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In brief

In BWG v. BWF,[1] the Court of Appeal considered whether a party involved in multiple proceedings under a chain of contracts is permitted to raise potentially inconsistent arguments to pursue a claim against a downstream purchaser on the one hand and to defend a claim against an upstream seller on the other hand.

The Court of Appeal held that where a party takes inconsistent positions in the same or related proceedings, this may amount to an abuse of process, in the absence of a clear and convincing reason for the inconsistency.

Key Takeaways

While this case concerned allegations that the underlying contract was tainted by illegality, the Court of Appeal’s decision could have a much broader application, especially in view of the increasing number of force majeure, economic hardship and frustration arguments being adopted by parties as a result of the COVID-19 pandemic.  For example:

  • In the context of supply chains, a wholesale distributor may want to protect its legal position by arguing that its contract to supply a downstream retailer is frustrated, while simultaneously attempting to enforce its contract against the upstream manufacturer;
  • In the context of construction contracts, a contractor may want to protect its legal position by relying upon economic hardship arguments to excuse non-performance under the main contract, while simultaneously denying such arguments vis-à-vis its sub-contractors; and
  • In the context of power purchase agreements, a utility might on the one hand seek to rely upon a force majeure clause to excuse its failure to comply with its offtake obligations, while simultaneously denying force majeure relief to a power generator for failing to meet the minimum output thresholds.

The Court of Appeal’s judgment makes it clear that such conduct can amount to an abuse of process not only in circumstances where the inconsistency arises in a single set of proceedings, but also where inconsistent positions are taken in related proceedings, even if these are under different contracts and involve different counterparties.

Companies will therefore need to take care to strike a delicate balance when attempting to preserve their legal position vis-à-vis multiple counterparties, both in pre-action correspondence and in formal legal pleadings, in order to protect themselves against allegations that they are abusing the legal process and thereby exposing themselves to the risk of losing their right to claim relief.

In Depth

This case, which was heard alongside AnAn Group (Singapore) Pte Ltd v. VTB Bank (Public Joint Stock Company)[2] (previously covered here), concerned a debtor’s attempt to resist a winding-up application, on the basis that the debtor-creditor relationship was subject to an arbitration agreement.  The Court of Appeal held that a prima facie standard of review applied when considering the application.  However, this case is also important by virtue of the creditor’s argument that the debtor had committed an abuse of process by raising defences to resist the winding-up application that were potentially inconsistent with arguments it had raised against other parties in separate legal proceedings.

The underlying transaction in this case involved a string of contracts for the sale and purchase of crude oil, including:

  1. a contract under which the appellant, BWG, agreed to purchase a cargo of crude oil from a third party, X;
  2. a contract under which the respondent, BWF, agreed to purchase the same cargo of crude oil from the appellant, BWG; and
  3. a contract under which the respondent, BWF agreed to sell the same cargo of crude oil to the third party, X.

The fact that X was both the original seller and ultimate purchaser of the cargo was unknown to BWF at the time the contracts were entered into.  Only after X failed to pay BWF and BWF failed to pay BWG did it emerged that the entire transaction was a ruse in order to deceive UBS into providing finance for a sham transaction.

BWF entered into a settlement agreement with X, allowing X to pay the overdue sums by way of installments. However, when X failed to comply with these obligations, BWF pursued a claim against X and X’s guarantor for non-payment. In parallel BWG filed its winding-up application against BWF for non-payment under their respective contract.

In resisting the winding-up application, BWF relied upon several defences, including that the entire transaction was tainted by illegality and was therefore unenforceable.  BWG pleaded four separate legal doctrines to prevent BWF from relying upon the illegality defence: (i) waiver by election, (ii) approbation and reprobation, (iii) lack of clean hands, and (iv) abuse of process.

On the facts, the Court held that BWF had seemingly acted inconsistently in pursuing X and X’s guarantor for failure to honour their obligations under the transaction documents while simultaneously arguing that the entire transaction was tainted by illegality in the winding-up application.  The Court considered this to be analogous to a situation where a debtor had previously admitted that it owed a debt, but subsequently disputes it.  Accordingly, such a stance was capable of amounting to an abuse of process.  However, the Court considered there to be clear and convincing reasons for the inconsistency, including:

  1. BWF was not a typical litigant seeking to profit from an illegal transaction after mounting inconsistent positions;
  2. BWF had adopted inconsistent positions because it found itself between a “rock and a hard place” and had no real choice but to take all reasonable defences to resist BWG’s claim while seeking to recover from X;
  3. BWF had repeatedly confirmed that it would pay BWG upon receiving payment from X and was therefore not seeking to obtain a windfall.

Accordingly, the Court held that BWF’s conduct did not amount to an abuse of process.  The Court also confirmed that, in order for the “abuse of process” exception to displace a debtor’s right to resist a winding-up application and refer the dispute to arbitration, all of the defences raised by the debtor must be similarly infected by abuse of process. On the facts, one of the other defences relied upon by BWF was held to be entirely independent of the other defences and so it would have survived the abuse of process challenge in any event.

One additional point worth noting from this case is that, while the Court’s analysis focused primarily on the abuse of process arguments, it also held that there was nothing in principle to prevent the doctrines of approbation and reprobation or waiver by election from applying in relation to inconsistent positions taken in different proceedings against different parties. This leaves the door open for parties to adopt such arguments successfully in the future, in appropriate circumstances.

A copy of the full judgment can be obtained from the Supreme Court website using the following link:

BWG v BWF [2020] SGCA 36

 

[1] [2020] SGCA 36

[2] [2020] SGCA 33