Wuhu Ruyi Xinbo Investment Partnership v Shandong Ruyi Technology Group and European Topsoho [2024] SGHC 308
- Does the New York Convention on the enforcement of foreign arbitration awards or the principal of minimal curial intervention fetter the court’s power to impose procedural sanctions on a party seeking to enforce a foreign arbitration award?
- The English courts have come to conflicting positions on this issue. In the High Court decision in Diag Human SE v Czech Republic[1](“Diag Human”) the court was dealing with an application for security of costs against an award creditor seeking to enforce a Convention award. The award creditor argued that that there could be no condition imposed upon an award creditor as the consequence of failing to meet the condition would result in the dismissal of the enforcement action which would be contrary to Article V of the New York Convention[2] The judge disagreed, saying:
“It is quite clear that the local court is free to impose its own procedural conditions, such as orders for disclosure, indeed time limits for evidence, and, in respect of compliance with those conditions, to make final or unless orders, and, in the event of failure to comply with such final or unless orders, to impose sanctions including dismissal.It is plain to me that this must also include security for costs, if otherwise appropriate, and so long as non-discriminatory; and the fact that there is an express remedy given by Article VI, whereby a defendant may be liable for security in respect of the award and/or for costs, does not in my judgment take away the effect of the second sentence of Article III, which permits the imposition of conditions, and hence inevitably of sanctions for non-compliance with them, including a dismissal, which would thus not be offensive to Article V.”[3]
- In contrast, the English Court of Appeal in Gater Assets Ltd v Nak Naftogaz Ukrainiy[4] (“Gater Assets”) doubted whether the court could make an order for security for costs against an award creditor:
“… Under the Convention, an award creditor is entitled as of right to the enforcement of his award and each state party is obliged to provide such enforcement, subject only to the narrow exceptions allowed. This is part of an international agreement to make international arbitration attractive and efficient. In such circumstances, to say that an award creditor cannot enforce his award unless he provides security for the costs which will be incurred because his award debtor wishes to try to prove that he can bring himself within those narrow exceptions would seem to me to run counter to the essential basis of the Convention. It is not simply a matter of a “more onerous condition” in the sense in which that expression is used in article III, viz rule of procedure: see Van Der Berg, The New York Arbitration Convention of 1958 (1994), pp 239–240. It is refusing to effect enforcement unless security is provided and derogates from article III’s requirement that enforcement be accorded “under the conditions laid down in the following articles” (viz articles IV to VI). Field J, however, was prepared to refuse enforcement, on the ground of failure to provide the security for costs ordered. That was the order that Field J made, setting aside the enforcement order if the security was not provided, and doing so on a ground not expressly within the Convention. There is no express basis in the New York Convention for that condition. Enforcement may be refused “only if” one of the exceptions within article V is made good. …”[5]
- The issue came up for determination before the Singapore High Court in Wuhu Ruyi Xinbo Investment Partnership v Shandong Ruyi Technology Group and European Topsoho, when an award creditor tried to resist a dismissal of its attempt to enforce its awards by reason of its non-compliance with orders for discovery.
Background facts
- The underlying dispute centres around the parties’ rights to shares in a company SMCP SA (“SMCP” and the “SMCP Shares”) held by European Topsoho S.àr.l. (“ETS”). The claimant, Wuhu Ruyi Xinbo Investment Partnership (Ltd Partnership) (“Xinbo”), claims that pursuant to a Guarantee, ETS agreed to pledge some 40m shares in SMCP, being all of ETS’s shares in SMCP, to Xinbo as security for a debt owed by Shandong Ruyi Technology Group Co, Ltd (“Ruyi”), to Xinbo.
- Xinbo’s complaint is that ETS had double-pledged some 28m of the SMCP Shares (the “Pledged Shares”) by offering it as security to back an issuance of bonds (the “Bonds”) by ETS to bondholders. Subsequently, ETS defaulted on the Bonds, and the trustee for the bondholders (“Trustee”) took possession of the Pledged Shares sometime on or around 27 October 2021. After Xinbo learned of the Bonds and the Pledged Shares, it obtained a transfer of ETS’s remaining shares in SMCP – some 12m shares (the “Remaining Shares”) on or around 27 October 2021.
- The Trustee commenced proceedings in the English courts against ETS and obtained summary judgment on 17 October 2022 in respect of the debt owed by ETS. The Trustee also challenged the transfer of the Remaining Shares on the ground that it constituted a fraud on the creditors of ETS under the UK Insolvency Act (section 423). This later matter is awaiting trial before the English High Court[6].
- A bankruptcy order was made against ETS in Luxembourg in February 2023 which resulted in the appointment of a Curator[7] to take over control and conduct investigations into the affairs of ETS.
- On 18 November 2022, Xinbo commenced arbitration proceedings (the “Arbitration”) that resulted in the award that forms the subject-matter of its present enforcement proceedings in Singapore (the “Award”). According to Xinbo, the Arbitration was commenced for the purpose of addressing its rights to the Remaining Shares under the Guarantee. The arbitration agreement in the Guarantee had, initially, provided for the parties’ disputes to be resolved by arbitration under the auspices of the “Jining Arbitration Commission” (the “JAC”) in the People’s Republic of China. However, the Arbitration was instead conducted under the auspices of the “Beihai Court of International Arbitration” (“BCIA”). Xinbo claims that Xinbo, Ruyi and ETS had agreed to change the identified arbitral institution, however ETS disputes this.
- The Arbitration was conducted at a private hearing on 30 December 2022, and the tribunal handed down the Award on 10 January 2023. According to the Award, all 3 of Xinbo, Ruyi and ETS were represented in the Arbitration. The tribunal, in the Award, affirmed the validity of the debt owed by Ruyi to Xinbo, adjudged Xinbo to have rights to the Remaining Shares under the Guarantee, and held that Xinbo had a “priority right of compensation” out of the proceeds of sale of the Remaining Shares. It was recorded at various parts of the Award that ETS had no objections to the evidence by Xinbo or to the reliefs claimed by Xinbo.
- Xinbo then successfully applied ex parte for leave to enforce the Award in Singapore. ETS, via the Curator, applied to set aside the leave. The Curator alleged, inter alia:
- the Award was invalid as there was no dispute between the parties that the tribunal had jurisdiction to adjudicate upon;
- the purported representative of ETS at the Arbitration was not authorised to act on behalf of ETS;
- the Award was procured by fraud as evidenced inter alia by the BCIA being (allegedly) a fictitious and non-existent arbitral institution;
- enforcement of the Award would be contrary to the public policy of Singapore.
- In a nutshell, ETS’s case was that the Arbitration and the Award had been concocted for the purpose of allowing Xinbo to steal a march ahead of ETS’s other creditors in ETS’s liquidation by giving Xinbo proprietary rights to the Remaining Shares. A common thread underlying the Curator’s assertions was that the Curator had not had any knowledge of the existence of the Arbitration and the Award, and the Curator had not been able to, in the course of its investigations into ETS’s affairs, uncover any internal documents relating to the parties’ alleged dispute under the Guarantee, the parties’ entry into an agreement to amend the arbitration agreement, or the Arbitration itself.
- ETS applied for discovery against Xinbo to produce documents relating to (a) the parties’ dispute under the Guarantee; (b) the parties’ entry into the variation of the arbitration agreement; and (c) the Arbitration.
- Although Xinbo produced some documents the assistant registrar (“AR”) below held that the discovery was inadequate. An unless order was made against Xinbo. Xinbo purported to make further discovery, but the AR ruled that Xinbo had still failed to provide proper discovery and, pursuant to the unless order, set aside Xinbo ex parte order and dismissed Xinbo’s action. Xinbo appealed and this court confirmed on appeal that Xinbo had not complied[8]. There was no reason under Singapore procedural rules why the Xinbo’s action should not be dismissed. The remaining question was whether there was any reason under the New York Convention or by reason of the principal of minimal curial intervention for not dismissing Xinbo’s action.
Does the New York Convention or the principle of minimal curial intervention fetter the court’s power to enforce unless orders?
- The Singapore High Court was emphatic in ruling that there was no such fetter on the Court’s powers. The primary reason was the provision of the New York Convention itself, in particular Art III;
“Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following Articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.” [emphasis added in italics and bold italics]
- It is thus explicitly clear that an award creditor must comply with the rules of a Contracting State if it chooses to invoke the jurisdiction of that Contracting State to enforce a Convention Award. The only constraint that is imposed on a Contracting State is the last sentence of Art III which sets out the principle of non-discrimination against Convention Awards: a Contracting State is not permitted to discriminate against a Convention Award by imposing more onerous procedural rules than those which apply to domestic arbitral awards.
- The judge did consider the reasoning in Diag Human and Gater Assets[9] but preferred the reasoning in Diag Human[10].
- The judge referred to the following statement of the Singapore Court of Appeal in The Republic of India v Deutsche Telekom AG:[11]
“when dealing with the question of the enforcement of a foreign arbitral award, the New York Convention does not operate in isolation because the domestic law of the enforcement court also comes into play” [emphasis added].
- The judge went on to consider the principle of minimal curial intervention. The principle of minimal curial intervention is premised on a proper ordering of roles between the court and the arbitral tribunal in the arbitration ecosystem (see Swire Shipping Pte Ltd v Ace Exim Pte Ltd [2024] 5 SLR 706 at [1]).
- However, the judge was of the view that compliance with the court’s orders has nothing to do with the allocation of roles between the courts and the arbitral tribunal. It is exclusively a matter within the province of the courts. The court in meting out sanction for non-compliance with its orders in no way infringes or undermines the adjudicative jurisdiction of the tribunal or the tribunal’s mastery over its own procedure.
Conclusion
- Xinbo has fear-mongered that enforcement of the unless order would set a “dangerous precedent”. The court disagreed, pointing out that accepting Xinbo’s position would set a an even more dangerous precedent: it would give award creditors and enforcement applicants the impression that, with the award in hand, they have an open road to disobey the court’s orders with impunity. Anyone who invokes the Singapore court’s jurisdiction and powers for their own purpose, e.g. to enforce a foreign arbitration award, necessarily subjects itself to the court’s rules, its authority and any orders made by it.
ANNEX
ARTICLE V CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF
FOREIGN ARBITRAL AWARDS CONCLUDED AT NEW YORK ON 10TH
JUNE 1958
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that —
(a) the parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognised and enforced; or
(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that —
(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) the recognition or enforcement of the award would be contrary to the public policy of that country.
For more information, please contact:
Partner & Head, International Arbitration
Suressh@harryelias.com
+65 6361 9883
Of Counsel
NatashaGoh@harryelias.com
+65 6361 9375
[1] [2014] 1 All ER (Comm) 605
[2] Ibid at [12]. Article V of the New York Convention is annexed to this note.
[3] Ibid at [15]
[4] [2008] Bus LR 388
[5] Ibid at [81]
[6] GLAS SAS (London Branch) v European Topsoho SARL [2024] EWHC 83 (Comm)
[7] A curator is similar to a trustee in bankruptcy or liquidator under Singapore law
[8] Xinbo v Ruyi and ETS [2024] SGHC at [89]
[9] See above at [2] and [3].
[10] Ibid at [192]
[11] [2024] 1 SLR 56 at [97]