In the recent High Court judgment in VTB Bank (Public Joint Stock Company) v Anan Group (Singapore) Pte Ltd,(1) the plaintiff successfully obtained a winding-up order on a debtor company six weeks after the service of a statutory demand for an underlying debt of $250 million.
This case concerns interesting and novel points of law where there is a confluence of insolvency and arbitration. It is an important decision on the standard of proof required for a debtor company to show that there is a dispute – and therefore stave off winding-up proceedings by a creditor – where the underlying contract is subject to arbitration.
The plaintiff, VTB Bank, was the second largest bank in Russia. The defendant was a Singapore-incorporated holding company which owned a significant number of shares in Singapore Exchange Limited listed AnAn International (AAI).
In November 2017 VTB Bank entered into a global master repurchase agreement (GMRA) with the defendant, which essentially provided for a loan of $250 million by VTB Bank to the defendant to assist in the purchase of shares in London Stock Exchange listed EN plus.
Under the GMRA, the defendant was obliged to maintain sufficient collateral in respect of the transaction. However, in April 2018 EN plus's shares plummeted starkly as a result of sanctions that had been imposed by the United States against various individuals who had a controlling interest in EN plus. This triggered a default under the GMRA.
The GMRA contained an arbitration clause under which the parties had agreed to refer any dispute to the Singapore International Arbitration Centre. VTB Bank issued the necessary notices under the GMRA and triggered the termination of the same; however, the defendant made no payment nor disputed the liability or quantum of the debt.
On 23 July 2018 the plaintiff served a statutory demand for $170 million on the defendant. Three weeks passed without the defendant paying the sum or securing or compounding the same to the reasonable satisfaction of the plaintiff. VTB Bank then commenced winding-up proceedings. The proceedings which followed were heavily contested by the defendant at every turn.
In summary, the defendant:
- commenced injunction proceedings to restrain VTB Bank from winding up the defendant;
- contested the appointment of provisional liquidators; and
- contested the subsequent winding-up proceedings.
The defendant contested the winding-up proceedings on three grounds:
- The US sanctions were an event of frustration.
- The US sanctions were a force majeure event.
- The existence of the debt and its quantification was disputed and thus should be resolved by arbitration pursuant to the GMRA.
The High Court accepted the plaintiff's arguments that all three grounds of dispute were unsupported by the evidence. Therefore, the main issue was the applicable standard of proof required considering that there was arbitration agreement contained in the contract from which the debt arose.
The defendant relied on BDG v BDH,(2) a Singapore court case, and Salford Estates (No 2) Ltd v Altomart Ltd (No 2),(3) an English Court of Appeal case, to argue that a lower standard of proof ought to apply where a dispute between two parties is governed by an arbitration clause.
The plaintiff argued that the High Court was bound by, among other things, Metalform Asia Pte Ltd v Holland Leedon Pte Ltd,(4) a Court of Appeal case, to rule that the test remained the same regardless of the fact that the underlying contract was subject to arbitration.
In this respect, the court observed that the parties had submitted two distinct lines of authority, noting particularly that the authorities relied on by the plaintiff all "spoke with one voice" that the applicable standard of proof is consistent across the board (ie, that of a genuine and substantial dispute) regardless of whether an arbitration agreement existed. On the other hand, the court observed that the defendant's cases were all fairly recent, with the common underlying thread of according greater primacy to arbitration.
In his judgment, Judicial Commissioner Dedar Singh Gill agreed with VTB Bank's position that the High Court was bound by the Court of Appeal decision in Metalform and that even if there had been a dispute between the parties which was governed by an arbitration agreement, the standard of proof remains that of a genuine and substantial dispute.
Nonetheless, Gill accepted that the defendant's policy reasoning had merit and that he would have been amenable to applying the BDG approach if he were not bound by the Court of Appeal's decision. However, Gill held that the defendant would have failed to establish its case even if the lower standard of proof in BDG had been applied, as the defendant had not raised a genuine dispute in relation to the three grounds that were cited (ie, frustration, force majeure and the dispute on the alleged quantum).
This matter is relevant to financial institutions and multinational corporations in light of the prevalence of arbitration contracts in cross-border contracts.
This case shows that even where there is an arbitration clause between parties, if a debtor has no defences, a creditor should consider all options, including proceeding by way of a statutory demand and winding up the debtor.
The present judgment also highlights the pragmatism and efficiency in the Singapore courts' robust approach. It is a reminder that in exercising their discretion in winding-up proceedings, the courts will always consider the entire facts and circumstances of the case. If the defence raised lacks merit, the court cannot and will not ignore this and allow its process to be abused by a recalcitrant debtor simply because an arbitration clause is present in the underlying contract.
The defendant has appealed against this decision and the Court of Appeal hearing will take place in future.
For further details please contact Philip Jeyaretnam or Shobna Chandran at Dentons Rodyk by telephone (+65 6225 2626) or email ([email protected] or [email protected]). The Dentons Rodyk website can be accessed at www.dentons.rodyk.com.
Endnotes
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