Singapore Court of Appeal decides novel arbitration related issues arising from assignment, novation and reassignment of rights to debts

28 August 2020

BXH v BXI [2020] SGCA 28

In BXH v BXI, the Singapore Court of Appeal set aside a large part of an arbitral award as it found that the arbitral tribunal did not have the jurisdiction to make that award. Emphasising that arbitration is founded entirely upon parties’ consent, the court held that an arbitrator would not have jurisdiction over a dispute if the claimant obtained the right of suit after commencing the arbitration.

The decision is instructive for a number of novel observations made by the Court of Appeal arising from the assignment, novation and reassignment of contracts (and the associated arbitration agreements).

Facts

The respondent, BXI, was a developer and manufacturer of consumer goods, and the appellant, BXH, was a distributor of BXI’s goods in Russia. Among eight related contracts, all of which involved at least one of the parties, were a Distributor Agreement and a Participation Agreement. An arbitration agreement was contained in the Distributor Agreement.

Of the debts purportedly owed by BXH to BXI, a “Debt B” was assigned to a third party (“Factor”) through the Participation Agreement. In April 2017, after arbitration proceedings had commenced, BXH received a letter from the Factor purporting to confirm and notify BXH about the reassignment of the Factor’s rights relating to the invoices that had originally been assigned from BXI to the Factor back to BXI.

In October 2015, pursuant to the Distributor Agreement, BXI had issued a notice of arbitration against BXH seeking the payment of among other debts, Debt B. BXH served a response to the notice of arbitration resisting the claim on several grounds, including that the Singapore International Arbitration Centre (“SIAC”) appointed tribunal did not have jurisdiction to hear the dispute. BXH did not nominate its arbitrator within the 30-day period stipulated in the Distributor Agreement, but continued to dispute the tribunal’s jurisdiction. SIAC dismissed BXH’s contentions on jurisdiction. The tribunal subsequently found in favour of BXI.

In BXH’s action to set aside the arbitral award, the High Court found that the tribunal possessed jurisdiction over the parties’ dispute. The High Court also found that although the right of suit was only re-assigned after the commencement of the arbitration, various substantive rights remained in force under the Distributor Agreement between BXH and BXI and the assignment of Debt B went towards the issue of scope, rather than the existence of an arbitration agreement between parties. The High Court found that the tribunal had jurisdiction to arbitrate the parties’ dispute. BXH appealed against the High Court’s decision, bringing the matter before the Court of Appeal.

Judgment

The Court of Appeal allowed BXH’s appeal and set aside the arbitral award in respect of Debt B and made the following key rulings:

• Right to arbitrate in relation to Debt B relates to ground of setting aside under Article 34(2)(a)(i) Model Law which concerns existence of an arbitration agreement: One of the contentions before the court was whether the right to arbitrate (or lack thereof) because of the assignment to the Factor was an issue concerning the existence or scope of the arbitration agreement. The import of this is over how matters of this nature are to be pleaded in similar proceedings. In this case, the appellant had premised its application to set aside on Article 34(2)(a)(i) of the UNCITRAL Model Law on International Commercial Arbitration (widely accepted as pertaining to the “existence” of an arbitration agreement) and not Article 34(2)(a)(iii) (which deals with whether a dispute falls within the scope of an arbitration agreement).

The court found that an arbitration agreement does not have a purpose independent of the substantive obligations that it attaches to. Once the substantive right to Debt B was assigned, BXI could no longer arbitrate in relation to Debt B. The court found that the right to arbitrate in relation to Debt B concerns the “existence of an arbitration agreement” not the “scope of an agreement” as the right had been assigned from BXI to the Factor.

• Retrospective vesting principle could not confer jurisdiction on tribunal to adjudicate over Debt B when parties did not have an arbitration agreement over Debt B when arbitration commenced: Another issue arose because, on the facts, Debt B was reassigned to the respondent in 2017. Hence the question before the court was whether this had an impact on the respondent’s rights of suit.

The court clarified that the case law on the principle that there can be retrospective vesting of a cause of action in an assignee should be taken in the specific litigation contexts and did not apply to arbitration proceedings. While litigation is founded on the State’s coercive power, arbitration is founded entirely upon the parties’ consent. The court noted that at the time arbitration commenced, there was only an agreement between the parties to arbitrate over disputes relating to other debts and not Debt B. Hence, BXI was not a proper party to any arbitration arising out of a dispute over Debt B and the tribunal did not have jurisdiction to adjudicate the dispute in relation to Debt B.

• Notice of assignment may be given by assignor or assignee: The court observed in passing that the notice of assignment may be given by either the assignor or the assignee. The debtor would however possess the right to verify the fact of assignment before making payment to a purported assignee, as the debtor would face the risk of the notice being false.

Given the Court of Appeal’s finding that the arbitral tribunal acted beyond its jurisdiction when determining issues in relation to Debt B, the award in relation to Debt B was set aside.

Comment

This case provides a clear determination that appears simple and uncontroversial, i.e. that the assignment of an agreement containing an arbitration clause is effective to assign the right to arbitrate to the assignee. There should be no question whether the assignor can subsequently commence arbitration (after having assigned its rights in the underlying agreement).

That said, the specific facts of assigning, novation and reassignment in this case led to some interesting collateral observations by the Court of Appeal, which can be of general instruction.