Regalindo Resources Pte Ltd v Seatrek Trans Pte Ltd

[1] The defendant in this originating summons, Seatrek Trans Pte Ltd (“Seatrek”) had commenced arbitration proceedings in Singapore against the plaintiff, Regalindo Resources Pte Ltd (“Regalindo”), seeking damages for an alleged breach of a time charter dated on or about 21 November 2007. The alleged breach relates to Regalindo’s failure to take delivery of the vessel “Startec”. Regalindo’s position was that it did not enter into the said agreement with Seatrek.

[2] Prior to the commencement of arbitration, Seatrek commenced an action in the United States District Court for the Southern District of New York (“the New York District Court”). The action filed on 22 January 2008 consisted of a complaint along with an ex parte application for the issuance of a Rule B Attachment to obtain security in the amount of US$3,777,200 (“the New York Proceedings”). The Rule B Attachment was granted on 23 January 2008 and was subsequently served on 12 major banks in New York, one of which was The Bank of New York.

[3] On 5 February 2008, Regalindo sought to transfer a sum of US$249,975 from a Singapore bank account to the bank account of one of its suppliers in Jakarta, Indonesia. The Bank of New York, which stood as an intermediary bank for the transfer, attached the said sum pursuant to the Rule B Attachment notice. It was only on 11 February 2008 that Regalindo was informed by the United States solicitors of Seatrek, by way of a letter dated 6 February 2008, of the attachment and the New York Proceedings.

[4] A week later, on 18 February 2008, Seatrek relied on an arbitration clause in the disputed time charter and served a notice of commencement of arbitration on Regalindo. The aforesaid arbitration clause provided for arbitration in Singapore in the event of any dispute and that the time charter would be governed by English law. At the same time, Seatrek also gave notice of appointment of its arbitrator and called on Regalindo to appoint its own arbitrator within seven days, failing which Seatrek’s appointed arbitrator would be the sole arbitrator. On 25 February 2008, without prejudice to Regalindo’s rights to challenge the existence of the alleged arbitration agreement and the jurisdiction of the arbitral tribunal, Regalindo appointed an arbitrator. A day later, Regalindo applied to this court seeking an order to restrain Seatrek from continuing with the New York Proceedings and to release all moneys attached pursuant to the Rule B Attachment.

[5] A Rule B Attachment in aid of claims being pursued outside of the United States is apparently of ancient origin in the United States. According to Aqua Stoli Shipping Ltd v Gardner Smith Pty Ltd, 460 F.3d 434 (“Aqua Stoli”) at 445, an attachment order could be obtained at an ex parte hearing on demonstration that: (1) there is a valid prima facie admiralty claim against the respondent; (2) the respondent cannot be found within the court district; (3) the respondent’s property may be found within the district; and (4) there is no statutory or maritime law bar to the attachment. In this regard, the United States Court of Appeals for the Second Circuit (“the Second Circuit”) in Aqua Stoli rejected the needs-plus-balancing test applied by the court below, holding instead that there was no need for a claimant to justify the need for security.

[6] The novelty surrounding a Rule B Attachment is the deployment of the procedure to attach bank credits in an electronic fund transfer (“EFT”) when the credits pass transiently through an intermediary financial institution in the United States. As observed by the Second Circuit in Reibor International Ltd v Cargo Carriers (KACZ–Co) Ltd, 759 F.2d 262 at 266:

[7] It therefore came as no surprise that a seemingly innocuous transfer of US$249,975 was frozen and attached by the intermediary clearing bank, in this case The Bank of New York, as the funds were being electronically routed from the plaintiff’s bank account in Singapore to a bank in Jakarta.

[8] The legality of EFT attachments under Federal Law was recognised by the Second Circuit in Winter Storm Shipping Ltd v TPI, 310 F.3d 263 (“Winter Storm”), which held that “EFT funds in the hands of an intermediary bank may be attached pursuant to Admiralty Rule B(1)(a)”. Further, the court also noted that a maritime attachment did not require a relationship between the property attached and the underlying charterparty. The decision in Winter Storm to allow the attachment of EFT funds has been criticised by banking entities, and in Aqua Stoli at 446, the Second Circuit made the following observation by way of a footnote:

[9] While the above footnote stopped short of departing from Winter Storm, it did, prima facie, raise some doubts on the reasoning behind Winter Storm. The issue of whether the New York courts are still bound by Winter Storm was considered by the New York District Court in General Tankers Pte Ltd v Kundan Rice Mills Ltd, 475 F.Supp.2d 396 at 399, where the court held that Winter Storm remained as good law given that it had not been overruled, and that the Second Circuit was bound by a decision of a prior panel unless and until its rationale was overruled, implicitly or expressly, by the Supreme Court or the Second Circuit en banc. As this well-settled procedure was not followed in Aqua Stoli, it follows that the ratio decidendi in Winter Storm remains undisturbed.

[10] Reverting to the present case, Regalindo applied to the New York District Court to vacate the Attachment Order and one of the grounds relied upon was that an EFT in the hands of an intermediary bank was not a tangible or intangible property within the meaning of Rule B. The said application was heard on 25 March 2008 and was dismissed as, notwithstanding the fact that the rule in Winter Storm is currently the subject of an appeal, the court was of the view that pending the verdict of that appeal, Winter Storm remained as good law. In the circumstances, as the United States courts are best positioned to interpret and apply their own laws, this court would assume that the funds attached by The Bank of New York have been attached in accordance with the laws of the United States.

[11] It is well settled that the court’s jurisdiction to restrain foreign proceedings is exercised on the basis of the “ends of justice” and that there are several distinct and discrete grounds on which the court could grant an anti-suit injunction; see Dicey, Morris & Collins, The Conflict of Laws, vol 1 (Sweet & Maxwell, 14th Ed, 2006) (“Dicey & Morris”) at pp 502–503:

[12] The law relating to the granting of anti-suit injunctions is well settled. In Bank of America National Trust & Savings Association v Djoni Widjaja [1994] 2 SLR 816, the Court of Appeal adopted the principles enunciated by the Privy Council in Société Nationale Industrielle Aerospatiale v Lee Kui Jak[1987] AC 871 (“Aerospatiale”). In Aerospatialethose principles were summarised succinctly by Lord Goff at 892:

[13] In Koh Kay Yew v Inno-Pacific Holdings Ltd [1997] 3 SLR 121, the Court of Appeal again applied the Aerospatiale principles and added at [25] that:

[14] In the case at hand, the plaintiff had submitted that “where foreign proceedings are commenced in breach of an exclusive jurisdiction clause or arbitration agreement, the English Courts have granted an anti-suit injunction without even considering the question of vexation and/or oppression”. In this regard, the alleged arbitration agreement between the parties provides as follows:

[15] In The Lisboa [1980] 2 Lloyd’s Rep 546 (“The Lisboa”), the jurisdiction clause in question read:

[16] Denning LJ held that the phrase “any and all legal proceedings” should be construed as relating only to proceedings to establish liability and did not extend to proceedings to enforce a judgment or award or to obtain security. On that basis, it would follow that in the present case, in the absence of clear and unequivocal language in the arbitration clause, the retention of security per se in New York by the defendant would not be inconsistent with the agreement to arbitrate, if any.

[17] I now turn to consider whether the New York Proceedings were vexatious or oppressive. On this point, the plaintiff has submitted that:

(a) the advantages offered by the Rule B Attachment were available only in New York which was not the natural forum and this was evidence of oppression;

(b) there was a distinction between ship arrest and a Rule B Attachment. While the former is a recognised proceeding in most maritime states, the latter is unique to the United States; and

(c) the attachment of funds would hamstring the plaintiff’s cash flow and was highly disruptive to the ordinary and proper conduct of its business.

[18] The defendant, on the other hand, submitted that an anti-suit injunction, if granted, would deprive it of a legitimate juridical advantage. Before moving on to deal with the parties’ points, it would perhaps be opportune again to refer to Dicey & Morris on the question of vexation and/or oppression, at pp 504–505:

[19] The defendant was not entitled to pre-judgment security under Singapore law as its claim did not entitle it to invoke the in rem remedies afforded by the High Court (Admiralty Jurisdiction) Act. Further, the defendant had not, at least at the outset, alleged that there was a risk that the plaintiff would dissipate or conceal its assets or put them out of reach of the defendant. Unable to obtain security in Singapore, the defendant invoked the New York District Court’s maritime jurisdiction to obtain the same.

[20] In Q&M Enterprises Sdn Bhd v Poh Kiat [2005] 4 SLR 494, Andrew Phang JC stated at [25] that:

[21] To my mind, the above dicta by Phang JC lends support to the proposition that we should not automatically favour domestic law over foreign law. The fact that the remedies sought in the New York Proceedings were not available in Singapore should not automatically mean that an anti-suit injunction ought to be granted.

[22] In my view, if a party could satisfy the court that there was good reason behind its institution of the foreign legal process, the court, in deciding whether to grant an anti-suit injunction, would have to balance the hardship caused to the plaintiff by the foreign proceedings against the defendant’s need to invoke the foreign process; see Aerospatiale at 896, where Lord Goff stated:

[23] In the present case, the defendant stated that there was a real likelihood that the plaintiff would not be able to satisfy the arbitration award if the defendant succeeded in the arbitration. While the plaintiff had a paid-up capital of S$2m, the net worth of the plaintiff was only S$290,212, the latest available audited financial statements showing an accumulated loss of S$1,709,788 over the years. This was the reason why the defendant decided to seek advice on the possibility of obtaining security for its claim. Its United States lawyers advised that there was an available remedy under United States law which would assist the defendant in obtaining security for its arbitration claim in Singapore. Accordingly, the defendant made an application to the New York District Court for a Rule B Attachment Order.

[24] The defendant further averred that its need for security was even greater now as the directors of the plaintiff had on 1 February 2008 set up three companies, namely, Regalindo Holdings Pte Ltd, Regalindo Logistics Pte Ltd and Regalindo Mines Pte Ltd. All the three companies share the same registered office as the plaintiff; Regalindo Mines Pte Ltd was in fact carrying on the same business as the plaintiff. Further, the directors and shareholders hold the shares of these three newly incorporated companies in the same proportion as their current shareholdings in the plaintiff. To the defendant, these were indications that the directors might no longer be carrying on business through the plaintiff but have diverted its business to the three newly incorporated companies.

[25] The plaintiff replied stating that its net asset value of S$290,212 in 2006 was a much improved position from the previous year’s figure of S$105,831, and that it had made S$184,381 in profits in 2006. The fact that the defendant had conducted background checks on the plaintiff during the course of the parties’ negotiations for the time charter was also highlighted but, it seems to me, that is not a pivotal fact in the present circumstances.

[26] As for the three newly incorporated companies, the plaintiff stated that none of them was set up to take over the plaintiff’s business and no part of the latter’s business was diverted to any of them. The companies were set up as part of a plan to build up the brand name of Regalindo and expand into areas of business complementary to the business carried on by the plaintiff.

[27] Having regard to all of the relevant facts, I am of the view that notwithstanding the fact that Singapore is the natural and proper forum for the resolution of the dispute, an anti-suit injunction restraining the New York Proceedings should not be granted. While the New York Proceedings could have a disruptive effect on the plaintiff’s business, it cannot be said that the defendant’s resort to the New York Proceedings was unwarranted. In my view, any reasonable person in the defendant’s shoes would be concerned with the plaintiff’s ability to satisfy an eventual arbitral award, if any.

[28] This concern would no doubt be heightened by the fact that the plaintiff’s shareholders incorporated three new companies on 1 February 2008. Although the incorporation was carried out before the plaintiff had notice of the New York Proceedings, it is pertinent to note that the defendant had accepted the plaintiff’s repudiatory breach and terminated the time charter on or around 4 January 2008. Therefore, by 1 February 2008, the plaintiff would have known or ought to have known that there was a real prospect of litigation. Taking an objective view of the matter, the incorporation of the new companies might well have been a defensive measure taken by the plaintiff’s shareholders to pre-empt the consequences of the plaintiff’s insolvency in the event the defendant prevailed in the time charter dispute. Or it might also have been a way of circumventing the difficulties posed by the Rule B Attachment Order. As to this, there is of course no evidence. In any event, to my mind, the fact that the companies were incorporated raises serious doubts on the plaintiff’s willingness to satisfy an arbitral award, if made.

[29] While the New York Proceedings were taken out before the companies were incorporated, I can see no cogent reason why I should not take this fact into account in determining whether to restrain them. In Evergreen International SA v Volkswagen Group Singapore Pte Ltd [2004] 2 SLR 457, it was said at [41] that:

[30] Thus, it is evident that the court’s power to grant an anti-suit injunction is based upon equity. In the premises, I do not think that equity ought to be blind to a party’s conduct, albeit after commencement of the foreign proceedings.

[31] Having regard to all of the above, I am of the view that notwithstanding the possible (I emphasise “possible” rather than “probable”) hardship that might be caused to the plaintiff by the New York Proceedings and the fact that the defendant would not have been able to obtain pre-judgment security under Singapore law, the balance favours the defendant. I, accordingly, decline to grant the orders sought by the plaintiff. That said, I might perhaps add that if the only complaint that Seatrek had against Regalindo was the latter’s poor financial standing, the end result might have been different.