Lalwani Ashok Bherumal v Lalwani Shalini Gobind and another

• Court: High Court (Singapore)
• Judge: Valerie Thean J
• Judgment Date: 02 January 2019
• Neutral Citation: [2019] SGHC 1
• Citation: [2019] SGHC 1
• Hearing Date: 24 October 2018,23 July 2018
• Published date: 27 August 2019
• Docket Number: Originating Summons (Bankruptcy) No 51 of 2018 (Registrar’s Appeal No 169 of 2018)
• Plaintiff Counsel: Madan Assomull (Assomull & Partners)
• Defendant Counsel: Nandwani Manoj Prakash and Henry Li-Zheng Setiono (Gabriel Law Corporation)
• Subject Matter: Insolvency Law,Bankruptcy,Statutory Demand,Equity,Maxims,Equity sees as done that which ought to be done

Valerie Thean J: Introduction

Beneficiaries under a will obtained judgment against the sole executor and trustee of the estate for the payment of certain sums into the estate. When the said sums remained unpaid after the executor’s appeal was dismissed by the Court of Appeal, the beneficiaries followed on with letters of demand and eventually a statutory demand for the judgment debt. The executor sought thereafter to set aside the statutory demand on the footing that the amount was not accurate, and that the debt was in part owed to the estate and not the beneficiaries.

The beneficiaries’ impasse raises two questions: may a fiduciary rely upon his own dereliction of duty to resist a statutory demand; and if not, should a statutory demand be set aside on a technicality of an inaccurate sum, despite there being no substantial injustice to the debtor?

Background

The defendants are two sisters, who are the surviving beneficiaries (“the Beneficiaries”) of the estate of their late father, Mr Lalwani Gobind Bherumal (“the Testator”).¹ The plaintiff, Mr Lalwani Ashok Bherumal, is the sole executor and trustee of the estate (“the Executor”), and is the younger brother of the Testator and uncle of the defendants.²

The Testator passed away on 9 July 1999. His son, Lalwani Ameet Gobind, was named as an executor, trustee and a beneficiary under the Testator’s handwritten will (“the Will”), but died on 20 March 2002. With his passing, the Beneficiaries became equally entitled to their father’s estate (“the Estate”), and the plaintiff became the sole executor and trustee of the Estate.³

On 7 April 2015 the Beneficiaries commenced Suit 323 of 2015 (“Suit 323”) against the Executor for the recovery of sums misappropriated and for accounts to be taken.

Suit 323 was heard by Aedit Abdullah JC (as he then was), who ordered on 29 November 2016 as follows: The Executor to account for various assets in the Estate; The sums of $136,561.76 and $118,000.00 to be repaid to the Estate with interest at 5.33% per annum; and Costs of $106,000.00 and disbursements of $5,393.91 to be paid by the Executor.

The account ordered was thereafter taken by a Senior Assistant Registrar (“SAR”) from 6 January to 21 September 2017.

The Executor’s appeal against the orders of Abdullah JC, Civil Appeal No 2 of 2017, was heard and dismissed by the Court of Appeal on 20 March 2018. The Court of Appeal clarified their order on 28 March 2018 in relation to the interest payable on certain sums. The cumulative effect of the various orders was as follows:⁴ The sums of $136,561.76 and $118,000.00 were to be repaid to the Estate with interest at 5.33% per annum accruing from 8 February 2012 (the “Equitable Compensation Sums”). The costs awarded to the Beneficiaries in respect of the High Court action were reduced to $80,000. The costs of the appeal were ordered against the Executor and fixed at $25,000.

A demand for payment of the judgment sum was made by letter by the Beneficiaries on 4 April 2018 when the draft judgments were sent to the Executor, requesting a response by 11 April 2018. The draft judgments were engrossed and returned on 6 April 2018 without a response to the demand for payment of the judgment sums. On 11 April 2018, the Executor’s solicitors responded to say that they were in the process of taking instructions, and requested that the Beneficiaries hold their hands in the meantime. After two further weeks passed without any response from the Executor or his solicitors, the Beneficiaries proceeded to issue a statutory demand dated 25 April 2018 under s 62 of Bankruptcy Act (Cap 20, 2009 Rev Ed) (“Bankruptcy Act”).⁵ This was served on the Executor on 28 April 2018.⁶

On 11 May 2018, the Executor filed an application to set aside the statutory demand. On 27 June 2018, an Assistant Registrar (“AR”) set aside the statutory demand. The Beneficiaries filed an appeal against that decision on 4 July 2018 and the matter came before me.

Legal context, arguments and issues

Rule 98(2) of the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (“Bankruptcy Rules”) provides as follows:

Hearing of application to set aside statutory demand

…

(2) The court shall set aside the statutory demand if – (a) the debtor appears to have a valid counterclaim, set-off or cross demand which is equivalent to or exceeds the amount of the debt or debts specified in the statutory demand; (b) the debt is disputed on grounds which appear to the court to be substantial; (c) it appears that the creditor holds assets of the debtor or security in respect of the debt claimed by the demand, and either rule 94(5) has not been complied with, or the court is satisfied that the value of the assets or security is equivalent to or exceeds the full amount of the debt; (d) rule 94 has not been complied with; or (e) the court is satisfied, on other grounds, that the demand ought to be set aside.

The Executor, in his application to set aside the statutory demand, initially relied solely upon r 98(2)(d), arguing that the sum specified in the statutory demand was incorrect. As may be seen from the paragraph above, while the emphasis of r 98(2)(a), (b), (c) and (e) is on substantive issues relating to the debt, subsection (d) appears to mandate absolute compliance with formal requirements in r 94, and it was on this requirement of absolute compliance that the Executor sought to rely. The Executor’s argument rested on two errors in the quantum of the debt specified in the statutory demand. The first related to two interlocutory costs orders made in his favour which the Beneficiaries had omitted to take into account. The second was a contention that the debt included interest upon interest.

The Beneficiaries conceded that there were miscalculations in the debt, and it was common ground that these miscalculations resulted in a technical breach of r 94 of the Bankruptcy Rules. They highlighted, however, that they stood ready to re-calculate the debt and that these irregularities did not warrant a setting aside of the statutory demand.

When the matter went before the AR, he held that a joint statutory demand could not be issued by two or more creditors with different debts. In this case, although the statutory demand was premised upon a single court judgment, on the face of the judgment, the Equitable Compensation Sums were owed to the Estate while the other debts relating to the costs orders were owed to the Beneficiaries.⁷ This argument was also adopted by the Executor on the appeal.

On appeal, accordingly, the issues were essentially twofold. First, should a miscalculation in the sum specified in the statutory demand be fatal to the validity of the statutory demand? Second, should the statutory demand be set aside because one part of the sum demanded by the Beneficiaries was in fact ordered to be paid into the Estate rather than to the Beneficiaries?

Decision

In my judgment, no prejudice was caused to the Executor by the miscalculation. He would have known as early as 28 March 2018 the sums due under the judgment of the Court of Appeal. In relation to the issue of the sums owed to the Estate, the facts showed that they were in substance owed to the Beneficiaries. The Executor, being a fiduciary of the Beneficiaries, ought not to be able to rely upon his own dereliction of duty as a fiduciary. The payment sought was, on the specific facts presented by the case, one he was duty-bound to make to the Beneficiaries. The statutory demand ought not to be set aside. Instead, the sum outstanding was corrected and the Executor was given a further 21 days, the period allowed under the Bankruptcy Act for payment in respect of statutory demands prior to a bankruptcy application, to pay. He has appealed, and I now elaborate on the reasons for my decision.

The effect of inaccuracies in the sum specified in the statutory demand

It was common ground that the sum specified in the statutory demand was inaccurate (see [13] above); the parties joined issue on the effect of that inaccuracy. The Executor, relying on the mandatory language which r 98(2)(d) puts upon compliance with r 94, argued that this breach would be fatal to the validity of the statutory demand. The Beneficiaries contended that it would not.

I agreed with the Beneficiaries that r 278 of the Bankruptcy Rules gives the court discretion to deal with irregularities in compliance with the rules. Rule 278 states:

Non-compliance with Rules

278. Non-compliance with any of these Rules or with any rule of practice shall not render any proceeding void unless the court so directs, but such proceeding may be set aside wholly or in part, amended or otherwise dealt with in such manner and upon such terms as the court thinks fit.

As pointed out by Woo Bih Li J recently in Wheeler, Mark v Standard Chartered Bank (Singapore) Ltd [2018] SGHC 205 at [17] and [20], the procedural or technical emphasis of r 98(2)(d) is an anomaly when contrasted with the other four grounds in r 98(2), which relate to reasons of substance; Singapore courts have generally adopted an approach that suggests that a statutory demand will not be set aside if no substantial injustice to the debtor has been caused.

In Re Rasmachayana Sulistyo (alias Chang Whe Ming), ex parte The Hongkong and Shanghai Banking Corp Ltd and other appeals [2005] 1 SLR(R) 483 (“Rasmachayana”), V K Rajah J (as he then was) explained at [29] that “Rule 278 of the [Bankruptcy Rules] was intended to confer on the court a considerable degree of flexibility in addressing procedural issues in order to achieve substantial justice.” In the same case, the learned judge (at [27]) referred to the “underlying philosophy of pragmatism and substantial justice” that was further exemplified by s 158(1) of the Bankruptcy Act (Cap 20, 2000 Rev Ed), which reads:

Formal defect not to invalidate...