SAPURA FABRICATION SDN. BHD. & 3 Ors v GAS

Facts

Sapura Fabrication Sdn Bhd and Sapura Offshore Sdn Bhd, Malaysian subsidiaries of a listed Malaysian group, have been in successive reorganisation proceedings in Malaysia since 2022. Because a Malaysian restraining order can last at most 12 months, the group began a second and then a third proceeding, the last granted on 7 March 2024. The High Court in Singapore recognised the third proceeding as a foreign main proceeding under the UNCITRAL Model Law on Cross-Border Insolvency, as enacted in the Third Schedule to the Insolvency, Restructuring and Dissolution Act 2018, triggering an automatic moratorium.

GAS, a counterparty to two construction contracts with the Sapura entities governed by English law and containing SIAC arbitration clauses, had filed proofs of debt in the first proceeding around 30 June 2022. In 2023 it partially terminated and reduced the contracts and began arbitration claiming damages of at least US$185m. Its proofs of debt remained unadjudicated more than two years on. The High Court granted GAS a carve-out from the moratorium under Art 20(6) of the Model Law so the arbitration could proceed, on condition that no award be enforced without leave. It also said a carve-out was in any event required by the court's obligation to enforce arbitration agreements. The Sapura entities appealed in Civil Appeals Nos 59 and 60 of 2024. After the hearing the parties settled and the appeals were withdrawn, but the Court of Appeal chose to give judgment on the points of general importance.

Issues

1. Whether a carve-out from a restructuring moratorium should require exceptional circumstances or be decided under the factors in Wang Aifeng.
2. Whether the Judge erred in exercising his discretion to grant the carve-out.
3. Whether the court is under a mandatory obligation to enforce an arbitration agreement by granting a carve-out.
4. Whether a moratorium renders an arbitration agreement inoperative or incapable of being performed.

Holding

The Court of Appeal stated that it would have dismissed the appeals but for their withdrawal, upheld the carve-out as a proper exercise of discretion, rejected the mandatory obligation reasoning, and, as the parties agreed, ordered no order as to costs.

Reasoning

GAS could not challenge the finding that it had submitted to the Malaysian court's jurisdiction without a cross-appeal; in any case the later proceedings were in substance extensions of the first, so its submission carried over.

The court rejected an exceptional circumstances test as vague. The Wang Aifeng factors remain the guide, but because a restructuring moratorium exists to give the debtor breathing space, more weight may be given to prejudice to creditors and to the orderly administration of the restructuring.

Applying those factors, the claims were heavily disputed and factually complex, though the choice of English law alone was neutral. The adjudication process had not shown itself adequate, given the long delay in deciding GAS's proofs on the same contracts. The claims were a small fraction of the debt being restructured, so the carve-out did not threaten the breathing space, and fears of a flood of similar applications were speculative. A creditor is entitled to pursue its claim without undue delay. Comity did not oblige the court to follow a Malaysian decision refusing leave to a different creditor.

On the mandatory ground, AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Co) [2020] 1 SLR 1158 concerned whether a company should be wound up at all, before insolvency policy is engaged; it does not make arbitration trump an ongoing restructuring. Nor does a moratorium automatically make an arbitration agreement inoperative; the Wang Aifeng discretion already balances the interests.

From the judgment