Zhong Da Chemical Development Co Ltd v Lanco Industries Ltd

Judith Prakash J:

[2] The plaintiff and the defendant are companies incorporated in China and India respectively. By way of two agreements dated 15 January 2004 and 4 February 2004 (“the Agreements”), the plaintiff agreed to sell 30,000 metric tons of low ash metallurgical coke (“coke”) to the defendant at US$210 per metric ton. A dispute soon arose between them in relation to the sale and, by 5 March 2004, the defendant took the position that the plaintiff had repudiated or breached the Agreements. Subsequently, the defendant took steps to mitigate its loss by entering into fresh contracts with third parties. In particular, the defendant contracted to purchase 20,990 metric tons of coke from one Arkley Commercial AG (“Arkley”) at US$479 per metric ton.

[4] On 11 May 2007, the defendant filed an application at the First Intermediate People’s Court of Shanghai Municipality (“the Shanghai Court”) for recognition of the Final Award. In response, the plaintiff filed an application against the recognition and enforcement of the Final Award in China. The plaintiff’s application was dismissed and the Shanghai Court held that the Final Award could be recognised and enforced in China. Accordingly, the defendant applied to have the Final Award enforced. Pursuant thereto, the defendant successfully seized real properties belonging to the plaintiff and is currently in the process of having their value appraised. By the plaintiff’s reckoning, these properties are worth about S$814,000.

[5] On 5 December 2008, the plaintiff filed these proceedings in the Singapore High Court to set aside the Final Award, under section 24 of the IAA, on the basis that the defendant had fraudulently induced the making of the Final Award in its favour. According to the affidavit of one Qi Wei Qing, filed on 5 December 2008 and made on behalf of the plaintiff, the defendant had used two invoices to prove that it had bought 20,990 metric tons of coke from Arkley. The invoices stated that the coke was to be delivered from Xingang Port, China to Chennai Port, India by the vessel Maritime Skill. However, after the Final Award was made, the plaintiff had obtained documentary and oral evidence that the invoices were fake and that the parties to the sale of the coke to be shipped by the Maritime Skill were not Arkley or the defendant but one Shanxi Datuhe, as seller, and one Glencore International AG, as buyer. Furthermore, according to the plaintiff, the new evidence also showed that the coke was not destined for Chennai as asserted by the defendant but for Brazil.

[6] The defendant denied the plaintiff’s allegations of fraud and asserted that the plaintiff, in initiating the present proceedings, was simply trying to avoid having the Final Award enforced. According to the affidavit, filed on 20 February 2009, of one G D Saini made on behalf of the defendant, the defendant had documentary evidence to prove that the invoices produced before the arbitral tribunal were genuine and that the Final Award was not induced or affected by fraud. The defendant then filed Summons No 266 of 2009.

[10] Ordinary residence out of the jurisdiction is, however, a necessary but insufficient ground for ordering security. There is a second stage to the test stated in O. 23, r. 1(1)(a) of the Rules. As the Court of Appeal said in Jurong Town Corp v Wishing Star Ltd, [2004] 2 SLR 427 (“Wishing Star”):

Thus, under the second stage, the court has complete discretion to consider all relevant factors, including the fact that the plaintiff is ordinarily out of jurisdiction, in determining whether it is just to order security for costs.

[11] Counsel for the plaintiff, Mr Lek Siang Pheng, suggested that the fact that the plaintiff here is ordinarily resident out of jurisdiction should not be a consideration under the second stage of the test since this is an application to set aside an arbitral award. In international arbitration proceedings under the IAA, it is common to find that both parties to the proceedings are foreign to the forum. Indeed, the seat of the arbitration which in turn determines the forum has usually been chosen precisely because it is a neutral one for both parties. As such, it was contended that the fact that the plaintiff was not resident in the jurisdiction should not be held against it. In support thereof, Mr Lek relied on Lord Mustill’s interpretation of s 38 of the English Arbitration Act 1996 as stated in Commercial Arbitration, (Butterworths, 2001), at p. 313:

[12] Section 38 of the English Arbitration Act 1996 is reflected in Singapore through section 28(3) of the Arbitration Act (Cap. 10, 2002 Rev Ed) and section 12(4) of the IAA. The two local provisions read as follows:

From a plain reading of these provisions, it would appear that Lord Mustill’s proposition that an arbitral tribunal, in deciding whether to order security for costs, should not consider whether a claimant is ordinarily resident outside the jurisdiction has been slightly modified in relation to arbitration proceedings in Singapore. In such cases, residence outside Singapore is not a sufficient factor for the grant of the security. The legislation does not, however, rule out consideration of residence as one of the factors that may affect the decision.

[13] The provisions cited above deal with the powers of an arbitral tribunal. Once the matter is brought into court via an application under the appropriate legislation, in this case the IAA, the court in considering an application for security will be guided by O 23 r 1 and the jurisprudence relating to it. Having said that, it is also my view that in a case where parties seek relief under the IAA the approach to be taken in deciding whether to grant security should be somewhat different from the norm. This is because in agreeing to the foreign arbitral forum the defendant should have been mindful, and must be taken to have agreed, that any future action to set aside the arbitral award will take place in the courts of the forum which would, ipso facto, not be the courts of the jurisdiction in which the plaintiff is resident. Further, it is a matter of chance (and thus unforeseeable) as to which party in the arbitration proceedings subsequently becomes the foreign plaintiff who may be the subject of an application for security by the foreign defendant. That being the situation, the plaintiff should not be penalised for being ordinarily resident out of the jurisdiction. Thus whilst in the usual case where the circumstances are evenly balanced, it is ordinarily just to order security against a foreign plaintiff (pace Wishing Star) in an application under the IAA, it is my view that where the circumstances are evenly balanced, it would ordinarily be just to dismiss the application for security. The fact of the plaintiff’s foreign residence will be the pre-condition for invoking the court’s powers under O 23 r 1, but that fact on its own will bear little weight, if any, in the second stage process.

In Ooi Ching Ling Shirley v Just Gems Inc, [2002] 3 SLR 538, the Court of Appeal allowed an application for security for costs, in part because orders of the Singapore court were not enforceable in the USA as there was no arrangement for reciprocal enforcement of judgment between Singapore and USA.

[20] Similarly, there was no bilateral or international treaty or convention between China and Singapore allowing for reciprocal recognition and enforcement of judgments between China and Singapore. An opinion rendered by a Chinese law firm, Bao Rui Legal, acting on instructions by the counsel for the plaintiff, stated the manner in which a judgment in Singapore may be enforced by the defendant in China, as follows:

This view accorded, in the main, with the opinion rendered by Chinese solicitors, Duan & Duan, instructed by counsel for the defendant. Duan & Duan opined as follows:

[25] I was not of the opinion that the plaintiff had failed to comply with other court orders in the present case. The plaintiff may have made it difficult for the defendant to enforce the arbitral award but the plaintiff had not failed to comply with any court order yet. Hence, an unless order was not appropriate here.