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Singapore's Approach to Third-Party Involvement in Enforcement Challenges: Insights from DFD Case
Introduction
Arbitration proceedings often involve only the parties directly involved in the dispute. However, exceptions may arise where a third party seeks to participate in enforcement proceedings related to the arbitral award. In Singapore, under the new Rules of Court 2021 (ROC 2021), the circumstances under which a third party can apply to be added to enforcement proceedings and the legal test for such applications are paramount. Additionally, if unsuccessful in their application, the question arises as to when the court should exercise its discretion to allow the third party to be added as an interested non-party.
These pertinent issues came to the fore in the case of DFD v DFE and another [2023] SGHCR 23 (“DFD”), where an unsecured creditor (“Trustee”) sought to be added to proceedings aimed at resisting the enforcement of an arbitration award. The Trustee's addition was contested by the claimant, who had obtained permission from the High Court to enforce the award on an ex parte basis.
This article delves into the court's analysis and decision in DFD, examining the legal principles applied and the implications for similar cases in Singapore.
Factual Background
The dispute in DFD centred around the bankruptcy of the Second Defendant and its primary asset, shares in a company (“Shares”). Two creditors vied for payment from the sale of these Shares:
- The Claimant, who held a claim arising from a Guarantee Agreement, exercised its security rights over the Shares and initiated arbitral proceedings against the Defendants. The arbitral tribunal ruled in favour of the Claimant, granting it priority compensation rights from the sale of the Shares.
- The Trustee, representing bondholders of certain Bonds issued by the Second Defendant, obtained a judgment against the Second Defendant and initiated bankruptcy proceedings against it—the Trustee alleged fraud by the Second Defendant to avoid payment to genuine creditors.
Amidst these proceedings, the Trustee sought to be added to the enforcement challenge application initiated by the Defendants to resist the enforcement of the arbitral award.
Decision of the High Court
The Court considered the appropriate approach under the ROC 2021 for adding parties to the proceedings. It concluded that existing case law under the ROC 2014 provided a relevant framework, emphasising the need to be cautious in adding superfluous parties. Two routes were identified for adding a party under ROC 2021: meeting the "necessity" test or the "just and convenient" test.
In DFD, the Court applied the "just and convenient" test, which entails demonstrating a legal interest, not merely a commercial one, in the proceedings. Despite arguments by the Trustee, the Court found its interest to be primarily commercial, akin to that of a creditor with a bad debt. Moreover, considerations of avoiding re-litigation and maintaining confidentiality of arbitration did not sway the court's decision.
Additionally, the Court declined to exercise its discretion to invite the Trustee to participate as a non-party, as it was unclear how the Trustee could assist differently from the Curator.
Concluding Remarks
DFD underscores the cautious approach of the Court in adding parties to proceedings under the ROC 2021. Third parties seeking inclusion must demonstrate a legal interest and mere commercial interests are insufficient. The decision reaffirms the court's reluctance to add superfluous parties and clarifies the limited role of non-parties in such proceedings.
- The article examines Singapore's Rules of Court 2021 for adding third parties, focusing on demonstrating legal interest over commercial interest
- It reviews DFD v DFE and Another [2023] SGHCR 23, where an unsecured creditor sought involvement in arbitration award enforcement.
- Emphasizing caution, the court avoids adding superfluous parties.
