Case Summaries

BXH v BXI [2020] SGCA 28

SUPREME COURT OF SINGAPORE

2 April 2020

Case summary

BXH v BXI [2020] SGCA 28
Civil Appeal No 142 of 2018

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

Outcome: CA allows appeal in respect of Debts 1B and 2B, and the arbitral award is thus set aside in part under Art 34(2)(a)(i) of the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”).

Pertinent and significant points of the judgment

  • A dispute relating to the right of suit following an assignment of the underlying agreement pertains to the existence, rather than the scope, of an arbitration agreement.
  • A notice of assignment can be validly sent by either the assignor or the assignee.
  • Unlike litigation, which is founded on the State’s coercive power, arbitration is founded entirely upon the parties’ consent.
  • An arbitrator would not have jurisdiction over a dispute if the claimant only obtained the right of suit after the commencement of the arbitration.

Introduction

1 The respondent, BXI, developed and manufactured consumer goods. The appellant, BXH, distributed the respondent’s goods in Russia. The respondent was a wholly-owned subsidiary of a Singapore company (“the Parent Company”). The relationship between the appellant and the respondent had to be seen in light of eight related contracts, all of which involved at least one of the parties. These were the Distributor Agreement, the Transition Agreement, the Assignment and Novation Agreement, the Participation Agreement, the Gold Plan Agreement, the Debt Transfer Agreement, the Open Debt Agreement, and the Buy Back Agreement.

2 The Distributor Agreement contained an arbitration agreement (cl 25.9) between the parties. While the appellant had originally been dealing with the Parent Company, the latter’s rights and obligations were transferred to the respondent through the Assignment and Novation Agreement.

3 The debts that the appellant owed were classified into three categories: Debt 1A, Debt 1B and Debt 2B. Debts 1B and 2B (collectively “Debt B”), were assigned by the respondent to a third party (“the Factor”) through the Participation Agreement. They were, however, purportedly re-assigned back to the respondent through the Buy Back Agreement in April 2015 and a second buy back in December 2015.

Background to the appeal

4 In October 2015, the respondent issued a notice of arbitration to the appellant, seeking payment for Debts 1A and B. The appellant served a response to the notice of arbitration resisting the claim on various grounds, including that the tribunal appointed by the Singapore International Arbitration Centre (“SIAC”) did not have jurisdiction to hear the dispute. The appellant refused to nominate its arbitrator within the thirty-day period stipulated in the Distributor Agreement, but continued to mount challenges to the tribunal’s jurisdiction and purported lack of independence. The SIAC dismissed the appellant’s challenge on 4 May 2017. The tribunal issued its award on 28 July 2017, finding in favour of the respondent.

5 The High Court Judge (“the Judge”) found that the tribunal did possess jurisdiction over the parties’ dispute. The Judge also held that the arbitration agreement contained in the Distributor Agreement governed the parties’ dispute, and that the right to arbitrate in relation to Debt B had indeed been re-assigned to the respondent via the Buy Back Agreement. Although the right of suit for several debts were only re-assigned in December 2015, these rights were retrospectively vested in the respondent, such that the tribunal possessed the jurisdiction to adjudicate over the parties’ dispute.

The decision on appeal

6 The Court of Appeal held that cl 25.9 of the Distributor Agreement, which contained the parties’ agreement to arbitrate, ought to be given effect. Although another clause, cl 25.8, appeared to suggest that disputes between the parties ought instead to be litigated in a Singapore court, the parties had demonstrated a real intention to have matters resolved by arbitration. In such a situation, a generous and harmonious interpretation ought to be given to purportedly conflicting clauses, such as to give effect to the parties’ true intention: at [60].  

7 The appellant argued that the right to arbitrate under the Distributor Agreement remained with the Parent Company as valid notice, which was required under cl 1 of the Assignment and Novation Agreement, had not been given. An email sent to the appellant prior to the execution of the Assignment and Novation Agreement could not suffice. The Court of Appeal disagreed with the appellant’s contention, as nothing on the plain wording of cl 1 suggested that notification would only be effective after a certain date or event. Valid notice could indeed have been given prior to the parties entering into the Assignment and Novation Agreement: at [63]–[69].

8 The Court of Appeal found that, as an arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to, the assignment of a debt from one party to another also results in an assignment of the right to arbitrate a dispute in relation to that debt: at [75].

9 The right to arbitrate in relation to Debt B, which had been assigned from the respondent to the Factor, relates to the ground of setting aside under Art 34(2)(a)(i) of the Model Law, which concerned the existence of an arbitration agreement (or lack thereof) and not the scope of an agreement under Art 34(2)(a)(iii). The question remains whether the respondent was, at the relevant time, able to commence arbitration in relation to Debt B pursuant to a valid arbitration agreement with the appellant: at [83]–[84].

10 The Court of Appeal held that the Buy Back Agreement in 2015 did not have the effect of reassigning Debt B back to the respondent. Instead, the Buy Back Agreement was primarily concerned with the discharge of certain “with recourse” obligations that the respondent owed to the Factor. This was consistent with the actions taken by the Factor in continuing to issue monthly statements of its accounts to the appellant, and the lack of reference or use of the terms “assignment”, “reassignment” or “buy back” in the Buy Back Agreement itself. Instead, Debt B was only reassigned in 2017, when the Factor sent a letter to the appellant confirming the fact of reassignment: at [95], [97] and [109].

11 The Court of Appeal held that the sources relied on by the court in The “Jarguh Sawit” [1997] 3 SLR(R) 829 (“Jarguh Sawit”) did not stand for the proposition that an assignment can retrospectively vest rights in the assignee (“the retrospective vesting principle”): at [117].

12 In any case, the principles laid down in Jarguh Sawit were not applicable in the present context, which concerned arbitration proceedings. While litigation is founded on the State’s coercive power, arbitration is founded entirely upon the parties’ consent. At the relevant time, there was only an agreement between the parties to arbitrate over disputes relating to Debt 1A. The retrospective vesting principle could not apply to confer jurisdiction on the tribunal to adjudicate over Debt B when the parties had not consented for such a dispute to be referred at the time when the arbitration was commenced: at [125]–[126] and [138].  

13 Notice of assignment may be provided by either the assignor or the assignee. A debtor would however possess the right to request for evidence of the assignment when faced with a notice from a purported assignee: at [144] and [149].      

14 The Debt Transfer Agreement did not release the appellant from its obligation to pay the Open Debt. Properly construed, the appellant’s obligation to pay the Open Debt was extinguished with immediate effect and transferred to the Russian Corporation until the time stipulated for the Russian Corporation to pay the Open Debt. The appellant’s obligation would revive if the Russian Corporation failed to make full payment to the respondent in discharge of the Open Debt: at [159]–[160].        

15 The appellant argued that any reassignment of the Factor’s rights to Debt 2B would be of rights under the Open Debt Agreement, which arguably incorporates the dispute resolution provision under the Schedule to the Gold Plan Agreement (“the Gold Plan dispute resolution clause”). The Court of Appeal disagreed as the Gold Plan dispute resolution clause was never meant to apply to invoices issued by the respondent: at [162]–[164].

 

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.

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