Case Summaries

Marty Limited v Hualon Corporation (Malaysia) Sdn Bhd (Receiver and Manager Appointed) [2018] SGCA 63

SUPREME COURT OF SINGAPORE

10 October 2018

Case summary

Marty Limited v Hualon Corporation (Malaysia) Sdn Bhd (Receiver and Manager Appointed) [2018] SGCA 63
Civil Appeal No 175 of 2017

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Decision of the Court of Appeal (delivered by Judge of Appeal Judith Prakash):

Outcome: CoA finds party to an arbitration agreement who had commenced and maintained court proceedings to be in repudiatory breach of the arbitration agreement.

Pertinent and significant points of the judgment

  • It was strongly arguable that the commencement of court proceedings was itself a prima facie repudiation of the arbitration agreement (at [54] and [66]).

  • It was not necessary for a party who wished to rely on an arbitration clause to positively show that the agent of the counterparty who had signed the underlying contract had actual knowledge of the arbitration clause (at [77]).

 

Background to the appeal

1          This appeal examined the circumstances in which a party to an arbitration agreement who commenced court proceedings may be held to have lost its right to refer the same disputes to arbitration and the legal basis which would justify such a holding.

Facts

2          Hualon Corporation (Malaysia) Sdn Bhd (Receiver and Manager Appointed), the respondent, had been in receivership since November 2006. Prior thereto its directors were two brothers known as the Oung brothers. The respondent incorporated a subsidiary in Vietnam in 1993 (“the Vietnam Subsidiary”) and in February 2008 after a re-registration its company charter was updated (“the Revised Charter”). Marty Limited, the appellant, was incorporated by the Oung brothers in the British Virgin Islands (“BVI”) in August 2006. The shares in the Vietnam Subsidiary had been transferred to the appellant and various other companies such that the respondent’s shareholding was reduced to 0.19%.

3          On 22 July 2014, the Receiver on behalf of the respondent commenced court proceedings in the BVI against the appellant for wrongful deprivation of the respondent’s shareholding in the Vietnam Subsidiary (“the BVI Action”). On 10 March 2015, the Receiver on behalf of the respondent commenced arbitration proceedings with the Singapore International Arbitration Centre against the appellant in respect of the same alleged breaches. The Receiver’s explanation was that it had only discovered the arbitration clause in the Revised Charter at the end of February 2015.

4          The appellant challenged the jurisdiction of the tribunal on the grounds that the respondent could not rely on the arbitration clause in the Revised Charter while challenging the validity of the Revised Charter as a whole for lack of authority; that the respondent had, by commencing and maintaining the BVI Action, waived its right to arbitrate or committed a repudiatory breach of the arbitration clause that the appellant accepted; and that the dispute did not fall within the scope of the arbitration clause. The tribunal dismissed the appellant’s jurisdictional challenge and the appellant challenged that decision in the High Court. The High Court judge (“the Judge”) dismissed the appellant’s challenge and held that the tribunal had jurisdiction. The appellant appealed against the decision of the Judge.

Decision on appeal

5          The Judge held, and the parties accepted, that the respondent could not rely on the arbitration clause while challenging the Revised Charter as a whole for lack of authority. Counsel for the respondent, however, stated during the hearing before the Court of Appeal that the respondent would not be challenging the validity of the Revised Charter either in the present proceedings or in the arbitration. This resolved the inconsistency in the respondent’s previous positions (at [43]–[45]).

6          The court expressed the view that it was strongly arguable that the commencement of court proceedings was itself a prima facie repudiation of the arbitration agreement. However, because the appellant did not put its case on that basis, the court did not take that approach (at [54], [66] and [67]).

7          The court held that the respondent had evinced repudiatory intent when it started the BVI Action and contended in its statement of claim that once the Receiver was appointed, the Oung brothers had no authority to act on behalf of and to bind the respondent. To a reasonable person in the appellant’s position, it would appear that the respondent had disavowed all documents and transactions that the Oung brothers entered into after the Receiver’s appointment, including the Revised Charter and the arbitration clause therein. The respondent’s explanation that it had only discovered the arbitration clause in February 2015 was not accepted as the alleged lack of knowledge was something that only the respondent was aware of and it would have been impossible for a reasonable person in the position of the appellant to have known that the respondent had commenced litigation only because it was ignorant of the arbitration clause (at [68] and [70]).

8          While it was not necessary for the court’s decision, the court was also satisfied that the respondent possessed actual knowledge of the arbitration clause. Because the respondent had withdrawn its challenge to the validity of the Revised Charter, the Oung brothers’ knowledge of the terms of the Revised Charter, including the arbitration clause therein, could be attributed to the respondent. It was not necessary for the appellant to prove that the Oung brothers had actual knowledge of the arbitration clause, as it would severely undermine the efficacy of arbitration agreements to require that parties who signed contracts had to be aware of the existence of arbitration clauses in those contracts (at [75]–[77]).

9          On the question of acceptance, the court rejected the appellant’s submission that it had accepted the respondent’s repudiation by challenging the BVI court’s jurisdiction on the ground of forum non conveniens. Since the respondent’s repudiation lay in commencing the BVI Action, the acceptance must lie in accepting the court’s jurisdiction and engaging it on the merits. The appellant’s jurisdictional challenge, however, meant that it had disputed rather than accepted the jurisdiction of the BVI court (at [85]–[87]).

10        The court took the view, however, that the appellant had accepted the repudiation by applying to the BVI court for summary judgment in its favour or to strike out the BVI Action. This engaged the jurisdiction of the BVI court because it requested the BVI court to determine this claim on the merits. The summary judgment application was capable of being the act of acceptance even though it was filed some two weeks after the filing of the Notice of Arbitration. At the time of the summary judgment application, the respondent had not resumed performance of the agreement to arbitrate by discontinuing the BVI Action or, at the very least, filing an application to stay the proceedings. Although the respondent had written to the appellant proposing that the BVI Action be stayed, no steps were taken to carry out that proposal until more than a month later (at [89]–[92]).

11        On the issue of waiver, the court doubted the Judge’s holding that a party in the respondent’s position could never have waived its right to arbitrate. The Judge had considered that waiver by election could only be asserted by the innocent party and the respondent was not such a party as it was the party in breach of the arbitration clause. The court observed that while waiver by election typically involved a breach of contract by the “waiving” party, this was not always the case, since there may be situations in which there was no breaching or innocent party. However, the court also observed that where a party to an arbitration agreement breached that agreement by starting court proceedings instead of arbitration in respect of a dispute covered by the agreement, there was a thorny issue as to whether the party in breach could be said to have waived the right to arbitration by asserting his right to go to court, because it could be thought that by entering into the arbitration agreement, the contract breaker had given up his right to go to court. (at [93], [95] and [96]).

12        Given the court’s finding on the issue of repudiation, however, it was not necessary for the court to embark on a discussion on the issues of waiver and of the scope of the arbitration clause (at [96]–[97]).

 

This summary is provided to assist in the understanding of the Court’s judgment. 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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