29 October 2020
Bunge SA & Anor v Shrikant Bhasi and other appeals  SGCA 94
The Singapore Court of Appeal has delivered an important decision on various jurisdictional and arbitration issues, holding that all claims brought against different defendants should be heard in Singapore notwithstanding the different nature of the claims and the multiple contracts containing different dispute resolution clauses involved.
The plaintiffs in this action (“Suit 438”) were Grains and Industrial Products Trading Pte Ltd (“GRIPT”) and Bunge SA (“BSA”) (collectively, “Bunge Entities”), who are part of the same company group (“Bunge Group”). The defendants were the State Bank of India (“SBI”), Advantage Overseas Private Limited (“AOPL”), and AOPL’s one-time director and shareholder, Mr Shrikant Bhasi (“Mr Bhasi”).
The claims brought by the Bunge Entities arose out of a series of merchanting trade transactions between the Bunge Group and AOPL that involved three back-to-back contracts per transaction, with each transaction being termed a “string sale”. The “import leg” involved a contract between GRIPT as seller and AOPL as intermediary buyer; the “intermediate leg” involved a contract between AOPL as seller and an offshore entity as buyer; and the “export leg” involved a contract between an offshore entity as seller and BSA as buyer. Not all legs of each string sale contract had the same governing law and exclusive jurisdiction clauses. Pursuant to these string sales, goods would flow from GRIPT to BSA and funds from BSA to GRIPT, in both cases via intermediaries (including AOPL as the Indian merchanting trader).
For each shipment of goods, BSA would transfer around 98.5% of the transaction’s value to AOPL as payment. AOPL would place the funds in fixed deposits with SBI, and issue a mandate letter to SBI for the latter to issue an irrevocable payment undertaking (“IPU”) in favour of GRIPT. The fixed deposits were originally for a term of one year. Sometime after late 2014, the funds were instead placed in two-year fixed deposits to secure higher interest rates. Under the IPU, SBI promised to either procure a letter of credit due for payment within six months for 100% of the transaction’s value, or, if the letter of credit was not issued, pay that sum to GRIPT. Upon maturity of the fixed deposits, AOPL would retain some interest and return the balance to the Bunge Group. Because AOPL was required to maintain the two-year fixed deposits even whilst funds were paid out to GRIPT at six-month intervals, there was a need to periodically inject funds through “rollover” transactions, these being fresh transactions for new shipments of goods. Mr Bhasi was the agent for the Bunge Entities at the material time.
The claims in Suit 438 arose when SBI failed to issue a letter of credit for US$50 million or pay this sum to GRIPT under an IPU dated December 2015. The Bunge Entities pressed for payment of this amount from SBI and AOPL but in 2018, AOPL through its Indian counsel issued a letter instead (“Kantawala Letter”) demanding US$277 million in damages for breach of assurances allegedly given by the Bunge Entities to AOPL that it would continue the rollover transactions (“Assurances”).
One month after receiving the Kantawala Letter, the Bunge Entities commenced Suit 438. Five claims were brought, respectively by:
- GRIPT against AOPL for US$50 million allegedly due and payable under a GRIPT-AOPL contract dated 14 September 2015 (“AOPL US$50m Claim”);
- GRIPT against SBI for US$50 million or damages to be assessed, for SBI’s alleged breach of the IPU (“SBI IPU Claim”);
- The Bunge Entities against AOPL for a declaration that they were “under no liability to AOPL (whether in contract, tort or otherwise) arising out of or in connection with any and all claims made by AOPL including claims arising out of or in connection with any Indian merchanting trade dealings between GRIPT, BSA and AOPL, whether as alleged or alluded to in the Kantawala Letter or at all” (“Negative Declaration Claim”);
- The Bunge Entities against Mr Bhasi for damages and profits for breach of contractual and fiduciary duties under the terms of two agency agreements with GRIPT dated 1 January 2009 (“First Agency Agreement”) and 1 January 2016 (“Second Agency Agreement”) (“Agency Claim”); and
- The Bunge Entities against Mr Bhasi for an indemnity for liability arising from the Kantawala Letter pursuant to both Agency Agreements (“Indemnity Claim”).
(collectively the “Claims”)
In response, jurisdictional challenges were brought by all three defendants. AOPL and Mr Bhasi sought to set aside the orders for service of the writ out of jurisdiction. All three defendants sought to stay the respective claims against them in favour of India and Mr Bhasi sought, alternatively, to stay the Agency and Indemnity Claims against him in favour of Singapore arbitration.
The High Court declined to set aside the orders for service out of jurisdiction of the writ on AOPL and Mr Bhasi and to stay the SBI IPU Claim and the AOPL US$50m Claim in favour of India. However, it stayed the Negative Declaration Claim in favour of India and the Agency and Indemnity Claims against Mr Bhasi in favour of Singapore arbitration.
Dissatisfied with the High Court’s decision, all the parties appealed.
The Court of Appeal allowed the Bunge Entities’ appeals and dismissed the appeals brought by SBI, AOPL and Mr Bhasi holding therefore that all the Claims in Suit 438 should be heard in Singapore. In coming to this decision, the Court of Appeal made the following key rulings.
The phrase “arising out of or in connection with” is not temporally specific
In relation to the Negative Declaration Claim against AOPL, the Bunge Entities contended that in light of the import leg contracts between AOPL and GRIPT which contained exclusive jurisdiction clauses which were phrased as applying to disputes “arising out of or in connection with” the contracts in favour of Singapore, AOPL had to show strong cause to stay this claim in favour of India. The Bunge Entities also contended that the phrase “arising out of or in connection with” was wide enough to encompass the Negative Declaration Claim, notwithstanding that it allegedly arose out of pre-contractual assurances that AOPL alleged had led it to enter into the contracts.
The Court of Appeal recognised that in more recent times, the courts “have recognised an important overarching principle” i.e. that “the wording of arbitration and jurisdiction clauses should be given a broad or generous interpretation, based on the presumption that rational businessmen are likely to have intended that all the questions which arise out of the relationship which they have entered into or purported to enter into, are to be submitted to the same forum.” The Court of Appeal held that the phrase “arising out of or in connection with” is not temporally specific and as a matter of contractual interpretation, the phrase is in principle broad enough to cover disputes arising from pre-contractual conduct that may have led to parties entering into the contract that contains a dispute resolution clause with this wording, in the absence of any circumstances that would warrant a different interpretation. Accordingly, the Negative Declaration Claim, which involved a dispute concerning pre-contractual assurances allegedly given to AOPL, would fall within the scope of such wording.
Determining which exclusive jurisdiction clause applies
The Court of Appeal then had to consider the question as to which exclusive jurisdiction clause applies given that the import leg contract contained the Singapore exclusive jurisdiction clause, while the intermediate leg contracts contained mostly Indian exclusive jurisdiction clauses and the export legs contracts contained English, and later, Singapore exclusive jurisdiction clauses.
Here, the Court of Appeal adopted the “pith and substance” approach and held that the parties would objectively have intended to apply the Singapore exclusive jurisdiction clauses in the import leg contracts which were the only contracts to which both AOPL and at least one of the Bunge Entities (which are the entities that allegedly gave the Assurances) were parties to.
Reconciling inconsistent dispute resolution clauses
The Agency and Indemnity Claim against Mr Bhasi were premised on the First and Second Agency Agreements. The First Agency Agreement provided for disputes to be referred to arbitration in Singapore whilst the Second Agency Agreement contained a Singapore exclusive jurisdiction clause. Mr Bhasi contended that as the majority of the claims arose whilst the First Agency Agreement was in place, the claims against him should be referred to arbitration.
Clause 16.1 of the Second Agency Agreement, however, provided that “This Agreement shall govern all relationships between the Parties with respect to the activities mentioned in this Agreement and shall supersede the [the First Agency Agreement] between the Parties and all other prior written or oral agreements, understandings and/or commitments.” (emphasis added)
The Court of Appeal considered the terms of the Second Agency Agreement and concluded that the effect of Clause 16.1 was that the arbitration agreement in the First Agency Agreement had been superseded by the exclusive jurisdiction clause in the Second Agency Agreement and that the clause clearly envisages and caters for the possibility of continuing breaches. The Court of Appeal noted the fact that the two Agency Agreements were “not purely transactional agreements but ones pertaining to the parties’ ongoing relationship” between Mr Bhasi and GRIPT, in which the parties’ activities and obligations were substantially similar across both Agency Agreements. In light of the difficulty of pinpointing when precisely a breach starts or ends and the complexities that may arise from having multiple concurrent dispute resolution mechanisms, the most sensible explanation and interpretation of this clause is that the parties intended for only one dispute resolution mechanism to be in force at any one time, to govern the disputes arising from their ongoing relationship as they materialised. This would be so, regardless whether the facts giving rise to that dispute occurred during the lifetime of the predecessor or successor agreement. A different approach would result in the wholly uncommercial position that some disputes under what is in substance a composite agreement between the parties, are to be referred to arbitration while others are to be resolved in court.
Guidance on considerations of witness availability and compellability
In relation to the SBI IPU Claim, the Court of Appeal emphasised that considerations of witness availability and compellability must be specific to both the prevailing external situation and a party’s own case. It also noted that in relation to witness availability, a side-effect of the ongoing Covid-19 pandemic is that witnesses will increasingly have to give evidence by video-link due to travel and other restrictions, and so their places of residence will be less important in the context of a forum non conveniens analysis.
The case confirms the importance of the presumption that rational businessmen are likely to have intended that all the questions which arise out of the relationship which they have entered into are to be submitted to the same forum when resolving complex jurisdictional challenges involving multiple contracts with different dispute resolution mechanisms.
The case also provides useful guidance on how considerations of witness availability and compellability has to be tempered by the prevailing conditions, such as the ongoing Covid-19 pandemic and the general restrictions on global travel.
Allen & Gledhill Partner Vivian Ang and team represented the successful Bunge Entities.