Marty Ltd v Hualon Corp (Malaysia) Sdn Bhd (receiver and manager appointed)

JudgeSundaresh Menon CJ
Judgment Date10 October 2018
Neutral Citation[2018] SGCA 63
Docket NumberCivil Appeal No 175 of 2017
Date10 October 2018
Published date21 November 2018
Plaintiff CounselPhilip Jeyaretnam SC, Paras Manohar Lalwani, Chua Weilin and Tan Ting Wei (Dentons Rodyk & Davidson LLP)
Defendant CounselYogarajah Yoga Sharmini, Subashini d/o Narayanasamy and Kannan s/o Balakrishnan (Haridass Ho & Partners)
CourtCourt of Appeal (Singapore)
Hearing Date06 July 2018
Subject MatterAgreement,Arbitration,Jurisdiction,Waiver,Repudiation,Arbitral tribunal
Judith Prakash JA (delivering the judgment of the court): Introduction

This appeal examines the circumstances in which a party to an arbitration agreement who commences court proceedings may be held to have lost its right to refer the same disputes to arbitration and the legal basis which would justify such a holding.

The parties before us are parties to an on-going arbitration. The appellant challenged the jurisdiction of the arbitrator on the basis that the respondent had, by its actions in a foreign court, waived its right to submit its disputes with the appellant to arbitration in Singapore or had repudiated the arbitration agreement. Having lost its jurisdictional challenge before the arbitral tribunal, the appellant filed an application pursuant to s 10(3) of the International Arbitration Act (Cap 143A, 2002 Rev Ed), challenging the tribunal’s decision. The High Court Judge (“the Judge”) agreed with the tribunal and dismissed the application with costs.

Before us the appellant appeals against the Judge’s decision on the following grounds: the respondent could not approbate and reprobate by relying on the arbitration clause in the underlying contract while challenging the validity of the underlying contract as a whole for lack of authority; the respondent had, by commencing and maintaining court proceedings in the British Virgin Islands (“BVI”), waived its right to arbitrate or committed a repudiatory breach of the arbitration clause, and the appellant had accepted this repudiation; or in the alternative, the dispute did not fall within the scope of the arbitration clause for various reasons including that the appellant was not even in existence when some of the disputed share transfers took place, that disputes relating to the share transfers in 1999 could not be covered by the arbitration clause which was only adopted in 2008, and that the dispute that related to the appellant’s shareholding could not fall within the ambit of the constitution of the company which was adopted to deal with its operations and internal governance.

Background facts The parties

Hualon Corporation (Malaysia) Sdn Bhd, a Malaysian company that was incorporated in 1989, is the respondent in this appeal. It was put into receivership in November 2006. Prior thereto its directors were two brothers, namely, Mr Oung Da Ming and Mr Oung Yu-Ming (collectively “the Oung brothers”). The Oung brothers were substantial shareholders in the respondent. They were also shareholders in three related companies: Hualon Chemical and Textile Co Ltd (“Hualon Chemical”), Hualon Corporation Taiwan which itself was a substantial shareholder in the respondent, and E-Hsin International Corporation (“E-Hsin”).

In 1993, the respondent incorporated a company in Vietnam known as Hualon Corporation Vietnam as its wholly-owned subsidiary (“the Vietnam Subsidiary”). The Vietnam Subsidiary was governed by its company charter issued on 30 December 1993. Mr Oung Da Ming was its chairman.

In June 1999, the Vietnam Subsidiary issued shares to Hualon Chemical and E-Hsin (“the 1999 transfers”) and, as a result, was no longer wholly owned by the respondent. The Oung brothers, as the then-directors of the respondent, procured the 1999 transfers.

Starting in late 1999 the respondent experienced financial difficulties and was thereafter forced to seek help from its creditors through a scheme of arrangement. Its financial position did not improve substantially, however, and this led the creditors to appoint Mr Duar Tuan Kiat (“the Receiver”) as receiver and manager of the respondent on 30 November 2006. From then onwards, the respondent acted under the direction of the Receiver and the powers of the directors were displaced.

In the meantime, the appellant, Marty Ltd, had entered the scene in August 2006 as a company incorporated in the BVI by the Oung brothers. The Oung brothers are and were at all material times the only shareholders of the appellant.

Events occurring after the appellant’s incorporation

In March 2007, Hualon Chemical subscribed for further shares in the Vietnam Subsidiary and E-Hsin transferred its shares in the Vietnam Subsidiary to the appellant (“the 2007 transfers”). The allegation is that the 2007 transfers were procured by the Oung brothers.

In February 2008, the Vietnam Subsidiary was re-registered for the purpose of obtaining an investment certificate from the relevant authorities. As part of the re-registration process, the Vietnam Subsidiary’s company charter was revised and updated (“the Revised Charter”). The Revised Charter contains a number of articles which are relevant to the issues between the parties but we need only mention two: Article 7, which sets out the “Capital Contribution” of the shareholders of the Vietnam Subsidiary. It states that the shares of the Vietnam Subsidiary are held by the respondent (47.69%), the appellant (41.21%) and Hualon Chemical (11.1%). These proportions were a direct result of the shares that the appellant and Hualon Chemical had acquired through the 1999 and 2007 transfers; and Article 22, the arbitration clause which provides that disputes between members of the company should first be resolved through negotiation and conciliation and if this cannot be done “the disputes shall be submitted by any Party for final settlement to Singapore International Arbitration Centre (“SIAC”) in accordance with the Rules of laws of SIAC. The award of the arbitrators is final and binding”.

In August 2008, Hualon Chemical transferred all of its shares in the Vietnam Subsidiary to the appellant and another BVI company, Cubic Holdings Limited, a company whose ownership remains unknown (“the 2008 transfers”). The respondent’s position is that the 2008 transfers were also procured by the Oung brothers. After the 2008 transfers, the shareholders of the Vietnam Subsidiary were the appellant (now holding 99.7% of the shares), Cubic Holdings Limited (holding 0.11% thereof) and the respondent (whose shareholding was reduced to only 0.19%). The 1999, 2007 and 2008 share transfers (collectively the “Share Transfers”) and the parties’ capital contributions as recorded in Art 7 of the Revised Charter formed the basis of the dispute between the parties. The respondent’s position is that the Share Transfers were invalid and that its ownership of the Vietnam Subsidiary has been unlawfully diluted to almost nothing.

Events leading to the disputes and the litigation Due diligence conducted on the Vietnam Subsidiary

In February 2009, the Receiver commissioned Indochine Counsel, a law firm in Vietnam, to undertake a “limited due diligence/check” on the Vietnam Subsidiary. Indochine Counsel’s proposed scope of services, which was approved and accepted by the Receiver, included obtaining the corporate records of the Vietnam Subsidiary.

On 1 July 2009, Indochine Counsel sent its report dated 19 June 2009 (the “Due Diligence Report”) to the Receiver. In the section titled “Our Advice”, Indochine Counsel set out its advice on the consequences and legal redress under the laws of Vietnam in respect of the transfer of capital from the respondent to the appellant. It took the view that the respondent’s representative (ie, Mr Oung Da Ming) was not authorised to act or had acted ultra vires in respect of the Share Transfers. Specifically, Indochine Counsel stated that if the respondent could prove that its representative had taken a “fabricated act” in respect of the Share Transfers, it could “bring [the] matter to the authorized court/arbitration against such unauthorized representative in order to request the court to consider and judge invalidity of such fabricated capital assignment transaction”. Attached to the Due Diligence Report was a copy of the English translation of the Revised Charter. Thus, from July 2009 onwards, if not earlier, the Receiver and his advisers had access to the Revised Charter.

Litigation in the BVI courts

From 2009 to 2014, the Receiver investigated the matters that were raised in the Due Diligence Report, including by taking steps to locate the individuals involved and to scrutinise the Share Transfers. On 22 July 2014, when he considered enough material had been gathered, the Receiver commenced proceedings in the BVI courts on behalf of the respondent against the appellant and the Oung brothers (“the BVI Action”). In the statement of claim it filed in the BVI Action on the same day, the respondent alleged that it had been wrongfully deprived of its shareholding in the Vietnam Subsidiary. According to the statement of claim, the Oung brothers had breached their statutory and fiduciary duties and the appellant had dishonestly assisted the Oung brothers and knowingly received shares in the Vietnam Subsidiary to which it was not entitled and was thereby unjustly enriched. The respondent then applied for and obtained leave to serve the cause papers on the Oung brothers out of jurisdiction and also obtained an injunction restraining the appellant from disposing of its interest in the Vietnam Subsidiary (“the Interim Injunction”).

The appellant received the cause papers on 13 October 2014 and filed its Acknowledgment of Service on 4 November 2014. On the relevant form, the appellant checked the “YES” box in response to the question as to whether it intended to defend the claim. However, no defence was ever filed.

Subsequently, the appellant and the Oung brothers filed separate challenges against the BVI court’s jurisdiction on the ground of forum non conveniens. The appellant stated in its application (filed on 18 December 2014) that the BVI was not the natural or appropriate forum to hear the respondent’s claim and that Malaysia or alternatively Vietnam would be the appropriate and convenient forum to hear the claim. The appellant amended its jurisdictional challenge on 26 January 2015 to include an application to discharge the Interim...

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2 books & journal articles
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    • Singapore Academy of Law Annual Review No. 2021, December 2021
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