Singapore - Disputed Debts, Arbitration Clauses, Winding-Up Proceedings And The Applicable Standard Of Proof.

Legal News & Analysis - Asia Pacific - Singapore - Dispute Resolution - Insolvency & Restructuring

17 October, 2019

 

Consider this: Company A alleges that Company B owes them a debt that arose from an agreement. Company B disputes the debt. It is a well-established principle that it is an abuse of the court’s process for creditors to try to enforce a disputed debt by means of winding up proceedings—in such cases, the courts will dismiss the winding up application. Nevertheless, Company A proceeds to commence winding-up proceedings. What is the applicable standard of proof that should be applied to determine if the debt is disputed?

 

This question is even more relevant in the context of an alleged debt arising from an agreement that contains an arbitration clause. Parties may attempt to circumvent the arbitration clause by commencing winding-up proceedings directly.

 

Currently, there are two competing standards of proof with regard to the disputed debt: (i) the triable issues standard and (ii) the prima faciestandard. Under the prima facie standard, a defendant would only have to show that a prima facie dispute exists in order to establish that the winding-up application should be dismissed. Essentially, if the prima facie standard were applicable, then it would effectively be easier for defendants to establish that the plaintiffs’ winding-up application should be dismissed.

 

Cases applying the triable issues standard of proof include the Singapore Court of Appeal decision in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268, whereas cases applying the prima facie standard of proof include the Singapore High Court case of BDG v BDH [2016] 5 SLR 977.

 

The latest case to address this issue is the case of VTB Bank (Public Joint Stock Co) v Anan Group (Singapore) Pte Ltd [2018] SGHC 250. There, the plaintiff commenced winding-up proceedings on the basis of a debt that had arisen from an agreement that contained an arbitration clause. The defendant disputed the debt and commenced arbitration. The Honourable Judicial Commissioner Dedar Singh Gill noted as follows at paragraph 62 of his judgment:

 

“It is a well-established principle that for a creditor to try to enforce a disputed debt by means of a winding up petition amounts to an abuse of the court process (see Metalform at [62] and Pacific Recreation at [16] and [17]). This is arguably all the more so when the parties have expressly agreed that such disputes are to be resolved by arbitration” [Emphasis added.]

 

Nevertheless, Judicial Commissioner Gill held that he was bound by the Court of Appeal decision in Metalform and held that the applicable standard was that of triable issues.

 

However, it is submitted that, in fact, the cases of Metalform can be reconciled with BDG. In Metalform, it appeared that the agreement pursuant to which the debt had arisen did not contain an arbitration clause. Instead, the defendant alleged that it had a cross-claim against the plaintiff. The agreement from which the cross-claim had arisen contained an arbitration clause.

 

In contrast, in BDG, the agreement from which the debt had arisen itself contained an arbitration clause. The judge in BDG held as follows at paragraph 9:

 

“However, where an arbitration agreement governs the dispute, the relevant standard is whether prima facie there is an arbitration clause and if so, the dispute is governed by that clause…” [Emphasis added.]

 

Therefore, it is possible to reconcile Metalform and BDG and apply the apparently two competing standards consistently.

 

The triable standard in Metalform would apply to cases where the arbitration clause does not govern the contract (and thus the dispute) upon which the winding-up application is founded. Where the contract (and thus the dispute) upon which the winding-up application is founded contains an arbitration clause, the prima facie standard as stated in BDG can be applied.

 

Applying the two standards this way would also be consistent with the plethora of cases including the Court of Appeal case of Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2016] 1 SLR 373, which clearly states that disputes should be referred to arbitration if, prima facie, there is a valid arbitration clause, the dispute falls within its scope and the arbitration clause is not null and void, inoperative or incapable of being performed.

 

The case of VTB Bank (Public Joint Stock Co) v Anan Group (Singapore) Pte Ltd [2018] SGHC 250 is currently on appeal, which provides the Court of Appeal an opportunity to shed some light on this issue.

 

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For further information, please contact:

 

Gabriel Lee, Duane Morris & Selvam LLP

glee@selvam.com.sg