Case Summaries

AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33


7 April 2020

Case summary

Civil Appeal No 174 of 2018
AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33


Decision of the Court of Appeal (delivered by Justice Steven Chong):

Outcome: Court of Appeal holds that, in respect of a winding-up application that is premised on a debt which is subject to arbitration, the prima facie standard of review applies, such that the debtor needs simply to show that there is a dispute in relation to the debt which is the subject of an arbitration agreement. Applying this prima facie standard of review, the court allows the appeal and sets aside the order for the appellant to be wound up.


1          It is well established that a debtor company needs to raise triable issues in order to obtain a stay or dismissal of the winding-up application. However, in Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 (“Salford”), the English Court of Appeal pronounced that, where the dispute in relation to the debt is subject to an arbitration agreement, the prima facie standard of review ought to apply. Under this prima facie standard of review, when faced with a disputed debt that is the subject of an arbitration agreement, the English courts ought to dismiss or stay the winding-up application, save in “wholly exceptional circumstances”.

2          Following the decision in Salford, there have been several conflicting decisions across the Commonwealth in relation to the applicable standard of review in cases where a dispute which is the subject of an arbitration agreement is raised in the context of winding-up proceedings. While some decisions have favoured the prima facie standard of review, other decisions favoured the retention of the triable issue standard, notwithstanding the presence of an arbitration clause which governs the dispute. The issue relating to the applicable standard of review in such a context arose on the facts of this case. The High Court judge (“the Judge”), considering himself bound by an earlier decision of the Court of Appeal, held that the triable issue standard applies, and, finding that the disputes were not raised bona fide by the appellant, ordered that the appellant be wound up. The Court of Appeal allowed the appeal, and reversed the Judge’s decision to wind up the appellant.

Facts and procedural history

3          The appellant is AnAn Group (Singapore) Pte Ltd (“AnAn”), while the respondent is VTB Bank (Public Joint Stock Company) (“VTB”). Pursuant to a global master repurchase agreement (“the agreement”), the parties entered into a sale and repurchase agreement of global depository receipts (“GDRs”) of shares, whereby AnAn would sell VTB the GDRs in a company known as EN+. AnAn was then obliged to repurchase the GDRs from VTB at a later date at a pre-agreed rate. In substance, the agreement was a loan from VTB to AnAn, and the EN+ GDRs acted as collateral for the loan.

4          Under the agreement, AnAn was obliged to maintain sufficient collateral, which would be affected based on the prevailing value of the EN+ GDRs which it had sold to VTB. The agreement further provided that any dispute arising out of or in connection with it was referable to arbitration.

5          A few months after VTB’s purchase of the EN+ GDRs from AnAn, the prices of the GDRs plummeted, from about US$13 per share to US$5.60 per share, due to sanctions imposed on major shareholders of EN+ by the United States Treasury’s Office of Foreign Assets Control. Following the imposition of the sanctions, VTB issued a notice to AnAn, requiring the latter to top up a cash margin of approximately US$85m to meet the shortfall in collateral. After AnAn failed to do so within the stipulated date, VTB sent a calculation notice to AnAn, stating that approximately US$170m was owed to it by AnAn. This figure was calculated by subtracting the Net Value of the EN+ GDRs from the purchase price of the GDRs. In this notice, VTB informed AnAn that it had ascribed a Net Value of US$2.50 per EN+ GDR.

6          Later, VTB served a statutory demand for the sum of approximately US$170m, which AnAn failed to repay within three weeks. On the basis of the unsatisfied statutory demand, VTB initiated winding-up proceedings against AnAn. The Judge rejected the disputes raised by AnAn in relation to the debt, finding that they were not raised bona fide. Accordingly, he ordered the winding up of AnAn. AnAn appealed against the Judge’s decision.

7          Prior to the hearing of the substantive appeal, AnAn applied for leave to adduce a valuation report, which questioned the valuation of US$2.50 per EN+ GDR as ascribed by VTB, opining instead that each EN+ GDRs ought to have been valued at between US$8.01 and US$8.68; were such a valuation adopted, there would be no debt due from AnAn to VTB. The application to adduce the valuation report was allowed by the Court of Appeal, and VTB was granted leave to respond to AnAn’s valuation report, which it did in the form of another valuation report of its own expert, which opined that VTB’s valuation of US$2.50 was justified. 

Decision of the Court of Appeal

8          Hearing the substantive appeal, the key issue before the Court related to the standard of review: when a debtor raises a dispute which is the subject of an arbitration agreement to resist a winding-up application filed on the basis of an unsatisfied debt, should the triable issue or prima facie standard of review apply?

9          The Court observed that this issue was not before the court in its earlier decision in Metalform Asia Pte Ltd v Holland Leedon Pte Ltd [2007] 2 SLR(R) 268, and that it was being raised for the first time before the Court of Appeal: at [27]–[29].

Approaches to the applicable standard of review in other jurisdictions

10        Reviewing the authorities in other jurisdictions, the Court of Appeal considered that it was first raised in the English Court of Appeal’s decision in Salford, where the court held that the prevalent triable issue standard, which allows the court to conduct a summary judgment type analysis of liability on an unadmitted debt, would inevitably encourage parties to an arbitration agreement – as a standard tactic – to bypass the arbitration agreement by presenting a winding-up petition. In the result, a creditor could, through the draconian threat of liquidation, pressure an alleged debtor to pay up immediately or face the burden of satisfying the court that the debt is bona fide disputed on substantial grounds (ie, the triable issue standard). This would be entirely contrary to the parties’ agreement as to the proper forum for the resolution of the dispute and to the legislative policy of the arbitration legislation. Accordingly, when faced with a disputed debt that was subject to an arbitration agreement, the court in Salford held that, save in “wholly exceptional circumstances”, the winding-up application ought to be stayed or dismissed: at [30].

11        The Salford approach has received mixed reception across the Commonwealth. In Hong Kong, it has been adopted in large by the court in Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (“Lasmos”). However, in the subsequent decision of But Ka Chon v Interactive Brokers LLC [2019] HKCA 873 and Dayang (HK) Marine Shipping Co, Ltd v Asia Master Logistics Ltd [2020] HKCU 494, the Hong Kong courts have raised several doubts in obiter remarks about the Lasmos decision. Furthermore, while it has been adopted in Malaysia and by two earlier decisions of the Singapore High Court, the Eastern Carribean Court of Appeal has rejected its reception, holding that the triable issue standard is “too firmly” part of its law, and that the position outlined in Salford “comes close to the automatic stay position”: at [32]–[53].

The prima facie standard of review is to be adopted

12        The Court of Appeal held that the prima facie standard of review is to be adopted, such that when a court is faced with either a disputed debt or a cross-claim that is subject to an arbitration agreement, the prima facie standard is to apply, and the winding-up proceedings would be stayed or dismissed if (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: at [56].

13        First, adopting the prima facie standard of review would promote coherence in the law concerning stay applications. If a creditor claimed for a debt simpliciter before the court, the debtor would simply have to demonstrate that there was an arbitration clause and that the dispute relating to the debt is caught by that clause. Once such a burden of proof was satisfied, the court would stay the action, and defer the actual determination of the dispute to the arbitral tribunal. However, if the same debt was relied on as the basis for presenting a winding-up application, the conflicting authorities suggested that the triable issue standard could apply, such that the debtor would be required to demonstrate a substantial and bona fide dispute before the winding-up application could be stayed. The Court held that there was no principled basis to apply differing standards to what would essentially be the same disputed debt. Under the dichotomy of standards, the applicable standard of review would depend solely on the creditor’s tactical choice to pursue an ordinary claim for debt (under which the prima facie standard would apply) or to apply to wind the debtor up (under which the triable issue standard would apply). By adopting the prima facie standard for winding-up proceedings, creditors would thereby be discouraged from abusing the court’s winding-up jurisdiction as a means to avoid the parties’ agreed method of dispute resolution, being arbitration: at [61]–[63] and [74].

14        Second, replacing the triable issue standard with the prima facie standard would give effect to the principle of party autonomy, which is the cornerstone underlying judicial non-intervention in arbitration. Under the triable issue standard, the court would have to critically consider the merits of the debtor’s defences, in spite of the parties’ agreement that such disputes ought to be determined by an arbitrator, who might well arrive at a different conclusion on the merits from the court. A party did not lose his genuine desire for recourse to arbitration just because his case appeared weak, and arbitration may have been preferred for the procedural advantages which may not be available were the matter to be determined by the courts: at [75]–[82].

15        Furthermore, the Court observed that the triable issue standard presented uncertainty, as alleged debtors would have to convince the court on the merits that there was a substantial and bona fide dispute before the winding-up application could be stayed or struck out in favour of arbitration. It also caused parties to incur significant costs before the courts, even though the substantive dispute was properly referable to arbitration: at [84] and [85].

The scope of the prima facie standard of review

16        Turning to the scope of the prima facie standard of review, the Court held that fundamentally, the prima facie standard exhorts limited judicial intervention, such that the court is merely required to determine whether it appears on a prima facie basis that there is an arbitration clause and that the dispute is caught by that clause: at [91].

17        To check against the abuse of this lower standard of review, the Court held that a stay would not be granted notwithstanding that the prima facie standard has been met if the application for a stay amounts to an abuse of process. The Court observed that the abuse of the court’s process can manifest itself in a multitude of scenarios, and that the threshold for abusive conduct is very high. An example of an abuse of process would be where the debt had been admitted as regards both liability and quantum. The abuse of process control cannot, however, be used as a gateway for parties to introduce arguments on the merits of the underlying dispute. Hence, the court would not be in a position to determine whether the defence is “so obviously lacking in merit”, a concern raised by the Judge: at [97] and [99].

Application of the prima facie standard

18        Applying the prima facie standard of review, the Court held that there was a prima facie dispute in this case, as AnAn had disputed the debt which was the subject of VTB’s winding-up application, and AnAn’s dispute in relation to the debt was governed by the arbitration clause in the agreement between the parties: at [101].

19        There was also no abuse of process on AnAn’s part, who did not at any time expressly admit to its liability for the debt claimed by VTB. While the Court observed that AnAn could have raised its objections earlier and that it could have fleshed out its defence in greater detail before the Judge, this delay did not suffice to show an abuse of process, especially when considering the short timelines in the proceedings below, which meant that AnAn had less than two months from the date of VTB’s statutory demand to prepare its defence for the hearing of the winding-up application before the Judge: at [102].

Appropriate order: Dismissal or stay of winding-up application

20        In deciding the appropriate order to be made, the Court was of the view that, once it is satisfied that there is a prima facie dispute that is governed by an arbitration agreement, and provided that the dispute is not raised by the debtor in abuse of the court’s process, the court will ordinarily dismiss the winding-up application: at [103] and [110].

21        However, in cases where the applicant creditor is able to demonstrate legitimate concerns about the solvency of the debtor-company as a going concern, and no triable issues are raised by the debtor, the court can grant a stay (as opposed to a dismissal) of the winding-up application. The legitimate concerns may be raised by the balance sheet of the company, which is another marker of insolvency, or by the fact that there are other winding-up applications against the company by other independent creditors, and there are substantiated concerns that the company is simply seeking to rest on the arbitration clauses to delay payment of legitimate debts. If a stay of the winding-up petition is granted, the creditor would 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: at [111] and [112].

22        In the present case, the Court observed that no evidence had been tendered to show that there were legitimate concerns relating to the solvency of AnAn. Indeed, apart from VTB’s winding-up application, the Court had not been referred to any other winding-up application or claim that was pending against AnAn. Further, there was no evidence that AnAn was balance sheet insolvent, independent of VTB’s claim. Accordingly, the Court allowed AnAn’s appeal against the Judge’s winding-up order, and the winding-up application was dismissed in its entirety: at [113].

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.