BNP Paribas v Jurong Shipyard Pte Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
JudgeChan Sek Keong CJ
Docket NumberCivil Appeal No 91 of 2008
Subject MatterRegistration,Whether statutory demand ought to spell out debtor could pay sum demanded or to secure or compound for it,Whether court should grant injunction to restrain filing of winding-up petition,Winding up,Section 254(2)(a) Companies Act (Cap 50, 2006 Rev Ed),Companies,Whether winding-up petition could be filed,Alleged debtor offering to fully secure claim
Defendant CounselDavinder Singh SC, Blossom Hing, Lin Yan Yan and Joan Lim (Drew & Napier LLC)
Plaintiff CounselSundaresh Menon SC, Aurill Kam, Disa Sim and Paul Tan (Rajah & Tann LLP)
Date09 March 2009
Published date11 March 2009

9 March 2009

Chan Sek Keong CJ (delivering the grounds of decision of the court):

Introduction

1 This is an appeal against the decision of Lee Seiu Kin J (“the Judge”) in Originating Summons No 1727 of 2007, viz, Jurong Shipyard Pte Ltd v BNP Paribas [2008] 4 SLR 33 (“the GD”) granting Jurong Shipyard Pte Ltd (“JSPL”) an injunction to restrain BNP Paribas (“BNP”) from commencing winding-up proceedings against JSPL, which BNP had threatened to do after JSPL had failed to comply with BNP’s statutory demand for payment of approximately US$50m allegedly due and payable by JSPL to BNP arising from certain foreign exchange contracts to which BNP was a counterparty.

2 At the conclusion of the hearing of this appeal, we dismissed it and gave the following brief grounds:

1 Jurong Shipyard Pte Ltd (“JSPL”) entered into a number of FX contracts with one of its bankers, BNP Paribas (“BNP”), as counterparty. The instructions for the FX contracts were given by Mr Wee Sing Guan (“Wee”), who prior to October 2007 was a director of JSPL. Wee was also Group Finance Director of SembCorp Marine Ltd, JSPL’s parent.

2 JSPL’s board of directors came to know of these contracts and repudiated them on various grounds: one of which was that BNP was aware or ought to have been aware that Wee had no authority to enter into the FX contracts; another was that Wee and BNP had colluded to cover up the losses by entering into a further unauthorized FX contracts to cover up the losses.

3 BNP rejected JSPL’s allegations on the ground that JSPL directors have passed a resolution authorizing Wee to enter into FX contracts for the purpose of hedging or speculation.

4 JSPL and BNP mutually agreed to close out the FX contracts in order to crystallize the losses, with both parties reserving their respective rights and liabilities. After the close-out was completed under the terms of the Close-Out Agreement, the amount of the loss was crystallized at approximately US$50m.

5 BNP sent letters of demand to JSPL to pay the US$50m on the ground that there was an immediate payment obligation under the Close-Out Agreement, subject to a claw-back if JSPL could show that it was not bound by the FX contracts. BNP also claimed that JSPL was fully liable for the US$50m loss as it was their position that the FX contracts were authorized by JSPL.

6 On 20 November 2007, JSPL offered to place in escrow sufficient funds to cover the US$50m to meet any judgment obtained by BNP on its claim. This was made on the condition that BNP commence legal proceedings to recover the alleged debt. JSPL gave BNP up to 23 November 2007 to consider the offer. BNP rejected the escrow offer and served a statutory demand to JSPL for payment that same day.

7 On 23 November 2007, JSPL applied to the High Court for an injunction to restrain BNP from commencing winding-up proceedings on the ground that there were triable issues to BNP’s claim and that BNP was not entitled to present a winding up petition.

8 BNP responded that JSPL had no triable issue as (a) there was an immediate obligation to pay, subject to a claw-back under the Close-Out Agreement; and (b) there was ultimately a debt (equal to the close-out amount) under the Master Agreement.

9 The application was heard by Lee Seiu Kin J who found that JSPL had raised triable issues to BNP’s claim under the Close-Out Agreement and/or the Master Agreement.

10 BNP appealed to this court. We heard full arguments on the issues raised by BNP on appeal.

11 In our view, BNP should have accepted JSPL’s offer to pay the amount of the crystallized loss into an escrow account and thereafter commenced an action against JSPL to recover the alleged debt. We hold that in a case where a solvent company does not admit the debt and is prepared to offer security to defend the claim, the court should not as a matter of principle, in the exercise of its discretion, allow a claimant to file a winding up petition against the solvent company, with all the potentially disastrous consequences that may result from the filing of the petition. It is inappropriate to use the threat of winding up to force a company to pay the unadmitted debt, in such circumstances.

12 Accordingly, we make the following orders:

(a) the appeal is dismissed with costs, with the usual consequential orders;

(b) the injunction is continued subject to JSPL providing security for the amount of BNP’s claim (as per the statutory demand dated 20 November 2007) in a form to be agreed between the parties within 14 days from today, failing which we will make the requisite order; and

(c) if BNP fails to commence an action against JSPL within 12 weeks from the date hereof, the security shall be cancelled or returned to JSPL.

13 We express no views on the findings of Lee Seiu Kin J that JSPL has raised triable issues to the claim of BNP.

3 We now elaborate on why it was wrong of BNP to have threatened to resort to winding-up proceedings against JSPL in order to recover a contested debt instead of accepting the security offered by JSPL pending the resolution of BNP’s claim through court proceedings. In our brief grounds, we held that JSPL was entirely justified in applying for an injunction to restrain BNP from filing the petition. Although JSPL filed the petition on the ground that there were triable issues with respect to BNP’s claim for the US$50m crystallised loss, it was also our view that the condition of triable issues was not even necessary to justify the injunction. We will now elaborate on our conclusions.

The court’s power to wind up a company

4 We examine first the court’s statutory power to wind up a company under the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). Section 253(1)(b) of the Act provides that “[a] company … may be wound up under an order of the Court on the application of any creditor, including a contingent or prospective creditor, of the company” [emphasis added]. Section 254(1)(e) provides that the court may order the winding up of a company if it is unable to pay its debts. A company is deemed to be unable to pay its debts in the circumstances prescribed by s 254(2) of the Act as follows:

A company shall be deemed to be unable to pay its debts if —

(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding $10,000 then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent...

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