Rockeby biomed Ltd v Alpha Advisory Pte Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 22 June 2011
• Neutral Citation: [2011] SGHC 155
• Court: High Court (Singapore)
• Hearing Date: 07 February 2011,04 March 2011
• Docket Number: Originating Summons No 1206 of 2010
• Plaintiff Counsel: Aqbal Singh and Josephine Chong (Pinnacle Law LLC)
• Defendant Counsel: Ranjit Singh (Francis Khoo & Lim)
• Subject Matter: Arbitration
• Published date: 27 June 2011

Judith Prakash J: Introduction

This is an application to set aside an arbitration award on the ground that the award is in conflict with the public policy of Singapore as expressed and embodied in the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”) and the subsidiary legislation thereunder, namely the Securities and Futures (Licensing and Conduct of Business) Regulations 2002 (Cap 289, 2004 Rev Ed) (“the Regulations”) and is thus in breach of Art 34(2)(b)(ii) of the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration (“the Model Law”) which has been made a part of Singapore law by the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the Act”).

The originating summons contained a second ground but at the hearing that was not proceeded with.

Background

The plaintiff (“the Client”), the respondent in the arbitration, is a company incorporated in Australia. The defendant (“the Advisor”), the claimant in the arbitration, is a Singapore company that carries on the business of giving corporate finance advice including in relation to mergers, acquisitions and restructuring.

On 31 July 2007, the Client and the Advisor entered into a Consultancy Service Engagement Agreement (“the Agreement”). At that time, the Client was listed on the Australian Exchange (“ASX”) and the purpose of the Agreement was, as stated by Mr Nigel Jones (“Mr Jones”), the Advisor’s managing director, to secure a Singapore listing for the Client through either a reverse take-over in Singapore (“Singapore RTO”) or an initial public offering (“IPO”) on the Singapore Stock Exchange (“SGX”) and thereafter to generate additional shareholder value by the possible sale of the listed ASX shell company through a reverse takeover in Australia (“Australia RTO”). The Advisor’s role was to advise the Client on and manage its corporate exercise in Singapore.

Clause 3 of the Agreement provided that the Client would pay the Advisor the sum of $10,000 per month for the services of the Advisor. The Advisor duly provided its services from August 2007 to April 2008 and rendered the Client monthly invoices for the same. The Client paid the invoices for the months of August and September 2007 in full and paid half of the invoice for the month of October 2007. The total paid was $25,000 leaving an amount of $65,000 outstanding as at May 2008. The Agreement was terminated at the end of April 2008 by the Client.

Clause 12 of the Agreement provides as follows:

Applicable law and dispute resolution. The governing law of this Agreement shall be the substantive law of Singapore. Any claim or controversy arising out of this Agreement including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) for the time being in force which rules are deemed to be incorporated by reference to this Clause. The Tribunal shall consist of one (1) arbitrator to be appointed by the Chairman of SIAC. The language of the arbitration shall be English.

The Advisor submitted a Notice of Arbitration on 3 July 2009 to recover the amounts due to it. On 10 September 2009, the Chairman of the SIAC confirmed the appointment of Mr Nicholas Stone (“the Arbitrator”) as the sole arbitrator for the proceedings.

The hearing of the arbitration proceedings took place in Singapore in April 2010 and submissions were completed in June 2010. By the award dated 31 August 2010 (“the Award”), the Arbitrator awarded and ordered that the Client was to pay the Advisor $73,368 in respect of unpaid invoices and interest thereon calculated up to 31 August 2010. He also ordered the Client to pay various sums as legal costs, disbursements and costs of the arbitration. All other reliefs claimed in the arbitration by either party were rejected.

Issues and decision in the Award

The Advisor’s claim in the arbitration was straight forward. It claimed the balance amount of $65,000 in respect of the unpaid invoices and a further sum of $11,225 for interest. In its statement of defence, the Client rejected liability on four grounds but, at the hearing, it abandoned two grounds. Consequently, the Arbitrator had to consider only the following defences: the assertion that the Agreement was void for illegality; and the assertion that the Advisor lacked the legal capacity to enter into the Agreement. The Client also mounted a counterclaim by which it sought restitution of the sum of $25,000 paid to the Advisor, and interest thereon.

The Client’s defence was based on the provisions of the SFA. This statute regulates the conduct of business involving the provision of capital market services. Generally speaking, persons who provide capital market services in Singapore need to be licensed under Part IV of the SFA. There is, however, provision for exemption from the licensing requirements provided that certain criteria are met and the business is carried on in a certain way. It was the Advisor’s position that it carried on business as an exempt financial advisor and therefore did not need a capital market services licence. The Client’s contention was that by entering into and performing the Agreement, the Advisor was operating outside the exemptions to which it was subject with the result that the Agreement was void through illegality and/or lack of capacity of the Advisor to enter into it. The specific contentions that the Client made were that: the Client did not qualify as a “accredited investor” under cl 7 of the Second Schedule of the Regulations; and the advice given by the Advisor did not meet the criterion that it had to be “advice [that] is not specifically given for the making of any offer of securities to the public by the accredited investor to whom the advice was given”.

The Arbitrator found against the Client on both counts. First, in relation to the “accredited investor” issue, the Arbitrator noted that under s 4A(1)(a)(ii) of the SFA, the term means a corporation with net assets exceeding $10m as determined by the most recent audited balance sheet of the corporation. He stated that it was not disputed that at the time the Agreement was entered into, namely 31 July 2007, the audited balance sheet contained in the Client’s Financial Report as at 31 December 2006 was the most recent audited balance sheet of the Client available in the public domain. This showed the Client’s net assets as being A$9,331,000 which at the time was in excess of $10m. The Client argued that the audited accounts for the period ending 30 June 2007 which showed a net asset balance of less than $10m were available at the time the Agreement was entered into. The Arbitrator found that no evidence had been produced by the Client to substantiate its assertion that these accounts were available but the Advisor had not asked for them. He found that the balance sheet of 31 December 2006 was the most recent audited balance sheet of the Client in accordance with the terms of s 4(a)(1)(ii)(A) and, whilst the 30 June 2007 accounts may have been in the course of preparation, that did not meet the statutory definition. Accordingly, the Client was an “accredited investor” when the Agreement was concluded.

On the second issue, the Client had argued that the primary purpose of the rendering of the services by the Advisor under the Agreement was the raising of funds by the Client by making an offer of securities to the public and therefore the Advisor could not provide the services under the exemption set out in cl 7(1)(b) of the Second Schedule of the Regulations. The Advisor’s stand was that the corporate exercise contemplated in the Agreement and the advice that was given by the Advisor involved a range of options and therefore was not specifically given for the making of any offer of securities to the public.

The Arbitrator noted that the second paragraph of cl 2 of the Agreement limited the services to be provided by the Advisor and specifically envisaged that if in the future there was to be an IPO or a Singaporean or Australian RTO, other professional advisors would be appointed to deal with these matters. The Arbitrator also considered that the deal structures contemplated in the Agreement appeared to fall under the exemptions contained in cl 7(1)(c) rather than cl 7(1)(b) of the Second Schedule.

After reviewing the evidence, the Arbitrator found that the advice given by the Advisor to the Client was not specifically given for the making of any offer of securities to the public and therefore did not fall outside the exemption contained in cl 7(1)(b)(i) or that in cl 7(1)(c)(i). He also found the scope of services contemplated in the Agreement would fall within the exemption set out in cl 7(1)(c).

Clause 7(1)(d) of the Second Schedule of the Regulations provides that a person is exempted from the requirement to hold a capital market services licence if he carries on business in giving advice to another person concerning compliance with or in respect of any laws or regulatory requirements related to the raising of funds not involving any securities. Before the Arbitrator, the Advisor had claimed to be such a person. It said that the advice it gave to the Client related to compliance with local rules and regulations and that it also gave advice in respect of a take-over which would have involved the issuance of shares in the Client to a Chinese company’s principal shareholder. However, this advice on the issuance of securities was not given to the public. Further, the Advisor did not require a licence to provide services under cl 7(1)(d) as the Agreement clearly provided that if securities were to be offered, the Client would have to engage other professionals for that purpose. The Arbitrator agreed with the Advisor and found the...