Legal Updates

Legal Updates for June 2021

Appeals Against a Winding-Up Order: Who Should Control the Appeal and Who Should Pay?
In Sun Electric Power Pte Ltd v RCMA Asia Pte Ltd [2021] SGCA 60, the Singapore Court of Appeal had the opportunity to consider some vital questions relating to insolvency proceedings. In the context of an appeal against a winding-up order, the Court considered whether the company's directors should be entitled to control the appeal, and who should be responsible for the costs of the appeal.

The Court also examined the test for determining whether a company is deemed unable to pay its debts under sections 254(2)(c) and 254(2)(a) of the Companies Act. Importantly, the decision establishes the cash flow test as the sole applicable test to determine insolvency for purposes of winding up under section 254(2)(c) of the Companies Act, which is retained in section 125(2)(c) of the Insolvency, Restructuring and Dissolution Act 2018.

PDPC Handbook on How to Guard Against Common Types of Data Breaches
The Personal Data Protection Commission ("PDPC") has published a new handbook that highlights the five most common gaps in Information and Communication Technology ("ICT") system management and processes ("Handbook"). The Handbook also identifies the corresponding ICT good practices that organisations should put in place to prevent data breaches.

The Handbook provides a helpful guide for organisations to assess the adequacy of their data protection systems and processes and to implement any of the relevant recommendations. This Update provides a summary of the key issues raised in the Handbook and the corresponding recommendations from the PDPC.

Implications of the G-7 Global Minimum Corporate Tax for Singapore
Singapore has long been known for its attractive corporate tax rates, but this tax advantage may be whisked away once the landmark tax agreement by the Group of Seven ("G-7") comes into effect.

The G-7 represents a huge proportion of global gross domestic product (GDP) and global net wealth, being comprised of the seven countries of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. On 5 June 2021, the G-7 sent ripples worldwide when it reached a deal to implement two sets of rules, namely (a) reallocating taxable profits of the largest multinational enterprises ("MNEs") to "market jurisdictions" where their customers are located, and (b) a global minimum tax rate of 15% for large MNEs.

The agreement has multiple aims, ranging from modernising tax laws for the digital economy, to avoiding a "race to the bottom" with countries offering progressively lower tax rates to attract MNEs, to closing cross-border tax loopholes.

While there is no clear indication on when this agreement might come into play and what the specific rules will entail, it will have far-reaching implications beyond the borders of the G-7 countries. The G-7 agreement may further set the stage for similar deals, such as amongst the Group of 20 ("G-20") or the more than 130 countries under the Organization for Economic Cooperation and Development Inclusive Framework. However, China as a member of the G-20 has already voiced objections to a global minimum corporate tax rate.

In this Update, we examine the implications of this agreement and specifically what it might mean for Singapore.

Singapore Extends Scope of Permissible Third-Party Funding
The Ministry of Law has announced that third-party funding will be permitted for a wider scope of categories, including domestic arbitration, Singapore International Commercial Court proceedings, and related court and mediation proceedings. This will take effect from 28 June 2021. Singapore’s legislation previously addressed third-party funding only in the context of international arbitration and related court and mediation proceedings.

Disputants should be aware of third-party funding and consider its applicability or suitability in their potential claims. In this Update, we look at the new categories of proceedings in which third-party funding is allowed, as well as the related regulatory amendments.

Court of Appeal Determines Between Conflicting Set-Off Agreement and Standard Terms and Conditions
In light of recent market pressures, the area of trade finance has seen a number of disputes arising from the enforcement of debentures, pledges and assignments. One such case is Italmatic Tyre & Retreading Equipment (Asia) Pte Ltd v CIMB Bank Berhad [2021] SGCA 56, where the Singapore Court of Appeal had to tackle issues relating to trade finance such as the complications of multiple parties and contracts in trade arrangements.

The lender in this case sought to enforce book debts assigned from the borrower. The Court considered whether the debtor was entitled to raise the defence of set-off in light of conflicting contractual clauses – the borrower and debtor had entered into a set-off agreement, but the borrower's standard terms and conditions required the debtor to make payment without set-off. Ultimately, the Court found that the standard terms and conditions did not preclude the debtor from exercising its right of set-off under the set-off agreement, but the debtor had failed to exercise this right by notice and confirmation.

Guide to Climate-Related Disclosures for Banks, Asset Managers & Insurers
Improving the quality of disclosures is vital to supporting the growth of green finance in Singapore. In this regard, the Green Finance Industry Taskforce ("GFIT") issued an implementation guide for climate-related disclosures by financial institutions on 19 May 2021 ("Guide"). The Guide details the best practices that are aligned with the recommendations of the Financial Stability Board's Task Force on Climate-Related Financial Disclosures.

By focusing on climate-related disclosures, the Guide supplements the previously issued Monetary Authority of Singapore Guidelines on Environmental Risk Management for banks, asset managers and insurers ("ENRM Guidelines"), as well as GFIT's handbook that provides practical implementation guidance and good practices on environmental risk management. The Guide is relevant to financial institutions which are expected to meet the expectations of the ENRM Guidelines, namely banks, asset managers and insurers.

This Update briefly explains what climate-related risks and opportunities are, with an overview of the main recommendations for disclosure in the Guide structured around four areas: governance, strategy, risk management, and metrics and targets. We will also highlight certain sector-specific and business-specific matters for consideration by banks, asset managers and insurers.

Successful Appellant Fails to Get Reimbursement of Damages Paid on Behalf of All Co-defendants in Satisfaction of Trial Judgment
In commercial disputes, it is not uncommon for there to be multiple plaintiffs or defendants, which may also be related entities, represented by the same set of counsel. In Crest Capital Asia Pte Ltd v OUE Lippo Healthcare Ltd [2021] SGCA 57, the Singapore Court of Appeal highlighted the importance of distinguishing between the principals despite their common representation.

The High Court had found a number of related defendants jointly and severally liable to the plaintiff for damages. One of the defendants made payment of the judgment sum and costs to the plaintiff, but was subsequently successful on appeal (although three of the defendants remained liable to the plaintiff). The successful defendant failed to obtain repayment of the funds from the plaintiff, with the Court of Appeal finding that the defendant should look to the other defendants for reimbursement.

The plaintiff was successfully represented in this appeal by Lee Eng Beng S.C., Mark Cheng, Jansen Chow, Sasha Gonsalves and Dawn Seow of Rajah & Tann Singapore LLP.

Application for Declaratory Relief for Arbitral Proceedings Held to be Abuse of Process
In Republic of India v Vedanta Resources plc [2021] SGCA 50, the Court of Appeal considered whether a party in an arbitration, who puts a question of law to a tribunal in an investment treaty arbitration and receives an answer which it does not like, can put the same question before a Singapore court (as the seat court) by way of an application for declaratory relief?

While the High Court Judge answered the question in the affirmative (albeit deciding against exercising his discretion to grant the declaratory relief), the Court of Appeal answered the same question in the negative. The Court of Appeal found the application to be an abuse of process on several levels, which we examine below.

The respondent was successfully represented by Andre Yeap SC, Kelvin Poon, Matthew Koh, and Alyssa Leong of Rajah & Tann Singapore LLP.

Bankruptcy and Family Proceedings: The Court's Ratification of Division of Assets Amidst Bankruptcy
Under Singapore bankruptcy law, when a person is adjudged bankrupt, any disposition of property made by him from the date of the bankruptcy application is void unless the court consents to or ratifies the disposition. However, will the court ratify the disposition of assets made pursuant to an order for division of assets in divorce proceedings, and in what circumstances will it do so? These were the issues considered in the Singapore High Court case of Ong Dan Tze Magdalene v Chee Yoh Chuang & Anor [2021] SGHC 129.

The Court here declined to ratify the disposition of certain properties made pursuant to consent orders obtained in divorce proceedings between the bankrupt and his wife, finding that the alleged disposition did not fall within the scope of the ratification provisions, and that the applicant had not acted in good faith. The Court's decision highlights the interaction between the bankruptcy regime and the family law regime and how the bankruptcy regime may accommodate certain orders in family proceedings.

Does an Arbitration Agreement bind the Undisclosed Principal to a Contract?
In June 2020, the Beijing No. 4 Intermediate People's Court ("Court") granted a civil ruling ("Beijing Ruling") which dismissed the application to set aside an arbitral award issued by the China International Economic and Trade Arbitration Commission ("CIETAC"). In the Beijing Ruling, the Court held that in the situation of an undisclosed agency, although the relevant contract was signed by the agent, the arbitration agreement therein would nonetheless bind the undisclosed principal to the contract.

This is one of the few cases where a court has extended the effect of the arbitration agreement to a party who did not sign the relevant contract, and we examine the Court's grounds of decision in this Update.

Drafting Cautionary: Be Very Specific with "No Oral Modification" Clause
A "no oral modification" clause ("NOM clause") is a boilerplate clause included in an agreement to require any variations of an agreement to be in writing. The Singapore Court of Appeal recently held in Charles Lim Teng Siang v Hong Choon Hau [2021] SGCA 43 that a NOM clause which stated that any variation, supplement, deletion, or replacement of a term must be in writing did not preclude an oral rescission of the contract. This decision illustrates the importance of ensuring that NOM clauses are properly drafted such that oral recission and termination are captured in the plain language of the clause if that is intended.

In obiter, the Court of Appeal further expounded on the legal effect of an NOM clause at some length, raising the possibility that despite the presence of an NOM clause, the court may still uphold oral modification or rescission in some circumstances.

We examine the Singapore Court of Appeal's decision and its implications below.

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