SINGAPORE CONVENTION ON MEDIATED SETTLEMENT AGREEMENTS COMES INTO FORCE TOMORROW – 12 SEPTEMBER 2020

Tomorrow marks an important day for dispute resolution users as the Singapore Mediation Convention comes into force, just over a year after its signing ceremony on 7 August 2019. The UNCITRAL Working Group II’s aim to implement an international regime for the enforcement of mediated settlements broadly akin to the 1958 New York Convention for the enforcement of arbitral awards, has finally come to fruition after several years of dedicated effort to provide dispute resolution stakeholders with a tool that tackles speed, cost and efficiency.

Continue reading

The Kingdom of Tonga becomes 164th state to accede to the New York Convention

On 12 June 2020, Tonga acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“). With this, Tonga becomes the 164th state party to the Convention, following the recent accession of Palau in March this year. Under Article XII (2), the Convention will come into force for Tonga on 10 September 2020 and will be applicable to arbitral awards issued on or after that date.

Under Article I.3 of the New York Convention, contracting states are able to ratify or accede subject to certain reservations. The UNCITRAL website indicates that Tonga has acceded to the Convention subject to one common reservation, namely that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered commercial under the laws of the Kingdom of Tonga.

For more information please contact Andrew Cannon, Partner, Gitta Satryani, Partner, Brenda Horigan, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+44 20 7466 2852
Gitta Satryani
Gitta Satryani
Partner
+65 68688067
Brenda Horrigan
Brenda Horrigan
Partner
+61 2 9225 5536
Vanessa Naish
Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

HERBERT SMITH FREEHILLS PROMOTES TWO ARBITRATION SPECIALISTS TO ITS GLOBAL PARTNERSHIP

Herbert Smith Freehills has promoted seven disputes lawyers to its partnership, out of a total of 26 worldwide. The promotions in the disputes practice, which take effect on 1 May, 2020, span right across the firm’s global network.

Of these new partners, two are arbitration specialists, reflecting the strength and importance of this ever growing practice area to the firm.

The new arbitration partners are:

Gitta Satryani, Singapore:

Gitta is a member of the firm’s market-leading Asia dispute resolution practice, based in Singapore. She specialises in complex cross-border disputes with particular expertise in international commercial arbitration, investment treaty arbitration, and public international law. Gitta advises commercial entities, states and SOEs on a broad range of issues relating to cross-border projects including dispute avoidance strategies and investment structuring.

Gitta has a particular focus on disputes involving Indonesia, and works closely with Herbert Smith Freehills’ associated firm Hiswara Bunjamin & Tandjung, to advise clients on disputes and dispute-related aspects of transactional work relating to their investments in Indonesia.

Gitta is ranked as an Arbitration Future Leader by Who’s Who Legal (2017-19) and an up and coming / next generation lawyer by other leading directories. She has been described as “an impressive lawyer with unique skills in the market” and “very pragmatic and business-oriented in terms of suggesting strategies to resolve a problem and providing good practical guidance” (Chambers & Partners 2020 (Dispute Resolution: Arbitration (Singapore)).

Chad Catterwell, Melbourne:

Chad specialises in cross-border disputes and international arbitration across the Asia-Pacific region. Chad acts as Counsel in cross-border disputes and international arbitrations seated across the Asia-Pacific region. He has advised clients on arbitrations under the HKIAC, ICC, SIAC, CIETAC and UNCITRAL Rules.  He has particular expertise with respect to disputes arising from M&A activity and joint ventures in Asia, particularly China.  He assists clients in a number of sectors, with a strong interest in the energy and resources,  and technology sectors. Chad also advises clients on structuring transactions and drafting dispute resolution provisions to best protect clients engaging in international investment and cross-border transactions.

Now based in Melbourne, Chad was previously based in Hong Kong and his current practice sees him working on matters across Asia, collaborating seamlessly with colleagues in the region and elsewhere.

Chad has well-rounded disputes experience. In his formative years as a disputes lawyer he advised clients on fast track litigation, class actions litigation, Royal Commissions and interactions with regulators whilst under investigation. He acted for electricity distributor SP AusNet in the Royal Commission and long running class actions arising from the 2009 bushfires in Victoria. He also completed an 8 month secondment to Morgan Stanley’s Asia Pacific Litigation and Contentious Regulatory team based in Hong Kong.

Chad regularly speaks and writes on issues relating to international arbitration. He is a founding steering committee member for ACICA 45, the young practitioner’s arm of local arbitration institution, ACICA.

Paula Hodges QC comments, “I am very proud to welcome Gitta and Chad as partners into our global arbitration practice. They are both excellent lawyers, who each possess a deep understanding of our clients across the Asia Pacific region. Gitta and Chad have also undertaken secondments in other offices within the HSF network and embody the cross-fertilisation of arbitration knowhow and legal cultures that enables our global arbitration practice to provide a truly international service to clients all over the world across a range of sectors.”

For more information, please contact Gitta Satryani, Partner, Chad Catterwell, Partner, or your usual Herbert Smith Freehills contact.

Gitta Satryani
Gitta Satryani
Partner
+65 68688067

Chad Catterwell
Chad Catterwell
Partner
+61 3 9288 1498

SINGAPORE COURT OF APPEAL INTRODUCES A LOWER STANDARD OF REVIEW FOR DEBTORS DEFENDING A DISPUTED DEBT THAT IS SUBJECT TO AN ARBITRATION AGREEMENT

In AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33, Justice Steven Chong, delivering the judgment of the Court, (1) overturned the decision of the High Court which allowed a creditor (VTB Bank) to proceed with its winding up petition against a debtor (AnAn), and (2) upheld the arbitration agreement pursuant to which the dispute underlying the debt should first be resolved.  In doing so, the Court of Appeal reaffirmed Singapore’s pro-arbitration stance while also recognising that special considerations may apply in the context of possible insolvency.

The Court of Appeal removed the “triable issue” standard that ordinarily applies to debtors who challenge a winding up application on the basis of an underlying dispute. The Court of Appeal found that where any such dispute is subject to an arbitration agreement, the standard to be applied should be the lower “prima facie” standard of review. This does not mean, however, that debtors will be permitted to defeat all winding up applications by raising disputes which are subject to arbitration agreements. A debtor must still prove its bona fides in alleging a dispute over the debt. Further, where the creditor has legitimate concerns over the solvency of the debtor company, the ‘triable issue’ standard is reintroduced: if the debtor is unable to prove any triable issues, the winding up application will be stayed, and not dismissed, offering the creditor some security over the management of the company’s assets until the arbitration is concluded. Alternatively, the debtor may be required to provide an undertaking to that effect until the arbitration is concluded.

The facts

VTB and AnAn entered into a ‘global master repurchase agreement’ (GMRA) under which AnAn would sell global depository receipts (GDRs) of certain shares and then repurchase the GDRs later at (higher) pre-agreed rates. The difference between the original sale price and the pre-agreed rates was in essence, interests and costs. Therefore, despite being structured as a sale and repurchase, the GMRA was in substance a loan arrangement between VTB (as lender) and AnAn (as debtor).

VTB alleged multiple events of default under the GMRA. In such circumstances, the GMRA entitled VTB to accelerate the repurchase of the GDRs at a designated value. VTB therefore sent a notice of default to AnAn, exercising this right and stating that a sum of approximately US$170 million was owed by AnAn. VTB then served a statutory demand for the sum (in essence, a demand for payment which, if not complied with, is taken as prima facie evidence of a company’s inability to pay debts, for the purposes of Singapore’s insolvency legislation).  When AnAn failed to pay the demand within the statutory timeline, VTB applied to the Singapore court to wind up AnAn on  the basis of alleged insolvency.

AnAn resisted the winding up application by challenging both the substance and the quantum of the alleged debt. AnAn argued that VTB was not entitled to the accelerated debt and that it was, in any case, not entitled to the quantum of the debt claimed.  For example, AnAn argued that there were genuine disputes including (amongst others) whether VTB had followed the agreed procedure for obtaining bids from appropriate markets before relying on the new value of the GDRs.

In resisting a winding up application, a debtor must ordinarily raise “triable issues” (i.e. the existence of a substantial and bona fide dispute over the debt claimed) in order to obtain a stay or dismissal of the application. This ‘triable issue’ standard is an exacting one: mere assertion of a dispute will not suffice. Put simply, the court must critically consider and be convinced that the debtor has a credible defence to the dispute, such that the matter requires further examination and the winding-up should be stayed or dismissed.

However, AnAn argued that where the (alleged) matters in dispute were subject to an arbitration agreement, a lower standard of review (than that of a triable issue) should be applied: the court should only consider if (i) there exists a dispute over the debt; and (ii) that the dispute falls within the scope of the arbitration agreement.  If the answer to both questions is ‘yes’, the court should stay or dismiss the winding up application in favour of the dispute being determined by arbitration.  AnAn argued that the merit of the debtor’s case on the disputed debt, or indeed, whether there existed any ‘triable issues’ at all, must be determined by the arbitral tribunal in accordance with the parties’ arbitration agreement.

 

The Court of Appeal’s decision

The High Court rejected AnAn’s arguments. On appeal, however, the Court of Appeal agreed with AnAn and adopted the “prima facie” standard of review in place of the triable issue standard that would otherwise normally apply. The Court of Appeal’s reasons included (amongst others):

(1) Coherence of the law across regimes

The adoption of the prima facie standard of review in this context is consistent with the standard adopted for stay applications for all other court proceedings under Singapore’s arbitration regime: court proceedings are stayed so long as claims with prima facie merit fall within the scope of a valid arbitration agreement.

(2) Party autonomy in selecting arbitration as the dispute resolution mechanism

The lower prima facie standard of review also avoids the risk of claimant creditors exercising a tactical choice to bypass their arbitration agreements.  If the higher ‘triable issue’ standard applied in the context of winding up applications, a claimant creditor would have the option of pursuing a winding up application over a disputed debt that it should properly have pursued in arbitration, pressuring the debtor to prove the existence of substantive defences according to a higher standard (or to settle the claim) in order to avoid summary liquidation and reputational damage.

Further, as the Court of Appeal noted, arbitration could have been preferred by the parties for a multitude of reasons, including finality and confidentiality, even in determining debt claims. That agreement to arbitrate should be respected regardless of the merits of the dispute i.e. regardless of whether the debtor’s case appears weak, as long as it met the prima facie standard. The fact that the ‘triable issue’ standard would require the court to critically consider the merits of the company’s defences would itself be contrary to the parties’ arbitration agreement: only the arbitral tribunal should assess the merits of any dispute arising under the contract.

Under the lower prima facie standard of review, the court is merely required to determine whether it appears, on a prima facie basis, that (i) there is an arbitration agreement; and (ii) the dispute of the debt is caught by the arbitration agreement. If so, the court must not undertake a review of the merits of the dispute; a stay or dismissal of the winding up application should be granted in favour of such arbitration.[1] A winding up application should only follow once the arbitration determines the debt to be owing and unpaid.

Grounds for refusal of a stay: avoiding debtor’s abuse of process

As an important safeguard, however, the Court of Appeal also held that the lower standard of review does not entitle the debtor to an automatic stay once it alleges the prima facie existence of a dispute: the bona fides of the debtor in raising the dispute remains a relevant factor to avoid any abuse of process. Various jurisdictions have adopted different ‘tests’ for ensuring that a debtor does not raise an entirely meritless dispute over the debt in order to buy time under a process of arbitration and avoid liquidation.

For example, the English courts, which also adopt the lower prima facie standard of review, require “wholly exceptional circumstances” to be proven before refusing a stay in favour of arbitration: such circumstances have been stated to be so rare as to be “difficult to envisage”. The result, as the English courts have described, is to place a “very heavy obstacle in the way of a party who presents a petition claiming sums due under an agreement that contains an arbitration clause … where there is an arbitration clause, it is sufficient to show that the debt is ‘disputed’ and for that it is sufficient to show that the debt is not admitted”.

The position in Singapore diverges here in favour of the creditor’s interests: the Court of Appeal held the standard of “wholly exceptional circumstances” is pitched too high, leading at times (as seen in some English cases) to situations where a debtor is able to stay a winding up proceeding to pursue arbitration even though it had previously admitted liability to the debt, although denying such liability at the winding up application.

In Singapore, as decided in AnAn v VTB, stays or dismissals of insolvency proceedings in favour of arbitration will be granted unless there is an ‘abuse of process’. Examples of when this “high threshold” is met include:

  • where the debt is admitted on both liability and quantum;
  • where the debtor has waived or may be estopped from asserting his rights to insist on arbitration, such as where the parties have subsequently agreed that the dispute may be resolved by litigation; or
  • where there exist substantiated concerns which justify the invocation of the insolvency regime: for example, where the assets of the debtor company have gone missing or where there is a proper basis to conclude that there had been fraudulent preferences.

This test therefore reserves to the Singapore courts the flexibility to determine each application in its context. The Court of Appeal has stressed, however, that the ‘abuse of process’ control is not an avenue for creditors to introduce arguments challenging the merits of the underlying dispute. Consequently, an argument that there has been an abuse of process because the dispute alleged by the debtor is “so obviously lacking in merit” will not succeed on that ground alone.

Recognising creditors’ interests: avoiding an abuse of process by choosing to stay and not dismissing the winding-up application

Ordinarily, the court should dismiss the entire winding up application in favour of arbitration, given that the stay of a winding up application itself carries severe reputational consequences for the company.

However, in certain scenarios, if the winding up application is dismissed, that too could lead to an unfair result. As examples, the Court of Appeal suggested:

  • a company which does not appear to be immediately insolvent; but
  • if faced with a substantial claim, would become insolvent; and
  • which has been able to raise a prima facie dispute but not triable issues over the debt.

If the winding up application is dismissed in favour of arbitration, that company would continue to trade (without restraint) until the conclusion of the arbitration. Having then been unable to raise triable issues in relation to the dispute, the arbitration may be resolved in favour of the creditor, but by that time the assets of the company have been further depleted. Similar situations arise where a company faces multiple debt claims, each arbitrable and each independently capable of bankrupting the company. Dismissal of the winding up applications in favour of arbitration in these scenarios adds to the risk of recovery for the otherwise innocent creditor.

Singapore has chosen to adopt a middle ground: any dismissal of a winding up application would require the prompt resolution of the dispute which is to be referred to arbitration, to militate against any undue delay or risk of recovery of a legitimate debt. In this regard, the Court endorsed the approach considered in Hong Kong i.e. to only dismiss an application where the debtor company shows that it had taken steps to commence arbitration in relation to the disputed debt. Further, a debtor who has not satisfied the court that there are triable issues in its dispute over the debt can only expect a short adjournment to commence the arbitration; if sufficient evidence to establish a genuine dispute is still absent, it should expect to have to give an undertaking to proceed with the arbitration. Such orders are to be made on a case by case basis by the court hearing the winding up application.

Therefore, even in applying the prima facie standard of review, where an applicant creditor is able to demonstrate legitimate concerns about the solvency of the debtor company, and that no triable issues have been raised by the debtor, the court offers a control mechanism by ordering a stay instead of a dismissal of the winding up proceedings. The creditor will have the liberty to apply to the court to proceed with the winding up if it is shown that the debtor company has no genuine desire to arbitrate, is taking active steps to stifle or delay the arbitration, or is paying off other creditors to the detriment of the claimant.

Conclusion

The Singapore Court of Appeal’s approach is potentially complex in that it may sometimes require the court to apply multiple standards to the issues before it; for example (as discussed above), whether the issues raised by the debtor satisfy a prima facie test but fail to amount to triable issues.  Nevertheless, it is a measured approach which aims to balance competing interests by ensuring that the creditor’s interest in enforcing its rights to payment is protected, while also reaffirming Singapore’s stance of minimal curial intervention where parties have agreed to arbitrate their disputes. The safeguards that have been introduced (unlike other jurisdictions) also provide certainty to both creditors and debtors as to the limits of their case even under the lower prima facie standard of review.

In light of this decision:

  • Claimants should carefully consider whether there are strategic advantages in pursuing a winding up application rather than an arbitration where the claim, is in substance, a debt claim, given the low standard of proof required in order to enforce the arbitration agreement.
  • Debtor companies should similarly be aware of their rights to insist on arbitration rather than litigate their disputes through insolvency proceedings, as well as the consequence of admitting liability or quantum of a debt.
  • A debtor presented with a winding up application would also do well in considering the need to argue both the prima facie and triable issue standards in order to have the application dismissed, rather than stayed.
  • Importantly, all parties should carefully consider their arbitration agreements and whether to include any carve outs for debt recovery and/or insolvency proceedings relating to specific obligations under the contract.

For more information, please contact Alistair Henderson, Partner, Gitta Satryani, Of Counsel, Daniel Waldek, Of Counsel, Reshma Nair, Associate, or your usual Herbert Smith Freehills contact.

Alastair Henderson
Alastair Henderson
Partner
+65 68688058

Gitta Satryani
Gitta Satryani
Of Counsel
+65 68688067

Daniel Waldek
Daniel Waldek
Of Counsel
+65 686 88068

Reshma Nair
Reshma Nair
Associate
+65 68688002


[1] Indeed, the Court of Appeal described the arbitration of any disputed debt as a “necessary precondition” to engaging the insolvency regime: the presentation of an unsatisfied statutory demand only leads to the presumption of insolvency; where that presumption is disputed, the debt is only established to be due and owing to the creditor by way of arbitration (and cannot be determined by the court) – an important characterisation at law that further supports the need for a lower standard of review.

Inside Arbitration: Issue #6 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from the Herbert Smith Freehills Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insight about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

Continue reading

A Tale of Two BANIs: an update – Renewed BANI prevails against the original BANI in appeal against the decision of the Jakarta State Administrative Court

In August last year, we reported that a new Indonesian arbitral institution had been established in mid-2016 under the name of Renewed BANI or BANI Pembaharuan (“BANI-P“), notwithstanding the continued existence of the separate institution already known as BANI.  We reported that the two institutions were in dispute as to which of them could legitimately claim the right to refer to itself as BANI, and we explained that although this might at first appear to be of purely local interest, the confusion has real and serious implications for contracts that provide for arbitration under BANI rules (as many now do).

BANI-P brought the matter to the South Jakarta District Court.  In August 2017 BANI-P prevailed in obtaining an order declaring it to be the rightful institution to be referred to as BANI.  Meanwhile, however, the original BANI had succeeded in separate proceedings in the Jakarta State Administrative Court, obtaining a ruling nullifying the decision of the Ministry of Law and Human Rights to acknowledge and register BANI-P as an arbitral institution. BANI had also obtained a ruling from the Commercial Court confirming it as the rightful owner of the trademark name “BANI”.

Both BANI-P and BANI appealed against the decisions of the South Jakarta District Court and the Jakarta State Administrative Court. However, BANI-P has apparently elected not to appeal against the decision of the Commercial Court.

Recently, the State Administrative High Court issued a decision in favour of BANI-P and reversed the decision of the lower Administrative Court. However, the Administrative High Court made this ruling on a technical ground: it found that the administrative courts do not have jurisdiction on the matter which is effectively a civil dispute. The Administrative High Court observed that its conclusion is strengthened by the fact that there are already ongoing proceedings in the South Jakarta District Court and the Commercial Court dealing with the issue of which entity has the right to use the name of, and be recognised as, BANI.

This decision is a blow to BANI as it is now faced with two decisions that are not in its favour. Continue reading

Inside Arbitration: Issue #3 of the publication from Herbert Smith Freehills’ Global Arbitration Practice

We are delighted to share with you the latest issue of the publication from Herbert Smith Freehills' Global Arbitration Practice, Inside Arbitration.

In addition to sharing knowledge and insights about the markets and industries in which our clients operate, the publication offers personal perspectives of our international arbitration partners from across the globe.

In this issue:

  • Paula Hodges QC, Peter Leon, Craig Tevendale and Chris Parker share their insights into the development of commercial arbitration on the African continent and consider dispute resolution choices for parties negotiating Africa-related contracts.
  • We consider the development of arbitration in Rwanda and the Kigali International Arbitration Centre "in conversation" with KIAC's secretary general, Dr Fidèle Masengo.
  • Peter Godwin, Regional Head of Disputes Asia, reflects on his 16 years in Asia and the changes in attitudes towards dispute resolution amongst Japanese parties.
  • Dr Patricia Nacimiento, Thomas Weimann and Dr Mathias Wittinghofer give their view on whether Germany is on its way to becoming a true arbitration powerhouse.
  • Chris Parker, Elaine Wong, Gitta Satryani and Elizabeth Kantor provide a global perspective on the availability of security for costs and claim in international arbitration.
  • Dr Larry Shore discusses his path into public international law and the development of his interest in treaty disputes, as well as the differences in arbitration practice in the US and the UK and trends in US arbitration.
  • We highlight a number of key considerations for parties negotiating contracts with state and state-owned entities across the globe and provide comparative into state immunity in five key jurisdictions.

We are pleased to present our clients with an infographic providing a snapshot of our global arbitration practice in the two years 2014-2016.

The infographic details the successes of our growing practice and our huge geographical reach. The infographic is available at this link and at page 25 of Inside Arbitration.

The full digital edition can be downloaded in PDF by clicking on this link.

We hope that you enjoy reading Issue #3 of Inside Arbitration. We would welcome your feedback.

UPDATE: Singapore passes law to legalise third-party funding of international arbitration and related proceedings

On 10 January 2017 the Singapore Parliament passed amendments to the Civil Law Act legalising third-party funding in arbitration and related proceedings in Singapore (the "Amendments"). Following a year of positive developments for arbitration in Singapore, this latest development will open up a significant new market for funders worldwide, further asserts Singapore's eminence as an arbitral centre and paves the way for further and deeper reform.

Overview

We previously reported on the introduction of the Civil Law (Amendment) Bill in our blog posts of July 2016 and November 2016. The key features of the Bill were to:

  • abolish the common law torts of champerty and maintenance (which currently restrict the use of third party funding);
  • confirm that third party funding is not contrary to public policy or illegal, if used by eligible parties in prescribed categories;
  • confirm that the prescribed categories of proceedings in which third party funding can be used include international arbitration proceedings and court litigation and mediation arising out of international arbitration; and
  • prescribe the qualifications that a third party funder must satisfy in order to fund an arbitration, including a proviso that the funding of dispute resolution proceedings must be the "principal business" of the third party funder.

While the legislation makes the broad legal amendments necessary to facilitate third-party funding, the finer details – such as the precise scope of the permitted arrangements and accompanying regulatory changes – will be dealt with by subsidiary legislation and regulations by the Minister of Law.

Interestingly, early reports of Ministers' comments on the legislation, indicate that the Amendments – currently limited to international arbitration and related proceedings – are very much a first step toward broader reform. Singapore's Senior Minister of State for Law, Ms Indranee Rajah, reportedly stated that "We want to have [third-party funding] tested in a limited sphere … If the framework works well, as and when appropriate, the prescribed categories of proceedings may be expanded". This will be of significant interest to funders and practitioners alike, as it clearly positions Singapore as a growth market.

Continue reading