Mohd Zain bin Abdullah v Chimbusco International Petroleum (Singapore) Pte Ltd

• Judgment Date: 23 January 2014
• Date: 23 January 2014
• Docket Number: Civil Appeals Nos 116 and 118 of 2012
• Court: Court of Appeal (Singapore)

Mohd Zain bin Abdullah

Plaintiff

and

Chimbusco International Petroleum (Singapore) Pte Ltd and another appeal

Defendant

[2014] SGCA 8

Sundaresh Menon CJ

,

Andrew Phang Boon Leong JA

and

VKRajah JA

Civil Appeals Nos 116 and 118 of 2012

Court of Appeal

Insolvency Law—Bankruptcy—Bankruptcy application disputed by debtor—Applicable standard for obtaining stay or dismissal of bankruptcy proceedings

Insolvency Law—Bankruptcy—Conditional stay of bankruptcy proceedings—Conditions to be imposed

Insolvency Law—Bankruptcy—Conditional stay of bankruptcy proceedings—Standard for imposition of conditions

The respondent, Chimbusco International Petroleum (Singapore) Pte Ltd (‘Chimbusco’), supplied bunkers to a company known as Gas Trade (S) Pte Ltd (‘Gas Trade’). The two companies maintained a running account and Gas Trade came to owe Chimbusco US$13,024,322.48.

Gas Trade and Chimbusco executed an agreement for a debt repayment scheme, and several related companies extended joint and several corporate guarantees for all amounts owing from Gas Trade to Chimbusco from time to time. Three individuals, including the appellants, Mohd Zain bin Abdullah and Jalalludin bin Abdullah, also executed joint and several personal guarantees for Gas Trade's debts not exceeding US$4,000,000, plus interest and related costs. On 29 February 2012, they received letters of demand from Chimbusco's solicitors for the payment of US$4,202,572.12. This was followed by statutory demands and bankruptcy applications.

The appellants resisted the bankruptcy applications on the basis that they were not indebted to Chimbusco because they had been told by the latter's representative that their guarantees were mere formalities. The applications against the appellants were first heard by an assistant registrar (‘the AR’), who found that the appellants barely met the threshold of showing that there was a substantial dispute of the underlying debt. The AR stayed the bankruptcy applications on condition that each of the appellants furnished US$1 m as security. On appeal to a High Court judge (‘the Judge’), the amount of security to be provided was revised to joint security for the full amount claimed against them, viz,US$4,202,572.12.

On appeal to the Court of Appeal, the appellants sought an unconditional stay of the bankruptcy proceedings pending the resolution of the matter of their indebtedness or a reduction of the sum to be provided as security.

Held, dismissing the appeals:

(1) The applicable standard for obtaining a stay or a dismissal of bankruptcy proceedings was no more than that for resisting a summary judgment application, ie, a debtor need only raise triable issues. This was because bankruptcy proceedings were not an appropriate means of enforcing a disputed debt and a bankruptcy court was generally not in the best position to adjudicate on the merits of a commercial dispute without a proper ventilation of the evidential disputes through a trial: at [16] and [17] .

(2) The usual standard for the imposition of conditions to a grant of leave to defend in a civil suit applied to conditional stays of bankruptcy proceedings - namely, whether the case advanced by the defendant/debtor was shadowy. This was to protect the interests of meritorious creditors in situations where the debtor meets a bankruptcy application with a weak case and avoid requiring such creditors to take out a separate summary judgment application which would also waste judicial resources: at [18] , [21] and [22] .

(3) Real doubt was created about the veracity of the appellants' allegations as these were not supported by any contemporaneous documents. Further, their witness' evidence did not support their allegations and the correspondence between the parties suggested that the appellants considered themselves bound by the guarantees. Accordingly, the Judge was correct to find that the appellants' evidence was shadowy: at [35] to [38] .

(4) The court's discretion to impose conditions on a stay of bankruptcy proceedings was unqualified and widely framed. Therefore, the court ought not to begin with any starting point in mind in determining the amount of security to be provided, and should instead exercise its discretion flexibly to meet the needs of the case before it. The court would have to mediate between various competing concerns in deciding what conditions ought to be imposed: at [39] and [40] .

(5) It could not be said that the Judge exercised his discretion incorrectly when he ordered the appellants to jointly provide security in the sum of US$4,202,572.12. The appellants did not provide any evidence of their inability to provide such a sum. Consequently, the Judge's decision was upheld and the appeals dismissed: at [41] .

[Observation: There was no inconsistency between the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) and the court's broad discretionary power to order a stay of proceedings under the Bankruptcy Act (Cap 20, 2009 Rev Ed). Rule 127 provided that the court ‘shall dismiss a creditor's bankruptcy application where ... the statutory demand upon which [it] is based [would have been set aside] had the debtor made an application under rule 97 (1) ’. However, this had to be read in light of para 144 of the Supreme Court Practice Directions, which indicated that the court was not obliged to set aside a statutory demand where there was a genuine triable issue. Rather, it would only normally do so: at [23] , [26] and [29] .

The criterion ‘grounds which appear to the court to be substantial’ under r 98 (2) (b) of the Bankruptcy Rules therefore constituted a higher threshold than ‘genuine triable issue’. The court had to examine all the facts to ascertain whether this threshold was met and would only set aside a statutory demand where the debtor was able to adduce sufficient evidence on affidavit: at [30] , [31] and [34] .

This also meant that not all triable issues had equal merit. That was why some defendants were granted unconditional leave to defend or an unconditional stay or dismissal of bankruptcy proceedings while other defendants were ordered to demonstrate their commitment through the imposition of appropriate conditions: at [31] .

Rules 127 and 98 (2) of the Bankruptcy Rules were also consistent with the fundamental principle that the insolvency mechanism was not to be used as a parallel procedure to procure the payment of disputed debts. The obligation imposed by the Rules ensured that a presumption of indebtedness would not arise on the basis of a disputed debt: at [32] .]

Abdul Salam Asanaru Pillai v Nomanbhoy & Sons Pte Ltd [2007] 2 SLR (R) 856; [2007] 2 SLR 856 (refd)

Habibullah Mohamed Yousuff v Indian Bank [1999] 2 SLR (R) 880; [1999] 3 SLR 650 (refd)

Lee Kiang Leng Stanley v Lee Han Chew [2004] 3 SLR (R) 603; [2004] 3 SLR 603 (refd)

MVYorke Motors (a firm) v Edwards [1982] 1 WLR 444 (refd)

Pacific Recreation Pte Ltd v SYTechnology Inc [2008] 2 SLR (R) 491; [2008] 2 SLR 491 (folld)

Wee Soon Kim Anthony v Lim Chor Pee [2005] 4 SLR (R) 367; [2005] 4 SLR 367, HC (refd)

Wee Soon Kim Anthony v Lim Chor Pee [2006] 2 SLR (R) 370; [2006] 2 SLR 370, CA (refd)

Wong Kwei Cheong v ABN-AMRO Bank NV [2002] 2 SLR (R) 31; [2002] 3 SLR 594 (refd)

Bankruptcy Act (Cap 20, 2000 Rev Ed) ss 64 (1) , 65 (5)

Bankruptcy Act (Cap 20, 2009 Rev Ed) ss 61 (1) , 62 (a) , 62 (c) , 64 (1) , 65, 65 (4) , 65 (5) , 65 (5) (i)

Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) rr 98 (2) (b) , 127 (b) (consd) ;rr 97, 97 (1) , 98, 98 (2) , 127

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O 14 r 4 (1)

NSreenivasan SC, Ahmad Khalis and Pravin Raj s/o Shanmugaraj (Straits Law Practice LLC) for the appellants

Wendy Tan, Eugene Leong, Charmaine Fu and Tony Tan (Stamford Law Corporation) for the respondent.

VKRajah JA

(delivering the grounds of decision of the court):

1 These were two appeals against the decision of the judicial commissioner (‘the Judge’) in Chimbusco International Petroleum (Singapore) Pte Ltd v Jalalludin bin Abdullah[2013] 2 SLR 801 (‘the GD’). We dismissed the appeals after hearing submissions from counsel. However, we thought it might be useful if we provided guidance on some of the issues that arose for consideration. We now do so in these grounds.

The facts

2 The factual matrix has been set out in detail in the GD and as such, we shall set out only such facts as are necessary to understand our decision on the relevant legal issues.

3 Chimbusco International Petroleum (Singapore) Pte Ltd (‘Chimbusco’), a wholly-owned subsidiary of China Marine Bunker (Petro China) Co Ltd, was in the business of supplying and trading in fuel oil. It supplied bunkers to a company known as Gas Trade (S) Pte Ltd (‘Gas Trade’), which in turn was in the business of supplying bunkers to ship owners.

4 The two companies maintained a running account. As at 1 July 2011, Gas Trade owed Chimbusco US$13,024,322.48. On 15 July 2011, Gas Trade and Chimbusco executed an agreement for the debt to be repaid in minimum monthly instalments of US$700,000, with the latter to refrain from commencing legal proceedings if the arrangement was observed (‘the Instalment Agreement’). Seven related companies extended joint and several corporate guarantees for all amounts owing from Gas Trade to Chimbusco from time to time. Three individuals, who were directors of one or more of the seven corporate guarantors, also extended joint and several personal guarantees for debts not exceeding US$4,000,000, plus interest and related costs. These individuals were:

(a) Mr Mohd Zain bin Abdullah (‘Zain’), the appellant in Civil Appeal No 116 of 2012 (‘CA 116’);

(b) Mr Jalalludin bin Abdullah (‘Jalalludin’), the appellant in Civil Appeal No 118 of 2012 (‘CA 118’); and

(c) Mr Mohammad bin Abdul Rahman.

We shall hereafter refer to the corporate and the personal guarantors collectively as ‘the Guarantors’.

5 It is not clear what the...