By Wynne Tay - MPillay

This High Court decision concerns an application by the plaintiff for an injunction to restrain the defendant from bringing winding up proceedings against the plaintiff on the ground that the contract between the parties obliged them to proceed to arbitration to resolve their disputes. The Court granted the injunction. An appeal by the defendant against the High Court's decision on this application is currently outstanding.

This decision is interesting because it is the latest in a series of High Court decisions considering the applicable standard for an injunction in such circumstances. Unfortunately, the High Court has not been entirely consistent in its approach. It is thus hoped that the Court of Appeal in this case will provide much needed clarity on this issue. This summary will focus on the High Court's observations on the applicable standard.

Background facts

The plaintiff and the defendant entered into a contract for the sale and purchase of crude oil (the "Contract"). The Contract was expressly governed by English law and contained an arbitration agreement for disputes to be referred to arbitration in London.

The plaintiff's case is that the Contract was part of an arrangement with a third party ("BWX") where the plaintiff was to act as an intermediary between the defendant and BWX. Under this arrangement, the plaintiff's role was to pay the defendant upon payment by BWX.

It later transpired that BWX failed to make payment to the plaintiff upon delivery of the cargo. The plaintiff also failed to pay the defendant under the Contract.

The defendant refused to accept any proposed repayment schedule and sent payment reminders to the plaintiff. On the other hand, the plaintiff and BWX entered into a settlement agreement, providing for payment in four instalments (the "Settlement Agreement").

About a month later after the Settlement Agreement, the defendant served a statutory demand on the plaintiff. The plaintiff responded to the statutory demand disputing the debt claim and requesting that the dispute be referred to arbitration. Subsequently, the plaintiff filed the present originating summons to set aside the statutory demand and to ask for an injunction to restrain winding up proceedings.

In the meantime, BWX breached the Settlement Agreement by failing to pay the first instalment. Upon the plaintiff's demand, BMX still failed to make payment or make any offer to secure or compound debt to the satisfaction of the plaintiff. The plaintiff thereafter filed a winding up application against BMX which was being stayed at the time the High Court heard the application.

Injunction application

Applicable standard

In the present application, the High Court had to determine the standard for determining whether an injunction should be granted to restrain the winding up proceedings.

The plaintiff argued that the standard should be whether there is a bona fide prima facie dispute that is subject to an arbitration agreement. The defendant, on the other hand, contended that the applicable standard should be that of a triable issue which is the standard generally used for an injunction to restrain winding up proceedings. In other words, the standard contended by the defendant would require the court to examine affidavit evidence in considering whether an arguable case could be made meriting the holding of a trial of the issues.

The Court agreed with the plaintiff and held that "the existence of a bona fide prima facie dispute was sufficient for the court to grant the injunction sought" in the present circumstances: see [22].

The Court first noted this will be more consistent with the "central principle of party autonomy" highlighted in the Court of Appeal decision of Vinmar Overseas (Singapore) Pte Ltd v PTT International Trading Pte Ltd [2018] 2 SLR 1271. This will align with the law governing exclusive jurisdiction clauses, forum non convenience and International Arbitration Act applications where the merits of the defence are irrelevant to the issue of stay: see [34].

The principle of party autonomy was relevant to the present case where parties had previously agreed to arbitrate disputes between them. Indeed, the Court stated that "[a] creditor who wishes to file winding up proceedings knowing that the debt which is its premise is the subject of a dispute which was earlier agreed to be arbitrated would be misusing judicial facilities if good reason to renege upon his contractual bargain is absent." Accordingly, where there is a bona fide prima facie dispute that is subject to an arbitration agreement, the Court would grant an injunction to restrain the plaintiff from commencing winding up proceedings: see [35].

Application of standard on the facts

In considering whether the plaintiff met the standard in the present case for an injunction to be granted, the Court noted that it would decline to grant the injunction if the plaintiff is guilty of abuse of process. In this regard, the courts' threshold for abusive conduct is very high and would only occur in exceptional situations. One of such situations would be where there has been a clear and unequivocal admission as to both the liability and quantum of claim but an injunction is sought for no reason other than its alleged inability to pay: see [39].

There may also be exceptional circumstances under which winding up proceedings will have to continue despite there being an arbitration agreement. For example, where independent persons are urgently required to investigate potentially misappropriated assets that were missing from the company, or there is a substantial suspicion of fraudulent preferences, or there is a need to engage the statutory avoidance provisions: see [40].

In the present case, the defendant contended that the injunction application should be dismissed for abuse of process because the plaintiff had:-

1. made an admission;
2. waived its right to arbitration by election;
3. approbated and reprobated; and / or
4. acted inequitably in:-

a. denying that it owed the defendant the debt;

b. commencing winding up proceedings against BWX despite maintaining that it did not owe the defendant for the same; and

c. initially refusing to present the affidavit that it filed in support of the winding up application against BWX.

The Court rejected all of the arguments.

On the issue of admission, the Court found that the plaintiff had consistently maintained that its liability was conditional upon payment by BWX first. There was thus no admission by the plaintiff arising out of the parties' correspondence: see [42-47].

The Court also found that there was no inconsistency in the plaintiff's assertion of its rights so there could be no waiver by election. In particular, the Court noted that the winding-up claim against BWX was premised on the Settlement Agreement and not a claim for price under the contract between the plaintiff and BWX for the delivery of the cargo. Further, the steps taken by the plaintiff against BWX did not at any point in time amount to an unequivocal representation that it would waive any rights it possessed: see [50].

Similarly, on the issue of approbation and reprobation, the Court found that the plaintiff had not taken inconsistent positions in the winding-up application against BWX and the present application: see [51-52].

Finally, the Court rejected the argument that the plaintiff had acted inequitably as it was unable to find that the plaintiff's conduct "reflected a depravity in the legal as well as moral sense": see [53].

Accordingly, the Court found there was no abuse of process by the plaintiff and granted the injunction to restrain the defendant from commencing winding up proceedings.