Pacific King Shipping Pte Ltd and another v Glory Wealth Shipping Pte Ltd

• Jurisdiction: Singapore
• Judge: Philip Pillai J
• Judgment Date: 07 June 2010
• Neutral Citation: [2010] SGHC 173
• Plaintiff Counsel: Kelvin Poon Kin Mun and James Teo Jinyong (Rajah & Tann LLP)
• Date: 07 June 2010
• Docket Number: Originating Summons No 1369 of 2009
• Hearing Date: 08 December 2009,08 April 2010,15 December 2009
• Subject Matter: Striking out,Winding up,Companies,Civil Procedure,Stay of proceedings
• Published date: 29 July 2010
• Citation: [2010] SGHC 173
• Defendant Counsel: Bryna Yeo Li Neng and Edwin Tong (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Year: 2010

Philip Pillai J: Introduction

The plaintiffs have filed this originating summons for an order that winding up petitions, CWU 168 of 2009 and CWU 169 of 2009, brought by the defendant against the first and second plaintiffs respectively be stayed or struck out.

On or about 26 October 2007, the first plaintiff chartered a vessel from the defendant. Pursuant to a guarantee dated 12 October 2007, the second plaintiff stood as the first plaintiff’s guarantor against the first plaintiff’s obligations to the defendant. On 12 August 2009, the defendant sent the plaintiffs statutory notices of demand for a sum of US$3,986,157.16 as the outstanding sum owing as charter hire under a charter agreement. US$1,326,625.04 of this demand represented an arbitration award issued by the London Tribunal dated 18 December 2008 (then entitled “Interim” but which is now final in its effect) (the “Award”). The first plaintiff has paid US$350,000 of the arbitration award debt under a settlement agreement that has expired and to date US$976,625.04 remains due and outstanding. When the plaintiffs failed to respond satisfactorily to the defendant after three weeks, the defendant proceeded to file winding up petitions CWU 168 of 2009 and CWU 169 of 2009 pursuant to s 254(2)(a) read with s 254(1)(e) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”).

The plaintiffs aver that the winding up petitions are an abuse of process because there is a bona fide dispute on substantial grounds. The grounds as submitted by the plaintiffs are as follows: (a) The Award is not enforceable against the first plaintiff save by recognition or enforcement under the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”). The interim award would not have been recognised or enforced under the IAA because it contravenes s 31(2)(c) of the IAA in that it was obtained in circumstances where the first plaintiff was denied an opportunity to and was thereby unable to present its case. I shall refer to these as the “IAA issue”. (b) The first plaintiff has a cross-claim equal to or exceeding the debt allegedly due under the Award. I shall refer to this as the “Cross-claim issue”. (c) The Award is unenforceable against the second plaintiff as it is against the first plaintiff and in any case the guarantor is not bound by the Award. I shall refer to the last as the “Guarantor’s Liability issue”.

Threshold Issue

A winding up petition is not the appropriate means of collecting a disputed debt nor is it to be abused as a means of pressure. The issue before me is whether there is a bona fide and substantial dispute of the alleged debt on any of the grounds raised by the plaintiffs. This is the threshold which the plaintiffs must meet in support of their application to stay or strike out the winding up petitions.

Whether there is a bona fide and substantial dispute over the debt

In BNP Paribas v Jurong Shipyard Pte Ltd [2009] 2 SLR(R) 949 at [15], the Court of Appeal held that the “general rule is that, where a company is unable or deemed to be unable to pay its debts, the creditor is prima facie entitled to a winding-up order ex debito justitiae”. However, the court nonetheless retains the discretion not to grant a winding up order in exceptional cases. One instance when a court may refuse to grant a winding up order, but may instead stay or strike out the winding up petition, is where the debtor-company establishes that there is a bona fide dispute of the statutory debt. To obtain the stay or striking out, the debtor company must show that the dispute is bona fide in both a subjective and objective sense. Palmer’s Company Law vol 3 at pp 15068-15069, as quoted approvingly in LKM Investment Holdings Pte Ltd v Cathay Theatres Pte Ltd [2000] 1 SLR(R) 135 at [20], elucidates:

… the dispute must be bona fide in both a subjective and an objective sense. Thus the reason for not paying the debt must be honestly believed to exist and must be based on substantial or reasonable grounds. 'Substantial' means having substance and not frivolous, which disputes the court should ignore. There must be so much doubt and question about the liability to pay the debt that the court sees that there is a question to be decided. The onus is on the company 'to bring forward a prima facie case which satisfies the court that there is something which ought to be tried either before the court itself or in an action, or by some other proceedings.'

Nonetheless, the debtor-company does not need to show that the debt does not exist – it merely needs to raise a triable issue. In Pacific Recreation Pte Ltd v S Y Technology Inc and another appeal [2008] 2 SLR(R) 491 at [23], the Court of Appeal held that the applicable standard for determining the existence of a substantial and bona fide dispute was “no more than that for resisting a summary judgment application”.

With the applicable principles in mind, I now turn to examining the IAA issue, the Cross-claim issue and the Guarantor’s Liability issue respectively.

The IAA issue

The plaintiffs dispute the debt that is founded on the interim arbitration award as being improperly obtained by reason of the alleged failure to observe the rules of natural justice. The defendant, in response, points out that the regularity of the award had been unchallenged at the arbitration and at the courts of the seat of the arbitration. The defendant cited the following authorities: (a) Minmetals Germany GmbH v Ferco Steel Ltd [1999] CLC 647 at 661where it was stated that:

In international commerce a party who contracts into an agreement to arbitrate in a foreign jurisdiction is bound not only by the local arbitration procedure but also by the supervisory jurisdiction of the courts of the seat of the arbitration. If the award is defective or the arbitration is defectively conducted the party who complains of the defect must in the first instance pursue such remedies as exist under that supervisory jurisdiction. That is because by his agreement to the place in question as the seat of the arbitration he has agreed not only to refer all disputes to arbitration but that the conduct of the arbitration should be subject to that particular supervisory jurisdiction. Adherence to that part of the agreement must, in my judgment, be a cardinal policy consideration by an English court considering enforcement of a foreign award.

(b) Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd and another [[2006] 3 SLR(R) 174 where it was stated at [56]:

… a party may be precluded by his failure to raise a point before the court of supervisory jurisdiction from raising that point before the court of enforcement. This is because failure to raise such a point may amount to an estoppel or a want of bona fides such as to justify the court of enforcement in enforcing an award.

and further at [76]:

There was nothing thereafter to stop him from challenging the Arbitrator’s preliminary holding in the courts of Arizona or from taking part in the arbitration itself or from challenging the Arbitrator’s final holding in the courts of Arizona. Having chosen not to participate in the proceedings, it really does not lie in Mr Chiew’s mouth to say that he has been deprived of natural justice because the Arbitrator made one finding in his interim award and supplemented that with an additional finding in the final award. Mr Chiew had the benefit of legal advice in Arizona at all material times and his decision not to have recourse to the supervisory court was a calculated one. If his choice has proved to be a miscalculation, public policy does not require that I relieve him from the consequences of such miscalculation.

The law set out in the above cases is uncontroversial. However, the above cases deal with the position of a challenge of the arbitration awards made before the enforcement court, where the relevant awards are alleged to be defective but had been unchallenged at the arbitration or at the courts in the seat of arbitration. They do not address the issue that is before me here, which is not a proceeding for the enforcement of an arbitration award under the IAA, but a winding up application. The defendant in this case, has issued a statutory demand of a debt under s 254(2)(a) read with s 254(1)(e) of the Companies Act, the debt having arisen by reason of a final international arbitration award. While the plaintiffs alleged that this Award is defective, it was unchallenged in the arbitration forum and before the courts of the seat of arbitration. The Award therefore remains effective on the face of it.

The real question before me is whether the defendant is precluded from issuing a statutory demand under s 254(2)(a) read with s 254(1)(e) of the Companies Act based on a debt that is founded on an arbitration award because such an award can only and exclusively be enforced under the IAA.

The plaintiffs assert that the defendant is obliged to enforce the Award under s 27(2) of the IAA. They argue that had the defendant sought to enforce its arbitration award in Singapore under the IAA, this would have been resisted pursuant to s 31(2)(c) of the IAA on the ground that the rules of natural justice were not adhered to in obtaining that award (see Kanoria v Guinness [2006] EWCA Civ 222). In any case, to permit the defendant to rely on its statutory demand debt founded on the Award which was not enforced under the IAA, would be, they argue, in effect enforcing the interim award under s 27(2) of the IAA. As such the enforcement remains susceptible to the challenge of alleged breach of natural justice which would be available under s 31(2)(c) of the IAA and there therefore exists a prima facie bona fide dispute of the debt on substantial grounds. The plaintiffs further attack the validity of the interim award on the ground that the tribunal issued the award on a basis which had not been raised or...