of its insolvency, and that the law presumed that the payments were made with an intention to prefer Larsen as a creditor because of Larsen’s control over the management of Petroprod. Similarly, Petroprod’s claims against Larsen based on an undervalued transaction and a fraudulent conveyance were entirely independent of the question of whether Larsen had breached the MA.
In our opinion, Petroprod’s claims against Larsen were founded entirely on the avoidance provisions of the BA and Companies Act.
Of course, the mere fact that Petroprod’s claims against Larsen were avoidance claims did not preclude them from falling within the scope of the Arbitration Clause. The scope of any arbitration clause is based on the parties’ expressed intention, and it is conceivable that the parties to a contract may agree that all disputes between them, including disputes arising out of avoidance actions in the event of insolvency, should fall within the scope of the arbitration clause. This would be a matter of documentary construction.
The traditional approach of the English courts was to determine the scope of an arbitration clause by looking at the precise words used in it. Hence, the use of expansive words such as “any dispute” between the parties were often regarded as wide enough to include any matter related to the contract, even if the action brought was based in tort (see generally
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