DBS Bank Ltd v Tam Chee Chong

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
Judgment Date16 September 2011
Docket NumberCivil Appeal No 230 of 2010
Date16 September 2011

Court of Appeal

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

VK Rajah JA

Civil Appeal No 230 of 2010

DBS Bank Ltd
Plaintiff
and
Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management) )
Defendant

Tan Chuan Thye, Kevin Kwek and Linda Esther Foo (Stamford Law Corporation) for the appellant

Sarjit Singh Gill SC, Pradeep Pillai and Zhang Xiaowei (Shook Lin & Bok LLP) for the respondents.

Amrae Benchuan Trading Pte Ltd v Tan Te Teck Gregory [2006] 4 SLR (R) 969; [2006] 4 SLR 969 (refd)

Buildspeed Construction Pte Ltd v Theme Corp Pte Ltd [2000] 1 SLR (R) 287; [2000] 4 SLR 776 (folld)

Chartered Electronics Industries Pte Ltd v Comtech IT Pte Ltd [1998] 2 SLR (R) 1010; [1998] 3 SLR 502 (refd)

Chow Yee Wah v Choo Ah Pat [1978] 2 MLJ 41 (refd)

Coöperatieve Centrale Raiffeisen-Boerenleenbank BA v Jurong Technologies Industrial Corp Ltd [2011] 4 SLR 977 (refd)

Conegrade Ltd, Re [2003] BPIR 358 (refd)

Fairway Magazines Ltd, Re; Fairbairn v Hartigan [1993] BCLC 643 (refd)

First Wyoming Bank, Casper v Mudge 748 P 2 d 713 (Wyo 1988) (refd)

Leun Wah Electric Co (Pte) Ltd v Sigma Cable Co (Pte) Ltd [2006] 3 SLR (R) 227; [2006] 3 SLR 227 (refd)

Libra Industries Pte Ltd, Re [1999] 3 SLR (R) 205; [2000] 1 SLR 84 (refd)

Lin Securities Pte v Royal Trust Bank (Asia) Ltd [1994] 3 SLR (R) 899; [1995] 1 SLR 97 (refd)

MC Bacon Ltd, Re [1990] BCLC 324 (folld)

Progen Engineering Pte Ltd, Liquidators of v Progen Holdings Ltd [2010] 4 SLR 1089 (refd)

Sharp (Official Receiver) v Jackson [1899] AC 419 (refd)

Sweetmart Garment Works Ltd (in liquidation) , Re [2008] 2 HKLRD 92 (refd)

Watt or Thomas v Thomas [1947] AC 484 (refd)

Bankruptcy Act (Cap 20, 1985 Rev Ed) s 53

Bankruptcy Act 1995 (Act 15 of 1995)

Bankruptcy Act (Cap 20, 2000 Rev Ed) ss 99 (3) (b) , 99 (4) (consd) ;s 99

Companies Act (Cap 50, 2006 Rev Ed) ss 227 T (1) , 329 (consd) ;s 227 T

Bankruptcy Act 1914 (c 59) (UK) s 44 (1)

Insolvency Act 1986 (c 45) (UK) s 239

Insolvency Law—Avoidance of transactions—Unfair preferences—Company granting preference to creditor—Evidence from chairman that she decided to grant preference because creditor was supportive of company—Whether desire to prefer existed on the facts and influenced grant of preference

Insolvency Law—Avoidance of transactions—Unfair preferences—Company granting preference to creditor—Whether test was that of desire to prefer—Whether desire to prefer had to be decisive factor—Whether genuine belief in existence of proper commercial consideration sufficient even if belief was not objectively sustainable—Section 99 (4) Bankruptcy Act (Cap 20, 2000 Rev Ed)

Jurong Hi-Tech Industries Pte Ltd (‘JHTI’) was a wholly-owned subsidiary of Jurong Technologies Industrial Corporation Ltd (‘JTIC’) , a publicly-listed company. Both companies (collectively, ‘the Companies’) were in the business of providing electronic manufacturing services (‘EMS’) . Their business operations were financed by DBS Bank Ltd (‘DBS’) and a group of other banks (‘the Creditor Banks’) . All the bank facilities were unsecured and were granted by the various banks subject to negative pledges and pari passu clauses. By February 2008, DBS had become the Companies' main banker in providing facilities up to a limit of US$137 m.

Joyce Lin Li Fang (‘Ms Lin’) was appointed chairman of JTIC in March 2006. She began to be concerned with the level of the Companies' debts to the Creditor Banks. Sometime in April or May 2008, she made a presentation to DBS of the Companies' financial position and told it that some of the Companies' assets could be sold to reduce the Companies' debts. These assets included the EMS business, shares in MAP Technology Holdings Limited (‘MAP shares’) and shares in Min Aik Technology Co Ltd (‘Min Aik shares’) .

By 30 June 2008, the Companies' total borrowings had reached S$340 m, of which about S$87 m was owed to DBS. From September 2008 onwards, the Companies encountered significant financial difficulties due primarily to the global recession. Their trade creditors and all the Creditor Banks were chasing for payment of their debts. The Companies continued to promise the Creditor Banks that they would pay their loans from the proceeds of sale of the EMS business, the MAP shares and the Min Aik shares.

On 14 October 2008, JTIC signed a non-binding term sheet with Global Emerging Markets (‘GEM’) to sell part of the EMS business (‘the GEM Deal’) . The Creditor Banks were informed that the GEM Deal could bring in as much as US$160 m.

DBS had granted three short-term loans (‘the short-term loans’) to the Companies in July and September 2008. The Companies were in default in paying these loans. DBS continuously pressed for payment of these loans by a deadline of 14 November 2008 from the proceeds of sale of the MAP shares, as Ms Lin had earlier promised. On 13 November 2008, at a meeting with DBS, Ms Lin signed a security document which created a charge over the MAP shares (‘the Charge’) .

In December 2008, the Companies received letters of demand from their trade creditors and some of the Creditor Banks. The Companies were placed under judicial management in February 2009. JHTI's judicial managers subsequently commenced proceedings against DBS to set aside the Charge on the basis that it constituted an unfair preference under s 227 T of the Companies Act (Cap 50, 2006 Rev Ed) . The Judge allowed the application.

Held, dismissing the appeal:

(1) The test was whether the debtor's decision to grant the preference was influenced by a desire to prefer the creditor. The court would look at the state of mind of the debtor to determine whether it had positively wished to improve the creditor's position in the event of its own insolvent liquidation. The desire might be proved by direct evidence or its existence might be inferred. It was sufficient that the desire to prefer was one of the factors which influenced the decision; it need not be the sole or decisive factor. A transaction which was actuated only by proper commercial considerations would not constitute a voidable preference. A genuine belief in the existence of a proper commercial consideration might be sufficient even if, objectively, such a belief might not be sustainable: at [22].

(2) The Judge was correct to find that DBS had been supportive of the Companies. The question was whether this was a factor which had influenced JHTI to agree to give the Charge. An appellate court would not ordinarily disagree with the findings of fact of the trial judge, especially where he had heard oral testimony and had based his findings on his evaluation of the witnesses' credibility. An appellate court was entitled to reverse the findings of fact of the trial judge only when they were manifestly wrong and any advantage which the trial judge enjoyed by having seen and heard the witnesses was not sufficient to explain his conclusion: at [34] and [35].

(3) Ms Lin's oral testimony was consistent with what she had deposed in her affidavit, and she gave her testimony in a forthright manner. In contrast, DBS's main witness, Ms Khua, prevaricated in her testimony and tried to make up answers in order to support her assertions that JHTI gave the Charge because it had no choice in the matter. In asking for the Charge, DBS did not specifically tell Ms Lin that it wanted the MAP shares to secure all its facilities. Had DBS informed Ms Lin of this, JHTI would have refused to grant the Charge because of the negative pledges given by the Companies to all the Creditor Banks. The Companies were in default in repaying their loans, and had been in default for some time. But at no time did DBS threaten to declare an event of default and recall all its banking facilities because it was not then in its interest to bring down the Companies: at [43].

(4) Ms Lin consistently said that JHTI gave the Charge to secure the short-term loans to honour her promise that JHTI would pay those loans from the proceeds of sale of the MAP shares. At the same time, she testified that JHTI gave the Charge because DBS had been very supportive. In contrast, Ms Khua gave a somewhat disjointed account of why the DBS asked for the Charge only on 13 November 2008, when Ms Lin was about to go overseas. The Judge was perfectly justified in finding that JHTI's decision to grant the Charge was influenced by a desire to give DBS what it wanted because it had been good to the Companies: at [44].

[Observation: A negative pledge was an undertaking by a borrower or debtor to a lender or creditor not to give security to any other present or future lender or creditor. It fulfilled the function of contractually preventing any creditor from trying to obtain security over the assets of the debtor at any time, and particularly when the debtor was in deep financial distress and the creditor wanted its overdue debts paid before the claims of other creditors. A creditor who induced the debtor to breach the latter's negative pledges to other creditors might be liable for the tort of interfering with the contractual relations of the debtor with those creditors: at [50].

A pari passu undertaking had the function of preventing a creditor from applying undue pressure on the debtor to pay its overdue debts to the former. Unlike a negative pledge, which was directed against the giving of security, a pari passu undertaking was directed against the payment of moneys to creditors. Further, unlike a negative pledge, a pari passu undertaking was a positive obligation to treat all creditors on a pari passu basis at all times, and it was inherent in such an undertaking that the borrower would not prefer one creditor to another creditor. Accordingly, the inducement by one creditor of a breach of the debtor's obligation under a pari passu undertaking would have the same effect in law as the inducement of a breach of...

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4 cases
  • Coöperatieve Centrale Raiffeisen-Boerenleenbank BA v Jurong Technologies Industrial Corporation Ltd
    • Singapore
    • Court of Three Judges (Singapore)
    • 16 Septiembre 2011
    ...Theme Corp Pte Ltd [2000] 1 SLR (R) 287; [2000] 4 SLR 776 (folld) Conegrade Ltd, Re [2003] BPIR 358 (refd) DBS Bank Ltd v Tam Chee Chong [2011] 4 SLR 948 (refd) Fairway Magazines Ltd, Re; Fairbairn v Hartigan [1993] BCLC 643 (refd) Katz v Mc Nally [1999] BCC 291 (refd) Libra Industries Pte ......
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    • Court of Three Judges (Singapore)
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  • Christie, Hamish Alexander v Tan Boon Kian
    • Singapore
    • High Court (Singapore)
    • 30 Marzo 2021
    ...Centrale Raiffeisen-Boerenleenbank BA v Jurong Technologies Industrial Corp Ltd [2011] 4 SLR 977 (folld) DBS Bank Ltd v Tam Chee Chong [2011] 4 SLR 948 (folld) Gordon Robin Claridge, Trustee in Bankruptcy of v Claridge [2011] All ER (D) 27 (Aug) (distd) Kon Yin Tong v Leow Boon Cher [2011] ......
  • Rothstar Group Ltd v Leow Quek Shiong and other appeals
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    ...BA and DBS Bank Ltd v Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management)) [2011] 4 SLR 948 at [22] and [26]). In contrast, in our view, s 98(3)(c) is not concerned with the intentions or perceptions of the grantor; its focus is ins......
1 books & journal articles
  • Insolvency Law
    • Singapore
    • Singapore Academy of Law Annual Review Nbr. 2011, December 2011
    • 1 Diciembre 2011
    ...of Appeal decisions in DBS Bank Ltd v Tam Chee Chong (judicial managers of Jurong Hi-Tech Industries Pte Ltd) (under judicial management)[2011] 4 SLR 948 and Cooperatieve Centrale Raiffeisen Boerenleenbank BA (trading as Rabobank International Singapore Branch) v Jurong Technologies Industr......

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