Hinckley Singapore Trading Pte Ltd v Sogo Department Stores (S) Pte Ltd (under judicial management)

• Judge: Chao Hick Tin JA
• Judgment Date: 11 September 2001
• Neutral Citation: [2001] SGCA 59
• Citation: [2001] SGCA 59
• Defendant Counsel: Lee Eng Beng and Melissa Lee Ai-Lin (Rajah & Tann)
• Published date: 19 September 2003
• Plaintiff Counsel: Chan Hian Young and Marc Wang (Allen & Gledhill)
• Date: 11 September 2001
• Docket Number: Civil Appeal No 600007 of
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether court should go into substantive merits at application stage,Companies Act (Cap 50, 1994 Ed),Agent collecting proceeds of sale on behalf of principal,Whether agent required to separate principal's moneys separate from own,Moratorium on enforcement of rights against company under judicial management,Civil Procedure,Companies,Evidence of agency,Concessionaire agreement,Two-step process,Application for leave to commence proceedings against company under judicial management,Inherent powers,Appellant claiming return of sale proceeds,Interpretation of concessionaire agreement,Objectives,Relevant principles at application stage,Agency,Whether case appropriate for telescoping two-steps into one,ss 227B(1), 227C(c) & 227D(4)(c) Companies Act (Cap 50, 1994 Ed),Receiver and manager,Effect,No express term creating trust,No express prohibition against mixing sale proceeds with other monies,Whether respondent holds sale proceeds in trust,Leave to commence proceedings against company under judicial management,Judicial management order,ss 227B(1), 227C(c) & 227D(4)(c) Nature of moratorium,Whether agent holds monies in trust for principal

Judgment:

Delivered by Chao Hick Tin, Judge of Appeal

1 This is an appeal against the decision of the High Court refusing the application for leave of the plaintiff-appellant, Hinckley Singapore Trading Pte Ltd (Hinckley), pursuant to s 227C(c) or 227D(4)(c) of the Companies Act, to have a certain question between Hinckley and the respondent, Sogo Department Stores (S) Pte Ltd (Sogo), determined by the court. The question as formulated by Hinckley is: whether monies collected by Sogo on behalf of Hinckley, pursuant to a concessionaire agreement dated 1 June 1990 between Sogo and Hinckley, were held on trust by Sogo for Hinckley.

The background

2 Sogo was, until recently, operating a department store at Raffles City. Hinckley was a company which dealt with the import and sales of Polo Ralph Lauren products (RL goods) consisting mainly of clothing and assessories.

3 Business relationship between Hinckley and Sogo commenced in 1990 when Sogo agreed, by way of a written agreement dated 1 June 1990, and with effect from the same day, to grant Hinckley a concession to carry out retail sales of the RL goods in an area of about 72 m2 in the department store. The initial validity period of the concessionaire agreement was for 36 months. By mutual consent, the agreement continued until it was terminated on 31 July 2000.

4 Under the concessionaire agreement, payments by purchasers of the RL goods were to be made to Sogo's cashiers located all over the store. Sogo was entitled to 20% of the sale proceeds as its commission which it was authorised to deduct direct from the proceeds of sale in its hands. As the question to be answered depends very much on what is provided in the agreement, we shall set out the pertinent provisions below:-

"5(b) The Concessionaire (Hinckley) shall pay to the Company the sum equivalent to 20% of the total nett monthly sales. This payment is made through deduction from the monies collected for the respective month by the Company, the balance to be payable to the Concessionaire within fifteen (15) days of each calendar month."

"5(d) The Concessionaire shall receive from the company at the end of each calendar month a statement of the total sales for that month which statement shall be deemed conclusive."

"6 The Concessionaire hereby agrees with the Company as follows:- . . (c) All payments made by customers in respect of the goods sold by the Concessionaire shall be made direct to the Company's cashiers stationed in the Company's premises."

5 On 19 July 2000, interim judicial managers were appointed for Sogo. On 18 August 2000, by order of the High Court, Sogo was placed under judicial management.

6 In respect of the sales of the RL goods effected during the period May to July 2000, a net sum of $212,212.99 is due to Hinckley, after deducting the commission which Sogo was entitled to. Notwithstanding a demand made by the solicitors for Hinckley that the sum of $212,212.99 was and is held by Sogo as its agent and on trust for Hinckley, the judicial managers rejected the assertion of the existence of a trust. The solicitors for the judicial managers stated that the sum due to Hinckley, being 80% of the sale proceeds, was truly a debt owed by Sogo to Hinckley. They asked Hinckley to submit its claim in the usual manner as an unsecured creditor.

7 As Sogo is under judicial management, and unless the judicial managers consented, leave of court is necessary for Hinckley to commence any proceeding against Sogo: see s 227D(4)(c) of the Companies Act (the Act). Thus, this application for leave. We should mention that under the Act, even before the making of a judicial management order, but after the presentation of a petition for such an order, no proceeding may be taken against a company without leave of court (s 227C[c]).

Principles governing the grant of leave

8 The English equivalent to s 227C(c) and 227D(4)(c) of our Companies Act are to be found in ss 10(1)(c) and 11(3)(d) of the English Insolvency Act 1986. A leading English authority on the subject is Re Atlantic Computer Systems plc (No. 1) [1991] BCLC 606, where among the many issues dealt with therein was the question of the object of granting an "administration" order (which in our Act is termed "judicial management" order). The Court there differentiated between the objects of a winding-up and an administration order. In the former case, where an insolvent company is concerned, the object is to achieve an equal distribution of the company's assets among the unsecured creditors. So in respect of a secured creditor, who wishes to enforce his security, leave would normally be granted. In contrast, an administration is intended only to be an interim and temporary regime. It is really to provide some breathing space to the company, which is or will be unable to pay its debts and, under the new temporary management of the administrator, to seek to achieve one or more of the following purposes (of which our s 227B(1) is in pari materia):-

(i) the survival of the company, or the whole or part of its undertaking as a going concern;

(ii) the approval of a compromise or arrangement between the company and its creditors/members;

(iii) a more advantageous realisation of the company's assets would be effected than on a winding-up.

9 Therefore, the effect of the making of an administration order, or in our case a judicial management order, is that there is a moratorium on the enforcement of debts and rights, proprietary or otherwise, against the company, so as to give the administrators/judicial managers time to formulate proposals and lay them before the creditors, and then implement any proposals approved by the creditors. This is why the law imposes a restraint on the taking of proceedings or levying of execution against a company which is under judicial management. The moratorium is, however, not absolute and is, as indicated above, subject to the grant of leave by either the judicial managers (after their appointment), or the court.

10 In Re Atlantic Computer Systems, Nicholls LJ, delivering the judgment of the Court of Appeal also made detailed observations on how the discretion of granting leave should be exercised. We will only set out hereunder those parts which we think are more germane to the matter in hand (at 632-634) and, in order to fully appreciate those observations, it would be necessary that we first set out the provisions of s 227D(4)(c) and (d) [the English equivalent are in s 11(3)(c) and (d)]:-

During the period for which a judicial management order is in force -

. . (c) no other proceedings and no execution or other legal process shall be commenced or continued and no distress may be levied against the company or its property except with the consent of the judicial manager or with leave of the Court and (where the Court gives leave) subject to such terms as the Court may impose; and

(d) no steps shall be taken to enforce security over the company's property or to repossess any goods under any hire-purchase agreement, chattels leasing agreement or retention of title agreement except with the consent of the judicial manager or with leave of the Court and (where the Court gives leave) subject to such terms as the Court may impose.

These are, inter alia, the observations of Nicholls LJ:-

1. It is in every case for the person who seeks leave to make out a case for him to be given leave.

2. The prohibition to s 11(3)(c) and (d) is intended to assist the company, under the management of the administrator, to achieve the purpose for which the administration order was made. If granting leave to a lessor of land or the hirer of goods (a 'lessor') to exercise his proprietary rights and repossess his land or goods is unlikely to impede the achievement of that purpose, leave should normally be given .…

3. In other cases when a lessor seeks possession the court has to carry out a balancing exercise, balancing the legitimate interests of the lessor and the legitimate interests of the other creditors of the company (see Peter Gibson J in Royal Trust Bank v Buchler [1989] BCLC 130 at 135) …..

4. In carrying out the balancing exercise great importance, or weight, is normally to be given to the proprietary interests of the lessor ….

5. Thus it will normally be a sufficient ground for the grant of leave if significant loss would be caused to the lessor by a refusal. For this purpose loss comprises any kind of financial loss, direct or indirect, including loss by reason of delay, and may extend to loss which is not financial. But if substantially greater loss would be caused to others by the grant of leave, or loss which is out of all proportion to the benefit which leave would confer on the lessor, that may outweigh the loss to the lessor caused by a refusal ….

12. In some cases there will be a dispute over the existence, validity or nature of the security which the applicant is seeking leave to enforce. It is not for the court on the leave application to seek to adjudicate upon that issue, unless (as in the present case, on the fixed or floating charge point) the issue raises a short point of law which it is convenient to determine without further ado. Otherwise the court needs to be satisfied only that the applicant has a seriously arguable case.

11 Although in the petition for an order for judicial management, it is stated that the purpose of seeking such an order is to prevent a scramble by creditors for Sogo's assets, as well as to give Sogo an opportunity to seek buyers for its franchises or retail operators, before the court below, as well as before us, it was not seriously argued that the contemplated proceeding by Hinckley would in any way undermine the objective which the making of the judicial management order was intended to achieve. Indeed, in the meantime on 23 March 2001, an order for the winding up of the company was made. So most of the considerations relating to...