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Balancing competing interests in intersection of Arbitration and Winding Up proceedings: Part I

Updated: Sep 20, 2020

- Purbasha Panda*

A. Introduction

One of the prime pillars of common law contractual theory is to hold parties to their bargain. When parties enter into a contract, they bargain rights, obligations and considerations which they intend on fulfilling in form of contractual obligations. It primarily means that formation of the contract necessitates performance of the contract. Simply stated one enters into a contract for fulfillment of one prime objective which is the ‘performance of the contract’. The entire edifice of modern-day contract law rests on this simple yet paramount principle.

When parties enter into an arbitration agreement or agree to incorporate an arbitral clause in their contract, it is to essentially refer disputes arising out of the principal contract to arbitration, they essentially aim to resolve their disputes through private settlement and intend to oust jurisdiction of courts with respect to these disputes but in those cases where these disputes intersect with certain statutory rights which leads to invocation of discretionary powers of courts, the question which arises is “ How far can arbitration proceedings survive when they intersect with statutory jurisdiction of a court ?” One such kind of dispute that essentially falls in this category is the “conflict of arbitration with winding up proceedings”, winding up proceedings primarily being creation of a statute.

On April 7, 2020 the Singapore Court of Appeal decided on the contentious issue of fate of stay applications on winding up proceedings in presence of an arbitral clause in a contract. The ordinary common law approach is that if disputes are subject to arbitration agreement, courts usually grant a stay on court proceedings to allow parties to fulfill their bargain with respect to the arbitration agreement. In usual cases, courts usually resort to ‘prima facie standard of review’ which is a summary review as opposed to the ‘triable standard of review’ however the question that arises here is “ when courts are posed with the question of stay of winding up applications because of presence of an arbitral clause, will the same ‘standard of review’ would be made applicable? Or courts would have to adopt a different standard of review taking due regard of the distinctive nature of winding up proceedings?”

B. Factual background of the case

This case essentially deals with a ‘Global Master Repurchase Agreement’ [ ‘GMRA’] entered between AnAn Group Singapore Pte Ltd [‘AnAn Group’], a Singapore holding company and VTB Bank (Public Joint Stock Company), a state-owned Russian Bank on 3 November 2017. Under the terms of the agreement, AnAn Group was required to sell ‘global depository receipts’ [‘GDRs’] of shares in a company called EN+ Group PLC (EN+) and then it would have to repurchase the GDR from VTB at a later date at pre-agreed rates. The pre-agreed rate was essentially original price paid by VTB plus interest and other costs.

Under the terms of the agreement, AnAn was also obligated to maintain collateral and a repo rate was used to quantify the condition of the collateral. The Repo rate was essentially price of GDR plus interest rate divided by prevailing value of GDR. The GMRA had obligated AnAn to maintain the repo rate at 60% and in case it exceeds 60%, VTB would be entitled under GMRA to issue a ‘Margin Trigger Event Notice’ requiring AnAn to provide sufficient cash to reduce the repo rate ratio to 50%, if AnAn fails to do so, then that would constitute a ‘Margin Trigger Event’. The GMRA also required AnAn to maintain the repo rate below the liquidation repo rate of 75%. If this repo ratio equaled or exceeded the liquidation repo rate, a liquidation event would be deemed to have occurred, this would constitute another event of default.

In the event of default, the non-defaulting party would provide a notice to the defaulting party specifying the relevant event of default and to designate an early termination date. The repurchase date of GDR would then be the early repurchase date. The non-defaulting party would also be endowed with the responsibility of calculating the amount owed by parties to each other.

On 7 November 2017, in accordance with GMRA, AnAn sold 35,715,295 GDR of EN+ to VTB worth US $ 249,999,990. On 6 April 2018, the United States Treasury’s Office of Foreign Assets Control (“OFAC”) imposed certain sanctions which caused the value of the GDRs to plummet further leading the repo rate to increase beyond the benchmark. VTB issued a ‘Margin Trigger Event Notice’, informing AnAn that the repo ratio had arisen above the benchmark and demanded AnAn to make the top up payment so as to bring the repo rate to 50% or below. AnAn failed to make the top up payment and as a result of which the repo rate could not be restored within its margin.

On 12 April 2018, a default notice was sent by VTB to AnAn, designating 16 April, 2018 as the early termination date of GMRA. According to this notice, two events of default had occurred, firstly the repo rate had exceeded the Margin Trigger Repo Rate of 60% and AnAn had failed to top up cash margin of approximately US $ 85 million by 10 April 2018, constituting a further event of default.

According to the terms of the GMRA, VTB was required to send a calculation notice stating the amount which is actually owed by AnAn which was the defaulting party. According to the terms of GMRA the final claim amount was calculated at US $ 170 million, which AnAn failed to repay within the mandated three-week period.

On 17 August 2018, VTB approached the High Court for winding up of AnAn. This winding up application was resisted by AnAn on several grounds. Firstly, AnAn argued that the (“OFAC”) sanction constituted a force majeure event. Secondly, AnAn argued that the claimed sum of about US$ 170 million was overstated, lastly it also argued that the GMRA contained an arbitral clause and any dispute with respect to payment of amount would fall under the scope of the arbitral clause. While, this application was being decided, the main question of law that surfaced was “ When a debtor is seeking to resist a winding up application ordinarily the applicable standard of review would be the “triable standard of review”, the question that arose before the court was whether this standard of review would also be applicable when there is an arbitration clause in the contract and the dispute more or less falls within its purview?”

The Judge held that AnAn was required to establish triable standard of review in relation to the debt. This view of the judge was essentially in light of one of the earlier decisions of the Singapore Court of Appeal which is Metal form Asia Pte Ltd v. Holland Lee don Pte Ltd[1] . This decision would be discussed elaborately further in the course of the article. The Judge also held that the dispute raised by AnAn was not bonafide. The Judge also marked that AnAn’s argument with respect to force majeure was unsustainable as the GMRA did not even contain a force majeure clause. AnAn had argued that the calculation of the total claim amount was erroneous however it failed to state what exactly is the claim amount that it considers to be appropriate. The Judge held that AnAn had deliberately omitted to particularize its case on the quantum of the debt as it knew that there would in any case be a substantial debt which would provide a sufficient basis for the court to grant a winding up order. The judge further ordered the winding up of AnAn.

AnAn then filed an appeal before the Singapore Court of Appeal (‘SGCA’), pending the hearing of the substantive appeal. AnAn made an application for leave to adduce fresh evidence in form of a valuation report prepared by Deloitte & Touché Financial Advisory Services Pte Ltd (“the Deloitte Report”). This valuation report stated a different claim amount, far less than what was claimed by VTB. This application to adduce fresh evidence was accepted. However, AnAn’s substantive appeal rested on two arguments (i) That the applicable standard of review was the prima facie standard of review. (ii) That this threshold has been crossed by the court below.

VTB dropped the ‘force majeure argument’ before the SGCA and took the position that the appropriate standard of review when dispute is subject to the arbitration agreement is the triable standard of review. VTB essentially argued that the dispute raised by AnAn was not bonafide and therefore the winding up order should sustain. The Singapore Court of Appeal decided this matter on two essential questions of law mentioned below-

(a) What is the appropriate standard of review with the respect to stay on winding up application, when the same is subject to an arbitration agreement?

(b) Whatever might be the ‘appropriate standard of review’, has that been met in this given case?


To answer these questions of law, the court took into consideration of case laws across jurisdictions. The Judge in the High Court had ruled in favour of ‘triable standard of review’ as it considered himself to be bound by another case law decided by the SGCA which is Metal form Asia Pte Ltd v. Holland Leedon Pte Ltd[2] (“Metalform”). However, the judge had also held that if he hadn’t considered himself to be bound by Metalform, he would have resorted to the standard adopted by Abdullah JC in BDG v. BDH[3] (“BDG”). The court has also elaborately discussed the common law authority in these kinds of cases which is Salford Estates (No 2) Ltd v. Altomart Ltd (No 2)[4] (“Salford”). In addition to this another case law from Hong Kong jurisdiction was also taken into consideration while deciding this case law which is “In Re South West Pacific Bauxite[5] (“Lasmos Case”). In the succeeding sections of the article, the author would elaborate extensively on how the SGCA interplayed with the ratio(s) of these case laws to find answer to the questions raised above and also to conclusively determine the dispute raised.

· The fault with the dicta in ‘Metalform”

As discussed in the preceding sections, the prime reason for holding the ‘triable standard of review’ was because of the fact that the Judges held themselves to be bound by the dicta of Metalform. This case essentially dealt with an undisputed debt. Metalform owed the opposite party an undisputed debt. Metalform made continuous efforts to refinance and pay the undisputed debts by installments, however, the debt still remained unpaid. A demand notice was served on Metalform. Anticipating a winding up application, Metalform then applied for an injunction to restrain the other party from presenting a winding up application. The injunction prayed was mostly in nature of interim injunction to restrain the opposite party from presenting a winding up application till a decision is reached by the arbitrator regarding one of its cross claim. In this case, the interesting fact was that the parties had agreed on the common fact that the disputes need to be adjudicated before the arbitral tribunal. Though the court had resorted to the ‘triable standard of review’ and had allowed the injunction application, SGCA marked that there wasn’t much conflict with respect to intersection of arbitration and winding up disputes in Metalform. Therefore, the reliance on Metalform by the High Court was found to be misplaced by SGCA.

· Salford” and the common law approach with respect to the applicable standard of review

The English case law which was widely referred by SGCA on this aspect is a case law called, Salford Estates (No 2) Ltd v. Altomart Ltd (No 2)[6] (“Salford”). The court marked that this decision is extremely authoritative and has been widely relied by numerous English case laws later on. In this case the Court of Appeal of England and Wales had ruled that when there is a question of stay on a winding up application and the subject matter concerns with a disputed debt which also falls within the scope of the arbitration clause, the applicable standard of review has to be lowered except for certain “exceptional circumstances” .The court found that such an approach of a lower standard of review would align more with the principle of holding parties to their bargain honoring the arbitration agreement. That is the court ruled in favour of the “prima facie standard of review” however it also carved out the “exceptional circumstances clause” where one can possibly think about considering a higher standard of review.

· The “Exceptional Circumstance Test”, the “Bonafide dispute test” and the reliance on case laws from the Hong Kong jurisdiction

Courts in Hong Kong have also taken a pro-arbitration stance and have ruled mostly in favour of the prima facie standard of review. The courts have held that by dismissing the winding up application, the parties would be held to their bargain. The arbitration proceedings would further allow for enforcement of contractual obligations. In the case of “In Re South West Pacific Bauxite (HK) Ltd[7] (“Lasmos Approach”) was widely relied on this aspect. This case law is pertinent to mention here because this case law also ruled on the efficacy of the ‘exceptional circumstance test’ in deciding these kinds of disputes. In this case, Hong Kong Court of Appeal (“HKCA”) ruled that the lowered standard of review would also definitely not bar the courts from invoking the insolvency regime. For example, there might be a situation where there might be an urgent need to appoint independent persons to investigate the company’s assets or there might be a case where there might be substantiated concerns of fraudulent preferences. These are some of the exceptional circumstances where a winding up application would not be dismissed, where the application of the prima facie standard of review would mandate taking due consideration of the underlying exceptional circumstances. This was known as the Lasmos approach. It is not the case that this approach was not subjected to any kind of criticism. For example, in the case of Ka Chon v. Interactive Brokers LLC, the HKCA had expressed reservations regarding the prima facie approach . They had marked that this approach curtails a party’s right to present a winding up application. They had specifically mentioned that in cases where winding up applications are summarily dismissed, it would appear that the arbitration act provides for automatic stay of winding up applications and such an intention cannot be attributed to a piece of legislation that does not expressly provide for the very same thing.

It is not the case that the Hong Kong jurisdiction had placed reliance only on the “exceptional circumstance test”. In the case of “Hollmet AG 7 Another v. Merdian Success Metal Supplies Ltd.[8] , HKCA has said that “that if a company wishes to stay a winding up application on basis that the underlying debt upon which the statutory notice is founded is disputed, he must establish how bonafide was that dispute. This test makes the ‘prima facie dispute test’ as not merely the prima facie dispute test rather it makes the prima facie test move a step further to analyze the veracity of the disputed claims raised, so that it doesn’t appear that the jurisdiction of the company courts have been ousted just by mere presence of an arbitral clause in the agreement.

The SGCA undertook elaborate analysis of these case laws and compared it with several case laws from the Singapore jurisdiction .

· Singapore jurisdiction and the veracity of the prima facie standard of review

The Singapore courts have more or less ruled mostly in favour of the “prima facie review”. Some decisions have favored the “exceptional circumstance approach” whereas some other decisions have favored the “bonafide test approach”. Let’s see how these tests have been relied on by the SGCA in deciding the instant case.

(a) BDG and reading of the Salford approach under the Singapore jurisdiction

In the case of BDG v. BDH[9], the “Salford approach” was adopted by Abdullah JC, the judge gave several reasons for preferring the prima facie standard of review over the triable standard of review. Firstly, it is a prime concern to hold parties to their bargain that is if the parties have entered into an arbitration agreement. The arbitration agreement must be honored. Secondly, if we take a look at the objective of the “triable standard of review test” then it is to ensure that winding up petition is not staved off because of some tenuous reason, further this standard of review ensures that remedies are readily obtained when nothing much can be said against the claim or application. However, when there is an arbitral clause in the contract and if the dispute falls within the scope of the clause then the disputes are to be arbitrated. Courts shouldn’t step in. It is a fact that the parties selected an arbitration process, it may lead to a different assessment from that of courts but whatever that assessment may be, the arbitral proceedings must be exhausted and after this only the court procedure must be resorted. The arbitration agreement must be honored at all costs. Lastly, to avoid the fact that winding up proceedings are not stopped in an ungenuine way the “prima facie standard of review” must entail a test of how bonafide the claim of the party opposing the winding up application is. If there is a prima facie view that issues raised are not bonafide, then the parties must be referred to arbitration. Thus, the prima facie test coupled with the bonafide claim test somehow can possible balance two interests that is (a) Honoring the arbitration agreement (b) Checking the veracity of the disputed claim and checking if the defense raised to stay a winding up application is genuine.

The court also relied on the case of BWF v. BWG[10] , this was again a decision delivered by the Singapore High Court, where the court held that the applicable standard of review is the “Bonafide prima facie standard of review” as it coheres with the concept of party autonomy in the field of arbitration.

Part II of this article can be accessed here. it deals with the observations of the SGCA regarding the appropriate position of law with respect to standard of review in these kinds of disputes and the Indian Law regarding this issue


* Purbasha is a Staff Writer at the Arbitration Workshop and is a graduate of the 2020 batch of NUSRL, Ranchi. She can be contacted at

[1] [2002] 2 SLR ( R) 268 [2] [2007] 2 SLR (R) 268 [3] [2016] 5 SLR 977 [4] [2015] Ch 589 [5] [2018] HKLRD 449 [6] [2015] Ch 589 [7] [2019] HKCA 873 [8] [1997] HKLRD 828 [9] [2016] 5 SLR 977 [10] [2019] SGHC 81

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