4 January 2020
In a recent decision in Bunge SA and another v Shrikant Bhasi and other appeals [2020] SGCA 94, the Singapore Court of Appeal ruled that claims brought against different defendants, of differing legal bases, and with inconsistent jurisdiction clauses should nevertheless be heard in Singapore.
Key Takeaways
This case highlights:
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How multiple disputes across various contracts and among different parties may be subject to proceedings in Singapore.
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The potentially far-reaching impact of the phrase “arising out of or in connection with” where pre-contractual conduct (even if tortious in nature) may be brought within the ambit of a jurisdiction clause of a contract between the parties.
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How in acknowledgment of the fact that witnesses are increasingly giving evidence by video-link due to the COVID-19 pandemic, the Court of Appeal considered that witness availability would be of reduced importance in determining the most convenient forum.
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The importance of negotiating and thinking through in advance the dispute resolution provisions in a multi-jurisdiction and multi-document setting.
Relevant Background Facts
The dispute arose out of a series of merchanting trade transactions or string sales (the “BMT Structure”) between two companies from the same group: Bunge SA (“BSA”) and Grains and Industrial Products Trading Pte Ltd (“GRIPT”) (collectively, the “Bunge Entities”) via intermediaries.
The dispute was between the Bunge Entities and various intermediaries which included Advantage Overseas Private Limited (“AOPL”), the State Bank of India (“SBI”) and AOPL’s one-time director and shareholder, Mr Shrikant Bhasi (“Bhasi”).
Each transaction or “string sale” in the BMT Structure involved three back-to-back contracts:
(a) an “import leg” between GRIPT as seller and AOPL as buyer;
(b) an “intermediate leg” between AOPL and one of two intermediaries (“ACF” or “Tracon”) as buyer; and
(c) an “export leg” between ACF or Tracon as seller and BSA as the ultimate buyer.
Significantly, each leg of each transaction contained a different governing law or jurisdiction clause:
(a) The import leg contracts contained Singapore exclusive jurisdiction clauses.
(b) The intermediate leg contracts mostly contained Indian exclusive jurisdiction clauses.
(c) The export leg initially contained English exclusive jurisdiction clauses but subsequently provided for Singapore exclusive jurisdiction clauses.
Related to each transaction was a series of various transfers which in summary are:
(a) BSA would transfer approximately 98.5% of the transaction’s value to AOPL as payment.
(b) AOPL would place the funds in fixed deposits with SBI.
(c) AOPL would also issue a mandate letter to SBI requesting the issuance of an irrevocable payment undertaking (“IPU”) in favour of GRIPT, pursuant to which SBI would promise to either procure a letter of credit due for payment within six months for 100% of the transaction’s value, or, if the letter of credit was not issued, pay that sum to GRIPT within five days.
(d) Upon maturity of the fixed deposits, AOPL would retain some interest and return the balance to the Bunge group of companies.
(e) Because AOPL was required to maintain the two-year fixed deposits even whilst funds were paid out to GRIPT at six-month intervals, there was a need to periodically inject funds through “rollover” transactions, these being fresh transactions for new shipments of goods. Allegedly, the Bunge Entities had given certain assurances to AOPL regarding the continuity of the rollover transactions (the “Assurances”).
The dispute arose because SBI purportedly failed to issue a letter of credit for USD 50 million or otherwise pay the amount to GRIPT which led to:
(a) AOPL demanding USD 277 million in damages from the Bunge Entities (the “Kantawala Claims”) for breach of the Assurances.
(b) The Bunge Entities commencing Singapore High Court proceedings against AOPL, SBI and Bhasi for the following claims (“Bunge Claims”) that:
i. AOPL was liable for USD 50 million under a GRIPT- AOPL contract (“AOPL USD 50m Claim”);
ii. the Bunge Entities were not liable to AOPL for breach of the Assurances (“Negative Declaration Claim”);
iii. SBI had breached an IPU (the “SBI IPU Claim”); and
iv. Bhasi was liable to indemnify the Bunge Entities for the Kantawala Claims (the “Indemnity Claim”), and that Bhasi had breached contractual and fiduciary duties owed to the Bunge Entities pursuant to two agency agreements (the “Agency Claim”).
(c) AOPL, SBI and Bhasi resisting the Bunge Claims by filing various applications in the Singapore High Court to, amongst other things, stay the Singapore proceedings on forum non conveniens grounds (i.e., on the basis that there was a more appropriate forum for the dispute outside of Singapore).
The Court of Appeal’s Decision
The Court of Appeal found that all the Bunge Claims should proceed in Singapore.
The AOPL USD 50m Claim
On appeal, AOPL “no longer took issue” with the AOPL USD 50m Claim being heard in Singapore. Regardless, the Court of Appeal agreed with the trial judge’s finding that the AOPL USD 50m Claim should be heard in Singapore because the contracts between GRIPT and AOPL contained a Singapore exclusive jurisdiction clause. Further, AOPL could not prove that there was “strong cause” amounting to exceptional circumstances such that the Singapore proceedings should be stayed.
The Negative Declaration Claim
The Court of Appeal found that the Negative Declaration Claim should be heard in Singapore because the Assurances were “inextricably linked” to the string sale contracts. This rendered the Assurances susceptible to the same governing law and jurisdiction clauses as the contracts in the BMT structure. In this regard, the Court of Appeal held that the words “arising out of or in connection with” were “not temporally specific” and were wide enough to encompass disputes arising from pre-contractual conduct leading to the conclusion of the contract.
As for which of the jurisdiction clauses in the three legs of contracts was applicable to the Negative Declaration Claim, the Court of Appeal determined that it was the import leg contracts (which contained the Singapore exclusive jurisdiction clauses). It arrived at that conclusion by reasoning that the issue was to be resolved by determining which clause had the closest connection bearing in mind the “pith and substance” of the dispute.
The SBI IPU Claim
The relevant IPU did not have a jurisdiction clause. The Court of Appeal agreed with the court below that SBI did not discharge its burden of proving that India was a more appropriate forum. Further, due to the high degree of factual overlap between the claims, it was found that it was a weighty factor (in favour of Singapore) that the AOPL USD 50m Claim would be heard in Singapore.
The Court of Appeal also considered the issue of witness availability. It found that the difficulty of India-based witnesses in traveling to Singapore would be given less weight as witnesses will, due to the COVID-19 pandemic, increasingly have to give evidence by video-link.
The Agency Claim and the Indemnity Claim
The Court of Appeal also found that both claims against Bhasi (i.e., the Agency Claim and the Indemnity Claim) should proceed in Singapore as:
(a) the dispute resolution provision in a later agency agreement was found to be operative; and
(b) Bhasi had not discharged the burden of showing “strong cause” for not enforcing that dispute resolution clause.
The claims were based on two agency agreements, which each contained different jurisdiction clauses. The earlier agency agreement (the “First Agency Agreement”) contained both a Singapore non-exclusive jurisdiction clause as well as an arbitration clause. The later agency agreement (the “Second Agency Agreement”) contained a Singapore exclusive jurisdiction clause.
The Court of Appeal found that the only operative dispute resolution provision was the one in the Second Agency Agreement as it contained a clause which superseded the First Agency Agreement (the “Supersession Clause”). This conclusion was based on the plain wording of the Supersession Clause and the context of the agency agreements, which the Court of Appeal found to pertain to the parties’ ongoing relationship.
Drafting guidelines
This case brings to the fore the difficulties in interpreting inconsistent contractual provisions in a multi-jurisdiction and multi-document setting which is now common in cross border transactions.
The issue of how various contracts should interact with one another should ideally be set out straight at the outset. The humble boilerplate clause dealing with inconsistency (i.e., “In the event of any conflict, contradiction or inconsistency…the provisions of this Agreement shall prevail”) can be harnessed for this purpose, but some thought will have to be devoted as to the actual desired outcome if a particular document is to prevail.
For instance, in the case of the jurisdiction clauses in a suite of documents with differing governing law provisions, it would likely require parties to turn their minds to, and agree upfront on:
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the document which should take precedence or which should prevail in the event of inconsistencies, and whether all inconsistencies should be resolved the same way;
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the scope of dispute resolution provisions (e.g., all conceivable disputes arising out of the agreement or only disputes specifically related to the agreement);
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the mode of dispute resolution
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the forum for dispute resolution
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whether the jurisdiction clause should be exclusive or non-exclusive.
Admittedly, this does require quite a fair amount of forward thinking and negotiations on what is typically a boilerplate provision but it should be well worth the effort to avert a lengthy (and costly) litigation to sort out inconsistent jurisdiction clauses.
For further information, please contact:
Sandra Seah, Partner, Bird & Bird
sandra.seah@twobirds.com
