Larsen Oil and Gas v Petroprod: Arbitration vs. Insolvency – Enforceability of Arbitration Clause in Liquidation

In Larsen Oil and Gas Pte Ltd v Petroprod Ltd, the Singapore Court of Appeal addressed whether claims involving an insolvent company, Petroprod Ltd, should be resolved through arbitration, based on an arbitration clause in a Management Agreement with Larsen Oil and Gas Pte Ltd. Petroprod's liquidators commenced proceedings against Larsen to avoid payments made to Larsen, arguing they were unfair preferences or transactions at an undervalue. Larsen sought a stay of proceedings based on the arbitration clause. The Court of Appeal dismissed Larsen's appeal, holding that Petroprod's claims were based on avoidance provisions of the Bankruptcy Act and Companies Act, not on breaches of the Management Agreement, and thus did not fall within the scope of the arbitration clause. The court also addressed the arbitrability of insolvency-related claims.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

The Singapore Court of Appeal addressed whether an arbitration clause covers claims against an insolvent company, balancing arbitration and insolvency policies.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Larsen Oil and Gas Pte LtdAppellantCorporationAppeal DismissedLostChen Leng Sun, Goh Kok Leong, Ng Weiting
Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore)RespondentCorporationAppeal DismissedWonDavid Chan, Koh Junxiang, Carol Teh

3. Judges

Judge NameTitleDelivered Judgment
Chan Sek KeongChief JusticeNo
Andrew Phang Boon LeongJustice of the Court of AppealNo
V K RajahJustice of the Court of AppealYes

4. Counsels

Counsel NameOrganization
Chen Leng SunAng and Partners
Goh Kok LeongAng and Partners
Ng WeitingAng and Partners
David ChanShook Lin and Bok LLP
Koh JunxiangShook Lin and Bok LLP
Carol TehShook Lin and Bok LLP

4. Facts

  1. Petroprod and its subsidiaries entered into a Management Agreement with Larsen.
  2. Larsen was to provide management services to Petroprod and its four subsidiaries.
  3. Petroprod was placed in official liquidation in the Cayman Islands on 17 July 2009.
  4. Petroprod was placed in compulsory liquidation in Singapore on 3 August 2009.
  5. Petroprod's liquidators commenced proceedings against Larsen to avoid certain payments.
  6. Larsen sought a stay of proceedings based on an arbitration clause in the Management Agreement.
  7. The payments made to Larsen were alleged to be unfair preferences or transactions at an undervalue.

5. Formal Citations

  1. Larsen Oil and Gas Pte Ltd v Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore), Civil Appeal No 122 of 2010, [2011] SGCA 21

6. Timeline

DateEvent
Management Agreement signed between Petroprod Ltd and Larsen Oil and Gas Pte Ltd
Petroprod was placed in official liquidation in the Cayman Islands
Petroprod was placed in compulsory liquidation in Singapore
Singapore liquidators of Petroprod commenced proceedings against Larsen
Larsen filed a summons applying for a stay of all further proceedings brought by Petroprod
Larsen’s application for a stay of further proceedings was heard by the Judge
Judgment was given with the GD on Larsen’s application for a stay of further proceedings
Appeal dismissed with costs

7. Legal Issues

  1. Arbitrability of Insolvency-Related Claims
    • Outcome: The court held that claims arising from the statutory provisions of the insolvency regime are generally non-arbitrable, even if the parties expressly included them within the scope of the arbitration agreement.
    • Category: Substantive
    • Sub-Issues:
      • Enforcement of arbitration agreements against liquidators
      • Scope of arbitration clauses in insolvency proceedings
      • Public policy considerations in arbitration of insolvency disputes
    • Related Cases:
      • [2010] 4 SLR 501
      • [1999] 1 SLR(R) 382
  2. Scope of Arbitration Clause
    • Outcome: The court held that the arbitration clause did not cover Petroprod’s claims against Larsen because the claims were avoidance claims that sprung from the special regime created by the Bankruptcy Act and Companies Act.
    • Category: Substantive
    • Sub-Issues:
      • Interpretation of 'any dispute arising under' clause
      • Whether avoidance claims fall within the scope of the arbitration clause
    • Related Cases:
      • [2007] 2 CLC 553

8. Remedies Sought

  1. Recovery of payments made to Larsen

9. Cause of Actions

  • Avoidance of unfair preferences
  • Avoidance of transactions at an undervalue
  • Fraudulent Conveyance

10. Practice Areas

  • Commercial Litigation
  • Arbitration
  • Insolvency Litigation

11. Industries

  • Oil and Gas

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) v Larsen Oil and Gas Pte LtdHigh CourtYes[2010] 4 SLR 501SingaporeCited as the decision from which the appeal arose and for summarizing the background facts of the case.
Astro Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH, The DamianosQueen's BenchYes[1971] 2 QB 588England and WalesCited for the traditional approach of English courts in determining the scope of an arbitration clause.
Heyman and another v Darwins, LimitedHouse of LordsYes[1942] AC 356England and WalesCited for the divergence of views between courts as to whether a clause could include a tort claim that was related to the contract
Union of India v EB Aaby’s Rederi A/s, The EvjeNot AvailableYes[1974] 2 All ER 874England and WalesCited for the divergence of views between courts as to whether a clause could include a tort claim that was related to the contract
Premium Nafta Products Ltd & Ors v Fili Shipping Co Ltd & OrsHouse of LordsYes[2007] 2 CLC 553England and WalesCited as heralding a change in how arbitration clauses ought to be construed.
Moses H Cone Memorial Hospital v Mercury Construction CorporationSupreme Court of the United StatesYes460 US 1 (1983)United StatesCited for the view that any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.
Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth, IncSupreme Court of the United StatesYes473 US 614 (1985)United StatesCited for the principle that the parties' intentions control the construction of an arbitration clause, and those intentions are generously construed as to issues of arbitrability.
Francis Travel Marketing Pty Ltd v Virgin Atlantic Airways LtdCourt of Appeal of the Supreme Court of New South WalesYes[1996] 39 NSWLR 160AustraliaCited for the principle that an arbitration clause should be generously interpreted to include claims under the Australian Trade Practices Act 1974.
Onex Corp. v. Ball Corp.Ontario Court of JusticeYes(1994) 12 BLR (2d) 151CanadaCited for the principle that where the language of an arbitration clause is capable of bearing two interpretations, and on one of those interpretations fairly provides for arbitration, the courts should lean towards honouring that option.
Canadian National Railway Co et al v Lovat Tunnel Equipment IncOntario Court of AppealYes(1999) 174 D.L.R. (4th) 385CanadaCited for approving the approach in Onex Corp. v. Ball Corp.
Tjong Very Sumito and others v Antig Investments Pte LtdCourt of AppealYes[2009] 4 SLR(R) 732SingaporeCited for adopting a generous interpretation of the word “dispute” in an arbitration clause.
NCC International AB v Alliance Concrete Singapore Pte LtdHigh CourtYes[2008] 2 SLR(R) 565SingaporeCited for the principle that the Courts are expected to take a more interventionist approach in domestic arbitrations under the AA than international arbitrations under the IAA.
Four Pillars Enterprises Co Ltd v Beiersdorf AktiengesellschaftCourt of AppealYes[1999] 1 SLR(R) 382SingaporeCited as the only local case that deals directly with the question of whether an insolvency related dispute can be arbitrated.
Exeter City Association Football Club Ltd v Football Conference Ltd and anotherNot AvailableYes[2004] 1 WLR 2910England and WalesCited as standing for the proposition that there are certain statutory rights that are “inalienable and cannot be diminished or removed by contract or otherwise”.
Enron Metals & Commodity Limited v HIH Casualty & General Insurance LimitedHigh Court of JusticeYes[2005] EWHC 485 (Ch)England and WalesCited for the principle that s 130(2) of the UK Insolvency Act 1986 applies to arbitral proceedings as well.
In re Atlantic Computer Systems PlcCourt of AppealYes[1992] 2 WLR 367England and WalesCited for the principle that the stay should only be lifted if the creditor could make out a good case against the insolvent debtor.
New Cap Reinsurance Corporation Limited v A E Grant & Ors, Lloyd's Syndicate No 991Supreme Court of New South WalesYes[2009] NSWSC 662AustraliaCited for the discussion on the arbitrability of avoidance claims.
Ng Wei Teck Michael and others v Oversea-Chinese Banking Corp LtdHigh CourtYes[1998] 1 SLR(R) 778SingaporeCited for the principle that when a company becomes insolvent, its assets are impressed with a statutory trust that is administered by the liquidator for the benefit of the company’s creditors.
Joo Yee Construction v Diethelm IndustriesNot AvailableYes[1990] 2 MLJ 66MalaysiaCited for the principle that a company cannot contract with some of its creditors for the non-application of certain insolvency rules.
National Westminster Bank Ltd. v. Halesowen Presswork & Assemblies Ltd.House of LordsYes[1972] AC 785England and WalesCited for the principle that a company cannot contract with some of its creditors for the non-application of certain insolvency rules.
British Eagle International Air Lines Ltd. v Compagnie Nationale Air FranceHouse of LordsYes[1975] 1 WLR 758England and WalesCited for the principle that a company cannot contract with some of its creditors for the non-application of certain insolvency rules.
Re Rasmachayana Sulistyo (alias Chang Whe Ming), ex parte The Hongkong and Shanghai Banking Corp Ltd and other appealsHigh CourtYes[2005] 1 SLR(R) 483SingaporeCited for the principle that the freedom to contract should not be fettered unless there is a clear contrary indication from the language used or from the purport of the relevant legislative provisions and/or underpinning public interest considerations.
Wight and others v Eckhardt Marine GmbHHouse of LordsYes[2004] 1 AC 147England and WalesCited for the principle that the proof of debt process is merely a substituted means of enforcing debts against the company, and does not create new rights in the creditors or destroy old ones.
Quah Kay Tee v Ong and Co Pte LtdCourt of AppealYes[1996] 3 SLR(R) 637SingaporeCited for considering the nature of s 73B of the CLPA in some detail.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Arbitration Act (Cap 10, 2002 Rev Ed)Singapore
Bankruptcy Act (Cap 20, 2009 Rev Ed)Singapore
Companies Act (Cap 50, 2006 Rev Ed)Singapore
Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed)Singapore
International Arbitration Act (Cap 143A, 2009 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Arbitration Clause
  • Insolvency
  • Liquidation
  • Avoidance Claims
  • Unfair Preference
  • Transaction at Undervalue
  • Management Agreement
  • Arbitrability
  • Liquidator
  • Official Assignee

15.2 Keywords

  • arbitration
  • insolvency
  • liquidation
  • avoidance claims
  • Singapore
  • Petroprod
  • Larsen Oil and Gas

16. Subjects

  • Arbitration
  • Insolvency
  • Contract Law

17. Areas of Law

  • Arbitration Law
  • Insolvency Law
  • Contract Law
  • Civil Procedure