Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft

Transcription

1 382 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft [1999] SGCA 11 Court of Appeal Civil Appeal No 272 of 1998 Yong Pung How CJ, L P Thean JA and Tan Lee Meng J 24 November 1998; 6 February 1999 Arbitration Stay of court proceedings Respondent presented winding-up petition against joint venture company Arbitration clause in joint venture agreement Whether arbitration clause precluded statutory right to wind up Whether pre-conditions for application for stay under s 7(1) Arbitration Act (Cap 10, 1985 Rev Ed) fulfilled Whether sufficient reason for court not to grant stay Whether court should exercise inherent jurisdiction to grant stay Sections 7(1) and 7(2) Arbitration Act (Cap 10, 1985 Rev Ed) Section 253 Companies Act (Cap 50, 1994 Rev Ed) Companies Winding up Stay of proceedings under Arbitration Act Whether winding up should be stayed Whether winding-up proceedings commenced against applicant Whether winding up within ambit of arbitration agreement Section 7(1) Arbitration Act (Cap 10, 1985 Rev Ed) Facts The appellant and respondent were joint venture partners in a company, Four Pillars-Beiersdorf Pte Ltd ( the JVC ). The JVC encountered liquidity problems and differences between the parties soon emerged. The parties negotiated unsuccessfully for a termination of the joint venture. In August 1998, the respondent as creditor and shareholder of the JVC presented a petition to wind up the JVC on grounds that the JVC was insolvent and that it was just and equitable that the JVC be wound up. The petition alleged, inter alia, various disputes and matters to show that there were no longer any mutual trust and cooperation between the appellant and respondent which were required for the JVC to continue operating and be viable. The appellant served notice of its intention to appear and oppose the winding-up petition under r 28 of the Companies (Winding Up) Rules (Cap 50, R 1, 1990 Rev Ed). Subsequently it sought, inter alia, an order for a stay of the winding-up proceedings pursuant to s 7 of the Arbitration Act (Cap 10, 1985 Rev Ed) and also an order requiring the respondent to refer all disputes referred to in the winding-up petition to arbitration in accordance with the terms of the joint venture agreement. The application was dismissed and the appellant appealed. Held, dismissing the appeal: (1) The respondent had a statutory right under the Companies Act (Cap 50, 1994 Rev Ed) to present a winding-up petition against the JVC, and the arbitration clause in the joint venture agreement did not restrict or exclude the respondent from exercising this right. However such winding-up proceedings could, in appropriate circumstances, be stayed: at [9].

2 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 383 (2) Although the appellant had become a party to the winding-up proceedings pursuant to the r 28 notice, no rights had been asserted and no relief was sought against it. Thus the proceedings had been instituted against the JVC, not the appellant. The differences and disputes averred to by the respondent in its winding up petition were intended to support the ground that it was just and equitable for the JVC to be wound up. The respondent was not in the windingup proceedings seeking a resolution by the court of the differences or disputes between it and the appellant, it was not referring the differences or disputes to a forum for determination. Therefore the matters referred to in the petition did not fall within the ambit of the arbitration agreement. In the circumstances, the pre-conditions for invoking s 7 of the Arbitration Act had not been complied with: at [13], [14], [17] and [21]. (3) The onus of establishing that there was a sufficient reason why matters should not be referred to arbitration lay with the respondent. In this case, there was a sufficient reason for not granting a stay of the winding-up proceedings as the relief sought was not one available in arbitration: at [22] and [23]. (4) There was no ground for the court to exercise its inherent jurisdiction to stay the winding-up proceedings. In any event the court s inherent jurisdiction in a case such as this was very rarely exercised, as the Arbitration Act had expressly made provision for the exercise of the court s jurisdiction in certain circumstances and the court had found that such jurisdiction should not be exercised: at [27]. Case(s) referred to Community Development Pty Ltd v Engwirda Construction Co (1966) 120 CLR 455 (refd) De Cruyenaere v Green Acres Memorial Gardens Ltd (1961) 30 DLR (2d) 627 (refd) Etri Fans Ltd v NMB (UK) Ltd [1987] 1 WLR 1110; [1987] 2 All ER 763 (folld) JDC Corp v Lightweight Concrete Pte Ltd [1999] 1 SLR(R) 96; [1999] 1 SLR 615 (folld) Joplin v Postlethwaite (1889) 61 LTR 629 (refd) Kwan Im Tong Chinese Temple v Fong Choon Hung Construction Pte Ltd [1998] 1 SLR(R) 401; [1998] 2 SLR 137 (folld) Olver v Hillier [1959] 1 WLR 551; [1959] 2 All ER 220 (refd) Peveril Gold Mines Ltd, In re [1898] 1 Ch 122 (distd) Printing Machinery Co Ltd v Linotype & Machinery Ltd [1912] 1 Ch 566 (refd) Sanpete Builders (S) Pte Ltd, Re [1989] 1 SLR(R) 5; [1989] SLR 164 (refd) Vawdrey v Simpson [1896] 1 Ch 166 (refd) Legislation referred to Arbitration Act (Cap 10, 1985 Rev Ed) ss 7(1), 7(2) (consd) Companies Act (Cap 50, 1994 Rev Ed) s 253 (consd); s 257(2) Companies (Winding Up) Rules (Cap 50, R 1, 1990 Rev Ed) r 28 Arbitration Act 1975 (c 3) (UK) s 1(1)

3 384 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) Tan Bar Tien (B T Tan & Co) for the appellant; Ronnie Quek and Francis Mok (Allen & Gledhill) for the respondent. 6 February 1999 L P Thean JA (delivering the grounds of judgment of the court): 1 This was an appeal against the decision of Lim Teong Qwee JC in which he dismissed an application by the appellants for, inter alia, a stay of the winding-up proceedings in CWU 219/1998 initiated by the respondents against the company, Four Pillars-Beiersdorf Pte Ltd. We dismissed the appeal and now give our reasons. The facts 2 The appellants are a company incorporated in Taiwan and the respondents a company incorporated in Germany. Both companies are involved in the development, manufacture and sale of adhesive tapes. In 1994 they decided to enter into a joint venture in which they would share their expertise and products as well as their markets for adhesive tapes in Asia. On 30 November 1994, they concluded their negotiations and entered into a joint-venture agreement ( the JV agreement ). In pursuance of the JV agreement the respondents purchased from the appellants 50% of the shares of a company known as Four Pillars Holdings Pte Ltd which, at the time, was wholly owned by the appellants. In consequence of the respondents acquisition of the 50% of the shares, the name of the company was changed to Four Pillars-Beiersdorf Pte Ltd ( the JVC ). The JVC was structured as a holding and management company with several whollyowned subsidiaries operating in Singapore, Malaysia, Hong Kong, Shenzhen, Shanghai and Tianjin. 3 The joint venture, in the early stages, was a success and the relationship between the two parties was good. However, some time in the second half of 1997 the JVC began to encounter problems with liquidity, and differences between the two parties soon began to emerge. The parties then negotiated for a termination of the joint venture but the negotiations were unsuccessful. On 7 August 1998, the respondents as a creditor and shareholder of the JVC presented a winding-up petition in CWU 219/1998 seeking an order to wind up the company on the grounds that the company was insolvent and that it was just and equitable that the company should be wound up. The respondents in the petition set out the basis of the joint venture between them and the appellants and the management structure of the JVC as created pursuant to the JV agreement, and alleged various matters to show that there were no longer any mutual trust and cooperation between the appellants and the respondents which were required for the JVC to continue operating and remain viable. These matters included the following:

4 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 385 (a) differences in the views between the appellants and the respondents on the manner in which working capital for the JVC and its subsidiaries should be obtained; (b) the alleged suspension by the appellants of raw material supplies to the JVC s subsidiaries as a result of the differences in the views between the appellants and the respondents regarding the period of credit which each of the shareholders would be expected to extend to the JVC and its subsidiaries; (c) disputes as to the accuracy of minutes of board meetings of the JVC; (d) disputes between the appellants and respondents on the validity of resolutions passed at board meetings of the Malaysian subsidiary of the JVC; (e) differences in their views as to whether it would be in the interest of the JVC to conduct business in the consumer market; (f) differences in their views on the competence of an appointee of the appellants to the board of the Malaysian subsidiary and the appointment of a sale director for the South East Asian operations of the JVC and its subsidiaries; (g) the fact that both the appellants and the respondents agreed that the joint venture relationship between them should be terminated; and (h) the absence of any realistic prospect of the appellants and respondents reaching agreement on the termination of the joint venture. 4 The appellants were opposed to the winding up of the JVC by the court and they served on the respondents a notice of their intention to appear and oppose the winding-up petition under r 28 of the Companies (Winding Up) Rules ( the Winding Up Rules ). Following that, they took out an application in OS 1173/1998 seeking, inter alia, an order for a stay of the winding-up proceedings pursuant to s 7 of the Arbitration Act and also an order requiring the respondents to refer all disputes referred to in the winding-up petition to arbitration in accordance with the terms of the JV agreement. The application was heard before Lim Teong Qwee JC, who dismissed it. Against his decision this appeal was brought. The appeal 5 Under the JV agreement the parties agreed to refer to arbitration all disputes (except disputes referred to in cl 9.15 thereof) which might arise under the agreement which could not be resolved amicably as provided

5 386 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) therein. It is convenient at this stage to set out, in so far as relevant, cl 9.1 which is as follows: Governing Law, Submission to Jurisdiction and Arbitration The parties hereby agree that except for any dispute referred to in subsection 9.15 which shall be referred exclusively to the courts of Singapore, all disputes which may arise under, out of, or in connection with or in relation to this JVAgr and its Exhibits and which cannot be resolved amicably as provided in this JVAgr shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre for the time being in force which rules are deemed to be incorporated by reference into this clause. The arbitration tribunal shall consist of three arbitrators, one to be appointed by 4P, one to be appointed by BDF, and the third to be appointed by the two appointed arbitrators failing which the third arbitrator shall be nominated by the Chairman of the Singapore International Arbitration Centre. Any decision of the arbitrators shall be final and binding, and there shall be no right of appeal whatsoever. The proceedings shall be held in English. 6 Relying on this provision the appellants contended that a stay of the winding-up proceedings should be granted, as the matters referred to in the winding-up petition fell within the ambit of the arbitration agreement. In particular, the respondents in the petition referred to various differences or disputes between the parties in order to establish that it was just and equitable that the JVC should be wound up. These differences or disputes fell within the ambit of cl 9.1, and accordingly the proper forum for the resolution of the differences or disputes was the arbitration tribunal. Therefore, so the appellants contended, the matters should go to arbitration, and for that reason the winding-up proceedings should be stayed. 7 The respondents, on the other hand, contended that a stay of proceedings was correctly refused by the learned judicial commissioner. In the first place, the respondents had a statutory right to petition to wind up the JVC which could not be validly restricted or excluded by an agreement. Secondly, they contended that the pre-conditions in s 7 of the Arbitration Act had not been satisfied with respect to the appellants application and in consequence that section could not be invoked. Lastly and in any event, the court should exercise its discretion to refuse a stay on the ground that the respondents had shown sufficient reasons why a stay should not be allowed. Statutory right to present the winding-up petition 8 We turn first to the right of the respondents to present a petition for the winding up of the JVC under s 253 of the Companies Act (Cap 50, 1994

6 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 387 Ed). Counsel for the respondents submitted that a party s right under this section could not be restricted or excluded by an agreement. He relied on the case of In re Peveril Gold Mines Ltd [1898] 1 Ch 122. In that case, the articles of association contained a provision to the effect that no petition was to be presented or proceeded with by a member to wind up the company, unless (a) by consent in writing of not less than two members of the then board of directors; or (b) in pursuance of a resolution passed at a general meeting; or (c) the petitioner held not less than one-fifth of the issued capital of the company in respect of which all calls had been paid. It was held that such an article was invalid on the ground that it was contrary to the provisions of the Companies Act. Lindley MR said at 131: Any one who is familiar with the Companies Acts knows perfectly well that these registered limited companies are incorporated on certain conditions; they continue to exist on certain conditions; and they are liable to be dissolved on certain conditions. The important sections of the Act of 1862, with regard to dissolution, are ss 79 and 82. Section 79 states the circumstances under which such a company may be dissolved by the court, and s 82 states the persons who may petition for a dissolution. Any article contrary to these sections any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s 79 exist, or which limits the right of a contributory under s 82 to petition for a winding-up, would be an attempt to enforce on all the shareholders that which is at variance with the statutory conditions, and is invalid. It is significant that the court deliberately left open the question whether a valid contract could be made between the company and an individual shareholder to the effect that he should not present a petition to wind up the company: see the observations of Lindley MR (at 131) and Chitty LJ (at 132). 9 We do not find that case of any assistance. In our opinion, counsel for the respondents had really missed the point. Clause 9.1 of the JV agreement did not restrict or exclude the respondents from exercising their statutory right to present a winding-up petition against the JVC. The court here was not concerned with the question whether the respondents could exercise their right to present a winding-up petition but whether, in view of the arbitration agreement, a stay of the proceedings should be granted. The respondents certainly have a right under the Companies Act to present a winding-up petition against the JVC. It does not follow, however, that such winding-up proceedings when instituted could not, in appropriate circumstances, be stayed. The respondents first contention had no merit and we had no hesitation in rejecting it. Section 7 of Arbitration Act 10 We now turn to the pre-conditions for an application for a stay under s 7(1) of the Arbitration Act. That section reads as follows:

7 388 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) If any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings against any other party to the arbitration agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to the legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to the court to stay the proceedings. 11 Under this section, one of the conditions is that there is in existence an arbitration agreement between the parties concerned. That undoubtedly had been satisfied. Clause 9.1 of the JV agreement is an arbitration agreement. In so far as this appeal is concerned, there are two further conditions which have to be satisfied before an application under s 7(1) could be made, namely: (a) the respondents had commenced legal proceedings against the appellants; and (b) the proceedings were in respect of matters agreed to be referred to arbitration. 12 On the first of these conditions, the respective arguments of the parties were briefly these. Counsel for the respondents argued that they had commenced the winding-up proceedings only against the JVC and they sought an order to wind up the company, and the appellants were not a party to those proceedings. On the other hand, the argument of counsel for the appellants was that the appellants had filed and served a notice of their intention to appear at the hearing of the winding-up petition and to oppose the petition, and by so doing they had become a party to the proceedings. These arguments raised two questions for consideration: (a) whether the appellants were a party to the proceedings; and (b) whether the winding-up proceedings were proceedings commenced against them. 13 On the first question the appellants relied on the fact that they had filed and served the notice of their intention to appear and oppose the making of the winding-up order and by virtue of that they had become a party to the proceedings. The notice was filed pursuant to r 28(1) of the Winding Up Rules which reads: Every person who intends to appear on the hearing of a petition shall serve on the petitioner or his solicitor notice of his intention. It is not expressly stated in r 28, or any other provision of the Winding Up Rules, whether a person who has served on the petitioner such a notice becomes a party to the proceedings. The purpose of this rule is to give the party who has served the notice normally a creditor or contributory a right to be heard before the court decides whether or not to make the order for winding up of the company. By serving the notice, the appellants had acquired the rights (a) to appear before the court and to be heard; (b) to file an affidavit in opposition to the petition; (c) to receive any affidavits in

8 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 389 reply to his affidavit; (d) to apply to the court for the orders and directions enumerated in s 257(2) of the Companies Act; and (e) to appeal against the winding-up order. The court may well make an order in favour of or against such party, eg an order as to costs. In our opinion, the appellants by filing and serving on the respondents the notice of their intention to appear had become a party to the proceedings. 14 This argument alone, however, did not advance the case of the appellants very far, because one of the conditions laid down by s 7(1) is that one of the parties to the arbitration agreement has commenced legal proceedings against the other party to the agreement. The material words of the section reads: If any party to an arbitration agreement commences any legal proceedings against any other party to the arbitration agreement [emphasis added] Hence, the appellants in order to succeed must show, in addition, that the proceedings were commenced against them. That unfortunately they failed. The winding-up petition was presented by the respondents against the JVC and the relief sought by the respondents was an order to wind up that company. No rights were asserted and no relief was sought against the appellants. Thus, the proceedings were instituted against the JVC and not against the appellants. The appellants therefore had not satisfied this condition, ie that legal proceedings had been instituted against them. 15 A case in point is Etri Fans Ltd v NMB (UK) Ltd [1987] 2 All ER 763; [1987] 1 WLR In that case, two Japanese companies were involved in the manufacture, marketing and sale of axial fans under a licence granted by a French company. The licence agreement contained an arbitration clause which provided for matters in dispute to be referred to arbitration in the country of the defending party. A sister company of the licensor instituted legal proceedings against a company, NMB, which was a subsidiary of the Japanese companies, alleging infringement of copyright. The Japanese companies applied to be joined as parties to the proceedings so that they could apply for a stay of the proceedings under s 1(1) of the Arbitration Act 1975 (which is similar in all material respects to s 7(1) of our Arbitration Act). Sir Nicolas Browne-Wilkinson V-C refused the application and they appealed. Their appeal was dismissed. It was held, inter alia, that the phrase any party to the proceedings in the section referred not merely to the party who has been joined in the proceedings but to a party against whom the proceedings have been brought by the other party to the arbitration agreement in respect of any matter agreed to be referred to arbitration. Woolf LJ, who delivered the main judgment of the court, said at [1987] 2 All ER 763 at 767; [1987] 1 WLR 1110 at 1113: When the subsection states that any party to the proceedings may apply to stay, that is a reference to the any other party to the agreement or any person claiming through or under him referred to

9 390 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) earlier in the subsection against whom legal proceedings had been commenced by the other party to the arbitration agreement, or any person claiming through or under him. It is impossible to read the words any party to the proceedings in a wholly unqualified manner, since this would lead to the result that where there was an action brought against two defendants, one of whom only was a party to the arbitration agreement, the other party (who was not a party to the arbitration agreement) would be entitled to apply for, and obtain, a stay. Furthermore, it is my view that far from Mr Donaldson s interpretation leading to alarming consequences, it is Mr Boyd s interpretation which has that result. If a party entitled to the benefit of an arbitration agreement wishes to arbitrate if he is not sued, he is perfectly entitled to initiate the arbitration process himself, and he does not need to wait for an action to be commenced against him to enable him to do so. His Lordship then explained the purpose of that section as follows at [1987] 2 All ER 763 at 767; [1987] 1 WLR 1110 at 1114: In my view the purpose and intent of s 1(1) of the 1975 Act is that the parties to an arbitration agreement and those claiming through or under them who are sued in relation to a matter which it has been agreed to refer to arbitration, should be entitled to seek a stay. It is not the intention of the subsection that those who have not been sued should be able to take advantage of the provisions of s 1(1), by applying to become parties to the proceedings against the wishes of a plaintiff purely for the purposes of obtaining a stay of an action which has been commenced, not against them, but another party who either did not have or did not wish to avail himself of the right to seek a stay. Matter agreed to be referred 16 We now turn to the question whether the matters referred to in the petition fell within the ambit of the arbitration agreement. It was submitted on behalf of the appellants that the matters referred to in the winding-up petition were matters agreed to be referred to arbitration. The appellants relied on the following part of cl 9.1 which, of course, is extremely broad: The parties hereby agree that all disputes which may arise under, out of or in connection with or in relation to this JVAgr and its exhibits and which cannot be resolved amicably as provided in this JVAgr shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre for the time being in force which rules are deemed to be incorporated by reference into this Clause. 17 We were unable to accept this argument. The crucial point is whether the matters with which the petition was concerned were matters which fell within the ambit of cl 9.1. It is unnecessary to set out here in detail the matters referred to in the petition and relied upon by the respondents in seeking a winding-up order against the JVC. Suffice it here to say that what,

10 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 391 in effect, the respondents averred in the petition was that there existed, inter alia, various differences or disputes between them and the respondents as a result of which there were no longer any mutual trust and co-operation between them, and accordingly by reason of that fact and the fact that the company was insolvent, it was just and equitable that the company should be wound up. The respondents were not in the winding-up proceedings seeking a resolution by the court of the differences or disputes between them and the appellants. In other words, they were not referring the differences or disputes to a forum for determination. In our judgment, the matters referred to in the petition did not fall within the ambit of the arbitration agreement. 18 There are three cases which are of relevance on this issue. The first is the Canadian case of De Cruyenaere v Green Acres Memorial Gardens Ltd (1961) 30 DLR (2d) 627. There, the plaintiff was a minority shareholder in the defendant company. She had entered into an agreement with the defendant company and another shareholder, and the agreement contained an arbitration clause whereby any dispute or question regarding this agreement or the determination thereof, or the construction or the effect of anything contained [therein] shall be resolved by arbitration. The plaintiff subsequently commenced an action for an order to wind up the defendant company alleging that its affairs were being conducted with a lack of probity and for the benefit only of the majority shareholders and that in the circumstances it was just and equitable for the company to be wound up. The company obtained a stay of the proceedings at first instance. On appeal, the Manitoba Court of Appeal set aside the order for a stay. Tritschler JA, delivering the judgment of the court, said at 629: The [winding up] action is not concerned with any dispute or question regarding the agreement and no question is raised as to the construction or the effect of any covenant. The winding up of the company on the grounds alleged by plaintiff is not something contemplated by the words the determination of the agreement. Properly regarded, the statement of claim does not complain of any breach of or seek performance of the agreement. Plaintiff is not complaining that the operations of the Gardens Company were not well conducted. What she alleges is that the other defendants particularly the defendant Patterson have misbehaved, not in the operation of the business of the Gardens Company as such but in the disposition of the benefits of such operation. The learned judge went on to say at 630: An examination of the agreement and the statement of claim satisfies me that the plaintiff s action is not in respect of any matter agreed to be referred. It does not arise out the contract but from conduct tending to defeat the contract.

11 392 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) 19 Next is the Australian case of Community Development Pty Ltd v Engwirda Construction Co (1966) 120 CLR 455. There, the building contract made between the petitioning creditor and the debtor company contained an arbitration clause which provided for arbitration upon any dispute or difference as to any matter arising under the contract, and which provided further that neither party should be entitled to commence or maintain any action upon any such dispute or difference until such matter should have been referred to and determined by the arbitrator and then only for the amount of the relief to which the arbitrator should find either party to be entitled. The creditor presented a petition to wind up the debtor company and one of the issues raised was whether the matter referred to in the petition fell within the provision of the arbitration clause. It was held by the High Court of Australia, inter alia, that the winding-up proceedings did not fall within the scope of the arbitration clause. Owen J said, at 460: The first submission made on behalf of the appellant was that the winding- up petition should have been dismissed because, by presenting it, the respondent had commenced an action upon a dispute or difference arising under the building contract between the parties and by cl 26 of that contract each of them had agreed that no such action should be commenced until the matter in dispute had been referred to and determined by arbitration in accordance with that clause. In my opinion this submission fails. It may well be that the presentation of a winding up petition is, in some circumstances, to be regarded as the commencement of an action ; (Re W Carter Smith; ex p Commissioners of Taxation (1908) 8 SR (NSW) 246); but the presentation of this petition was not the commencement of proceedings based on the building contract or upon a dispute or difference arising under it. The cause of action, if it may be so described, was that the appellant was unable to pay its debts and that it was just and equitable that it should be wound up. 20 This decision was followed by our High Court in Re Sanpete Builders (S) Pte Ltd [1989] 1 SLR(R) 5. The facts of Re Sanpete were as follows. The petitioner, Nakano, sought to wind up the company, Sanpete, on the grounds that it had failed to comply with a statutory demand issued by Nakano for payment of the sum of $4,149, which was due and owing under a building contract made between them, that Sanpete was insolvent and unable to pay its debts, and that it was just and equitable for the company to be wound up. One of the grounds of opposition relied upon by Sanpete at the hearing of the winding-up petition was that the dispute should be submitted to arbitration in accordance with the arbitration clause in the building contract. That clause provided that any dispute or difference [as] shall arise between the parties as to the construction of this sub-contract or as to any matter or thing of whatever nature arising thereunder or in connection therewith then such dispute or difference shall be and is hereby referred to arbitration. Chao Hick Tin JC (as he then was) did not accept Sanpete s submission. Referring to the Australian High

12 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 393 Court s decision in Community Development Pty Ltd v Engwirda Construction ([19] supra) at 460, the learned judicial commissioner found that the matters dealt with in the winding-up petition did not come within the scope of the arbitration clause. It should be noted, however, that in that case the learned judicial commissioner found that there was no defence to the claim for the sum due from the debtor, and there was really no dispute between the creditor and the debtor company in relation to that amount. 21 In our judgment, the pre-conditions for invoking s 7(1) of the Arbitration Act had not been complied, and the appellants application for a stay under that section failed. Sufficient reason for stay 22 As arguments had been addressed on the issue of a sufficient reason under s 7(2) of the Act, we think we should deal with this point as well. It is convenient to set out here s 7(2) of the Act, which is as follows: The court or a judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings. The onus of establishing that there was a sufficient reason why the matters should not be referred to arbitration lay with the respondents: Kwan Im Tong Chinese Temple v Fong Choon Hung Construction Pte Ltd [1998] 1 SLR(R) 401 at [14] and JDC Corp v Lightweight Concrete Pte Ltd [1999] 1 SLR(R) 96 at [10]. 23 In our opinion, in this case there was a sufficient reason for not granting a stay of the winding-up proceedings. The relief sought is not one available in arbitration. Only the court could grant such a relief. In De Cruyenaere v Green Acres Memorial Gardens Ltd ([18] supra), the Manitoba Court of Appeal held that the unavailability of the relief sought was a sufficient reason for refusing a stay. Tritschler JA held at 630: It is inappropriate to speak of the plaintiff here as placing an obstacle in the way of arbitration when the only relief she claims against the Garden Company could not be granted in an arbitration proceeding The issues raised in the statement of claim could not be adequately dealt with by arbitrators and the Court of Queens Bench is the only suitable forum for the determination thereof. 24 This appeared also to be the reason why Warrington J in Printing Machinery Co Ltd v Linotype & Machinery Ltd [1912] 1 Ch 566 refused to grant a stay of proceedings. In that case, the plaintiffs brought an action for the construction of a clause in the contract, and for its subsequent rectification if it was to be construed in a certain way. The defendants

13 394 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) sought a stay pursuant to the arbitration agreement. Warrington J refused to grant the stay even though the arbitration agreement provided for issues of construction to be referred to arbitration. He was strongly influenced by the factor that an arbitration tribunal would not be able to rectify the clause in the event that it was construed in the way urged upon him. He said at 573: It seems to me that it would be absurd to give an arbitrator the duty of determining the question of construction and then, supposing the arbitrator determined that question against the plaintiff company, to let the matter come back to the court to determine whether the agreement should be rectified or not It seems to me, therefore, that these two questions so hang together that if the one the claim for rectification must be decided by the court, then it is to say the least of it, more convenient that the other questions also should be decided by the court. The existence of this claim for rectification seems to me, therefore, to be a sufficient reason for refusing the application of the defendant company [for a stay] at the present moment. 25 An analogy may be drawn from the law of partnership. In Joplin v Postlethwaite (1889) 61 LTR 629, the plaintiff commenced an action against the defendant seeking, among other things, for the partnership to be wound up. The defendant sought a stay of the proceedings, relying on cl 32 of the articles of partnership which contained very comprehensive provision referring diverse matters to arbitration. The Court of Appeal refused to grant a stay. Cotton LJ doubted the appropriateness of the arbitration tribunal as a forum for the dissolution proceedings at 632: I doubt if this matter comes within the words of cl 32 of the articles of partnership. But even if it does, I doubt whether arbitration would be a good form of tribunal for the purpose of determining whether the partnership should be dissolved. I do not go so far as to lay down that whenever a dissolution of partnership is prayed for in an action then the action cannot be stayed. But in this case I think that the court is the proper tribunal to determine the matters in dispute. [emphasis added] Bowen LJ expressed similar reservation at 632: Therefore before the court makes an order staying all proceedings in an action of the kind referred to in the section, it must, in each case, be satisfied that there is no such matter to be determined which ought not to be referred to arbitration. Now, one of the matters to be determined here is, whether or not the partnership should be dissolved. It does seem to me that this is a matter which should not be determined by arbitration. 26 This decision was followed in Olver v Hillier [1959] 2 All ER 220; [1959] 1 WLR 551, where two partners agreed to refer all disputes and questions whatsoever which should arise during the partnership or

14 [1999] 1 SLR(R) Four Pillars Enterprises Co Ltd v Beiersdorf Aktiengesellschaft 395 afterwards to arbitration. Some five years after the agreement, the plaintiff commenced an action seeking the dissolution of the partnership, as well as the appointment of a receiver and manager, on the ground that the defendant s conduct made it just and equitable under s 35(f) of the Partnership Act 1890 for the partnership to be dissolved. The defendant s application for a stay of the proceedings was heard and dismissed by Roxburgh J. The learned judge said, at [1959] 2 All ER 220 at 221; [1959] 1 WLR 551 at 554: [C]ounsel for the defendant very properly cited Vawdrey v Simpson [1896] 1 Ch 166. In that case, Chitty J granted a stay. It does not seem to me (though the position is not clear) that the relief there was sought under para (f) of s 35 but only under para (d). At any rate, Chitty J did not advert to a difficulty which troubles me, viz the difficulty of transferring to the arbitrator the power expressly conferred on the court of deciding, not what the facts are, but whether, on the facts as found, it is just and equitable to decree a dissolution. I do not say that, as a matter of construction, the contract may not have that effect, or it may be that the contract has ousted that section altogether as a matter of pure construction. I am not concerned to decide those questions, and I do not. But it seems to me that where s 35(f) is involved, the view which Bowen LJ and Fry LJ (in Joplin v Postlethwaite) took is particularly persuasive. Moreover, there is here a request for a receiver and manager; and it may well be that the parties have by their contract excluded the possibility of a receiver or manager ever being appointed in connexion with this partnership; I do not know, and I am not concerned to decide that question. It appears to me that the dissolution of a partnership which involves the exercise of a judicial discretion under s35(f), and which may involve the appointment of a receiver and manager, is again a matter which is perhaps more conveniently left in the hands of the court. [emphasis added] Inherent jurisdiction to stay the proceedings 27 Finally, the appellants submitted that if s 7(1) of the Arbitration Act did not apply, the court should still exercise its inherent jurisdiction to stay the winding-up proceedings where such proceedings were frivolous, vexatious or otherwise an abuse of process. They claimed, inter alia, that the respondents brought the winding-up proceedings in breach of the arbitration agreement, and further to oppress the appellants. This argument had no merit. The appellants had failed to substantiate the allegations they had made. We could see no ground for exercising our inherent jurisdiction. In any event, the court s inherent jurisdiction in a case such as this is very rarely exercised, as the statute has expressly made provision for the exercise of the court s jurisdiction in certain circumstances and the court has found that such jurisdiction should not be exercised. On this point, we can do no better than quote the following

15 396 SINGAPORE LAW REPORTS (REISSUE) [1999] 1 SLR(R) passage of the judgment of Woolf LJ in Etri Fans [1987] 2 All ER 763 at 767; [1987] 1 WLR 1110 at 1114: [I]n order to protect itself in relation to attempts to abuse the process of the court, the court has undoubtedly very wide powers of staying proceedings. However, as Mr Boyd [counsel for the appellants] concedes, because here the area covered by that inherent jurisdiction has been the subject of detailed and precise Parliamentary intervention, the circumstances in which the court will grant a stay under its inherent jurisdiction in situations dealt with by the statutory provisions, but where it could or would not do so in exercise of its statutory jurisdiction, will be rare. The jurisdiction is truly a residual one principally confined to dealing with cases not contemplated by the statutory provisions. Headnoted by Regina Tay.