Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) v Larsen Oil and Gas Pte Ltd

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 30 June 2010
• Neutral Citation: [2010] SGHC 186
• Date: 2010
• Docket Number: Suit No 866 of 2009 (Summons No 6203 of 2009)
• Published date: 18 May 2011
• Plaintiff Counsel: David Chan and Carol Teh (Shook Lin & Bok LLP)
• Hearing Date: 26 March 2010,29 January 2010
• Defendant Counsel: Leonard Chia and Eric Chew (Asia Ascent Law Corporation)
• Court: High Court (Singapore)
• Subject Matter: Arbitration

Tan Lee Meng J: Introduction

The defendant, Larsen Oil and Gas Pte Ltd (“Larsen”), sought to stay an action (“the main action”) instituted against it by the plaintiff, Petroprod Ltd (“Petroprod”) for the purpose of avoiding a number of transactions that allegedly violate insolvency laws. Larsen contended that its dispute with Petroprod in the main action should be referred to arbitration in accordance with the terms of its contract with the latter. According to counsel, this is the first time in this jurisdiction that a stay of proceedings in favour of arbitration is being sought in relation to the type of claims in the main action.

Background

Petroprod, a Cayman Islands company, has a number of wholly-owned subsidiaries (“the four subsidiaries”) that are relevant to the present proceedings. These are Petroprod 1 Ltd (“PP1”), Petroprod 2 Ltd (“PP2”), Petroprod 3 Ltd (“PP3”), and Petroprod D&P 1 Ltd (“DPL”). Petroprod pleaded in its Statement of Claim in the main action that it is a creditor of all the four subsidiaries at the material time.

PP1, PP2 and PP3 are “one-ship” corporations. Their business is to effect the conversion of their vessels into floating production and storage units. The conversion was performed at Jurong Shipyard. DPLwas engaged in constructing a jack-up rig, also at Jurong Shipyard. This project has since been terminated.

On 21 December 2006, Petroprod, which had no employees of its own, entered into a Management Agreement with Larsen, under which the latter agreed to provide management services to the former. Petroprod pleaded that, as a result of the Management Agreement and subsequent amendments, Larsen had control over the finances as well as the finances 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. On 3 August 2009, it was placed in compulsory liquidation in Singapore by an order of the High Court. According to Petroprod, although the four subsidiaries were not placed in liquidation, they were technically insolvent as from 31 December 2008.

In the main action, Petroprod sought the following: (i) the avoidance of a number of payments that it made to Larsen on the ground that these payments amounted to unfair preferences or transactions at an undervalue within the meaning of ss 98 and 99 of the Bankruptcy Act (Cap 20, 2009 Rev Ed), read with s 329(1) of the Companies Act (Cap 50, 2006 Rev Ed); and (ii) the avoidance of a number of payments made by the subsidiaries to Larsen pursuant to s 73B of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed) (“CLPA”) on the ground that they were made with the intent to defraud it as a creditor of the subsidiaries.

Whether the main action should be stayed

Clause 18 of the Management Agreement, which requires the parties to resolve their disputes through arbitration, provides as follows:

GOVERNING LAW AND ARBITRATION

This 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.

Although Larsen’s application for a stay was made pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”), its counsel, Mr Eric Chew, clarified at the hearing that his client was in fact relying on s 6 of the Arbitration Act (Cap 10, 2002 Rev Ed).

Section 6(1) and (2) of the Arbitration Act provides as follows:

Stay of legal proceedings

6. — (1) Where any party to an arbitration agreement institutes any proceedings in any court against any other party to the agreement in respect of any matter which is the subject of the agreement, any party to the agreement may, at any time after appearance and before delivering any pleading or taking any other step in the proceedings, apply to that court to stay the proceedings so far as the proceedings relate to that matter.

(2) The court to which an application has been made in accordance with subsection (1) may, if the court is satisfied that — (a) there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement; and (b) the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration.

make an order, upon such terms as the court thinks fit, staying the proceedings so far as the proceedings relate to that matter.

Petroprod submitted that the question of staying the main action in favour of arbitration did not arise because the issues that required determination are not arbitrable in the sense that they relate to a type of dispute that can only be resolved by the courts. As for what type of disputes are not suitable for arbitration, it is explained in Nigel Blackaby and Constantine Partasides, Redfern and Hunter on International Arbitration, 5th ed (Oxford: Oxford University Press, 2009), at pp 123–125, as follows:

Arbitrability, in the sense in which it is used both in this book and generally, involves determining which types of dispute may be resolved by arbitration and which belong exclusively to the domain of the courts…

In principle, any dispute should be just as capable of being resolved by a private arbitral tribunal as by the judge of a national court…

However, it is precisely because arbitration is a private proceeding with public consequences that some types of dispute are reserved for national courts, whose proceedings are generally in the public domain. It is in this sense that they are not ‘capable of settlement by arbitration’.

National laws establish the domain of arbitration, as opposed to that of the local courts. Each State decides which matters may or may not be resolved by arbitration in accordance with its own political, social, and economic policy….

[Original emphases removed; emphasis added]

As for the arbitrability of insolvency disputes, the learned authors added at para 2.128 as follows:

Issues of arbitrability arise in respect of insolvency law due to the conflict between the private nature of arbitration and the public policy driven collective procedures provided for under national insolvency laws. Courts and tribunals in various countries have sought to identify where the boundary of arbitrability should lie, and which insolvency issues are only suitable for resolution by a court. In this regard a distinction can be made between ‘core’ or ‘pure’...