Analysing Re Zetta Jet – What does Singapore's exclusion of the word “manifestly” mean for the public policy exception?
By Irvin Ho Jia Xian (Student, Singapore Management University)
Under Article 6 of the UNCITRAL Model Law on Cross Border Insolvency (“Model Law”), the court may refuse to take any action governed by the Model Law if that action would be manifestly contrary to the public policy of the State. Unlike the original Model Law, Singapore’s enactment has excluded the word “manifestly”. The High Court in Re Zetta Jet  4 SLR 801 was given an opportunity to discuss what this exclusion means. This post seeks to analyse the court’s decision and examine the practical implications that may arise from this exclusion.
II. The facts and decision of Re Zetta Jet
The facts of Re Zetta Jet are as follows. There, a shareholder had managed to obtain an injunction against the debtor which prohibited the latter from acting in furtherance of a Chapter 11 proceeding in the US. However, the debtor had contravened this injunction, and initiated insolvency proceedings in the US. Eventually, it sought recognition of the US proceeding in Singapore. One key issue that arose was whether the public policy exception should be invoked in view of the debtor’s conduct.
The High Court noted that Singapore’s enactment of the Model Law had excluded the word “manifestly”. The reason for such exclusion was not found in the records of the Parliamentary debates or any preparatory materials. However, the explanatory statement to the Companies (Amendment) Bill 2017 (No 13 of 2017) clarifies that Singapore may opt to modify its enactment of the Model Law for its application in Singapore. This leads to the inference that excluding the word “manifestly” was a deliberate choice. This would mean that the threshold for invoking the public policy exception in Singapore may be lower as compared to jurisdictions where the Model Law has been adopted without modification.
However, the High Court did not find it necessary to rule determinatively on whether Singapore had adopted a higher or lower threshold for invoking the public policy exception. Regardless of the threshold imposed, recognising the US proceedings, notwithstanding the deliberate failure to comply with the Singaporean injunction, would undermine the administration of justice and therefore public policy of Singapore. Thus, the High Court denied the debtor’s application for recognition.
III. What does Singapore exclusion of the word “manifestly” mean?
As noted by the UNCITRAL Guide to Enactment, the word “manifestly” was included for emphatic effect. This means that the public policy exception should be interpreted restrictively and invoked only in “exceptional circumstances concerning matters of fundamental importance for the enacting State”.
Singapore’s stance on the matter remains open – it is uncertain whether the exclusion of the word “manifestly” can lead to a more liberal interpretation of the public policy exception. However, some guidance can potentially be gleaned from the Singapore’s adoption of the International Arbitration Act (“IAA”). Section 11 of the IAA provides 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”. Notwithstanding the absence of the word “manifestly” in the IAA, the court has still recognised the need for the public policy exception to be narrow. In Re An Arbitration between Hainan Machinery Import and Export Corp and Donald & McArthy Pte Ltd  3 SLR(R), the court recognised that the principle of comity must be given due regard. It follows that the decisions of foreign arbitration tribunals should be enforced unless exceptional circumstances exist. Singapore must aim to aid foreign judgments as it expects its own judgments to be recognised abroad.
Thus, the same argument can and should be applied in the context of the Model Law. Even if we accept that a lower threshold may be imposed, the public policy exception should still be interpreted narrowly. This will facilitate the removal of any unnecessary obstacles to the recognition and assistance granted to foreign insolvency proceedings. Indeed, such an approach accords with the Model Law’s objective of facilitating an efficient and value-maximizing insolvency proceeding for a debtor.
IV. Examining the practical implications of excluding the word “manifestly”
Nonetheless, a lower threshold for invoking the public policy exception has two key implications, viz, (1) the severity of a reason needed to invoke the public policy exception; and (2) the breadth of reasons that may be considered.
First, a lower threshold might mean that the reason for invoking the public policy exception might correspondingly need be less severe for a party to succeed in their claim. To illustrate, one of the reasons for invoking the public policy exception is the differential treatment of creditors domestically and under the foreign proceeding. In Re Sivec SRL (2012) 476 BR 310, the creditor in question would have been treated as a secured creditor in the US but would not even be regarded as a creditor if the proceedings had happened abroad in Italy. Thus, owing to the vast disparity in treatment, the court refused to extend comity to the Italian proceedings as doing so would be manifestly contrary to US public policy. If a lower threshold for invoking the public policy exception is adopted, it could mean that the differential treatment of creditors may not need to be as severe as seen in Re Sivec SRL for the exception to be invoked.
Second, a lower threshold could also mean that a broader range of reasons may be considered for invoking the public policy exception. For example, one area rife with controversy is whether the objectionable conduct of parties is sufficient to invoke the public policy exception. Conventionally, cases such as In re Creative Finance Ltd. 543 B.R. 498 (Bankr. S.D.N.Y. 2016) have answered this in the negative, as inter partes conduct cannot be elevated to the level of public policy. However, given a more liberal interpretation of the public policy exception, an argument may be made that excluding the word “manifestly” can broaden the breadth of reasons open to the court to consider. Thus, factors like the objectionable conduct of parties may fall within the purview of the court.
In conclusion, it remains open what Singapore’s exclusion of the word “manifestly” means in the context of the public policy exception. If this word was deliberately excluded by Parliament, it would mean that a lower threshold is required to invoke the public policy exception in Singapore. Nonetheless, the public policy exception should still be read with sufficient restrictiveness to avoid creating unnecessary hurdles for the recognition and assistance granted to foreign insolvency proceedings. This would further the Model Law’s objectives of promoting principle of comity between nations, and modified universalism.