The Singapore High Court has considered for the first time whether an action brought to avoid transactions that allegedly violated insolvency laws should be stayed in favour of arbitration. The court held that such disputes are not suitable for arbitration due to the public interest involved.

Singapore’s Arbitration Act, which governs domestic proceedings, provides (at section 6) that a party to an arbitration agreement may apply to the court for a stay of any proceedings brought by the other party to the arbitration agreement relating to the subject matter of the agreement. Singapore’s International Arbitration Act provides (at section 11) that any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration, unless it is contrary to public policy to do so.

In the main action in the case of Petroprod v Larsen Oil, the claimant sought to avoid a number of payments made to the defendant on the basis that they amounted to unfair preferences or transactions at an undervalue. They alleged that other payments were made with the intent to defraud it as a creditor. The defendant applied for a stay pursuant to section 6 of the Arbitration Act, The claimant argued that the issues that required determination were not arbitrable, in the sense that they related to a type of dispute that could only be resolved by the courts.

The court dismissed the application for a stay of proceedings in favour of arbitration. The court noted the effect of section 11 of the International Arbitration Act but pointed out that, in contrast, the Arbitration Act does not explicitly refer to arbitrability. The court stated, however, that the concept should be taken into account when considering whether a stay should be granted.

The court found that the avoidance provisions in Singapore's Bankruptcy Act and Companies Act exist for the benefit of the general body of creditors in an insolvency-related context. Accordingly, the policy underlying the provisions would be compromised if they were subject to private arrangements, including arbitration.

The case is notable for being the first time the Singapore courts have had to consider an attempt to refer claims related to avoiding transactions made in an insolvency situation to arbitration. The decision demonstrates that, while the Singapore courts are consistently pro-arbitration, there are spheres of law where the wider public interest must take precedence over the parties' agreement to arbitrate.

Petroprod Ltd (in official liquidation in the Cayman Islands and in compulsory liquidation in Singapore) v Larsen Oil and Gas Pte Ltd [2010] SGHC 186