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Singapore – Manuchar Steel Hong Kong Limited V. Star Pacific Line Pte Ltd.

3 December, 2014

 

Legal News & Analysis – Asia Pacific – Singapore  Dispute Resolution

 

In a recent High Court case, a successful party in a foreign arbitration award sought to enforce its award in Singapore and applied for pre-action discovery against a non-party to the original arbitration agreement to determine whether such non-party was part of a “single economic entity” to the original party in the arbitration agreement. The High Court denied the application finding that (1) the application was unnecessary, (2) an award was unenforceable against a non-party, and (3) there was no legal basis of the “single economic entity” doctrinal law in Singapore.

 
Brief Facts

 
Manuchar Steel Hong Kong Limited (“Manuchar“), a global logistics services provider, chartered a vessel from SPL Shipping Limited (“SPL“) under a charterparty which provided for arbitration in London to resolve disputes. Manuchar claimed monies against SPL arising from disputes under the charterparty in a London arbitration. SPL did not participate in the arbitration. An award in favour of Manuchar for USD 427,326.73, interests and costs was delivered.

 
Subsequently, Manuchar attempted to enforce the award in three different jurisdictions but failed to receive any payment. Eventually, Manuchar sought enforcement of the award against Star Pacific Line Pte Ltd (“Star Pacific“), a Singapore company, on the premise that SPL and Star Pacific although were two separate companies, should be regarded as the same corporate personality because they were loosely part of a “single economic entity.” To support this argument, Manuchar submitted that the SPL and Star Pacific used the same office address and Star Pacific had at times sent correspondence on behalf of SPL. However, believing the documents were insufficient to determine whether the two companies were of a single economic entity, Manuchar requested pre-action discovery of all Star Pacific documents relating to the charterparty agreement to gather evidence that the two were of a single economic entity.

 
Star Pacific resisted the application took the position that it was only an agent for SPL. It relied on an agency agreement to support its position. It also noted that Star Pacific shared the same premises at Robinson Road with at least three other Korean companies who at times received and delivered mail on behalf of each other.

 
The High Court discussed whether any basis existed to allow for the pre-action discovery.

 
Holding

 
The High Court dismissed the application on three grounds.

 
First, the High Court found that prediscovery application permitted under O 24 r 6(1) of the Rules of Court was not necessary in this case. The Court cited Ching Mun Fong v. Standard Charted Bank [2012] 4 SLR 185 where a plaintiff was required to show that the documents sought under the application must be (1) relevant to the issue and (2) necessary for the fair disposal of the matter. Although the documents sought were relevant in determining the issue of whether Star Pacific was a single economic entity with SPL, the Court found that Manuchar was already in possession of sufficient facts to plead its case and obtaining the documents was not necessary to acquire evidence at this stage to dispose of the matter. The court stated a pre-action application mechanism is not for plaintiffs to “obtain evidence to boost its case” but so that he may “discover the set of facts to fashion a claim” against a defendant. The court stated that Manuchar was already in possession of sufficient facts to plead its case. Evidence could be obtained during routine discovery. Thus, the application was not necessary.

 
Second, the High Court rejected the application based on arbitration law. It found that pursuant to s 31(2)(b) of the International Arbitration Act, “it was not possible to seek enforcement of an arbitration award against a non-party to the arbitrati0n agreement.” Star Pacific was never named in the arbitration agreement, proceeding, or in the award. Discussing the single economic entity issue, it cited Peterson Farms Inc v. C&M farming Ltd [2004] 1 Lloyd’s Rep 603 which found that an arbitration tribunal had wrongly assumed jurisdiction to bind a nonparty to the arbitration agreement on the basis that the non-parties are part of a larger group under the “group of companies” doctrine. According to the Court, the “group of companies” doctrine, which is the corresponding UK doctrine of the Singapore single economic entity issue, could not bind a non-party who did not consent to arbitration.

 
Third, the Court rejected the application because there was no simply no legal basis for the single economic entity concept in Singapore. In coming to this conclusion, it indulged in an analysis of international cases and analogized the single economic entity concept to a multidirectional version of the “piercing the corporate veil” doctrine. However, even then for corporate veil cases, it determined that “the law eschews disregard of the separate corporate legal personality of a company… except in exceptional circumstances, and only where there has been some form of abuse. Respect for the separate corporate legal personality…is sacrosanct in nearly every other circumstance.” In this case, there had been no such allegations made by Manuchar but rather a reliance on an argument that there exists an “overarching indivisible group corporate legal personality that transcends…individual legal personalities….” The court also dismissed the abuse exception as inapplicable to a broader concept of single economic entity. Most importantly, Singapore courts have distinguished such single economic entity concept from the corporate veil doctrine. For example, in Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd and another [1999] 2 SLR® 24, the judge said:

 
“[W]hat the plaintiffs wish me to do here is to extend the principle [of piercing the corporate veil in a group of companies] into a completely different area and treat two companies which have no common shareholders or directors as being a single economic unit and thus a single legal unit. I cannot do this.”

 
Based on its review of Singapore case law and international cases, the court found that on balance that the single economic entity concept was not recognized at law in Singapore nor good basis to support its recognition.

 
Recommendations

 
When observing this decision, we can appreciate the plight of the award victor as it goes from one jurisdiction to another (and now one party to another) to enforce its rightfully earned award. But despite such difficulties, one should take away that there is no basis under Singapore law to tie in a non-party to an arbitration agreement as a subject for enforcement even if there appear to be loose ties to the original debtor. The High Court strongly suggests that even with substantial evidence of the intermingling of operations between two separate companies, imposing enforcement would be a significant departure from established law. Naturally, pre-action discovery would certainly not be granted as any evidence obtained would be in furtherance of a moot point of law.

 

ATMD Bird & Bird

 

For further information, please contact:

 

Zachary Song, ATMD Bird & Bird
zachary.song@twobirds.com

 

ATMD Bird & Bird Dispute Resolution Practice Profile in Singapore

 

Homegrown Dispute Resolution Law Firms in Singapore

 

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