SINGAPORE COMMODITIES GROUP CO., PTE. LTD. v FOUNDER GROUP (HONG KONG) LIMITED (IN LIQUIDATION)

1 The respondent, Founder Group (Hong Kong) Ltd, and the appellant, Singapore Commodities Group Co, Pte Ltd, entered into a contract for the sale of copper cathodes from the respondent to the appellant (“Purchase Contract”). The Purchase Contract was governed by the law of the People’s Republic of China (“PRC”), and contained an arbitration agreement which provided that disputes in connection with the Purchase Contract should be submitted to arbitration.

2 After the respondent’s entry into liquidation, its liquidators discovered that a debt was owing by the appellant to the respondent arising from the Purchase Contract (“Alleged Debt”). The respondent, acting by its liquidators, therefore issued a statutory demand to the appellant for the amount of the Alleged Debt pursuant to s 125(2)(a) of the Insolvency, Restructuring and Dissolution Act 2018 (2020 Rev Ed) (“IRDA”).

3 Instead of paying the Alleged Debt, the appellant commenced an arbitration against the respondent seeking a declaration that it did not owe the Alleged Debt to the respondent (“Arbitration”). The appellant argued that the Alleged Debt did not exist as: (a) the Purchase Contract was “null and void” under PRC law as it had been entered into solely for accounting and bookkeeping purposes; and (b) the respondent had never delivered any copper cathodes to the appellant under the Purchase Contract. The respondent did not mount a counterclaim for the Alleged Debt in the Arbitration but objected to the jurisdiction of the arbitral tribunal (“Tribunal”).

4 While the Arbitration was ongoing, the respondent filed a winding-up application against the appellant (“CWU 120”) based on two grounds: (a) first, that the appellant was unable to pay its debts under s 125(1)(e) of the IRDA; and (b) second, that it was just and equitable for the appellant to be wound up under s 125(1)(i) of the IRDA.

5 The appellant contested CWU 120, arguing, among other things, that CWU 120 should be dismissed as there was a dispute over the Alleged Debt claimed by the respondent that was subject to an arbitration agreement, the effect of which was that the respondent had no standing as a creditor to apply for the appellant to be wound up. The respondent in turn argued that the appellant had admitted the Alleged Debt in three audit confirmation letters from the appellant’s auditors to the respondent (“Audit Confirmation Letters”) and the appellant’s audited financial statements for Financial Years (“FY”) 2016 to 2021, and it was an abuse of process for the appellant to resile from these admissions of the Alleged Debt by disputing it in CWU 120.

6 Subsequently, the respondent agreed for CWU 120 to be stayed pending the outcome of the Arbitration on the condition that the appellant pay a sum equivalent to the Alleged Debt into court (“Sum”). The Judge granted the appellant leave to pay the Sum into court pending the determination of CWU 120 and the Arbitration and ordered that CWU 120 be stayed until further order.

7 The Arbitration ended in a stalemate as the Tribunal declined to decide definitively if the Alleged Debt existed or not. In the Tribunal’s award (“Award”), the Tribunal declined to grant the declaration sought by the appellant as it found that the appellant had failed to prove that the Purchase Contract had been entered into for bookkeeping purposes without a genuine intention to perform the Purchase Contract. However, at the same time, the Tribunal also expressed reservations as to whether the respondent had performed the Purchase Contract, noting that the respondent had not proven that it had delivered copper cathodes to the appellant under the Purchase Contract. The Tribunal also found that the Audit Confirmation Letters did not prove the existence of the Alleged Debt under PRC law.

8 Despite the equivocal outcome of the Arbitration, the respondent applied for the Sum to be paid out to it or, alternatively, for an order that the appellant be wound up in CWU 120. The Judge ordered that the Sum be paid out to the respondent and granted the respondent leave to discontinue CWU 120. However, in Singapore Commodities Group Co, Pte Ltd v Founder Group (Hong Kong) Ltd [2025] SGCA 35 (“SG Commodities (No 1)”), the Court of Appeal held that the Sum should not be paid out to the respondent as the respondent had failed to establish the Alleged Debt in the Arbitration. As a result, the Court of Appeal set aside the Judge’s order for the Sum to be paid out to the respondent, reinstated CWU 120, and remitted CWU 120 to the Judge for his decision.

9 In the remitted proceedings, it was undisputed that there was a prima facie dispute over the Alleged Debt that was subject to the arbitration agreement in the Purchase Contract. It was also agreed that there was nothing under PRC law that prevented the respondent from commencing a fresh arbitration to obtain a determination that the Alleged Debt was owed to it. Thus, the main issue before the Judge was whether the appellant had acted in abuse of process by resiling from admissions of the Alleged Debt as the respondent claimed, in which case the court could decline to refer the parties to arbitration to resolve the dispute over the Alleged Debt, and instead decide the dispute in CWU 120. In this regard, apart from the Audit Confirmation Letters and the appellant’s books from FY2016 to FY2021, the respondent also relied on a confirmation of balance request purportedly signed by the appellant and affixed with the appellant’s seal (“Confirmation Request”), as documents that contained admissions of the Alleged Debt by the appellant. If the court decided the dispute over the Alleged Debt in the respondent’s favour, the respondent would have standing as a creditor. In the alternative, the respondent argued that it was also a contingent creditor of the appellant.

10 The Judge held that the appellant had acted in abuse of process by resiling from admissions of the Alleged Debt in the Audit Confirmation Letters and accordingly held that the respondent had standing as a creditor to pursue the winding-up application against the appellant. As the Judge found that appellant was unable to pay its debts under s 125(1)(e) of the IRDA, the Judge ordered that the appellant be wound up.

11 The appellant appealed against this decision to the Court of Appeal. On appeal, the main issue was whether the respondent had standing as a creditor of the appellant to invoke the court’s winding-up jurisdiction against the appellant. This turned on whether the appellant had acted in abuse of process as the Judge had found.

12 When a claimant (“C”) brought a winding-up application against a defendant (“D”), three conditions had to be met for the court to make a winding-up order: (a) first, C had to have standing as a person with a statutory right to apply for the winding up of D under s 124(1) of the IRDA; (b) second, C had to establish one or more of the grounds for winding up under s 125(1) of the IRDA; and (c) third, there had to be no reason for the court to exercise its discretion to decline to make a winding-up order. The first two conditions were disjunctive conditions that went towards the court’s jurisdiction to wind up a company, while the third condition was a residual discretion which the court had once its winding-up jurisdiction had been enlivened: at [42]–[45].

13 If D disputed the debt on which C’s winding-up application was based, the court may dismiss the application on the basis of C’s lack of standing to apply for D to be wound up as D’s assertion that it did not owe the debt claimed by C was an assertion that C is not a “creditor” of D under s 124(1)(c) of the IRDA: at [46].

14 There were two established approaches governing how the court would respond to the situation where D disputed the debt claimed by C in a winding-up application brought by C against D. The applicable approach depended on whether the dispute raised by D was subject to an arbitration agreement: at [47].

15 When the dispute raised by D was not subject to any valid arbitration agreement, the court would generally consider if D was disputing the debt on bona fide and substantial grounds in terms of raising a triable issue that would have resulted in the court giving D leave to defend if C had brought an application for summary judgment for the debt: at [48].

16 If the court found that D had failed to raise a triable issue on the debt, the court would proceed to determine the winding-up application by considering if C had established a ground for winding up and if there was any reason to exercise its discretion not to make a winding-up order: at [49].

17 If the court found that D had raised a triable issue on the debt, the starting point was that C would have no standing to apply for D to be wound up as a creditor of D, and the court would have no jurisdiction to wind up D. However, the court had a discretion to exercise its general civil jurisdiction to determine the dispute in the winding-up proceedings, and if it did so in C’s favour, C would have standing and the court would have jurisdiction to wind up D subject to C establishing an operative ground for the winding-up application. However, the general rule was that the court would not decide a dispute over the debt in the winding-up proceedings for two reasons: (a) first, practically speaking, the procedure in winding-up applications was generally ill-suited for determining disputes of fact; and (b) second, as a matter of policy, the court would guard against the risk of threat or pendency of winding-up proceedings being abused as a means by C to exert improper pressure on D: at [50], [54] and [56].

18 Where the dispute raised by D was subject to an arbitration agreement, the court’s discretion to inquire into the merits of the dispute and to exercise its general civil jurisdiction to decide the dispute in the winding-up proceedings would be circumscribed, as doing so would be contrary to the parties’ choice of arbitration as the forum to resolve their differences. Thus, instead of applying the triable issue standard, the court would apply a lower prima facie standard of review where the dispute raised by D was subject to arbitration. Moreover, the arbitration agreement meant that it would generally not be appropriate for the court to exercise its general civil jurisdiction to decide the dispute in the winding-up proceedings: at [58], [60] and [61].

19 However, the enforcement of the parties’ agreement to arbitrate had to be balanced against potential abuse of the prima facie standard of review. The court could therefore disregard the arbitration agreement and apply the general approach of deciding if there was a triable issue and potentially exercising the court’s general civil jurisdiction to decide the dispute raised by D if D’s conduct amounted to an abuse of the process of the court. The threshold for abusive conduct was a high one and the categories of abuse of process were not closed: at [62].

20 If the dispute raised by D was subject to a valid arbitration agreement the court would dismiss or exceptionally stay the winding-up application if: (a) there was prima facie a valid arbitration agreement between C and D; (b) the dispute raised by D prima facie fell within the scope of the arbitration agreement; and (c) D’s conduct in disputing the debt did not amount to an abuse of process. The existence of a prima facie dispute over the debt falling within the scope of an arbitration agreement between the parties would mean that C had no standing to apply as a creditor of D for D to be wound up and that the court had no jurisdiction to wind up D. C would have to establish its standing as a creditor of D by establishing the debt in arbitration, subject to abuse of process by D, in which case the court could apply the general approach and exercise its general civil jurisdiction to decide any dispute raised by D in the winding-up proceedings: at [63]–[64].

21 The abuse of process safeguard had to be applied in a manner that was consistent with the prima facie standard of review. The inquiry into abuse of process was thus not a gateway for parties to introduce arguments on the merits of the dispute raised by D over the debt: at [80].

22 An abuse of process may be found where D’s dispute to the debt involved resiling from an earlier admission of the debt. There would be an abuse of process if D had contrived a dispute that did not previously exist for the sole purpose of staving off the winding-up application and playing for time. In a case where D was alleged to have disputed the debt in abuse of process by resiling from an earlier admission of the debt, D would be guilty of an abuse of process if: (a) first, there was a clear and unequivocal admission by D as to liability and quantum for the debt claimed by C; and (b) second, D had resiled from the admission without a clear and convincing reason for its change in position: at [79], [82] and [85].

23 An admission by D as to both liability and quantum of the debt was a prerequisite to a finding of abuse of process by D. The conduct or statement of D that C relied on as an admission had to be “clear and unequivocal”. This standard ensured that the court did not get drawn into an evaluation of the merits of the parties’ dispute, as a dispute over whether D had indeed admitted the debt was itself a dispute which an arbitral tribunal would have jurisdiction over. Thus, cases in which a clear and unequivocal admission would be found would be the exception rather than the norm: at [86]–[88].

24 If the high threshold of a clear and unequivocal admission as to both liability and quantum of the debt was met, the next question was whether D was able to provide a “clear and convincing reason” for the change in its position. This did not entail the court evaluating the merits of the dispute or D’s defence to C’s claim, and simply required D to provide an explanation for its change of position that satisfied the court that it was not disputing the debt for the sole purpose of staving off winding up: at [95]–[99].

25 The appellant had not acted in abuse of process in disputing the Alleged Debt by resiling from prior admissions of the Alleged Debt: at [100].

26 The Audit Confirmation Letters did not contain a clear and unequivocal admission of the Alleged Debt. The issue of whether the Audit Confirmation Letters amounted to admissions of the Alleged Debt was governed by PRC law, being the governing law of the Purchase Contract from which the Alleged Debt arose. Given the Tribunal’s finding in the Award that the Audit Confirmation Letters did not establish the Alleged Debt as a matter of PRC law, it was not open to the parties or the Judge to arrive at a different conclusion on the effect of the Audit Confirmation Letters: at [101]–[108].

27 The appellant’s books and the Confirmation Request did not amount to clear and unequivocal admissions of the Alleged Debt. The appellant had challenged the effect of these documents as admissions of the Alleged Debt and, in any event, no evidence was placed before the court on their effect under PRC law: at [109]–[111].

28 The appellant had disputed the existence of the Alleged Debt in the Arbitration on two grounds: (a) first, that the Purchase Contract was “null and void” under PRC law as it was only entered into for accounting or bookkeeping purposes, without any genuine intention of the parties to buy or sell copper cathodes; and (b) second, that the respondent had not performed the Purchase Contract by delivering copper cathodes to the appellant. Although the Tribunal had rejected the appellant’s first ground, the Tribunal had expressly declined to find that the Alleged Debt did exist and expressed reservations as to whether the respondent had performed the Purchase Contract. In these premises, even if the appellant was estopped by the Award from maintaining its first ground of objection to the Alleged Debt, it remained entitled to maintain its second objection that the respondent had not proven its performance of the Purchase Contract. Indeed, as it was agreed between the parties that the respondent could commence a fresh arbitration to establish that it had performed the Purchase Contract and thereby establish the Alleged Debt, the outstanding dispute as to whether the respondent had performed the Purchase Contract, having regard to the Tribunal’s reservations in the Award, was a clear and convincing reason for the appellant to continue disputing the Alleged Debt. It could not be said in the circumstances that the appellant was disputing the Alleged Debt solely for the sake of staving off winding up: at [112]–[122].

29 Taking a holistic view of the appellant’s conduct before and during CWU 120, it could not be said that the appellant had acted in abuse of process. First, the appellant had commenced the Arbitration after the respondent had issued the statutory demand on the Alleged Debt even before the filing of CWU 120. Second, the appellant had also proactively applied to pay the Sum into court, which demonstrated that it was disputing the Alleged Debt in good faith and was willing to pay the Alleged Debt if it was adjudged due. The respondent’s inability to obtain payment out of the Sum in SG Commodities (No 1), and the stalemate that the parties found themselves in following the Arbitration, was a consequence of the respondent’s own failure to make a counterclaim for the Alleged Debt in the Arbitration. Third, as there did not appear to be any other creditors of the appellant, there was no risk of prejudice to third parties if the parties’ agreement to arbitrate were upheld and CWU 120 were dismissed: at [123]–[128].

30 A contingent debt was a debt for which the defendant was subject to an existing obligation that could crystallise into an obligation to pay the claimant money if a certain future event were to occur: at [132].

31 The Alleged Debt was not a contingent debt. Although the existence of the Alleged Debt may be subject to a future determination by an arbitral tribunal, the respondent’s performance of the Purchase Contract so as to give rise to the Alleged Debt was a matter of past fact that had either already occurred or not occurred. It was not a contingency and the Alleged Debt had either already arisen or not arisen, subject to confirmation by an arbitral tribunal: at [134]–[136].

32 Any obligation that the appellant may come under to pay the Alleged Debt under an arbitral award in the respondent’s favour was not a contingent debt. A debt arising from a judgment or arbitral award would not be a contingent debt as until the time when the judgment or award was made, the defendant would be under no obligation to the claimant: at [138].

33 The touchstone of an award of indemnity costs was unreasonable conduct: at [143].

34 The respondent’s conduct in CWU 120 was unreasonable. First, it should have been obvious to the respondent that there was no prospect of succeeding in CWU 120 given the equivocal outcome in the Arbitration and the respondent’s failure to establish the Alleged Debt there meant that it did not have standing as a creditor of the appellant. Second, the overwhelming impression from the respondent’s conduct was that it had pressed on with CWU 120 rather than commencing a fresh arbitration due to a concern that it could not succeed in establishing the Alleged Debt in arbitration. Third, the respondent’s conduct was an abuse of the court’s winding-up jurisdiction. It was clear that the respondent had wielded CWU 120 as a means of exerting improper pressure on the appellant to pay the Alleged Debt even though it was disputed and remained disputed after the Arbitration: at [144]–[152].