Chan Siew Lee Jannie v Australia and New Zealand Banking Group Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 06 April 2016
• Neutral Citation: [2016] SGCA 23
• Plaintiff Counsel: Eugene Thuraisingam and Jerrie Tan Qiu Lin (Eugene Thuraisingam LLP)
• Docket Number: Civil Appeal No 32 of 2015
• Date: 06 April 2016
• Hearing Date: 21 January 2016
• Subject Matter: Statutory Demand,Civil Procedure,Insolvency Law,Extension of Time,Bankruptcy
• Year: 2016
• Citation: [2016] SGCA 23
• Defendant Counsel: Chou Sean Yu, Aw Wen Ni and Daniel Chan (WongPartnership LLP).
• Court: Court of Appeal (Singapore)
• Published date: 08 April 2016

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court): Introduction

This appeal concerns a simple but important point of bankruptcy practice. The issue is whether “third party security” – and in this context we mean security which is held by the petitioning creditor in respect of the debt but which was not provided by the debtor against whom bankruptcy proceedings are being taken – has to be specified in a statutory demand.

This issue arises because rr 94(5) and 98(2) of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“the Rules”) provide that the nature and value of “any property of the debtor or any security for the debt” which the creditor holds must be specified in the statutory demand and that non-compliance is a ground for setting the statutory demand aside. In this case, certain banking facilities were secured both by a pledge provided by the principal debtor as well as a personal guarantee furnished by the Appellant. When the debtor defaulted on repayment, the Respondent issued a statutory demand against the Appellant but did not include details of the pledge. The Appellant argued that, by reason of this omission, the statutory demand was defective and applied to set it aside. The High Court Judge (“the Judge”) dismissed the application and his decision is reported at Jannie Chan Siew Lee v Australia and New Zealand Banking Group [2015] SGHC 157 (“the GD”).

The precise question for determination, therefore, was whether the expression “security” in the aforementioned provisions only refers to security provided by the person against whom the creditor is proceeding in bankruptcy (ie, the Appellant) or whether it extends also to security which has been provided by a third party (ie, the principal debtor). After hearing the parties, we decided that it was the former. As a result of our decision, we held that the statutory demand was not procedurally defective and that there was therefore no reason to set it aside. We now give full reasons for our decision.

Background

The Appellant, Chan Siew Lee, Jannie, is a shareholder and director of Timor Global LDA (“TG”), a company incorporated in Timor-Leste. The Respondent, the Australia and New Zealand Banking Group Limited, is the Timor-Leste branch of a bank incorporated in Australia.

On 12 September 2012, the Respondent extended banking facilities (“the facilities”) in the sum of $7.8m to TG. In the letter of offer (“LO”), it was stated that these facilities were to be secured by: (a) a pledge provided by TG over certain of its assets (“the pledge”); and (b) a joint personal guarantee executed by the directors of TG. Clause 9 of the LO further specified that in the event of default, the facilities shall be immediately repayable with interest. Whilst the parties disagreed on the precise scope of the pledge and the valuation of the assets pledged, this dispute was not relevant to the present appeal. The only point of note was that the Respondent did not deny that the value of the assets pledged exceeds the sum of $6.5m claimed in the statutory demand (and, for that reason, the Respondent would have been precluded from proceeding against TG in bankruptcy). On 13 September 2012, each of TG’s directors (including the Appellant) entered into a personal guarantee (“the guarantee”) under which they contracted to pay all sums of money which were owed by TG to the Respondent under the facilities.

TG subsequently defaulted on repayment of the facilities and the Respondent commenced a suit against the directors on 2 October 2013. Only the Appellant and one other director entered an appearance, each filing brief defences which were bereft of substantial particulars. Neither of them filed affidavits in support of their defences. The Respondent applied for summary judgment and it was granted on 10 January 2014, with judgment being entered against the directors for the sum of US$5.8m, plus interest and costs. The Appellant did not appeal against the judgment. On 15 October 2014, the Respondent served a statutory demand on the Appellant for a sum of $6.5m.

In the statutory demand, the Respondent disclosed that it held an “all-monies” mortgage over a property in Singapore which was co-owned by the Appellant and which it intended to enforce in satisfaction of the debt owed under the guarantee. This property had been provided as security for a separate loan but was available to be used in satisfaction of the debt owed to the Respondent. The statutory demand contained an estimate of the value of the mortgaged property and the quantum of the debt owed by the Appellant under the other loan. The sum of $6.5m demanded in the statutory demand was calculated by deducting the surplus value from a potential sale of the property (ie, the sale proceeds less the amount owed under the other loan) from the sum owed under the judgment debt. Pertinently, the statutory demand did not specify the value of the assets under the pledge.

Between 15 October 2014 and 7 January 2015, the parties engaged in without-prejudice negotiations but were unable to come to an agreement. On 8 January 2015, the day after these negotiations fell through, the Appellant commenced the present application seeking (a) an extension of time to apply to set aside the statutory demand; and (b) to set aside the statutory demand under r 98(2) of the Rules.

Decision Below

In the court below, the Appellant submitted that a petitioning creditor was required to disclose details of all security held by the creditor in relation to the debt, irrespective of whether the security was provided by the debtor or by a third party. Her contention was that the expressions “any security for the debt” in r 94(5) and “security in respect of the debt” in r 98(2) ought to be read widely to mean all security which may be applied in satisfaction of the debt, howsoever and whosoever provided. For that reason, she submitted that the statutory demand should be set aside as details of the pledge were not specified therein. In contrast, the Respondent submitted that only security provided by the debtor to whom the statutory demand was issued needed to be specified. These contrasting interpretations were referred to respectively as “the all-security construction” and “the debtor’s-security construction” by the Judge (see the GD at [5]). The Judge eventually concluded, on the basis of authority and policy, that the latter construction was to be preferred and so there was no basis to set the statutory demand aside.

On the issue of the extension of time, the Judge noted that the present application was 70 days late and that the only reason proffered for the delay was that the parties had been in negotiations. The Judge held that the delay was substantial and the explanation was unpersuasive since there was no agreement between the parties that time would not continue to run while negotiations were on-going. While he accepted that little or no prejudice would accrue if an application for an extension of time were granted he held, based on (a) the period of the delay (which was substantial), (b) the reasons for the delay (which were unpersuasive), and (c) the grounds put forward for setting aside the statutory demand (which were unmeritorious), that this was not a case where the court should not exercise its discretion to grant an extension of time (see the GD at [23]).

The parties’ cases on appeal

Mr Eugene Thuraisingam (“Mr Thuraisingam”), counsel for the Appellant, first dealt with the issue of the extension of time. He argued that the Judge erred in holding the reason given for the delay was unsatisfactory. He accepted that there was no explicit agreement that there would be no need to apply to set aside the statutory demand. However, he pointed out that the singular object of the negotiations was to forestall the initiation of bankruptcy proceedings. Seen in this light, he argued, it could be said that the Appellant had always acted expeditiously since she had always been taking “active steps to ensure the Respondent would not present a bankruptcy petition against her” and had filed the present application the day after negotiations fell through.

Turning to the substantive merits of the application, Mr Thuraisingam submitted that the Judge had erred in holding that debtor-security construction was the right one. Broadly summarised, his argument was put in two ways. First, he argued that the Judge had failed to appreciate that the bankruptcy regime had become “more debtor-centric”. This error, he submitted, was the reason why the Judge did not adopt the all-security construction, which he argued would give debtors greater opportunities to forestall the institution of bankruptcy proceedings against them since it would preclude bankruptcy applications from being brought where the creditor may enforce security which is provided by the principal debtor to satisfy the debt claimed. Bankruptcy is inherently punitive, he contended, and so the court should, as far as it was possible, prefer a construction which benefited the debtor. Second, he submitted that the Judge had failed to recognise the unfairness inherent in the debtor’s-security construction. He argued that it would place guarantors in a disadvantaged position vis-à-vis the principal debtors because it meant that the creditor might be able to present a bankruptcy petition against the guarantor in circumstances where it might not be able to do so against the principal debtor (chiefly, because the security provided by the principal debtor would be sufficient to discharge the debt).

The Respondent − not surprisingly − argued the contrary. Mr Chou Sean Yu (“Mr Chou”), counsel for the Respondent, first submitted that the Judge had rightly refused the application for an extension of time. The entry into “without prejudice” negotiations did not operate to stay the timeline specified in the Rules. This was a point which the...