BXH v BXI [2020] SGCA 28

Introduction

This appeal arose from an unsuccessful application to set aside an arbitral award which was rendered under a rather convoluted set of agreements involving the assignment, novation and reassignment of rights to certain debts. In the main, the underlying dispute concerned a distributorship and its related agreements.

Owing to the intricate web of agreements, by the time the arbitration was commenced, a dispute had arisen in relation to the respondent’s (the claimant in the arbitration) right to bring the arbitration proceedings against the appellant. The appellant elected not to participate in the arbitration proceedings.

While it is uncontroversial that an assignment of an agreement containing an arbitration clause is effective to assign the right to arbitrate to the assignee, the respondent nonetheless argued that it was entitled to commence arbitration proceedings against the appellant (in relation to a specific debt) on the premise that it was an original party to the underlying agreement. We have no difficulty in agreeing with the High Court Judge’s rejection (“the Judge”) of this argument since such an argument, if accepted, would mean that the legal right to arbitrate would be vested simultaneously in both the assignor and assignee. This is plainly wrong. Notwithstanding the rejection of this argument, this appeal has raised a number of novel issues arising from the assignment, novation and reassignment agreements. First, is a dispute relating to the right of suit following an assignment of the underlying agreement, a dispute that pertains to the scope or existence of an arbitration agreement under the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”)? Second, can such a notice of assignment be validly sent by the assignee instead of the assignor? Third, if a debt is reassigned to the claimant only after the commencement of the arbitration, would the arbitrator have jurisdiction over the dispute given that the arbitrator’s jurisdiction is rooted in the consent of the parties? These are some of the interesting issues that will be examined in this judgment.

Facts

Background to the dispute

The respondent, BXI, is a developer and manufacturer of consumer goods. It is a wholly-owned subsidiary of a Singapore company (“the Parent Company”). The appellant, BXH, distributes and markets the respondent’s goods in Russia. The two parties (“the parties”) possess, in the words of the Judge, a “complicated legal relationship”. In order to understand this relationship, regard must be had to eight related contracts, all of which involved at least one of the parties.

The Distributor Agreement

In December 2010, the appellant and the Parent Company entered into the Distributor Agreement. Clause 1.1 of the Distributor Agreement authorised the appellant to sell and market the Parent Company’s Products and Services in Russia.

The Distributor Agreement also contained cl 25.8, titled “Governing Law, Jurisdiction and Venue”, and cl 25.9 of the Distributor Agreement, titled “Disputes”, which contained the arbitration agreement between the parties. The content of these two clauses will be examined in further detail below.

While the Distributor Agreement was expressed to have an end date of 26 December 2011, it provided that “[u]nless either party notifies the other not less than one (1) month prior to the End Date, this Agreement shall continue after the End Date for a period of one (1) years”.

The Transition Agreement

The Transition Agreement, which came into effect on 14 January 2013, was an agreement between the respondent and the Parent Company. It purported to enable the respondent to assume the rights of the Parent Company and “fulfill [sic] its obligations” under a number of agreements. Under the Transition Agreement, the Parent Company was to “assign or novate, as applicable, and transfer all its rights and obligations under the Existing Agreements to [the respondent] as per the Effective Date and [the respondent] shall become party to each Existing Agreement, as applicable, in its own name”. This included the Distributor Agreement with the appellant.

The Assignment and Novation Agreement

On 25 January 2013, the appellant, the respondent and the Parent Company entered into the Assignment and Novation Agreement. It provided that the Parent Company:

Notably, prior to the Assignment and Novation Agreement, the Parent Company had emailed the appellant on 19 November 2012 enclosing a letter dated 1 November 2012 (which explained its plans to transition its operations to the respondent in the first half of 2013), as well as a template Assignment and Novation Agreement for its business partners to insert their company names, print out, sign and return. Another email was sent by the Parent Company to its business partners on 14 December 2012, enclosing a letter dated 14 December 2012 confirming that the transition of its operations to the respondent would occur on 14 January 2013.

The Participation Agreement

Following the Assignment and Novation Agreement, on 2 October 2013, the respondent entered into the Participation Agreement with another party (“the Factor”). This was purportedly to improve the respondent’s cash flows. Under cl 2.9.1 of the Participation Agreement, the respondent was to “offer to sell to [the Factor] all its invoices for products and or services”. This included the invoices arising from its dealings with the appellant.

If the Factor accepted the offer, the respondent was, pursuant to cl 2.9.6, to transfer to the Factor “the ownership of all [the respondent’s] Invoices and Associated Rights purchased by [the Factor]”. Such ownership would “be complete and unencumbered by any lien or charge or other interest and it shall vest in [the Factor] from the date of [the respondent’s] Invoice”.

Following the Participation Agreement, the invoices that the respondent issued to the appellant and which the Factor had purchased were endorsed with a caution reminding the appellant that its debt to the respondent represented by the invoice could be discharged only by payment directly to the Factor (“the Caution”):

The Gold Plan Agreement

On 15 November 2013, the appellant and the Factor entered into the Gold Plan Agreement. Pursuant to it, the Factor would provide financing to the appellant in relation to invoices that were issued to the appellant by the Factor. The Factor would also provide financing for supplier invoices that the Factor purchased from other suppliers, under which the appellant would pay the Factor instead of the supplier in question. This included invoices that the Factor had purchased from the respondent. Thus, cl 2.1.2 of the Gold Plan Agreement stated:

The respondent claims that it was never party to the agreement, that it had no rights thereunder and that it never purported “to rely on or enforce any right under the Gold Plan Agreement”.

The Debt Transfer Agreement

On 12 December 2014, the respondent, the appellant and a Russian corporation (“the Russian Corporation”) entered into the Debt Transfer Agreement. The Russian Corporation was to pay US$32,275,841.78 in invoices (“the Open Debt”) for products ordered by the appellant under the Distributor Agreement.

Under cll 2 and 3 of the Debt Transfer Agreement, if the Russian Corporation made payment within 90 banking days to the respondent’s bank account, the appellant would “be released and discharged from all duties and obligations” to pay the Open Debt. The fourth paragraph, however, stated that the Debt Transfer Agreement would “constitute a novation of the rights, duties and obligations” of the appellant under the Distributor Agreement.

The parties disagree on the impact of the Debt Transfer Agreement on the appellant’s obligation to pay the Open Debt.

The Open Debt Agreement

Shortly after the Debt Transfer Agreement, the appellant, respondent and the Russian Corporation entered into the Open Debt Agreement with the Factor. This agreement was dated 22 December 2014.

The Open Debt Agreement, in its first two clauses, noted the conclusion of the Debt Transfer Agreement between the appellant, respondent and the Russian Corporation and the Gold Plan Agreement between the Factor and the appellant. Thereafter, at cll 3 and 4, the agreement stated that as “[the Factor] purchased the receivables under the Open Debt from [the respondent]”, the Russian Corporation was thus instructed by the respondent and the Factor to “pay total amount of Open Debt to [the Factor]”.

Clause 7 of the agreement also stated that should the Russian Corporation fail to make payment to the Factor for the Open Debt, the appellant would have to pay the Factor “immediately upon [the Factor’s] instruction to [the appellant]”.

The Buy Back Agreement

Subsequently, the Factor decided to withdraw its business operations from Russia. On 23 April 2015, the respondent and the Factor entered into the Buy Back Agreement.

The Buy Back Agreement noted that the Factor and the respondent had entered into the Participation Agreement to establish the terms under which the Factor would purchase the respondent’s invoices, “certain of which purchases to be on non-recourse basis and certain to be on a recourse basis”. At the time, the appellant still owed the Factor a sum of US$28,477,365.85 “in respect of the With Recourse Invoices” (“the With Recourse Obligations”).

The Buy Back Agreement then states:

While cl 1 of the Buy Back Agreement made reference to the sum of US$43,877,255.79 that the respondent owed to the Factor, this was a collective sum due in respect of With Recourse Invoices for not only the appellant but also several other parties. For our purposes, these other invoices are irrelevant. The respondent duly made payment to the Factor.

There was, subsequently, a second buy back in December 2015 of another batch of invoices owed by the appellant (C3 to C6). This concerned an amount of US$2,178,539.00, and did not form part of the Buy Back Agreement because certain invoices had mistakenly been closed by the Factor.

On 24 April 2017, the appellant received a letter from the Factor, dated 5 April 2017 (“the 2017 letter”). The 2017 letter purported to make clear that the effect of the Buy Back Agreement was to reassign the Factor’s rights relating to the invoices that had originally been assigned from the respondent to the Factor back to the respondent. It stated:

Overview of the eight agreements

The following table, helpfully produced by the Judge, enumerates the details of each of the eight contracts:

Arbitration Proceedings

On 1 October 2015, the respondent issued a notice of arbitration to the appellant. The appellant served a response to the notice of arbitration on 16 October 2015, resisting the claim on various grounds – including that a Tribunal appointed by the Singapore International Arbitration Centre (“SIAC”) would not have jurisdiction to hear the dispute.

Following the appellant’s objection to the SIAC’s jurisdiction, the respondent nominated its arbitrator on 21 October 2015 by a letter to the SIAC copied to the appellant’s lawyers. The appellant refused to nominate its arbitrator within the thirty-day period stipulated in cl 25.9 of the Distributor Agreement, which lapsed on 20 November 2015. The respondent’s nominated arbitrator subsequently accepted his appointment as the sole arbitrator.

On 22 April 2016, the SIAC constituted the arbitral tribunal, which consisted only of the respondent’s nominated arbitrator. The appellant maintained its refusal to participate in the arbitration despite an invitation by the tribunal to attend a preliminary meeting on 29 April 2016.

Over the next few months, the appellant continued to rigorously challenge the tribunal’s jurisdiction and the arbitrator’s purported lack of independence. On 14 November 2016, approximately three months after the respondent served its first memorial, the appellant filed its first memorial in the arbitration. These memorials included arguments pertaining to the appellant’s jurisdictional challenge.

On 19 December 2016, the SIAC wrote to the parties, acknowledging that the appellant had lodged a notice of challenge to the arbitrator under Rule 12.1 of the 2013 SIAC Rules. The SIAC then called for the parties and the tribunal to provide their comments on the jurisdictional challenge so that the Court of the SIAC could proceed to determine it.

On 4 May 2017, the SIAC dismissed the appellant’s challenge to the tribunal. Following this, the appellant refused to participate any further in the arbitration. The evidential hearing before the tribunal took place from 16 to 17 May 2017. The tribunal issued its award on 28 July 2017.

Proceedings below

The Judge found that the debts stemming from the eight agreements could be categorised according to the following (see BXH v BXI [2019] SGHC 141 (“the Judgment”) at [38]):

Debt 1A comprises invoices that the Factor never purchased from the respondent. These invoices were never endorsed with the Caution.

Debt 1B comprises invoices that the Factor did purchase from the respondent, but were purportedly bought back by the respondent. These invoices were endorsed with the Caution.

Debt 2A comprises Open Debt invoices that the Factor never purchased from the respondent. There is no need to consider this category.

Debt 2B comprises Open Debt invoices that the Factor did purchase from the respondent but were purportedly bought back by the respondent. They were endorsed with the Caution.

For ease of reference, Debts 1B and 2B will hereafter be referred to collectively as Debt B. We note that while the respondent contends that invoices C94 and C95 were not assigned to the Factor, it accepts their classification as part of Debt B. Apart from this, neither party has taken issue with this categorisation.

The Judge’s findings

After considering the numerous arguments raised by the parties, the Judge decided in favour of the respondent – that the tribunal did possess jurisdiction over the parties’ dispute. In reaching his conclusion, the Judge made a number of findings.

First, despite the apparent contradiction between cll 25.8 and 25.9 of the Distributor Agreement, the two clauses did not give rise to an irreconcilable inconsistency. According to the approach adopted by Steyn J (as he then was) in Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyd’s Rep 127 (“the Paul Smith approach”), where there is a clear intent to arbitrate disputes in a commercial contract, such an intent should be upheld. The parties were thus bound by the arbitration agreement contained in cl 25.9 of the Distributor Agreement (see the Judgment at [233]–[245]).

Second, despite the use of the word “assigns”, cl 1 of the Assignment and Novation Agreement effected a novation of the Distributor Agreement from the Parent Company to the respondent. There is no general requirement for notice to be given to an obligor before an obligee, whose rights arise by a novation, may enforce those rights. The requirement of notice only arose due to the express terms of cl 1 requiring that notice had to be given by the Parent Company to the appellant and respondent (see the Judgment at [113]).

Third, a valid contractual notice was given by the Parent Company to the appellant pursuant to cl 1 of the Assignment and Novation Agreement. The requisite notice did not have to be issued only after cl 1 acquired contractual effect – an email sent by the Parent Company to the appellant before the agreement came into effect sufficed (see the Judgment at [118]–[123]).

Fourth, the right to arbitrate disputes in relation to Debt B, as well as Debt B itself, was assigned to the Factor by the respondent. However, given that various substantive rights remained in force under the Distributor Agreement between the appellant and respondent, this assignment of Debt B went towards the issue of scope, rather than the existence of an arbitration agreement between the parties (see the Judgment at [138]–[142]).

Fifth, the right to arbitrate in relation to Debt B was re-assigned to the respondent through the Buy Back Agreement. The contractual purpose of the Buy Back Agreement was to give effect to the intention to sever any legal link between the Factor and the respondent’s distributors, as indicated by the Factor’s withdrawal from operations in Russia. This could only be achieved by a repurchase of the debt (see the Judgment at [157]). Reliance was also placed on the decision of Lanxess Pte Ltd v APP Chemicals International (Mau) Ltd [2009] 2 SLR(R) 769 (“Lanxess”) in finding that an email dated 18 June 2015 sent by the respondent constituted notice of assignment to the appellant, despite the lack of the word “assignment” in said email (see the Judgment at [172]–[173]). The fact that the respondent only repurchased invoices C3 to C6 (under Debt 1B) after the commencement of arbitration was also not fatal (see the Judgment at [191]).

Sixth, the Debt Transfer Agreement, on its proper interpretation, did not relieve the appellant entirely of its obligation to pay the Open Debt. Although the Debt Transfer Agreement was, on its face, internally inconsistent, on its proper construction, if the Russian Corporation failed to pay the Open Debt, the appellant’s obligation to pay would revive. The appellant was thus the proper party in respect of Debt 2B, and the tribunal had jurisdiction over this portion of the respondent’s claim (see the Judgment at [196]–[214]).

Issues to be determined

On appeal, the parties narrowed the scope of their submissions. The following issues rise for determination:

We shall deal with each issue in turn.

The Repugnancy argument

We will first set out cll 25.8 and 25.9 in full. Clause 25.9 of the Distributor Agreement, which sets out the arbitration agreement between the appellant and the Parent Company, provides:

Clause 25.8, entitled “Governing Law, Jurisdiction and Venue” states:

Following the Assignment and Novation Agreement, the right to arbitrate in relation to disputes arising out of the Distributor Agreement was novated from the Parent Company to the respondent.

Counsel for the appellant, Mr Randolph Khoo, argued that cl 25.9, which contains the parties’ agreement to arbitrate, ought not to be given effect. This submission was premised on two key points. First, given the inconsistencies between cll 25.8 and 25.9 of the Distributor Agreement, the court ought not to “give effect to cl 25.9 alone” [emphasis in original]. Second, cl 25.8 ought to prevail over cl 25.9 as “an earlier clause will prevail over a later inconsistent clause”. Reliance was placed on the decisions of Paul Smith ([42] supra) and EJR Lovelock Ltd v Exportles [1968] 1 Lloyd’s Rep 163 (“Lovelock”).

As noted by the Judge, prior to this case, the only local decision addressing the construction of a contract containing both jurisdiction and arbitration clauses appears to be that of PT Tri-MG Intra Asia Airlines v Norse Air Charter Limited [2009] SGHC 13 (“PT Tri-MG”).

The defendant in PT Tri-MG sought a stay of proceedings pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”). A key issue before the assistant registrar was “[w]hether a stay under s 6 of the IAA ought to granted when the Agreement ex facie contains an arbitration clause as well as a jurisdiction clause” (see PT Tri-MG at [3(a)]). After conducting a review of various English authorities, the learned assistant registrar decided to apply the Paul Smith approach to reconcile the arbitration and jurisdiction clauses – he read the latter as “a submission to the Singapore court’s supervisory jurisdiction over the arbitration” (see PT Tri-MG at [46]). The Judge affirmed the assistant registrar’s use of the Paul Smith approach and applied it to the present case.

In Paul Smith, Steyn J was faced with an arbitration clause entitled “Settlement of Disputes”. It provided as follows:

The parties’ agreement also contained a clause entitled “Language and Law”, which purported to set out a governing law and jurisdiction. It stated:

As the Judge observed (at [237] of the Judgment), Steyn J rejected the plaintiff’s argument that the parties’ arbitration agreement was invalid due to the inconsistency between the two clauses, holding that it would be drastic and very unattractive to find a total failure of the agreed method of dispute resolution in an international commercial contract. Steyn J preferred to interpret the “Language and Law” clause as applying to the parties’ arbitration itself, such that the English courts had supervisory jurisdiction over the arbitration. Such an approach was preferable to treating the arbitration clause as pro non scripto, ie, as if it had never been written.

When assessing the effect of purportedly inconsistent clauses, one should always start with their plain language. As stated by the Judge at [242]–[243] of the Judgment:

We agree with this approach. Where parties evince a real intention to have matters resolved by arbitration, the court ought to give effect to that intention. Minor inconsistencies between clauses cannot be allowed to detract from the parties’ agreement to arbitrate. Instead, a generous and harmonious interpretation should be given to the purportedly conflicting clauses such as to give effect to the parties’ true intention.

We do not think that the wording of the two clauses preclude an adoption of the Paul Smith approach. We are fortified in reaching this conclusion given the amount of detail provided by the parties in cl 25.9. The clause painstakingly provides for the binding effect of the award on parties, the manner in which the award was to be made, the manner in which the arbitrators were to be appointed, the number of arbitrators, as well as the language of the proceedings. This is in contrast to cl 25.8, which simply provides for the applicability of Singapore law and the jurisdiction of the courts located in Singapore.

While the appellant sought to rely on the decision of Lovelock ([53] supra) to further its case, we are of the view that it has little applicability here. The court in Lovelock was faced with a dispute resolution clause that consisted of two parts. The first provided for arbitration before English arbitrators. The second provided for the referral of the dispute to the USSR Chamber of Commerce Foreign Trade Arbitration Commission in Moscow, in accordance with the law of the USSR. The court eventually found the parties’ dispute resolution clause to be meaningless, and had to be rejected, as it was not possible to discern whether a dispute would fall within the first or second part of the clause – both parts provided for arbitration (see Lovelock at 166). The present case, in contrast, is more akin to the situation in Paul Smith.

Whether valid notice was given under the Assignment and Novation Agreement

The appellant argues that the Judge erred in finding that an email sent to the appellant prior to the execution of the Assignment and Novation Agreement cannot suffice as valid notice, and that as a result, the right to arbitrate under the Distributor Agreement remained with the Parent Company rather than the respondent.

It is clear that under cl 1 of the Assignment and Novation Agreement, valid notice had to be given to the appellant and the respondent. To reiterate, cl 1 states that the Parent Company:

The parties agree that following an initial email dated 1 November 2012, the Parent Company had sent an email dated 14 December 2012 to the appellant, which was titled “Assignment and Novation to [the respondent] – transition will occur on 14 January 2013”. It stated:

The Information letter attached to the email stated the following:

Having considered the parties’ submissions, we find that the key issue remains, as the Judge noted, whether, as a matter of construction of the Assignment and Novation Agreement, the 14 December 2012 email is capable of constituting the contractual notice required by cl 1 of that agreement.

There was no need for notice to be given only after the Parent Company, the appellant, and the respondent entered into the Assignment and Novation Agreement on 25 January 2013. We agree with the Judge at [118], that nothing in the plain wording of cl 1 suggests that the notification is only effective after a certain date or event. All cl 1 states is that the Parent Company’s rights and obligations would be transferred to the respondent “effective on a date between January 1, 2013 and June 30, 2013, as notified” by the Parent Company to the appellant and respondent. There is no reason to read the term “as notified” as prescribing a specific timeframe for the Parent Company to give notice – such a finding would simply go against the text of the parties’ agreement.

We thus find that the 14 December 2012 email constituted the requisite contractual notice under cl 1 such that the novation of the right to arbitrate from the Parent Company to the respondent was effective.

Whether the respondent possessed the right to arbitrate in relation to Debt B

The appellant mounted two arguments in relation to the respondent’s purported inability to arbitrate in relation to Debt B specifically. First, that the respondent had assigned away its right to arbitrate over Debt B to the Factor when it entered into the Participation Agreement. Second, this right to arbitrate was not reassigned to the respondent through the Buy Back Agreement. Any reassignment would only have taken effect in 2017, through the 2017 letter. According to the appellant, the respondent thus lacked “the right to start the proceedings” in relation to Debt B when it filed its notice of arbitration in 2015.

Whether the right to arbitrate was assigned to the Factor

It is clear that arbitration agreements are, as a class, capable of assignment (see Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] 5 SLR 455 at [52]–[53]). It is also common ground that pursuant to the Participation Agreement, the respondent’s rights to Debt B were assigned to the Factor.

The key question is, to borrow the words of the Judge at [133], where the right to arbitrate a dispute in relation to a particular debt resides after the respondent assigns that debt to the Factor.

Counsel for the respondent, Mr Toh Chen Han, argued that the effect of the assignment of Debt B is that both the respondent and the Factor would simultaneously possess the right to commence arbitration against the appellant. In support of this, the respondent relies on the doctrine of separability, as well as the fact that the arbitration agreement (as contained in cl 25.9 of the Distributor Agreement) continues to attach to other rights and obligations arising from the Distributor Agreement.

We reject this argument. While the respondent claims that the decision of Montedipe SpA and another v JTP-RO Jugotanker (The “Jordan Nicolov”) [1990] 2 Lloyd’s Rep 11 (“The Jordan Nicolov”) demonstrates the ability of an assignor to commence arbitration, a proper reading of it suggests quite the opposite. The court had made clear that “[t]he legal assignment extinguishes the legal cause of action of the assignor against the party liable so that the assignor cannot thereafter himself ask for an award against the party liable” (see The Jordan Nicolov at 15).

The fact that there remains an arbitration agreement between the parties with regard to residual rights and obligations in the Distributor Agreement (including, for instance, the obligation for each party to use care and discretion to avoid the disclosure of confidential information contained in cl 4) does not change this analysis. An arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to. Once the substantive right to Debt B was assigned, the respondent could no longer arbitrate in relation to Debt B.

This brings us to another contention between the parties – whether the right to arbitrate in relation to Debt B concerns the existence or scope of the parties’ arbitration agreement.

Existence or scope of the arbitration agreement

The appellant had, in its pleadings, premised its application on the tribunal having acted in excess of its jurisdiction under Art 34(2)(a)(i) of the Model Law. It did not plead that the tribunal lacked jurisdiction under Art 34(2)(a)(iii) of the Model Law.

The relevant portions of Art 34(2) state:

As noted by the Judge at [141], following our decision in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372 (“Astro”) at [152]–[158], it has been made clear that under Singapore law, the ground for setting aside under Art 34(2)(a)(i) of the Model Law relates to the existence of an arbitration agreement (or lack thereof), while Art 34(2)(a)(iii) deals with whether a dispute can properly be said to fall within the scope of an agreement. This was accepted by the parties.

The parties, however, differ as to whether the right to arbitrate in relation to Debt B would fall to be considered under Art 34(2)(a)(i) or Art 34(2)(a)(iii). The respondent argues that this dispute is one of scope under Art 34(2)(a)(iii), which was not pleaded by the respondent. On this basis, the appellant’s arguments should be disregarded by the court. The appellant naturally takes issue with such a characterisation, arguing that the present issue is more properly considered as one relating to the existence of an arbitration agreement – whether there was a valid and subsisting arbitration agreement between the parties in respect of the disputes arising out of Debt B.

The Judge had found that Art 34(2)(a)(iii), rather than Art 34(2)(a)(i), was engaged on the present facts. He stated:

As may be seen above, the Judge had placed much emphasis on the fact that there remained a number of substantive rights that continued to subsist between the appellant and respondent, which meant that they continued to be parties to the arbitration agreement. The question of whether the respondent possessed the right to arbitrate in relation to Debt B was, accordingly, a question relating to the scope of the arbitration agreement between the parties.

We take a differing view. As stated above at [75], an arbitration agreement does not have a purpose or a life independent of the substantive obligations that it attaches to. The right to arbitrate cannot be seen in isolation – it must necessarily attach to a specific right. We are concerned with the existence of one’s right to arbitrate in relation to Debt B.

Having assigned the right to Debt B to the Factor, the right to arbitrate in relation to that debt would subsist between the appellant and the Factor. The respondent would not be considered as a proper party to the agreement to arbitrate disputes arising over Debt B. The fact that there remains unrelated substantive rights between the respondent and the appellant (such as the right to require protection of confidential information under cl 8) cannot affect the nature of the inquiry. The question remains whether the respondent, at the relevant time, was able to commence arbitration in relation to Debt B pursuant to a valid arbitration agreement with the appellant.

This question is properly considered under the ground of Art 34(2)(a)(i), which concerns the existence and validity of any alleged arbitration agreement. As stated in Gary Born, International Commercial Arbitration, vol III (Wolters Kluwer, 2nd Ed, 2014) at p 3448:

The learned author was making reference to Arts V(1)(a) and (c) of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), which are substantially similar to Arts 34(2)(a)(i) and (iii) of the Model Law (save that the relevant provisions in the New York Convention concern grounds for the refusal of recognition and enforcement of an arbitral award while Art 34(2)(a) involves the setting aside of an arbitral award).

A similar view was expressed by Judith Prakash J (as she then was) in relation to s 31(2)(b) of the IAA in Aloe Vera of America, Inc v Asianic Food (S) Pte Ltd and another [2006] 3 SLR(R) 174 (“Aloe Vera”), which concerns the refusal of enforcement of a foreign arbitration award on the basis of the invalidity of the arbitration agreement.

The wording of s 31(2)(b) of the IAA is substantially similar to that of Art 34(2)(a)(i) of the Model Law. It states that a court may refuse enforcement of a foreign award if the court is satisfied that:

The learned judge held, at [63], that in order for s 31(2)(b) to be satisfied, she would have had to be satisfied that “the arbitration agreement was invalid vis-à-vis [the second defendant] and that the Arbitrator was not entitled to find that [the second defendant] was a party to the Agreement and the arbitration” [emphasis added]. The question of whether one was a proper party to an arbitration agreement was not to be considered under s 31(2)(d) (which instead concerns the scope of an arbitration agreement). Prakash J’s decision in Aloe Vera was subsequently cited and considered by this court in Astro ([79] supra) at [153] – we had affirmed her views on the inapplicability of Art V(1)(c) of the New York Convention to issues relating to the existence of an arbitration agreement.

We went on to state, in Astro, our views on the applicability of Art 34(2)(a)(i) to issues concerning the existence of the arbitration agreement, despite its wording possibly suggesting otherwise:

Our decision in the present case is thus consistent with the position adopted in Astro.

Having confirmed that the right to arbitrate was assigned to the Factor, and that the question of whether the respondent had the right to sue in relation to Debt B is one concerning the existence of an arbitration agreement rather than scope, we turn to consider whether this right was eventually reassigned to the respondent.

When the right to arbitrate was reassigned to the respondent

As stated above at [70], the appellant argues that the Buy Back Agreement in 2015 did not have the effect of reassigning Debt B back to the respondent. While there was initially some confusion during the hearing as to whether the 2017 letter by the Factor constituted notice of an assignment that took place in 2015 (via the Buy Back Agreement), or whether the letter itself effected a reassignment in 2017, the respondent eventually accepted that, assuming that the Buy Back Agreement in 2015 did not reassign the right to arbitrate back to the respondent, that right would only have been reassigned in 2017.

Nevertheless, the respondent’s primary argument remained that the Buy Back Agreement did effect a reassignment. This was despite the fact that there was no reference or use of the terms “assignment”, “reassignment” or “buy back” in the Buy Back Agreement itself. Mr Toh emphasised that the Buy Back Agreement was “not meant to be read on its own”, but had to be understood in conjunction with the Participation Agreement. This was especially so considering the references to the Participation Agreement in the preamble of the Buy Back Agreement, which spoke of the Buy Back Agreement “amend[ing] for the purpose of [the Buy Back Agreement] the existing [Participation Agreement]”.

Upon closer inspection, however, we find it clear that the Buy Back Agreement was not meant to effect a reassignment of Debt B.

Following the Participation Agreement, under which the rights to Debt B were transferred to the Factor, the respondent owed the Factor a sum of US$28,477,365.85 in respect of the With Recourse Invoices. Thus, at the time the Buy Back Agreement was entered into, there was a subsisting bipartite arrangement between the respondent and the Factor, where the latter had a contractual right against the respondent in relation to the With Recourse Obligations.

Under cl 2 of the Buy Back Agreement (see above at [24]), the respondent was to make “indefeasible payment of the With Recourse Obligations”, following which the respondent would “be released from any liabilities therefor”. The Buy Back Agreement was primarily concerned with the discharge of the respondent’s With Recourse Obligations, not with reassignment.

The actions taken by the Factor are consistent with such a reading of the Buy Back Agreement. Prior to its entrance into the Buy Back Agreement, the Factor was issuing monthly statements of its accounts to the appellant. These statements set out the amount of payments made by the appellant, the applicable interest charges on the remaining debt, the loan amounts due on specific invoices, and the outstanding balance owed to the Factor. We endorse the words of Andrew Ang J (as he then was) in Lanxess ([46] supra), that a statement of account indicates and asserts a right by the issuer to repayment of the debt – as Mr Khoo noted, the “exacting detail” provided by these monthly statements leave little doubt as to the need for the appellant to make payment to the Factor.

These monthly statements continued to be issued even after the parties entered into the Buy Back Agreement on 23 April 2015 – the last of these monthly statements was issued for the month of November 2015. Had there been a genuine reassignment to the respondent via the Buy Back Agreement, the Factor would have ceased its issuance of such monthly statements.

Mr Toh’s reliance on the Participation Agreement does not assist the respondent’s case. According to the respondent, reading the Buy Back Agreement together with cl 4.3 of the Participation Agreement would make clear that there had indeed been a reassignment of Debt B. Upon payment to the Factor pursuant to the Buy Back Agreement, the right to Debt B, which included the right to arbitrate, was reassigned to the respondent. This was an argument that the Judge had also dealt with (see the Judgment at [152]).

Clauses 4.3.1 and 4.3.3 of the Participation Agreement form the cornerstone of the respondent’s case:

However, as the Judge observed, cl 4.3.1 is not a general obligation for the respondent to repurchase unpaid debt from the Factor. The Judge proceeded to state at [155] of the Judgment:

We agree – cll 4.3.1 and 4.3.3 are inapplicable to the present circumstances and do not assist the respondent.

We note, however, that while the Judge disagreed with the respondent’s use of the Participation Agreement to support its case, he nevertheless found that the Buy Back Agreement did reassign the right to Debt B to the respondent. The Judge applied the contextual approach to contractual interpretation, finding that there was evidence that by the end of 2014, “the Factor was trying to withdraw entirely from operations in Russia”. He held at [157] that:

In Sembcorp Marine Ltd v PPL Holdings Pte Ltd and another and another appeal [2013] 4 SLR 193 (“Sembcorp”), we explained the applicability and utility of the contextual approach of interpretation in allowing the court to ascertain the parties’ objective intentions. We stated at [71]–[72]:

The court is ultimately concerned with the parties’ objective intentions. While the court will not adopt an unduly strict construction of a document that does not fairly represent the intentions of the parties, the primary use of the contextual approach is to ascertain the parties’ objective intentions by “interpreting the expressions used by the parties in the relevant instrument in their proper context”.

However, the Judge did not actually interpret the wording of the Buy Back Agreement in reaching his decision. Instead, he took an overly broad brush approach – excessive weight was placed on the extrinsic evidence of the Factor’s planned exit from Russia without regard for the plain text of the Buy Back Agreement itself. As stated above at [94] and [97], there was no mention of any terms relating to “assignment”, “reassignment”, or “buy back” in the Buy Back Agreement. Instead, the Buy Back Agreement was squarely focused on the With Recourse obligations that were owed to the Factor.

In such a situation, it would be inappropriate to wholly disregard the terms of the parties’ contractual agreement in favour of an independent finding of intention. Extrinsic evidence ought to guide the court’s interpretation of the terms contained in an agreement – it cannot take on a life of its own and overshadow the written contract.

We are thus of the view that the Buy Back Agreement did not reassign the rights to Debt B to the respondent. As Mr Toh acknowledged during the hearing, the right to Debt B was instead reassigned to the respondent in April 2017, via the 2017 letter, which confirmed that “any rights which [the Factor] may have under the Distributor Agreement between [the respondent] and [the appellant] dated 24 December 2010 and any further rights which it may have had to collect payment from [the appellant] in respect of invoices for [the respondent’s products] have been assigned to [the respondent]”.

The significance of the date of reassignment

Having found that Debt B was only reassigned in 2017, the natural question which ensues is the significance of such a finding to the respondent’s rights of suit. This necessarily entails an inquiry into the decision of The “Jarguh Sawit” [1997] 3 SLR(R) 829 (“Jarguh Sawit”) which, according to the respondent, retroactively vested in it the right to sue in relation to Debt B (“the retrospective vesting principle”).

At the conclusion of the hearing, we directed the parties to file further submissions on the applicability of Jarguh Sawit to the present case, taking into account the fact that an arbitrator’s jurisdiction is rooted in the parties’ consent.

Before delving into our discussion on the state of the law on this issue, we pause to note that while the case of Jarguh Sawit was raised before the Judge, the specific nuances of how the principle laid down by this court in Jarguh Sawit might not be applicable in the context of arbitration was not raised before him. To put it another way, the Judge was not asked to consider whether the consensual nature of arbitration would affect the principle that Jarguh Sawit purportedly stands for – that there can be a retrospective vesting of a cause of action in an assignee.

In the course of court proceedings, the appellant filed a defence and counterclaim alleging, inter alia, that the court did not have jurisdiction as NMB did not have an admiralty in rem or in personam claim against the appellants. NMB applied for, and obtained before an assistant registrar, summary judgment and an order striking out the paragraphs alleging lack of jurisdiction.

Subsequent to the assistant registrar’s orders, OJI assigned all its rights, title and interest under the memorandum of agreement to the appellant by a deed of assignment. The appellant then appealed to the High Court to amend their counterclaim – their original counterclaim was confined to a claim for damages for wrongful arrest of their vessel, but they wanted to include an additional claim against NMB for its failure to deliver a fully classed Lloyd’s vessel. The High Court judge made a number of orders, including a dismissal of the appellant’s application to amend its counterclaim. He did so on the basis that the causes of action sought to be introduced arose after the filing date of the counterclaim. The appellant then appealed against the High Court judge’s orders.

This court in Jarguh Sawit found that the High Court judge had erred in his dismissal of the appellant’s application to amend their counterclaim. This court held at [62] that since OJI’s claim for damages against NMB was already accrued at the date of the writ, it did not matter that the cause of action was only vested in the appellant subsequent to that date. This was because the vesting of OJI’s rights would have retrospective effect. As stated in Jarguh Sawit at [63]:

The cases of Read v Brown (1888) 22 QBD 128 (“Read v Brown”) and Central Insurance Co Ltd v Seacalf Shipping Corp [1983] 2 Lloyd’s Rep 25, CA (“Central Insurance”) were thus crucial to the court’s decision. In our view, both of these decisions do not actually establish that an assignment can retrospectively vest rights in the assignee. We begin with the decision of Central Insurance.

Central Insurance has to be seen in its context, namely a situation of subrogation. The appellant, Central Insurance, was an insurer. It became subrogated to the rights of 28 Taiwanese buyers when the latter purchased 30 policies of insurance covering quantities of soya-bean meal which had been consigned to the buyers. In its statement of claim, the appellant stated that it had become subrogated to the rights and entitlements of the buyers against the respondent, and pleaded that it had suffered damage as a result of the respondent’s failure to deliver. The appellant, however, did not add the buyers as plaintiffs at the outset. More than a year later, the appellant sought to amend its statement of claim to add the buyers as plaintiffs, and to add: first, a claim by it as an assignee of the rights of the cargo owners; and second, claims for damages in the alternative by the buyers. The respondent argued that such an amendment would be time barred.

Oliver LJ framed the critical question before him in the following terms:

In deciding to allow the amendment, Oliver LJ stated that subrogation “is not itself and does not create a cause of action against the debtor”, and does not alter the nature of the claim made against the defendant. There “could not be any doubt at all about what the claim was that was being asserted” – it was a claim for short delivery of cargo, full particulars of which had already been delivered and referred to in the indorsement.

It is hence clear that the focus of the English Court of Appeal was placed on the nature of subrogation, rather than whether a free-standing principle of retrospective vesting applied in the context of assignments.

The decision of Read v Brown ([117] supra) is also of limited assistance as the court was unconcerned as to whether an assignment had retrospective effect. Rather, it was focused on the significance of an assignment in determining a plaintiff’s cause of action. The plaintiff had brought an action as an assignee of a debt alleged to be due in respect of the price of goods sold and delivered to the defendant by the assignor. The sale and delivery of the goods had taken place in Surrey, but the assignment of the debt took place in the City of London, which was within the jurisdiction of the Mayor’s Court. The defendant took the position that the plaintiff was prohibited from bringing an action in the Mayor’s Court as the “mere fact” that the assignment took place within the jurisdiction of the Mayor’s Court was insufficient.

The Court considered, at 131, that the question before the court was “whether any part of the cause of action arose in the City [of London]”. This required the Court to analyse the nature of an assignment. It stated at 132 that upon assignment:

The fact that the assignment took place in the City of London was sufficient for the Mayor’s Court to exercise its jurisdiction.

The respondent, in its further submissions, sought to highlight that the Court in Read v Brown had stated that the debt “is transferred to the assignee and becomes as though it had been his from the beginning”. On the respondent’s case, this demonstrates a clear affirmation of the retrospective vesting effect of assignments. We disagree. The Court’s statement has to be seen in context – the statement that the debt “becomes as though it had been [the assignee’s] from the beginning” was made to emphasise that an assignor would no longer possess a cause of action against the debtor. In fact, as seen above at [123], the issue of retrospective vesting was not before the Court.

Irrespective of our views as to the significance of Central Insurance and Read v Brown on the principle of retrospective vesting for an assignment, such a principle should not, in any event, apply in the present case as it concerns arbitration proceedings, as opposed to court proceedings.

Litigation and arbitration are founded on fundamentally different bases. As noted by the High Court in JVL Agro Industries Ltd v Agritrade International Pte Ltd [2016] 4 SLR 768 at [174], “[u]nlike litigation, which is founded on the State’s coercive power, arbitration is founded entirely upon the parties’ consent”. The differences between litigation and arbitration were further highlighted in Gary Born, International Commercial Arbitration, vol I (Wolters Kluwer, 2nd Ed, 2014) at p 256:

In the Singapore context, the High Court derives its powers from s 16 of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) (“the SCJA”), which provides for the general civil jurisdiction of the courts. It states:

While s 16 of the SCJA does provide for the court’s jurisdiction where a defendant submits to jurisdiction, it is clear that the court’s power is not limited to such a circumstance. The court may possess and exercise jurisdiction over parties, whether willing or unwilling, as long as the requirements of s 16 are met.

It is also clear that O 20 r 5 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) confers upon the court a general power to allow or order amendments to be made to pleadings (see Singapore Civil Procedure 2020, vol I (Chua Lee Ming gen ed) (Sweet & Maxwell, 2020) at para 20/8/2). In fact, Jarguh Sawit ([110] supra) should be seen as a case that was decided in the context of Singapore procedural laws. As this court noted there at [57]:

It is clear that the procedural laws of a state do not apply to an arbitration simply because that state is the arbitral seat (see Gary Born, International Commercial Arbitration, vol II (Wolters Kluwer, 2nd Ed, 2014) at p 1623).

There is good reason for this especially considering the distinct principles governing the court and the arbitral tribunal’s jurisdiction. In Kenya Railways v Antares Pte Ltd (“The Antares”) (Nos 1 and 2) [1987] 1 Lloyd’s Law Rep 424 (“Kenya”), the English Court of Appeal considered the applicability of s 35(1) of the Limitation Act 1980 (c 58) (UK) (“UK Limitation Act”) to arbitral proceedings.

In Kenya, MSC chartered the vessel Antares for the shipping of cargo. When damage to the cargo on board was discovered, the cargo owners, Kenya Railways, commenced arbitral proceedings against MSC in London, on the assumption that MSC were the owners of the vessel. Sometime later, MSC informed Kenya Railways of the true state of affairs, and Kenya Railways then put forward a claim against the true owners, who took the view that the claim was time barred. As s 35(1) of the UK Limitation Act allowed for any new claim made in the course of any action to be deemed as being made on the same date as the original action, Kenya Railways argued that it ought to be able to substitute a new party to an existing arbitration.

In holding that s 35(1) was inapplicable, the English Court of Appeal emphasised that allowing such a substitution would undermine the consensual basis of arbitration. Lloyd LJ stated at 432:

As alluded to by the English Court of Appeal, an arbitral tribunal would not possess such a free-standing power to allow for the addition of new causes of action that are independent from the parties’ arbitration agreement. The importance of the parties’ consent is such that the tribunal’s jurisdiction in respect of each cause of action should be jealously scrutinised by the tribunal – the tribunal has to satisfy itself that it possesses jurisdiction (based on party consent) in relation to each issue that is submitted for adjudication. The existence of an arbitration agreement between the parties cannot be taken to automatically confer jurisdiction on the arbitrator in respect of all causes of action that arise between them – the scope and content of the parties’ agreement must be taken into consideration. As noted in Andrea Marco Steingruber, Consent in International Arbitration (Loukas Mistelis ed) (Oxford University Press, 2012) at para 1.05:

The issue of party consent is also closely tied to the importance of ensuring that the proper parties are involved at the onset of arbitral proceedings. The decision of Internaut Shipping GmbH and another v Fercometal SARL (The “Elikon”) [2003] 2 Lloyd’s Rep 430 (“Internaut”) amply demonstrates this point. In Internaut, there was a voyage charterparty between Fercometal as the charterer and Sphinx as the owner. Internaut Shipping had signed the charter-party under the heading “Owners” without qualification. It then started arbitral proceedings against Fercometal for a demurrage claim, but the points of claim as subsequently served by its lawyers were in the name of Sphinx. The arbitration was conducted in the name of Sphinx, with an interim award made in favour of Sphinx.

A key question that the English Court of Appeal had to consider was whether the arbitral tribunal had the power to substitute Internaut Shipping for Sphinx, and whether the references to Sphinx were a mere misnomer. The Court of Appeal decided in the negative, stating at [87]–[88]:

As the court held, it was irrelevant whether Sphinx wanted to ratify what had been done in its name. Given the misidentification of the parties at the outset of the arbitration, the entire set of arbitral proceedings were rendered a nullity.

Similarly, at the time the respondent in the present case commenced the arbitration in 2015, Debt B was still assigned to the Factor. There was thus only an agreement to arbitrate over disputes relating to Debt 1A. The respondent would not have been a proper party to any arbitration arising out of disputes over Debt B.

Whether notice ought to be given by an assignor or assignee

At this point, we pause to consider an ancillary matter: whether notice of assignment can effectively be given by a purported assignee instead of the assignor. While this was not a point expressly taken by the appellant (that notice was improperly given by the Parent Company instead of the respondent), Mr Toh did submit, as part of the respondent’s case that the Buy Back Agreement reassigned the right to arbitrate in relation to Debt B to the respondent, that valid notice of the assignment can be given by an assignee to the debtor.

We think that the question of whether notice ought to be given to the debtor by the assignor or the assignee is an issue of some significance, which deserves some ventilation.

We begin with the law on statutory assignment in Singapore. Section 4(8) of the Civil Law Act (Cap 43, 1999 Rev Ed) (“CLA”) states:

The wording of s 4(8) is substantially similar to s 136 of the Law of Property Act 1925 (c 20) (UK) (“the LPA”). Section 136 provides:

As can be seen above, while the CLA and LPA make clear that “express notice in writing” is a key requirement for a statutory assignment, neither statute provides guidance as to the party that ought to provide this notice.

Both Singapore and English case law suggest that valid notice may be provided by either the assignor or the assignee.

In Lanxess ([46] supra), Andrew Ang J (as he then was) stated at [25]:

A similar position was adopted by the English Court of Appeal in Bateman and another v Hunt and others [1904] 2 KB 530, where the defendant took issue with the fact that the plaintiffs (the assignees) had given notice of the assignment. The applicable provision at the time was s 25(6) of the Supreme Court of Judicature Act 1873 (36 & 37 Vict, c 66) (UK) – it served as the predecessor provision to s 136 of the LPA. After reviewing the wording of s 25(6), which required “express notice in writing” to be given to the debtor, the English Court of Appeal held that the assignees were entitled to give the requisite notice. It stated at 538:

The learned authors of Snell’s Equity (John McGhee gen ed) (Sweet & Maxwell, 33rd Ed, 2015) concur with this view, affirming at para 3-008 that “the section does not state by whom or at what time [notice] must be given”. Subsequent decisions such as James Talcott Ltd v John Lewis & Co Ltd and North American Dress Co Ltd [1940] 3 All ER 592 and Holt v Heatherfield Trust Ltd and another [1942] 2 KB 1 have also affirmed the ability of an assignee to provide valid notice of the assignment to the debtor.

It is thus clear that under s 4(8) of the CLA, notice can be given by either an assignor or an assignee. However, when notice is given by an assignee, the debtor faces the risk that the notice is false – a debtor may, in reliance of a false notice, make payment to a false assignee who is unable to give the debtor a good discharge of the debt. It is therefore open and undoubtedly advisable for the debtor to verify the fact of the assignment with the assignor.

A debtor would possess the right to request for evidence of the assignment when faced with a notice from a purported assignee. We agree with the statement of Lord Denning MR in Van Lynn Developments Ltd v Pelias Construction Co Ltd (formerly Jason Construction Co Ltd) [1969] 1 QB 607 at 613, that:

This is crucial, in order that the rights of the debtor be protected.

Multiple international instruments reflect this same concern. Article 9.1.12(1) of the UNIDROIT Principles of International Commercial Contracts 2016 provides that:

Similarly, Article 11.303(2) of the Principles of European Contract Law 2002 allows for a debtor to, “within a reasonable time request the assignee to provide reliable evidence of the assignment, pending which the debtor may withhold performance.” Finally, the Draft Common Frame of Reference: Principles, Definitions and Model Rules of European Private Law 2009 at III-5:120 allows for a debtor who has received a notice of assignment from the assignee, but not from the assignor, to request the assignee “to provide reliable evidence of the assignment”.

We thus affirm the right of a debtor to verify the fact of assignment prior to making payment to a purported assignee. This, we should add, is a risk management issue and does not mandate that notice must be provided by the assignor instead of the assignee.

Whether Debt 2B was novated to the Russian Corporation

Given our finding that the arbitral tribunal acted beyond its jurisdiction when determining issues in relation to Debt B, the portion of the award dealing with Debt 2B would thus be set aside. Nevertheless, for completeness, we turn to address the appellant’s final argument.

The appellant takes the position that the arbitral tribunal lacked jurisdiction over the parties’ dispute because: first, claims in relation to Debt 2B ought to have been brought against the Russian Corporation (rather than the appellant); and second, that the dispute resolution procedure under the Gold Plan Agreement ought to have been used in place of SIAC arbitration under the Distributor Agreement.

A review of the Debt Transfer Agreement, the Open Debt Agreement and the Gold Plan Agreement is in order.

The legal effect of the Debt Transfer Agreement

In order to address the appellant’s contention that the proper parties in relation to Debt 2B was the Parent Company and the Russian Corporation, we will analyse the wording and effect of the relevant clauses (cll 3 and 4) of the Debt Transfer Agreement.

Clause 3 provides that:

Clause 4 states:

At first blush, cll 3 and 4 appear inconsistent. While cl 3 purported to release the appellant from its obligations under the Distributor Agreement only when the respondent received the “full amount of the Open Debt”, cl 4 appeared to allow for an immediate extinction of the appellant's obligations.

We however agree with the Judge below that the two clauses can and should be read harmoniously. As he held at [211] of the Judgment, cl 4 should be read to mean that the appellant’s obligation to pay the Open Debt is extinguished with immediate effect and transferred to the Russian Corporation until the time stipulated for the Russian Corporation to pay the Open Debt under cl 2 of the Debt Transfer Agreement expires. This obligation would then revive if the Russian Corporation fails to make full payment to the respondent in discharge of the Open Debt. Such an approach is infinitely preferable to disregarding one of the clauses altogether and rendering it otiose.

Clause 7 of the Open Debt Agreement should also be highlighted. It states as follows:

To our minds, the presence of cl 7 of the Open Debt Agreement, which is consistent with our interpretation of cll 3 and 4, further reinforces our view that the appellant would not be automatically let off the hook upon the conclusion of the Debt Transfer Agreement. Although there is a slight difference between cl 7 of the Open Debt Agreement and cl 3 of the Debt Transfer Agreement, in that the former relates to the Russian Corporation (or the appellant) paying the Factor as a result of the Factor’s purchase of the Open Debt from the respondent, this does not detract from the obligation in both provisions being on either the Russian Corporation or the appellant to pay the Open Debt. We thus affirm the Judge’s reading of the Debt Transfer Agreement – the appellant remained the proper party to Debt 2B, given that the Russian Corporation failed to fully discharge the Open Debt.

The applicable dispute resolution clause for Debt 2B

The appellant argues that any reassignment of the Factor’s rights of action to the respondent would be of rights under the Open Debt Agreement, which arguably incorporates the dispute resolution provision under the Schedule to the Gold Plan Agreement (“the Gold Plan dispute resolution clause”), which provided for arbitration to be held in Vienna, Austria. Thus, the dispute resolution provisions under the Distributor Agreement, which provided for SIAC arbitration, would be inapplicable.

We were not convinced by this argument. The Gold Plan dispute resolution clause was never meant to apply to invoices issued by the respondent. This is made clear from its wording, which states, at the “GOVERNING LAW” section:

In addition, the respondent was, at all material times, not a party to the Gold Plan Agreement. There is no reason for disputes arising out of invoices that were issued under the Distributor Agreement to be adjudicated according to the dispute resolution provision of a separate, unrelated agreement.

Conclusion

Having found that the arbitral tribunal had exceeded its jurisdiction when adjudicating on matters relating to Debt B, the arbitral award is thus set aside in part under Art 34(2)(a)(i) of the Model Law. Accordingly, the appeal is likewise allowed in part in relation to Debt B.