United Drug (UK) Holdings Ltd v Bilcare Singapore Pte Ltd & Anor

This application concerns a company called Bilcare Singapore Pte Limited. That company is registered in Singapore where it is currently in a process of insolvency. In particular, on 2^nd September 2013 the High Court of the Republic of Singapore, pursuant to the relevant statutory provisions, appointed two persons, jointly and severally, as the interim judicial managers of that company, to which I will hereafter refer as "Bilcare Singapore". That appointment continues in effect. There has been some discussion at today's hearing as to how precisely to characterise the process of insolvency which is engaged in Singapore. There has not been agreement as to whether there is a close English parallel, and in those circumstances I will not describe it other than generally as a process of insolvency and I will describe the interim judicial managers as "office holders". Nothing much turns on any more detail as to the process than that.

One thing that I do need to explain is that under the Singapore legislation interim judicial managers are given certain powers. In particular, they have power to defend any action or other legal proceedings in the name of and on behalf of the company, and they have a power to appoint a solicitor and other professional persons to assist them in the performance of their functions, including the defence of such legal proceedings.

Indeed, what has caused there to be an application of any kind in the English courts is that a creditor, or an alleged creditor, of Bilcare Singapore, namely, United Drug UK Holdings Limited, to which I will refer as "United Drug", has sought to commence arbitration proceedings against Bilcare Singapore and against another company in the Bilcare Group, Bilcare Limited, which is an Indian company.

The existence of the arbitration proceedings caused the office holders to apply in this jurisdiction for recognition of the Singapore insolvency process. That application in this jurisdiction came before Mr. Murray, sitting as a Deputy Judge of the Chancery Division, on 29^th November 2013, when he granted recognition of the Singapore proceedings as foreign main proceedings in accordance with the UNCITRAL Model Law on Cross-Border Insolvency as set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006. No-one suggests that was anything other than an appropriate order for the Deputy Judge to make.

In the same order the Deputy Judge went on to direct that individual actions or individual proceedings concerning the assets, rights, obligations or liabilities of Bilcare Singapore were stayed until further order of the court. That part of the order was a recognition of the effect of Article 20 of the UNCITRAL Model Law which in substance so provides. Article 20 goes on to state that the effect of a stay, which is automatically imposed by Article 20, is to be the same as the effect of a stay in relation to a company which is subject to a winding-up order under the Insolvency Act 1986. That is a reference to the effect of s. 130 of the Insolvency Act 1986, in particular subsection (2) of s. 130 which provides that,

The application which is before me is an application by United Drug for modification of the stay. I have been provided with a draft order which is sought by United Drug and what it seeks is that the stay which has been imposed should be lifted so as to permit United Drug to continue the arbitration proceedings to which I have referred. The draft order goes on, importantly, to accept that no award that United Drug might obtain in the arbitration against Bilcare Singapore should be enforced in England and Wales against Bilcare Singapore, or any assets of that company, without the prior permission of the court. So the application to lift the stay is not for the purpose of obtaining an award or a judgment which can be enforced against the assets of the company in the insolvency process, it will instead be for the purpose of having rights and obligations determined.

That being the application before me, I now need to refer to something of the background to the dispute between United Drug and Bilcare Singapore. I have already referred to Bilcare Singapore and Bilcare Limited. There are two other Bilcare companies which are part of the relevant history. There is Bilcare UK Limited, to which I will refer as "Bilcare UK", and Bilcare GCS Europe Limited, to which I will refer as "Bilcare GCS". They are relevant because United Drug bought the shares in Bilcare UK and Bilcare GCS is a subsidiary of Bilcare UK. The Sale and Purchase Agreement dealing with the sale to United Drug contained certain warranties, to which I will refer.

United Drug's position is that, somewhat to its surprise, Bilcare GCS has received a substantial claim for around US $15 million from Deutsche Trustee Company Limited. There is in existence a Trust Deed dated the 14^th January 2010 under which certain companies gave guarantees to Deutsche Trustee Company Limited in relation to the liabilities of Monument Pte Limited. The companies that gave those guarantees, at least on the face of the documents, included Bilcare Singapore and Bilcare GCS, so that United Drug as the owner of Bilcare UK, and therefore the ultimate owner of Bilcare GCS, is concerned that Bilcare GCS might prove to be liable to Deutsche Trustee Company Limited under that Trust Deed.

The Trust Deed is a lengthy document, and I have, quite properly, not been taken through its detailed terms. If there was a clear-cut defence to the liability said to be owed by Bilcare GCS, then that would be another matter. I cannot decide whether Bilcare GCS has a defence of that kind, but I will proceed on the basis that Bilcare GCS is at the very lowest vulnerable to a substantial claim. The vulnerability of that company is perhaps emphasised by the fact that United Drug has had to make a Stock Exchange announcement as to this potential liability and the impact of the potential liability on its financial position. That I think helps one to understand the degree of importance of this matter to United Drug and also, given a Stock Exchange announcement, the importance of matters being dealt with in a proper timescale rather than being allowed to drift out of proper control.

United Drug, becoming aware of the claim from Deutsche Trustee Company, has consulted the Sale and Purchase Agreement with Bilcare Singapore. It has requested an arbitration pursuant to the relevant provisions. The Sale and Purchase Agreement is governed by English law and the arbitration will be under the rules of the ICC. I have been provided with a pleading. It is not in the form of points of claim but it is in the form of a request to the ICC for an arbitration, and that sets out quite a lot of detail as to the case that United Drug will put against Bilcare Singapore. I should add that the claim is not only against Bilcare Singapore, it is also against Bilcare Limited, because it is said by United Drug that Bilcare Limited guaranteed the liabilities of Bilcare Singapore in the relevant respects.

Central to United Drug's claim is a warranty in the Sale and Purchase Agreement. I will not read out the terms of the warranty but I will summarisematters by saying that it is United Drug's case that Bilcare Singapore warranted that there were no guarantee obligations of the kind which have now allegedly emerged as the obligations of Bilcare GCS. Therefore, United Drug say that Bilcare Singapore is liable for breach of that warranty and Bilcare Limited is liable as a guarantor of Bilcare Singapore.

I am told that there are two arbitrators and there is intended to be a three-arbitrator panel. United Drug has nominated its arbitrator. Bilcare Limited, and I think Bilcare Singapore, have nominated their arbitrator, and there remains to be chosen a chairman to complete the arbitration panel. Although the panel are not yet in post, certain documents have been exchanged. Bilcare Limited has put in a response, and indeed an amended response, to United Drug's request for an arbitration. There are two parts to the response. The first part raises a point as to the interpretation and application of the relevant warranty. The second point is more material to the present application. What Bilcare Limited says is that because Bilcare Singapore is undergoing a process of insolvency, that has consequences for the conduct of the arbitration against Bilcare Limited. It is said in fairly strong terms that the insolvency process: "renders these proceedings useless". There is then a suggestion that the arbitration tribunal has no jurisdiction to decide on the claim against Bilcare Singapore and so it will be unable to decide on the claim against Bilcare Limited. It is not for me in this application to give a ruling on that matter. If I were to express a view, it would not be binding on Bilcare Limited. It is right to say that it is far from obvious that Bilcare Limited is right in its contention. Counsel who appeared on both sides of the application before me did not put forward any cogent argument supporting Bilcare Limited's position, indeed the suggestion was it was without foundation, but it is there and if Bilcare Limited persists in that contention, it will have to be dealt with, and even if Bilcare Limited is entirely wrong in its contention, time will be taken up in dealing with and resolving the point which they raise.

Apart from the point on the warranty, which I have not commented on, and apart from this quasi jurisdictional point taken by Bilcare Limited, there is no other information coming from Bilcare Limited as to a defence to the warranty claim. It would be wrong to comment on Bilcare Limited's argument as to the warranty in any detail but I will say this much, that it is far from obvious that it is a good point but, in any case, it does appear to be a short point.

In the course of the hearing today I asked counsel for the office holders for more information as to Bilcare Singapore's position as regards the Trustee Deed with Deutsche Trustee Company Limited and Bilcare Singapore's position as to the warranty. Counsel did not put forward any material which I could assess in relation to those matters. I am not going to express any criticism of counsel or of the office holders. The reason is the office holders have taken the view, rightly or wrongly, that the best way to protect Bilcare Singapore and its creditors is for this arbitration simply to be put into suspense for some further time. The office holders take the view that it would be wrong of them to incur expense in dealing with the arbitration. One is very familiar with office holders taking a different view and running up very substantial bills of costs and fees and one sometimes wonders whether that is sensible. These office holders certainly cannot be accused of that, as they have stayed away from investigating, either by looking at the documents or by taking advice, or by consulting the former managers of Bilcare Singapore, anything as to what might be the defence to Deutsche Trustee's claim or the defence to United Drug's claim.

So far as the office holders are concerned, therefore, I am left in the dark as to what would be involved in defending United Drug's claim at the arbitration. On the material before me, no defence has been identified. I do not rule that there is no defence but none has been identified. I cannot, therefore, begin to assess how burdensome it would be to run the defence, what costs would be involved, the degree of complexity and matters of that kind. It may very well be that defending the arbitration will be a matter of elemental simplicity. If there is no defence, the sooner that is found to be the case and stated, the better.

The other matter which it is relevant to mention is that Bilcare Singapore is of course only one of two respondents in the arbitration. On the face of it, Bilcare Limited is just as liable, or has just as good a defence, as Bilcare Singapore would have. There is no suggestion in anything I have seen that Bilcare Limited will be able to escape liability and leave Bilcare Singapore alone as liable. Bilcare Limited is not undergoing an insolvency process and therefore it is highly material for it to defend the arbitration claim to the fullest possible extent. One often has this type of situation where there is an insolvent company and a solvent company. It is often possible to arrange affairs so that the insolvent company takes a back seat and leaves the active defence of the matter to the solvent company, in this case Bilcare Limited. I do not say that is the solution in this case but it is certainly a matter that has some probability of being suitable and appropriate.

That then is the background to the application today. Let me now record the rival positions of the parties. United Drug says that the stay should be lifted with immediate effect. Steps can then be taken to get on with the arbitration. United Drug does not at present expect that it will receive a substantial payment from Bilcare Singapore, even if United Drug succeeds, but it will be able to get rid of what might be a delaying tactic by Bilcare Limited of the kind referred to in Bilcare Limited's response. That will enable United Drug to progress the matter against Bilcare Limited without procedural distractions and if it wins against Bilcare Limited, it will have a solvent party against whom to enforce its claim. Judged from United Drug's perspective, there is every reason why it would wish to get on with its arbitration in that way for those reasons.

The alternative position taken by the office holders is that the court should leave the stay in place. The office holders do not say that the stay should remain in place for all time. What they point to is the fact that all being well, and if the matter is not interrupted, there will be a hearing in Singapore on 7^th February 2014 and the fate of Bilcare Singapore will then be established. I say "all being well" because, of course, predictions as to what will happen at future court hearings are sometimes belied by adjournments and postponements, and indeed reservations of judgment, but taking the 7^th February date at face value, I am told that the alternatives are that the company Bilcare Singapore will be put into a more permanent form of insolvency or it will come out of insolvency. If it comes out of insolvency, the stay will go and the arbitration can proceed. If the company goes into insolvency, the stay will remain but United Drug can go through the ordinary process of proving a debt by communicating with the liquidator and matters then proceeding. If the liquidator of Bilcare Singapore accepts the proof, there will be no dispute and no need for an arbitration. If the liquidator of Bilcare Singapore does not accept the proof then the matter may have to be dealt with somehow, somewhere. Of course an arbitration would be one convenient way of dealing with such a dispute, particularly when United Drug is arbitrating as against Bilcare Limited under a compulsory arbitration clause.

The parties are not really in dispute as to the legal principles I should apply. The court's attitude to an application to lift the stay under s. 130 of the Insolvency Act 1986 is well known. The leading case is Re Aro Co Limited [1980] Ch 196. At page 209, Lord Justice Brightman giving the leading judgment in the Court of Appeal, approved an earlier statement in an earlier case to the effect:

The Re Aro approach has been directly applied to Article 20 of the UNCITRAL Model Law by Mr. Justice Briggs, as he then was, in Cosco Bulk Carrier Company Limited v Armada Shipping SA [2011] 2 All ER (Comm) 481. Mr. Justice Briggs summarised the legal principles between paragraphs 47 to 48. He quoted from Re Aro. He referred also to Bourne v Chariot Email Technology Partnership LLP [2010] 1 BCLC 210. He discussed that case further at paragraph 48 of his judgment and he appeared to approve an approach by the court that took into account the need to keep the costs of liquidation and the costs of a liquidator dealing with disputed matters, to a proper level. He approved an approach which recognised the limited resources of the office holder and suggested caution before exposing liquidators to what he described as: "the burden of coping with difficult and time-consuming litigation". In fact in the case being considered, the Bourne case, the judge did expose the office holder to the burden of difficult and time-consuming litigation, because that was the right thing to do in that case.

I have also been referred to a helpful discussion of the principles in the third edition of McPherson's Law of Company Liquidation. At paragraph 7-070 there is a quotation from Re David Lloyd & Company (1877) 6 Ch 339, at 344, where Lord Justice James stressed the desirability of a court preserving the limited assets of a company and preventing acts by creditors which could be construed as harassing the company with legal actions resulting in substantial costs.

Later in the same textbook, at 7-077, the cases are categorised so that one category of case is where the balance of convenience and the demands of justice are in favour of lifting the stay. That topic is then discussed in some detail at paragraph 7-079, in a lengthy paragraph. I will not read out that paragraph but the cases there summarised, both in this jurisdiction and in Australia and New Zealand, are cases where the court had to decide what was in the interests of justice, particularly in a case where the company undergoing the insolvency process was one of several parties to disputed litigation where it was desirable that that company remain part of the litigation or arbitration process rather than being exempt from it pursuant to a stay.

Against that background I now come to my conclusion and the reasons for it. I have explained the considerable advantages perceived by United Drug in the stay being lifted and the arbitration proceeding. Those appear to me to be entirely legitimate objectives on the part of United Drug. On the other side, the office holders have stressed the burden on them of having to deal with the arbitration. They have also stressed that the period during which time United Drug will be held up by a stay may turn out to be relatively short. As to the burdens on the office holders, I have very little to go on as to what those burdens might amount to. If there is, as appears entirely possible, no defence to United Drug's case, then dealing with it ought not to be burdensome. If the office holders felt that they could not concede liability without an elaborate and detailed assessment, involving the former management of the company, they might take the view that it could be left to Bilcare Limited to run the defence in the arbitration so that the office holders would, quite properly, to a marked extent, “piggyback” on the defence being run by Bilcare Limited. So if there were to be a burdensome defence to the claim in the arbitration, even then the office holders could minimise the burden on themselves. I have impressions as to how burdensome, or lacking in burden, the defence will be, but I think the technical position is that I simply do not have any material which would allow me to determine that the burden would be a significant one.

As to the period until 7^th February being short, first of all, one cannot say for certain what will happen on 7^th February. We may reach 7^th February and find that matters are put off and a further period of time has to ensue. In any case, given the clear and legitimate reasons which United Drug has for wishing to remove the stay, and the lack of any real evidence which would enable me to measure the burden on the office holders, my view is that the balance comes down squarely in favour of lifting the stay. That is the order I will make. I will make the order in accordance with the draft order although there remains one point which I need to deal with. That is whether I should lift the stay forthwith or whether the stay should be lifted after an interval of some days or perhaps weeks.

United Drug says there is no reason to allow the stay to last any longer. The office holders say the stay should be lifted but only from the middle of January, giving them time to look into the matter, and so on. One particular point has been made, that if I lift the stay forthwith, then it might be said that Bilcare Singapore has failed to respond in time to the secretariat of the ICC. I doubt very much whether any sanction or any adverse consequence would ensue from me lifting the stay with immediate effect, but just in case, there is some adverse consequence which has not been completely identified if I lifted the stay with immediate effect and placed Bilcare Singapore in default in some way of a requirement of the secretariat, given that this is Thursday lunchtime, I will lift the stay with effect from noon (British Time) on Monday next, 23^rd December. That will give the office holders a short period, but nonetheless, it ought to be a useful period, for them to react and communicate with the secretariat if that is thought to be a useful thing for them to do. So with effect from noon on 23^rd December 2013 the stay will be lifted in accordance with the draft order.