Singapore: Court Can Freeze Local Assets In Aid Of Foreign Arbitrations

In arbitration, as with litigation, parties may sometimes need to invoke the assistance of the courts to ensure that proceedings are not derailed by the other party. Common examples of this are Anton Piller orders to protect evidence from being destroyed, and Mareva injunctions freezing the defendant's assets to ensure that they are not dissipated prior to a judgment or an award. The ability of the court to intervene can have an important impact on the choice of jurisdiction for arbitral proceedings. In Front Carriers Ltd v Atlantic & Orient Shipping Corp, decided on 19 July 2006, the Singapore High Court held that it had the power to grant a Mareva injunction over the defendant's assets in Singapore in aid of arbitral proceedings being conducted outside Singapore. This update takes a look at the case and considers its significance to making a choice on the seat of arbitration.

In this case, the plaintiff asserted that it had concluded an agreement with the defendant. This was denied by the defendant. The plaintiff then commenced arbitration proceedings against the defendant in London. Simultaneously, it took out a court application in Singapore seeking an interim Mareva injunction over the defendant's Singapore assets.

The application was brought pursuant to sections 12(1) and 12(7) of the International Arbitration Act ('IAA'). Essentially, section 12(1) provides for the powers of the arbitral tribunal. These include the power to secure the amount in dispute, to ensure that any award made is not rendered ineffectual by the dissipation of assets by a party, and to make interim injunctions. Section 12(7) stipulates that with respect to these matters, the court has the same power in relation to arbitration as it does in relation to court proceedings.

The plaintiff sought to argue that the effect of sections 12(1) and 12(7) meant that the court could grant a Mareva injunction in aid of arbitration conducted outside Singapore where no award had yet been rendered. The main difficulty facing the plaintiff was the very recent decision of Swift-Fortune Ltd v Magnifica Marine SA (2006), also by the Singapore High Court, which decided that that such a power did not exist.

Belinda Ang J, sitting in the High Court, declined to follow the earlier decision rendered by Judith Prakash J. She held that the court had the power to grant the interim Mareva injunction, although on its facts she decided that this was not a suitable case to do so. She based her decision on the following grounds:

• Article 9 of the Model Law, which has force of law in Singapore by virtue of the IAA, states, '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.' In the view of Ang J, section 12(7) of the IAA endorses or gives effect to article 9 by specifically providing for the powers of the court to grant interim measures during arbitration.
• Procedurally then, when seeking to apply for interim protection, the applicant must bring himself under order 69A of the Rules of Court which deals with applications under the IAA. To do this, he must show that the court has jurisdiction over the matter by demonstrating that there is a 'proper case' for service out of jurisdiction.
• In considering whether there is a 'proper case', the court considers the merits of the ancillary relief sought, and not the merits of the substantive arbitral claim. Accordingly, the court must be satisfied that, on the face of it, there is evidence of those facts that form the basis of the application for interlocutory relief, and a reasonably arguable basis for any question of law involved.
• Courts had previously indicated that an injunction has always to be incidental to and dependent on the claim to enforce a substantive right. Where the arbitration was not conducted in Singapore, this was taken to mean that there was no substantive claim in Singapore on which to hang an injunction. However, Ang J took the view that the fact that the substantive right is not before the court does not mean that there is no substantive right. What is required is a justiciable right between the parties that is recognised by the courts in Singapore.

On the facts, however, Ang J held that the plaintiff had failed to show that there was a real risk of dissipation of assets. Furthermore, Ang J noted that the plaintiff had earlier been granted a Mareva injunction by the Canadian courts for a sum which left them fully secured for the amount claimed in the arbitration. In view of this, she therefore held that there was no need for a further Mareva injunction to be granted by the Singapore courts. Accordingly, she refused to continue the interim injunction.

Unfortunately, the decision by Ang J in Front Carriers Ltd v Atlantic & Orient Shipping Corp leaves the legal position in Singapore far from clear. As noted above, the High Court in the separate and earlier decision of Swift-Fortune Ltd v Magnifica Marine SA had ruled that it had no power to grant a Mareva injunction in aid of foreign arbitration. We now have two conflicting decisions of the same court, and the impasse will require a decision of the Court of Appeal for resolution.

Some indication of the Court of Appeal's thinking on this issue may perhaps be gleaned from its decision in Karaha Bodas Co LLC v Pertamina Energy Trading Ltd (2005). WongPartnership's Alvin Yeo SC and Tan Kay Kheng acted for the appellant.

That case also involved an international arbitration located outside Singapore and non-Singaporean parties. However, as the arbitration had concluded and an award rendered, the case did not involve the IAA. Arbitral awards are enforced in court. The plaintiff had sought to enforce the award in Hong Kong and applied for a Mareva injunction from the Singapore courts over the defendant's assets in Singapore.

The Court of Appeal held that it did not have the jurisdiction to grant a Mareva injunction in support of foreign court proceedings. Central to its ruling was the fact that the relevant subsidiary legislation, the Rules of Court, did not give it such a jurisdiction. This is perhaps why Ang J was at pains to find in the IAA a solid statutory basis for her ruling.

While this suggests that the Court of Appeal might be more inclined to adopt the approach in Swift-Fortune Ltd v Magnifica Marine SA, the result may not be so predictable. Of the three judges in Karaha Bodas Co LLC v Pertamina Energy Trading Ltd, two were Yong Pung How CJ (who has since retired) and Prakash J. A differently constituted Court of Appeal could perhaps be persuaded to review its approach.

The issue is relevant not only in relation to whether a similar application can be brought in the near future, but in deciding the country of jurisdiction for an arbitration clause. Ang J's decision in favour of greater powers for the court would mean that parties could agree on arbitration outside of Singapore, and know that if need be, assets present in Singapore would be amenable not only to final enforcement (subject to the country of the seat of arbitration being a signatory to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards) but preservation in the form of a Mareva injunction. If there are concerns about possible enforcement issues in the event of a dispute, this would allow parties somewhat greater flexibility in negotiating the arbitration clause.

On the other hand, if it were held that the courts did not have such a power to grant Mareva injunctions, that would be an additional factor to weigh in deciding whether to insist on Singapore as the seat of arbitration. Given the state of flux in the current position, this might perhaps be the more prudent course for the time being.

We will be keeping track of developments in this area. If you would like more information on this case or on international arbitration matters generally, you may wish to contact the lawyer that you normally deal with in the firm, or contact any of the following partners from our Litigation & Dispute Resolution Department:

Andre Maniam DID: +65 64 16 81 34

Email: andre.maniam@wongpartnership.com.sg

Christopher Chuah DID: +65 64 16 81 40

Email: christopher.chuah@wongpartnership.com.sg

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.