AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33: A photo of VTB Bank. (Photo credits: AFP)

CASE SUMMARY

It is settled law that:

  • where a creditor commences a court action against a company based on a disputed claim that is governed by an arbitration clause, the court will order a stay of the action if it is satisfied that the claim is captured by the arbitration clause. Crucially, the court will not embark on an examination of the merits of the claim (“the Prima Facie Standard of Review”); and
  • where a creditor presents a winding-up application against a company based on a disputed claim that is not governed by an arbitration clause, the company must show that there are triable issues concerning the validity of the claim (“the Triable Issue Standard of Review”) if it is to stave off the application. Under this standard, the company has to show that there exists a substantial and bona fide dispute.  

It is plain from the above that the former standard is lower than the latter and the court’s task under each standard is different. But what is the applicable standard of review where a party presents a winding-up application (as opposed to filing a court action) based on a disputed claim that is governed by an arbitration clause? That was the question that confronted the Court of Appeal (“the CA”) in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33 (“AnAn”). As there were conflicting Singapore High Court decisions on the issue and the courts in other Commonwealth jurisdictions likewise did not speak with one voice, a 5-member coram was empaneled to rule definitively on the issue.

THE CA’S DECISION

The Prima Facie Standard of Review is the applicable standard

Under this lower standard, the winding-up application will be stayed or dismissed as long as (a) there is a valid arbitration agreement between the parties and (b) the dispute falls within the scope of the arbitration agreement provided that the dispute is not being raised by the debtor in abuse of the court’s process. The CA gave 3 reasons for adopting the lower standard.

(1) It promotes coherence in the law to make it in line with stay applications

By this, the CA meant that if the differing standards are applicable to what is essentially the same disputed debt, it would encourage the creditor to present a winding-up application against the company since a higher standard is required for the company to resist the application. Thus, the lower standard would ensure that “parties to an arbitration agreement are not encouraged to present a winding-up application as a tactic to pressure an alleged debtor to make payment on a debt that is disputed or which may be extinguished by a legitimate cross-claim”. 

(2) It gives effect to the principle of party autonomy

The Triable Issue Standard of Review requires the court to carry out “a thorough examination of the evidence” and “critically consider the merits of the company’s defence”. This goes against the principle of party autonomy (which is the cornerstone of the arbitration regime) as by undertaking that task, the court in effect “takes the place of the arbitral tribunal, against the parties’ agreement, thereby eroding any of the advantages which they had sought to obtain in electing arbitration in place of other modes of dispute resolution” and is “presuming that it has arrived at the same result as the tribunal would have, when this may not necessarily be the case.”

(3) It ensures certainty and cost savings for the parties

If the Triable Issue Standard of Review is applied and an examination of the merits undertaken, parties face uncertainty as to whether their dispute will be resolved in what was their agreed forum. In addition, this may result in greater costs as there is the possibility that the merits will be contested both before the courts and the arbitral tribunal.

What then does the Prima Facie Standard of Review entail?

The debtor-company is first required to show on a prima facie basis that (a) there is a valid arbitration clause (b) which captures the dispute before the court (or any part thereof). The CA was however conscious that if the matter ended there, it would be all too easy for the company to successfully resist the winding-up application. As was said by an English judge, the lower standard “may lend itself to abuse if a stay is automatically granted once a party puts up its hands and says “[y]ou, the court, have no jurisdiction because of my contract”.

The CA thus ruled out any question of an automatic stay. Using the doctrine of abuse of process as a control mechanism against potential abuse of the lower standard, the CA held that if the creditor can show that the dispute was being raised by the company in abuse of the court’s process, it will order the company to be wound up.

What then constitutes an abuse of process? The CA made clear that the threshold of an abuse of process is a high one and gave 3 non-exhaustive examples of when the threshold is crossed (at [99]): (a) where the debt is admitted as regards both liability and quantum; (b) where the debtor has waived or may be estopped from asserting his rights to insist on arbitration, such as where the parties have agreed subsequently that disputes may be resolved by litigation; and (c) where the debtor-company is seeking to stave off substantiated concerns which justify the invocation of the insolvency regime. The CA cautioned that (at [100]) in this exercise, “the court must be wary that it does not engage in examining the merits of the parties’ dispute, since the court is not the proper forum to adjudicate the dispute between the parties.”

The CA elaborated on the doctrine of abuse of process in another case which was heard together with AnAn but for which it issued a separate judgment in BWG v BWF [2020] SGCA 36 (“BWG”). In BWG, it explained that the doctrine is a concept by which the court ascertains whether the proceedings in question constitute an “improper use of its machinery”. Further, the doctrine has been developed to permit the courts to police their own processes and guard against abuse. This may entail balancing considerations of public policy and the interests of justice. It also said that an example of abuse of process is where the company adopts inconsistent positions in its defence be it in the same or related proceedings. Whether the company has adopted inconsistent positions requires the court to undertake a granular examination of the facts not with a view toward examining the merits of the defence but to ascertain whether there has been an abuse of process. But even if the court holds that the company has taken inconsistent positions, the court may still decline to hold that a party is in abuse of process if there is a risk of even greater injustice in barring that party from taking such an inconsistent position. That was precisely what the CA did with the illegality defence raised by the company in BWG. The CA was of the view that there were inconsistent positions taken but it nonetheless held that on the facts, the conduct of the company was not such as to hold that it was an abuse of process.  

Should the court dismiss or stay the winding-up application?

What is the appropriate order for the court to make if it is satisfied that the lower standard of review is met and it cannot be said that the company is abusing the court process? Specifically, is the court duty-bound to dismiss the winding-up application? 

The CA was mindful that if the winding-up application was invariably dismissed in that situation, it may potentially have adverse consequences for other creditors of the company. This is because in the interim, the company “would be given unrestrained freedom to continue trading and incurring ordinary business and legal expenses until the conclusion of the arbitration of the dispute.” This may ultimately result in the depletion of the assets to the detriment of its creditors.

To counter this, the CA stated that once the company meets the lower standard of review, the usual order would be to dismiss the winding-up application. However, a stay will be granted instead if (at [111]) “the applicant creditor is able to demonstrate legitimate concerns about the solvency of the company as a going concern, and that no triable issues are raised by the debtor. The creditor will then be given liberty to apply to the court to proceed with the winding up if, for example, it can be shown that the debtor-company has no genuine desire to arbitrate the dispute, and that it is taking active steps to stifle the arbitration.”

CONCLUDING REMARKS

Given the uncertain state of the law both in Singapore and elsewhere prior to this decision, the CA’s clarification is most welcome. More important, its adoption of the lower standard of review (from the company’s perspective) may cause creditors to think long and hard about commencing winding-up proceedings immediately in complete disregard of their agreement to arbitrate any dispute. 

To read the full AnAn judgment, click here.
To read the full BWG judgment, click here.