29 November 2018
Marty Limited v Hualon Corporation (Malaysia) Sdn Bhd (receiver and manager appointed)  SGCA 63
In Marty Ltd v Hualon Corp (Malaysia) Sdn Bhd, the Singapore Court of Appeal discussed the circumstances under which a party may be found to have repudiated an arbitration agreement where parallel court proceedings are engaged, and the innocent party to have accepted that repudiation, thereby resulting in the loss of the repudiating party’s right to arbitrate.
The underlying dispute concerned the respondent’s shareholding in its subsidiary in Vietnam (“Vietnam Subsidiary”), which was incorporated in 1993. In February 2008, the Vietnam Subsidiary was re-registered and its company charter revised and updated (“Revised Charter”).
In July 2014, the respondent, acting through its receiver and manager appointed in 2006 (“Receiver”), commenced proceedings in the British Virgin Islands (“BVI”) courts (“BVI Action”), alleging that it had been wrongfully deprived of its shareholding in the Vietnam Subsidiary. According to the statement of claim, two brothers (“Oung brothers”), who were former directors of the respondent, had breached their statutory and fiduciary duties and the appellant had dishonestly assisted the Oung brothers and knowingly received shares in the Vietnam Subsidiary to which it was not entitled.
The appellant challenged the BVI court’s jurisdiction on the ground of forum non conveniens in December 2014, arguing that Malaysia or Vietnam would be the appropriate and convenient forum to hear the claim. This challenge was heard and dismissed by the BVI court in February 2015.
On 10 March 2015, the respondent filed its Notice of Arbitration with the Singapore International Arbitration Centre (“SIAC”), adopting the same position as it did in the BVI court. The Receiver’s explanation was that he had discovered the existence of Article 22 of the Revised Charter (“Article 22”), which provided for disputes to be resolved by SIAC arbitration, only at the end of February 2015.
On 26 March 2015, the appellant applied to the BVI court for summary judgment in its favour or to strike out the BVI Action. Court and arbitration proceedings continued to run in parallel until the BVI Action was struck out in March 2016.
In April 2016, the arbitral tribunal held that it had jurisdiction over the dispute. The appellant challenged that decision in the Singapore High Court in May 2016, arguing among other things that the respondent had repudiated the arbitration agreement by commencing the BVI proceedings and taking steps in the litigation even after the arbitration was commenced. The High Court dismissed the appellant’s application.
Decision of the Singapore Court of Appeal
On appeal, the Court of Appeal set aside the decision of the High Court, finding that the respondent had committed a repudiatory breach of the arbitration clause which was accepted by the appellant.
The Court of Appeal observed that an arbitration agreement, like any other contract, can be repudiated. In such a case, the innocent party may elect to accept the repudiation and bring the contract to an end, or choose to reject the repudiation and affirm the contract.
Respondent repudiated arbitration agreement
The Court of Appeal found 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. A reasonable person in the appellant’s position would have formed the view that the respondent had disavowed all documents and transactions that the Oung brothers had entered into after the Receiver’s appointment, including the Revised Charter which contained the arbitration clause. The respondent’s argument that it had commenced the BVI Action because it did not have actual knowledge of Article 22 at the time was rejected on the basis that it was not substantiated by the evidence and that a reasonable person in the appellant’s position could not have known that the respondent had commenced litigation only because it was ignorant of Article 22.
Significantly, the Court of Appeal was of the view that the commencement of the court proceedings alone could have constituted a prima facie repudiatory breach. This is because parties who enter into a contract containing an arbitration clause can reasonably expect that disputes arising from the underlying contract would be resolved by arbitration and have a contractual obligation to do so. If a party commences court proceedings without an accompanying explanation or qualification and the relief sought will resolve the dispute on the merits, the defending party can take the view that the party commencing the proceedings no longer intends to be bound by the arbitration clause. However, as the appellant did not advance the case that commencement of the BVI Action alone was repudiatory, the issue on repudiation was not decided on that basis.
Appellant accepted respondent’s repudiation
Turning to the issue of acceptance, the Court of Appeal rejected the appellant’s argument that it had accepted the repudiation by challenging the BVI court’s jurisdiction in December 2014. This was because the appellant’s jurisdiction challenge was a forum non conveniens application which is generally too equivocal to constitute acceptance of repudiation. If the appellant had instead submitted to or undertaken to submit to the jurisdiction of the courts of Malaysia or Vietnam, this might well have constituted an unequivocal acceptance of the repudiation.
Nonetheless, the Court of Appeal was of the view that the appellant had accepted the repudiation by applying to the BVI court for summary judgment in its favour and, in the alternative, for the respondent’s claim and statement of claim to be struck out. The summary judgment application, in contrast to the forum non conveniens application, clearly engaged the jurisdiction of the BVI court because it requested the BVI court to determine the claim on the merits.
In consequence, the Court of Appeal found that the arbitral tribunal did not have jurisdiction over the arbitration proceedings.
This decision provides valuable guidance in instances where both arbitration and court proceedings are involved (for example, where interim relief in aid of arbitration is sought in the courts) and one party wishes to preserve its contractual right to arbitration. In view of the Court of Appeal’s remarks that commencement of court proceedings alone can constitute a prima facie repudiation of an arbitration agreement, a party that wishes to resolve an underlying dispute by arbitration has to be able to clearly justify its commencement of court proceedings.