Westacre Investments Inc v The State-Owned Company Yugoimport SDPR (also known as Jugoimport-SDPR) and others

• Jurisdiction: Singapore
• Judge: Edmund Leow JC
• Judgment Date: 27 May 2015
• Neutral Citation: [2015] SGHC 143
• Plaintiff Counsel: Giam Chin Toon S.C., Tan Hsuan Boon and Mark Lee (M/s Wee Swee Teow & Co)
• Docket Number: Originating Summons No 1311 of 2004
• Date: 27 May 2015
• Hearing Date: 13 March 2014,19 March 2014,20 March 2014,28 November 2013,11 March 2014,23 September 2014,25 November 2013,29 November 2013,01 October 2014,12 March 2014,21 March 2014,24 September 2014,05 March 2014,27 February 2015,06 March 2014,25 September 2014,30 September 2014,04 March 2014,30 January 2015,26 February 2015,08 December 2014,26 September 2014,18 March 2014,26 November 2013,27 November 2013,14 March 2014
• Subject Matter: Express Trusts,Proof of Evidence,Evidence,Trusts
• Published date: 08 September 2016
• Citation: [2015] SGHC 143
• Defendant Counsel: Gabriel Peter and Govindarajan Asokan (M/s Gabriel Law Corporation),Paul Tan Wei Chean and Wong Yoke Cheng Leona (M/s Allen & Gledhill LLP),Lee Eng Beng S.C., Paul Tan and Sarah Hew (M/s Rajah & Tann LLP) instructed by Suresh Damodara (M/s Damodara Hazra LLP)
• Court: High Court (Singapore)
• Year: 2015

Edmund Leow JC: Introduction and Background

This case marks the latest chapter of a judgment creditor’s long and circuitous journey to realise an arbitral award that was made in its favour more than 20 years ago. In February 1994, Westacre Investments Inc (“the JC”) prevailed in arbitration proceedings against the judgment debtor, which is now known as The State-Owned Company Yugoimport SDPR or Jugoimport-SDPR (“the JD”). A dispute had arisen over an agreement in which the JC agreed to provide consultancy services to the JD, which was a supplier of defence equipment in the former Yugoslavia. The arbitral tribunal found the JD liable to pay a sum of more than US$50m. Attempts were made to enforce the award in various jurisdictions; in March 1998, the JC managed to obtain a judgment in the English High Court for more than £41m. In 2004, the saga started to unfold in Singapore. Court proceedings here began after the JC uncovered evidence that the JD’s subsidiary – a Singapore company now called Deuteron (Asia) Pte Ltd (“Deuteron”) – maintained the JD’s funds in bank accounts with DnB Nor Bank ASA Singapore Branch, a Norwegian bank with a Singapore branch (“the Bank”). As of March 2009, the funds amounted to more than US$17m.

The JC thus moved to garnish the funds to partially satisfy its judgment debt. It applied to register the English judgment in Singapore on 5 October 2004. By 28 October 2004, the JC had obtained a Mareva injunction – which remains in force – to freeze Deuteron’s accounts with the Bank. The JC then filed two summonses on 28 April 2005 for provisional garnishee orders against Deuteron and the Bank. These summonses were filed on the back of the Notes to Deuteron’s annual financial statements for the financial years between June 1998 and June 2003, which stated that the funds belonged “wholly and exclusively” to the JD. The affidavit of Mr Lim Poh Weng (“Mr Lim”) dated 10 November 2004 and filed on behalf of Deuteron also stated that Deuteron held funds of about US$15m in the bank accounts “for and on behalf” of the JD. The day after the two summonses were filed, the court issued garnishee orders to show cause, which were served on the Bank, Deuteron and the JD.

But just when the JC thought that its wait was over, the JD applied in June 2005 to set aside the registration of the English judgment. The JD had argued that the English judgment should not be registered in Singapore as it was no longer enforceable in England due to the time period that had elapsed. The application made its way to the Court of Appeal, which on 9 May 2007, directed the JC to refer to the English courts the question of whether the English judgment remained enforceable. Tomlinson J in Westacre Investments Inc (a company incorporated under the laws of Panama) v The State-Owned Company Yugoimport SDPR (also known as Jugoimport-SDPR) [2008] 1 All ER (Comm) 780 answered the question in the affirmative. On 30 December 2008, our Court of Appeal dismissed the JD’s application.

As the garnishee proceedings resumed, three new parties – Teleoptik-Ziroskopi, Zrak-Teslic and Cajevec (“the Other Parties”) – entered the scene to stake a claim to the funds. To that end, affidavits were filed in February and March 2009 by the Other Parties, JD and Deuteron (“the Defendants”), which made a volte-face. Essentially, all the parties were saying that the funds in Deuteron’s bank accounts belonged to the Other Parties instead of the JD. The Defendants each filed summonses for an order that the garnishee proceedings be converted to a writ action and tried. The JC and the Other Parties also filed summonses seeking a summary determination of the question of the ownership of the funds: see Teleoptik-Ziroskopi and others v Westacre Investments Inc and other appeals [2012] 2 SLR 177 at [8] (“Teleoptik-Ziroskopi v Westacre”), which helpfully recounts the following case developments in the High Court (at [9]-[11]): On 24 August 2010, the applications to convert the garnishee proceedings to a writ action were dismissed. These orders were confirmed on 8 November 2010. On 21 September 2010, the JD was granted one month to file further evidence but it missed the deadline. On 2 November 2010, the JD’s request for a time extension was refused. On 17 December 2010, the applications of the JD and the Other Parties to admit further evidence were dismissed. On 19 May 2011, the High Court summarily determined that the funds belonged wholly and exclusively to the JD, and made the interim garnishee orders granted in April 2005 (see [2] above) final.

The Defendants filed appeals against the various orders of the High Court Judge. Having heard all parties, the Court of Appeal (“CA”) in Teleoptik-Ziroskopi v Westacre allowed the appeals in part. It set aside the order making the garnishee order absolute and directed a trial to resolve the disputes of fact. This was how the case came before me.

The Court of Appeal’s decision

It is instructive to reproduce the facts canvassed before the CA and its decision in greater detail for its direct relevance to the present case and as it suggests some “terms of reference”.

The Defendants furnished four documents to support its contention that the Other Parties were the beneficial owners of the funds. According to them, the JD – then known as the Federal Directorate of Supply and Procurement – had contracted with a foreign government on 23 July 1991 to supply it with military equipment (“the Supply Contract”). However, the JD could only have concluded the US$54m contract with the consent of the Other Parties, which were domestic manufacturers that had entered into negotiations with the foreign buyer over the equipment. The Other Parties had to contract through an intermediary as under the Yugoslav socialist regime, only the JD was allowed to enter into military contracts with foreign buyers, unless the government allowed otherwise. Therefore, the JD was simply operating as the Other Parties’ “commission agent”, a role that entitled it to about 2.5% of the contract price for its efforts, including negotiating with the foreign buyer on contractual terms.

As provided for in the Supply Contract, the foreign government sent US$10,631,624.72 (“the Advance”) to the JD in Yugoslavia so that the Other Parties could buy raw materials from overseas. The Advance was paid to the National Bank of Yugoslavia in US currency and was immediately credited to the JD’s account with the National Bank of Yugoslavia in dinars. As the Yugoslav dinar faced strong inflationary pressure at the time, the Other Parties wanted to reconvert the Advance and keep it in US currency, as their payment for the raw materials were to be made in a foreign currency. Given that currency controls stood in the way of the Other Parties having a foreign currency account, the Other Parties and the JD decided that the JD would transfer the Advance to Deuteron. This agreement was encapsulated in a document dated 21 October 1991 between the JD and Deuteron (“the Pre-Protocol”). The Advance was subsequently transferred by the JD to Deuteron’s accounts with the Bank, which received the same sum in US currency on 18 November 1991. The Advance could still be traced to the funds in Deuteron’s bank accounts.

According to the Defendants, the JD and the Other Parties had entered into an informal or oral commission agreement about four months prior to the actual commission agreement, Contract No. E/4860-1 (“the Commission Agreement”) that was dated 12 December 1991. About a fortnight later on 28 December 1991, all the Defendants entered into a Protocol that “detailed the mechanism by, and the purposes for which the [Advance] would be paid out” on the instructions of the Other Parties (“the Protocol”). Appendix 1 of the Protocol also set out, inter alia, how much of the funds belonged to each of the Other Parties (US$9,242,868.74) and the amount of the funds payable to the JD and various foreign agents as commission.

However, about six months later, the Monetary Authority of Singapore acted on a United Nations Security Council resolution by issuing a circular that required Yugoslavia-related assets to be frozen. As the circular was only revoked on 20 March 2009, the Other Parties’ alleged assets remained frozen until then.

In view of its version of events, the Defendants submitted that the Other Parties had an in rem right to the money under the Supply Contract, notwithstanding that the JD was the contracting party with the foreign buyer. Therefore, the Other Parties argued that they were the beneficial owners of the funds in Deuteron’s accounts in the Bank, and the final garnishee orders should be set aside.

The CA, after also considering the JC’s response (see Teleoptik-Ziroskopi v Westacre at [25]-[34]), concluded that the “crux of the matter was that the Other Parties should not be deprived of their day in court to show that they owned the beneficial interest” to the funds. It therefore allowed the appeals and set aside the order making the garnishment absolute. It said, at [35], that:

In the context of a summary determination, the Judgment Debtor, Deuteron and the Other Parties only had to put up an arguable defence that ought to be resolved at trial. The heart of these appeals was simply whether the Other Parties, who said the Funds belonged to them, should be allowed their day in court to prove that claim.

The CA disagreed that summary determination was appropriate. The High Court should have decided on the version of events to accept, as the case was one where the legal issues that would arise depended largely on the facts. For example, it was only after factual findings were made that the governing law of the Commission Agreement could be determined. For example, if the lower court had found that the Commission Agreement was not a sham but had been legitimately entered into, certain factors might then be...