Analysing recent Singapore court decisions in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co)[2020] 1 SLR 1158, BWG v BWF [2020] 1 SLR 1296, and Founder Group (Hong Kong) Limited (in liquidation) v Singapore JHC Co Pte Ltd [2023] SGCH 159, this article maps and explains the current Singapore approach when faced with a disputed debt governed by an arbitration agreement. Read about the position in Hong Kong, Australia and in the United Kingdom – using the links above – for a wider comparative understanding of the legal landscape on this topic.
AnAn: A winding up petition will usually be dismissed if there is a prima facie dispute subject to an arbitration agreement
In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co)[1] (AnAn), VTB applied for AnAn to be wound up, as AnAn had failed to honour its payment obligation. At first instance, the Singapore High Court found that AnAn had failed to raise a bona fide defence in relation to the debt, and accordingly AnAn was wound up.
The Singapore Court of Appeal allowed AnAn’s appeal and quashed the winding up order. In doing so, the Court of Appeal held that when the court is faced with a disputed debt or cross-claim that is subject to an arbitration agreement, the prima facie standard of review should apply, such that the winding up proceedings will be stayed or dismissed if the Company can show on a prima facie basis that:
(a) there is a valid arbitration agreement between the parties;
(b) the dispute falls within the scope of the arbitration agreement;
(c) the dispute is not being raised in abuse of the court’s process.
Applying the AnAn test, once the court is satisfied that there is a prima facie dispute governed by an arbitration agreement and the dispute does not constitute to an abuse of the court’s process, the court will ordinarily dismiss the winding up application. However, the court will stay the winding up application instead if: (a) there are legitimate concerns as to the solvency of the debtor; and (b) the creditor is able to show that the debtor has raised no triable issues (see AnAn at [111]).
To promote coherence in the law, the Court of Appeal adopted the prima facie standard of review (which is lower than the standard of 'triable issues') as this is the same standard used by the courts in Singapore when considering whether to stay usual court litigation brought by a party where there is an arbitration agreement under section 6 of the International Arbitration Act 1994 (Singapore). The Court of Appeal was concerned that otherwise a creditor party to an arbitration agreement may bring winding-up applications as a means to pressure a debtor to pay a disputed debt.
The Court of Appeal held that the abuse of process is an appropriate measure to check against possible abuses of the prima facie standard. In determining whether there has been an abuse of process, the court must be wary not to engage in the merits of the parties’ dispute, as the court is not the proper forum to adjudicate the dispute between the parties which is subject to arbitration. The parties should not be granted a 'backdoor' to argue the merits of a dispute.
The Court of Appeal recognised that abuse of the court’s process manifests in various scenarios, but that the threshold is very high. Examples of when such a high threshold would be met include the following:
(a) the liability and quantum of the debt are both admitted;
(b) the Company has waived or may be estopped from asserting its rights to insist on arbitration; and
(c) there are substantiated concerns which justify the invocation of the insolvency regime (such as assets have gone missing and there is an urgent need to appoint independent investigators).
For a more recent application of the AnAn test, see Europ Assistance Holding SA v ONB Technologies Pte Ltd (ONB Holdings Pte Ltd, non-party) [2023] SGHC 226 (Europ). The Singapore High Court in Europ also affirmed that even if a party fails to refer a dispute to arbitration, it would not be an abuse of process for that party to rely on the arbitration clause subsequently.
BWG: Inconsistent positions may be an abuse of process
In a subsequent Singapore Court of Appeal decision in BWG v BWF [2020] 1 SLR 1296 (BWG), the Court of Appeal examined whether a defendant’s inconsistent positions were an abuse of process that would prevent the winding up proceedings from being dismissed. In this case, there was a string of contracts involving the appellant and the respondent concerning the sale and purchase of the same cargo of crude oil. The respondent as buyer was due to pay the appellant by a certain date, but failed to do so. The respondent had entered into a settlement agreement with a third party involved in the string of contracts which involved the third party making payment to the respondent, but the third party did not do so. The appellant served a statutory demand on the respondent, and the respondent applied to set aside the statutory demand and restrain pending winding-up proceedings on the basis that it disputed the debt which was subject to an arbitration agreement.
The High Court granted the orders sought by the respondent and the appellant appealed to the Court of Appeal on the abuse of process exception. One of the defences raised by the respondent was that the transaction was a sham. The Court of Appeal had to consider whether the respondent was adopting inconsistent positions by raising the illegality defence against the appellant whilst enforcing the settlement agreement against the third party, and whether this amounted to an abuse of process.
The Court of Appeal in BWG determined that adopting inconsistent positions as regards a defence could be an example of an abuse of process e.g., the debtor taking inconsistent positions in related proceedings or previously admitting that it owes a debt and thereafter denying it. That said, the court may decline to hold that a party is in abuse of process despite the party’s inconsistent conduct, if there is a risk of even greater injustice in barring that party from taking such an inconsistent position. The court is then required to take a granular approach and consider each defence separately, not for the purposes of the merits but to determine whether there was any abuse of process.
On the facts, the Court of Appeal identified inconsistent conduct on the respondent’s part but determined that on a consideration of all the circumstances, the respondent should not be precluded from taking inconsistent positions and relying on the illegality defence, as there was a risk of an even greater injustice otherwise.
The decision in BWG affirmed the prima facie standard review set out in AnAn and clarified that inconsistent positions being adopted by the Company in same or related proceedings may constitute an abuse of process, in the absence of a clear and convincing reason to do so.
Founder Group: Company’s defence was an abuse of process
In Founder Group (Hong Kong) Limited (in liquidation) v Singapore JHC Co Pte Ltd[2] (Founder Group), the Company resisted a winding-up application on the basis that the payment obligations under the parties’ contracts were never meant to be enforced, and therefore the contracts were null and void (effectively a sham). The Singapore High Court found that the Company had satisfied the test in AnAn, that the debt fell within the scope of the arbitration agreement between the parties and should be resolved in arbitration. The Petitioner’s winding up application was dismissed.
On appeal, the Singapore Court of Appeal considered the applicability of the AnAn test in the circumstances where the Company argued that the underlying contracts (which included the arbitration agreement) were null and void.
The Court of Appeal determined that the Company’s position was manifestly inconsistent in that it claimed that the contracts were null and void, yet sought to rely on the arbitration agreements contained therein. No explanation was provided for the inconsistency in the Company’s position. Such self-contradictory stance led the Court of Appeal to determine that the Company was not in a position to argue the dispute fell within the scope of an arbitration clause and that the Company could not invoke the arbitration clause and import the AnAn framework with it, as this would be an abuse of process.
The Court of Appeal then considered whether the Company could show that the debt was disputed in good faith and on substantial grounds, by satisfying the higher threshold test of 'triable issues' (as opposed to the lower standard of prima facie review in AnAn). The Court of Appeal concluded that the Company had not been able to explain its defence that the contracts were not meant to be enforced, and therefore failed to show that the debt was disputed in good faith and on substantial grounds. In coming to this determination, the Court of Appeal rejected the Company’s argument that the fact that the Petitioner had not enforced the debt for several years indicated that the contracts were not meant to be enforced. Inaction in seeking payment for a time did not mean that the sum in question was not payable.
Where does Singapore law now stand?
The approach of the Singapore courts is to give primacy to upholding the arbitration agreement, being the agreed dispute resolution forum.
Given this, AnAn and Founder Group illustrate how Singapore courts apply two different standards when considering a winding up petition:
(a) Where the company relies on an arbitration clause, the prima facie standard applies (as in AnAn). The winding up petition will be stayed or dismissed if there is prima facie a dispute over the debt which is subject to a valid and applicable arbitration agreement unless the Company is committing an abuse of process by seeking to do so. The company is not required to have taken any steps to start an arbitration in order for the winding up petition to be stayed or dismissed.
(b) Where there is no arbitration clause or the company’s reliance on the arbitration clause is invalid, the triable issues standard applies (as in Founder Group). If the court is satisfied that the company raises a dispute in good faith and on substantial grounds, the winding up petition will typically be stayed or dismissed.
Notwithstanding the UK Privy Council’s judgment in Sian Participation, the Singapore High Court recently in Re Sapura Fabrication Sdn Bhd[3] (Re Sapura) held that AnAn and Founder Group, which were aligned with Salford Estates, were still binding authorities. The Singapore High court also noted in passing the post-Sian Participation approach taken by the Hong Kong Court in Mega Gold. Justice Abdullah in Re Sapura also considered that the context of its case in respect of a scheme of arrangement is distinguishable from Sian Participation: since a scheme of arrangement concerns a 'once-and-for-all resolution' of the Company’s liabilities which are subject to the scheme, the Privy Council’s reasoning that a winding up petition does not entail a 'final resolution' of disputes surrounding a petition debt is not applicable to a scheme of arrangement.
[2020] 1 SLR 1158
[2023] SGCH 159
[2024] SGHC 241
