In CA Investment (Brazil) S.A v Eldorado Brasil Celulose S.A. & Ors (Originating Summons No. 169 of 2019, Summons No. 3420 of 2019), unreported (the “OS”), the High Court considered the application of arbitration agreements to disputes under the Securities & Futures Act (Cap 289) (the “SFA”).
The Applicant in that case (“CA”) applied for and obtained an interim injunction under s 326(3) of the SFA to restrain the Respondents (the “Eldorado Entities”) from proceeding with a bonds issuance (the “Proposed Bonds Issuance”) on the basis that the Offering Memorandum on which it was based was false and misleading such that its publication and/or dissemination would be a contravention of s 199 or s 200 of the SFA. The bonds were to be listed on the Singapore Exchange and were to be issued by an Austrian entity known as Eldorado Intl. Finance GmbH.
In reliance on certain arbitration agreements among the parties, the Eldorado Entities applied for a stay of the proceedings in favour of arbitration under s 6(1) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (the “IAA”).
The Honourable Justice Vinodh Coomaraswamy dismissed the stay application, and in doing so provided clarity on the issue of arbitrability of actions brought under the SFA.
CA is the registered shareholder of 49.41% of the total issued and outstanding shares of Eldorado Brasil Celulose S.A. (“Eldorado”). Eldorado’s other shareholder is a Brazilian company known as J&F Investimentos S.A. (“J&F”).
Eldorado’s By-Laws (the “By-Laws”) contained an arbitration clause, as did a shareholders’ agreement between the parties dated 2 September 2017 (the “SHA”).
The arbitration clause in the By-Laws provided for arbitration in respect of:
“Any and all dispute or conflict that may arise between them, especially relating to or arising out of the provisions set forth in the [various Brazilian regulations] and in any other rules applicable to the operation of the capital markets in general, before the Market Arbitration Chamber, pursuant to its Arbitration Regulations.”
It was argued on behalf of J&F that the clause covered disputes involving Eldorado, its shareholders, managers and members.
CA and J&F had also entered into a Share Purchase Agreement (the “SPA”) under which CA was to acquire J&F’s shares in Eldorado. The SPA also contained an arbitration clause that was similar to the arbitration clause in the SHA, the specific terms of which are not relevant for present purposes.
Between 19 January and 7 February 2019, various steps were taken by the Eldorado Entities to issue the Proposed Bonds. A Singapore law firm was appointed as listing agent, road shows were conducted, and the Offering Memorandum was prepared. It was CA’s case that these steps were driven by directors of Eldorado who were connected to J&F.
Upon reviewing the Offering Memorandum, CA took the view that it was false and misleading in material respects. CA therefore applied under s 326(1) of the SFA for an injunction restraining the Eldorado Entities from proceeding with the Proposed Bonds Issuance, and under s 326(3) SFA for an interim injunction pending final resolution of the OS. The interim injunction order was granted, ex parte, on 7 February 2019 by the Honorable Judicial Commissioner (as he then was) Dedar Singh Gill.
On 9 July 2019, the Eldorado Entities applied to stay the OS in favour of arbitration. The Eldorado Entities relied on the arbitration clauses in the By-Laws, the SHA and the SPA.
It was argued on behalf of CA, among other things, that the dispute did not fall within the scope of the By-Laws, which related to Brazilian rules and regulations, or to any of the other arbitration agreements involving the parties. Even if the dispute did fall within any of those agreements, CA argued that the subject matter of the OS was not arbitrable under s 11 of the IAA because it was of such a nature as to make it contrary to public policy for the dispute to be resolved by arbitration. This was because the dispute was of a public character and that its outcome would affect not only the immediate disputants but also the interests of public investors.
The Court’s decision
The Honourable Justice Vinodh Coomaraswamy held that the subject matter of the action did not fall within the scope of any of the arbitration agreements that may possibly apply between the parties. This was because the subject matter of the OS was a specific statutory course of action under a specifically Singapore statute which went beyond the private interests of the parties and which engaged the underlying purpose of protecting the investing public in Singapore, from actual or threatened breaches of the SFA. Hence, the learned Judge held that the OS fell outside the scope of any of the arbitration agreements and therefore outside the scope of s 6 of the IAA.
Importantly, the learned Judge went on to find also that the subject matter of a claim under s 326 of the SFA is not arbitrable even if it did fall within the scope of a particular arbitration agreement in light of the fact that the dispute engaged the interests of the investing public.
Previous decisions have indicated that avoidance claims in liquidations and applications to challenge the filing of documents on the Accounting and Corporate Regulatory Authority’s register were not arbitrable because the outcome of such claims would engage the public interest. (Larsen Oil and Gas Pte Ltd v Petropod Ltd  3 SLR 414 and BTY v BUA and other matters  3 SLR 786).
CA Investment (Brazil) S.A v Eldorado Brasil Celulose S.A. & Ors (Originating Summons No. 169 of 2019, Summons No. 3420 of 2019) has made it clear that applications for injunctions under s 326 of the SFA to restrain the dissemination of false or misleading information to the investing public are similarly not arbitrable as they engage the interests of the investing public.