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ATTACHMENT OF ASSETS FOR THE PURPOSE OF FOREIGN LITIGATION –

THE SINGAPORE POSITION

By INTERTANKOMr Lim Tean Mumbai, Rajah & Tann 3 October 2006

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3 Recent Noteworthy Cases:

I. Karaha Bodas Co LLC v Pertamina Energy Trading Ltd and Anor [2006] 1 SLR 112;

II. Swift Fortune Ltd v Magnifica Marine SA [2006] 2 SLR 323;

III. Front Carriers Ltd v Atlantic & Orient Shipping Corp [2006] 3 SLR 854

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Foreign Court Proceedings

The case in point here is Karaha Bodas v Pertamina

The Plaintiffs, a company incorporated in the Cayman Islands, were attempting to enforce an arbitration award against the Indonesian state company Pertamina by obtaining a garnishee order against Pertamina’s subsidiary in Hong Kong, Petral, who owed Pertamina a substantial amount of money. The Plaintiffs discovered that Petral had transferred the money to its Singapore subsidiary PES and on the basis of that information, sought a Mareva injunction against both these parties.

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The Court of Appeal, relying on the principle established in the seminal case of Siskina v Distos Compania Naviera SA [1979] AC 210, held that a court could not assume jurisdiction over a foreign defendant simply because he had assets within the territorial jurisdiction that could be the subject of an injunction order. Accordingly, the Singapore Court had no in personam jurisdiction over Petral, a Hong Kong entity with no presence here simply because it had assets (i.e. the money) in Singapore.

Therefore, a Singapore court could not grant Mareva relief in respect of the Singapore assets of a foreign defendant if the only purpose of such relief is to support foreign court proceedings and where the only factor connecting the case with Singapore was the presence of assets in Singapore.

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The case in point is Swift-Fortune Ltd v Magnifica Marine SA [2006] SGHC 36

Facts

Defendant was a Panamanian company which owned a vessel, the “Capas Duckling”. It entered into an MOA with the Plaintiff, a Liberian company to sell the vessel for US$9.5million. Legal completion was to take place in Singapore and the purchase price paid into a Singapore bank account. The MOA provided that it was governed by English law and that any dispute arising out of it would be referred to Arbitration in London.

II. Foreign arbitration – the Singapore position

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It was agreed under the MOA that the defendant would deliver the vessel by 6 December 2004. The vessel was not delivered by 6 December 2004 and the delivery date was extended 4 times at the request of the defendant. The plaintiff acceded to all these extensions on the basis that such agreement was without prejudice to the plaintiffs’ rights to make claims for compensation for late delivery of the vessel. The ”Closing Meeting” was scheduled for 9 March 2005, On 8 March 2005, the Plaintiff commenced action in the High Court of Singapore against the defendant and obtained a mareva injunction to prevent the defendant from removing US$2.5million of the purchase price from Singapore. The plaintiff got leave to withhold service of notice of the injunction on the defendant until after the “Closing Meeting” was finished. The defendant applied, inter alia, for themareva injunction to be discharged.

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The applicant contended that there was express statutory authority that gave the court a power to grant Mareva injunctions in relation to foreign arbitration proceedings that it does not have in relation to foreign court proceedings. This power is found in the International Arbitration Act, in particular S12(7), which provides that the High Court shall have, in relation to an international arbitration, the same power of making orders in respect of, inter alia,

(1) securing the amount in dispute;

(2) ensuring that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party and

(3) an interim injunction or any other interim measure as it has for the purpose of and in relation to an action or matter in the court.

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Decision of Prakash J:-

(1) She rejected the argument that the IAA gave the Singapore court powers to aid or support arbitration where the seat of the

arbitration was located in another jurisdiction. Instead, Prakash J held that S 12(7) dealt only with the powers of the Court in a “Singapore” international arbitration i.e. where the parties to arbitration were foreign but had chosen to conduct their arbitration in Singapore. She said that it was clear that Parliament did not intend to give the courts general powers to assist foreign arbitrations where the seat of the arbitration was in another jurisdiction. The Court noted that the effect of the applicant’s interpretation would be to allow foreign owned assets

in Singapore that have been placed here for reasons that have

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nothing to do with any dispute between their owners and third parties to be subject to the risk of attachment if their owners have arbitral disputes abroad with such third parties. Accordingly, a Singapore court did not have the power to issue a Mareva injunction over the Singapore assets of a foreigner in support of a foreign arbitration.

(2) She was of the view that Parliament’s intention in introducing the IAA was to promote Singapore as an international arbitration centre. Parliament did not appear to have considered the possible extraterritorial ramifications of the proposed legislation during the debate on the Bill, and there was no mention of curial support in aid of foreign arbitration.

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To the criticism that her approach was insular the judge had this to say:

“Thus, having considered the various authorities cited by the plaintiff, it does not appear to me that there is a marked trend among foreign jurisdictions to permit their courts to issue injunctive orders to assist proceedings taking place elsewhere. The courts that are most in favour of extending such help are the English courts but, even there, it has been noted that the ability to assist is limited by the necessity of the dispute or disputants having such connection with England that the English courts would be able to exercise a residual jurisdiction over it. I do not consider therefore that the conclusion that I have come to on the inability of the Singapore courts to help in such situations would point to the Singapore courts being insular in their approach as the plaintiff has suggested.”

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Different approach taken in Front Carriers Ltd v Atlantic & Orient Shipping Corp [2006] 3 SLR 854

In this case, a former employee of the Defendant, a West Indies company, negotiated with the Plaintiff, a Liberian company, for the charter of a Panamax newbuilding. It was later alleged that the former employee had no authority to fix the charter. The Plaintiff argued that the correspondence between its representatives and that of the Defendant’s former employee resulted in the perfection of the time charter. The Plaintiff commenced arbitration against the Defendant in London for breach of time charter and thereafter, applied for Mareva relief against the Defendant in Singapore to restrain it from removing any of its’ assets within Singapore.

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Ang J disagreed with the decision of Prakash J in the Swift-Fortune case and held that the Court had the power under the IAA to issue an interim injunction in aid of foreign arbitration proceedings. She held that the framework of the IAA recognizes that parties to an international arbitration may require curial support by way of interim measures from the High Court even though the seat of the arbitration is outside Singapore. According to her, there is nothing in the IAA which limits the definition of “international arbitration” to arbitrations which take place only in Singapore.

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Ang J relied heavily on Art 9 of the Model Law, which has the force of law in Singapore, pursuant to the IAA. Art 9 states as follows:-

“Arbitration agreement and interim measures by court

It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.”

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1. Ang J said that Art 9 is in effect the lawful basis on which a “court” may order interim measures applying its own domestic law.

2. Ang J was of the view that the ruling in Swift Fortune means that the High Court has no power to grant Mareva relief when its assistance for interim relief is sought in cases where the parties have observed their agreement to arbitrate abroad. In her own words – “That cannot be right. It is illogical, given the purpose of Art 9 that the High Court should be powerless to entertain a request for interim relief in that situation.”

3. She cited the observations of Lord Mustill in the English case of Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 (HL) on why the court’s powers to grant interim relief are not affected when proceedings are stayed for arbitration. The reasons

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are grounded on the following:

“Common sense, because it cannot be right that by starting the action the plaintiff automatically forfeits any right to ancillary relief to which he would otherwise be entitled. Logic, because the purpose of the stay is to remove from the court the task of deciding the substantive dispute, so that it can be entrusted to the chosen tribunal… But neither the arbitration agreement nor [the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards] contemplate that by transferring to the arbitrators the substance of the dispute, the court also divests itself of the right to use the sanctions of the municipal law, which are not available to the arbitrators, in order to ensure that the arbitration is carried forward to the best advantage.

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And

“The purpose of interim measures of protection, by contrast, is not to encroach on the procedural powers of the arbitrators but to reinforce them, and to render more effective the decision at which the arbitrators will ultimately arrive on the substance of the dispute. Provided that this and no more is what such measures aim to do, there is nothing in them contrary to the spirit of international arbitration.

…. I prefer the view that when properly used such measures serve to reinforce the agreed method, not to bypass it.” per Lord Mustill

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Conclusion

There is obviously a difference of opinion in the decisions rendered by two courts of coordinate jurisdiction in Singapore. This difference will be resolved by the Court of Appeal, which heard the Swift-Fortune case in June 2006 but reserved judgment. It therefore remains to be seen which approach the Singapore Court of Appeal will adopt. The Court of Appeal may be persuaded by the fact that the interests of justice as well as Singapore’s national interest in developing itself as an international legal centre, may require assets to be preserved by an order made in one jurisdiction whilst the substantive merits are determined in another jurisdiction. Further as was pointed out by the applicant in Swift-Fortune, an interpretation of the International Arbitration Act which denies a court the power to grant free-standing Mareva relief is not consistent with the position taken in other Commonwealth jurisdictions. For example, in England, S44 of the Arbitration Act 1996 enables the English court to grant free-standing Mareva relief in relation to the arbitral proceedings wherever the seat of the arbitration, or

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even if no seat has been designated or determined. Moreover, in the case of Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993] AC 334, the House of Lords recognized the advantage in granting interlocutory relief to assist foreign proceedings because of the international character of contemporary litigation and the need to promote mutual assistance between the courts of the various jurisdictions.

THE END