Starboard has been alerted to another application of the Vinmar decision by the courts; this time in the area of arbitration agreements and insolvency proceedings.

In BWF v. BWG [2019] SGHC 81, the Singapore High Court dealt with a case where two parties concluded a contract for the sale and purchase of crude oil. The buyer did not pay the seller’s invoice and informed the seller that it was entitled to various defences under the contract, which also provided that disputes between the parties should be referred to arbitration. In response, the seller served a formal demand for payment of the invoices, default of which would lead to commencement of bankruptcy/winding up proceedings against the buyer.

The buyer applied to the Singapore High Court to restrain the seller from commencing bankruptcy proceedings, contending that the contract obliged the parties to proceed to arbitration to resolve their dispute and that the seller was not allowed to resort immediately to bankruptcy proceedings. The question for the Singapore High Court was whether the relevant test to apply in considering whether to restrain bankruptcy proceedings was the existence of a “bona fide prima facie dispute” or the existence of a “triable issue”. If it was the existence of a “bona fide prima facie dispute”, all that the court would consider is whether there appeared at face value a dispute in good faith. The court would not consider the merits of the case. If it was the existence of a “triable issue” the court would consider the merits of the case and decide if there was something worth referring to arbitration.

The Singapore High Court decided that the applicable test was the existence of a “bona fide prima facie dispute”. It reasoned that the test of the existence of a “triable issue” applied to situations generally where a party applied to restrain another party from bringing bankruptcy proceedings on the ground of a disputed debt. This was to ensure that winding up was not staved off on flimsy or tenuous grounds. However, where there exists an arbitration agreement between the parties and the debt is disputed, the objective of ensuring that winding up was not staved off on flimsy grounds was less pressing. In such situations, the countervailing concern is to hold parties to their agreement to arbitrate their disputes. So long as the court saw that a dispute was raised in good faith, and it could not be said that the party applying to restrain the other party had admitted the debt, that would be sufficient ground on which a court would restrained a party from commencing or continuing bankruptcy proceedings. The court would not enquire into or evaluate the merits of the case and whether there was something serious that deserved arbitration.

In reaching its decision, the court pointed specifically to the Vinmar case (see “Exclusive” means exclusive) as the case that re-emphasised the importance that the court places nowadays on party autonomy. It noted that in Vinmar the Singapore Court of Appeal departed from its own previous authorities because the previous authorities were inconsistent with the central principle of party autonomy and failed to give effect to the parties’ agreement. In doing so, the Singapore Court of Appeal achieved coherence in the law by aligning the principles on exclusive jurisdiction clauses, on forum non conveniens and on international arbitration. It should be added that the principles on non-exclusive jurisdiction clauses are now also aligned (see “Strong cause” for non-exclusive jurisdiction clause cases). Across these areas, the merits of the defence would be irrelevant to the issue of whether to stay proceedings in favour of the agreed tribunal.

The BWF v. BWG is currently on appeal to the Singapore Court of Appeal. There is a competing case, VTB Bank (Public Joint Stock Co.) v Anan Group (Singapore) Pte Ltd [2018] SGHC 250, also on appeal, in which Dentons Rodyk is involved, which decides that the applicable test is the existence of a “triable issue”, that is to say, that the court is entitled to evaluate the merits and see if the party applying to restrain bankruptcy proceedings has “a fair case for defence, reasonable grounds for setting up a defence or a fair probability of a bona fide defence”.

Will the Singapore Court of Appeal adopt the “bona fide prima facie dispute” test and align the principles of bankruptcy law with the principles on exclusive jurisdiction clauses, forum non conveniens, international arbitration and non-exclusive jurisdiction clauses? Or will the Singapore Court of Appeal adopt the “triable issue” test? If the Singapore Court of Appeal adopts the “bona fide prima facie dispute” test, it would probably follow that where a party applies to restrain another party from commencing or continuing bankruptcy proceedings on the ground that it disputes the debt and there is an exclusive or non-exclusive jurisdiction agreement (rather than an arbitration agreement), the test will also be the “bona fide prima facie dispute” test.