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BWF v BWG [2019] SGHC 81: Restraining Winding-Up Proceedings Where Parties Had Agreed to an Arbitration Clause

Introduction

Where parties have agreed to include an arbitration clause in their contract, it is not uncommon that one party may seek an injunction against the other party to restrain the commencement of winding-up proceedings against it. What, then, is the standard applicable by the Courts in determining whether to grant an injunction in such situations? This question has been considered by the Singapore High Courts on various occasions in recent years, resulting in varying views on what is the applicable standard. Most recently, this question was considered by the Honourable Justice Valerie Thean (“Justice Thean”) in BWF v BWG [2019] SGHC 81 (“BWF v BWG”).

Facts of BWF v BWG

The Plaintiff (“BWF”) and the Defendant (“BWG”) entered into a contract for the sale and purchase of crude oil under which BWF was to pay BWG the sum of US$30,245,600 upon completion of the contract. After forming the view that it had performed its obligations under the contract, BWG issued an invoice to BWF for the same sum.

BWF did not pay BWG the sums set out in the said invoice. On 13 August 2018, BWG served a statutory demand on BWF for the said sum. BWF responded by disputing the sums claimed by BWG and requesting that the dispute be referred to arbitration pursuant to the arbitration clause in the parties’ contract.

After parties failed to reach a settlement via correspondence, BWF applied for an injunction to restrain BWG from bringing winding-up proceedings against it by virtue of the contract’s arbitration clause.

Main Issue before the Court

The main issue before the Court in BWF v BWG was thus what is the standard to determine whether to grant an injunction to restrain the commencement of winding-up proceedings pending arbitration.

Counsel for BWF submitted that the applicable standard for determining whether an injunction should be granted is whether there is a bona fide prima facie dispute that is subject to an arbitration agreement. On the other hand, counsel for BWG contended that the standard ought to be whether there is a triable issue, which is akin to that of resisting a summary judgment application. If the latter standard applies, a court will have to examine the affidavit evidence to determine whether a dispute exists and whether, on the evidence before it, an arguable case can be made meriting the holding of a trial.

The Standard Applied in BWF v BWG

After considering the past cases cited by both parties’ counsel in support of their positions, including, inter alia, BDG v BDH [2016] 5 SLR 977, VTB Bank (Public Joint Stock Co) v Anan Group (Singapore) Pte Ltd [2018] SGHC 250 (“VTB”) and Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268 (“Metalform Asia”), the High Court held that the relevant standard is that of a bona fide prima facie dispute.

In reaching her decision, Justice Thean referred to the Court of Appeal decision in Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] 2 SLR 1271 to emphasise the importance placed on respecting party autonomy in contracts today. The Court thus held that where parties have agreed to refer disputes which arise out of their contracts to arbitration, and a dispute falling within the ambit of the arbitration clause arises, their contractual bargain should be given effect even if the dispute is one that may be easily resolved.

The Court distinguished the principle stated in Mohd Zain bin Abdullah v Chimbusco International Petroleum (Singapore) Pte Ltd [2014] 2 SLR 446 that a bankruptcy court should be able to have recourse to the summary judgment standard in order to protect the interest of a meritorious creditor, and observed that the principle will not apply where parties have agreed to an arbitration clause as the principle in focus will be that of party autonomy.

The Court’s Observations on Metalform Asia

The Court in BWF v BWG also addressed the issue on whether it is bound by the Court of Appeal decision in Metalform Asia in respect of the question before it.

In Metalform Asia, the Court of Appeal decided that the applicable standard to stay court proceedings in situations where there was a genuine cross-claim was the “unlikely to succeed” standard. The High Court in VTB followed the standard applied in Metalform Asia, stating that it was bound by Metalform Asia on the question faced.

The High Court in BWF v BWG took a different stance as that taken by the court of the same instance in VTB and distinguished Metalform Asia. It observed that the significance of the arbitration clause was not directly engaged in Metalform Asia since parties in that case had agreed that the arbitrator was the proper adjudicator for the issue. Thus, the Court held that the relevant standard is that of a bona fide prima facie dispute.

Judgment

Although the Court in BWF v BWG reached a decision on the applicable standard, in light of the varying High Court judgments on the question faced, it went on to consider if any of the substantive defences put forth by BWF raised triable issues. Ultimately, it found that there was a triable dispute between the parties and granted an injunction in favour of BWF to restrain BWG from taking out winding-up proceedings with costs awarded to BWF.

Commentary

BWG has filed an appeal to the Court of Appeal against the decision in BWF v BWG. The defendant company in VTB is also applying to appeal the winding up order made against it, and the appeal will similarly be heard before the Court of Appeal.

In light of the varying decisions reached by the High Court on the applicable standard for the grant of an injunction to restrain winding-up proceedings where parties have agreed to an arbitration clause, a Court of Appeal decision on this question of law will undoubtedly serve as a helpful guidance for future cases.  It will also be interesting to see the balance struck by the Courts between the need to hold parties to their contractual agreements and the need to ensure that winding-up is not staved off on tenuous grounds.