International Arbitration Newsletter - May 2020 | Regional Overview: Asia Pacific

SOUTH KOREA

Korean insurance company faces IPO claim

Chang Jae Shin, the Chairman and CEO of the third largest life insurance company in South Korea –Kyobo Life Insurance– faces a USD 2 billion ICC claim filed by four investors after it failed to carry out an IPO. The shareholders entered into a share purchase agreement with Kyobo in 2012, which also prescribed them a put option require Shin to but their shares should an IPO not be completed by 2015.

In 2018, the investors sought to exercise that option with an IPO yet to happen, but Mr Shin asserted that the option violates the Korean Financial Supervisory Service’s regulations on option agreements and is therefore invalid, impelling the shareholders to bring this ICC claim in March 2019.

Apart from the arbitration, Kyobo has made a complaint against Deloitte’s Korean subsidiary with the US Public Company Accounting firms as Kyobo deemed it provided a misguided valuation report, which provided a base for the investors to maintain around USD 334 per Kyobo share despite Mr Shin’s argument that the shares are worth much less than this.

Korean satellite appeal ends

On 24 February 2020, the US Supreme Court issued a summary order dismissing the appeal by Korean KT Corporation and its subsidiary, a former state-owned South Korean telecommunications company (KT) to override rulings from an ICC tribunal that were in favour of ABS, a Bermudan-incorporated company, on the ownership of a certain satellite instead of KT.

KT is treated as a state possession by the Korean government despite its privatization in 2002, and has a traditional replacement of CEO at the outset of a new administration. Due to the chair’s refusal to resign after the inauguration of Geun-hye Park, the Korean administration asserted the sale of the satellite was null and void as it failed to gain necessary export approvals. Nevertheless, the majority of ICC tribunal held that the sale was not invalidated and ABS legally owns the satellite, then further held that KT breached the satellite sale agreement and another agreement through which it operated the satellite on ABS’s behalf in its 2018 final majority award, despite the dissent from the arbitrator appointed by KT.

KT argued that the tribunal exceeded its mandate for manifestly disregarding the Korean law and violating public policy while lodging the petition to overrule both the partial and final awards. Meanwhile, those awards were recognized and enforced in 2018 by US courts at the request of ABS, which was said to put South Korea’s national interest at stake in KT’s arguments. In December 2019, KT filed an appeal to the Supreme Court by virtue of the doctrine of comity after the US Court of Appeals for the Second Circuit upheld the awards.

MALAYSIA

Shell wins damages in Malaysian oil dispute

A Shell subsidiary has won more than USD 340 million in a billion-dollar arbitration at the Asian International Arbitration Centre, launched by Gumusut-Kakap Semi-Floating Production System (GKL), a subsidiary of a Malaysian state-owned shipping company-Malaysia International Shipping Corporation (MISC) over one of the country’s biggest offshore oil fields.

The dispute relates to a semi-floating production system that MISC developed to exploit the Gumusut-Kakap deepwater oil field off the coast of the eastern Malaysian state of Sabah. The platform was completed under a 2012 lease agreement with Sabah Shell.

GKL launched an arbitration in 2016 and adjudication proceedings in 2017 against Sabah Shell at the Kuala Lumpur Regional Centre. The tribunal dismissed another USD 130 million claim by GKL concerning lease payments. The tribunal awarded Sabah Shell USD 324 million for defects rectification work and as a refund for overpayment of lease payments as awarded in the adjudication proceedings, USD 15 million in liquidated damages and pre-award interest. Sabah Shell also won USD 12.7 million in legal costs.

SINGAPORE

Prima facie standard prevails in a stay of winding-up proceedings

In a recent judgment the Singapore Court of Appeal has confirmed that a prima facie standard of review applies in the case of deciding whether to stay a winding-up proceeding when there is a dispute over the debt covered by an arbitration agreement, overturning the triable issue standard of review adopted by the first-instance judge.

It held the winding-up proceeding against AnAn Group should be restrained because there was prima facie dispute cited by the petition after AnAn claimed an arbitration over the debt. The dispute stems from a repurchase agreement entered into by AnAn and the other party, a Russian state-owned bank VTB, promising repurchasing 36 million GDRs of shares in Russian energy and metal group En+ at pre-agreed rates, which was previously sold to VTB by it for around USD 250 million. Despite the structure of the transaction, the court observed it was effectively a loan.

In addition, under the agreement, AnAn was obliged to maintain sufficient collateral calculated according to the prevailing value of the GDRs, which nevertheless has plummeted due to the sanctions on En+’s major shareholders imposed by the US Treasury in 2018. After AnAn failed to restore the collateral to the level demanded by VTB, the Russian bank issued a statutory demand for USD 170 million and later applied to wind up AnAn based on the demand. Then AnAn pursued a frustration and force majeure argument in the first instance, which was said to be misconceived or legally unsustainable by Justice Chong, and then appealed to the prima facie standard as well as arguing there was not no debt owed by virtue of a newly-submitted valuation report.

The Court of Appeal endorsed the approach taken by the English Court of Appeal in the Salford case in 2015, which found that winding-up petitions should be stayed as long as they involve debt subject to an arbitration clause, not entailing the satisfaction with the triable issue standard, provided there is no abuse of process.

Singapore court re-defines the bottom line of the abuse-of-process allegation

In another recent judgment, the Singapore Court of Appeal upheld an injunction that restrained a Bahamian creditor from pursuing winding-up proceedings against a Singaporean debtor, which is identified as Petrolimex Singapore, a subsidiary of a Vietnamese state-owned oil trader. It found that barring the debtor from defending the debt claim, according to the potential abuse of process arising from its inconsistent conduct, would pose a greater risk of injustice for permitting a creditor to enforce a potentially illegal claim.

The dispute originates from a chain of contracts, under which a third party, a Singaporean subsidiary of Hong Kong-listed oil trader Brightoil, will repurchase USD 30 million crude oil after it was sold to Bahamian entity and Peteolimex in turn. Brightoil failed to make payments on the cargo, leaving Petrolimex unable to pay the Bahamian entity. Because of Bahamian creditor’s statutory demand, Petrolimex sought to obtain an injunction to prevent the Bahamian creditor from pursing winding-up proceedings against it by referring the debt to an arbitration.

The decision shows the extent to which a party may allege abuse of process to contend that the other party should be precluded from relying on substantive defences to the underlying claim, as part of a broader strategy to bypass an arbitration agreement and proceed straight to a winding-up.