Rafiq Jumabhoy v Scotts Investments (Singapore) Pte Ltd (in compulsory liquidation)

• Judge: Woo Bih Li J
• Judgment Date: 20 May 2003
• Neutral Citation: [2003] SGHC 119
• Citation: [2003] SGHC 119
• Defendant Counsel: Chua Beng Chye (Shook Lin & Bok),Rajiv Nair (Shook Lin & Bok)
• Published date: 02 October 2003
• Plaintiff Counsel: Tan Bar Tien (B T Tan & Co)
• Date: 29 May 2003
• Docket Number: Originating Summons No 499 of 2003
• Court: High Court (Singapore)
• Subject Matter: s 262(3) Companies Act (Cap 50, 1994 Rev Ed),- Commencement of proceedings against company in compulsory liquidation,Insolvency Law,Winding up,Whether leave to commence and continue action can be granted retrospectively

1 This Originating Summons (“OS”) was an application by Rafiq Jumabhoy (“RJ”) for leave to commence and continue with his claim, made by way of counterclaim, in Suit No 736 of 2002 which suit (“the Suit”) had been commenced by Scotts Investments (Singapore) Pte Ltd (in compulsory liquidation) (“SIS”).

2 The Suit was commenced on 25 June 2002. By then, SIS was already in compulsory liquidation, having been wound up on 1 September 2000. RJ was the third defendant therein. RJ’s Defence and Counterclaim was filed on 25 November 2002. On 10 February 2003, SIS filed a Summons for Direction and on 14 February 2003, directions were given. On 21 February 2003, RJ’s solicitors then filed an application for summary judgment on his counterclaim. It was fixed for hearing on 28 March 2003. However, SIS’ Counsel then took the point that RJ had not obtained leave of court to commence and continue with his counterclaim as required under s 262(3) of the Companies Act (Cap 50). Accordingly, RJ had to apply for such leave and his application for summary judgment was adjourned pending the outcome of his application for leave.

3 Accordingly, RJ’s application for leave was made by way of the present OS. In its original form, the OS had sought leave to commence and continue the existing counterclaim i.e with retrospective effect. However, RJ then applied and I allowed him leave to amend his OS to include an alternative prayer for leave to commence a fresh action in the event the court would not grant the leave retrospectively.

Hearing on 21 April 2003

4 The hearing of the OS was heard on the same day as the application to amend it i.e 21 April 2003. At that hearing, I was informed by Counsel for RJ and for SIS that SIS would be withdrawing its claim leaving RJ’s counterclaim to be dealt with.

5 As regards RJ’s application for leave, there were two issues:

(a) should RJ be granted leave to commence his claim at all,

(b) if so, did the court have jurisdiction to grant leave retrospectively or, to use a latin phrase, nunc pro tunc.

6 Mr Rajiv Nair, Counsel for SIS, submitted that leave should not be granted at all. He submitted that RJ should instead go through the liquidation process which was a summary process, relying on Re The East Kent Shipping Company (Limited) 18 LT 748 and The Hull 308 [1991] SLR 304 which cited Re Exchange Securities & Commodities Ltd & others [1983] BCLC 186.

7 On the second issue, he relied on In Re National Employers Mutual General Insurance Association Ltd [1995] 1 BCLC 232 (“NEMGIA”) which is authority for the proposition that the court has no jurisdiction to grant leave retrospectively even if the court was minded to grant leave. That was a decision of Rattee J on s 130(2) of the English Insolvency Act 1986 which, for present purposes, is in pari materia with our s 262(3). In reaching that decision, Rattee J followed an earlier decision of Milmo J in Wilson v Banner Scaffolding Ltd, The Times 22 June 1982.

8 Counsel for RJ, Mr Tan Bar Tien, submitted that, as regards the first issue, the liquidators of SIS would dispute RJ’s claim anyway and were in fact prepared to deal with his claim in the usual process of litigation until the liquidators themselves decided not to pursue SIS’ claim.

9 Mr Tan also submitted that RJ was not trying to escalate costs and that was why RJ was applying for summary judgment on the issue of liability first. I should mention at this point that RJ was claiming remuneration for work done by him pursuant to three board resolutions of SIS between 27 July 1996 and 18 June 1997 and an indemnity for legal costs he had incurred pursuant to two written indemnities from SIS between 30 June and 9 October 1997.

10 As regards the second issue, Mr Tan did not raise any concern about limitation defences should I have decided that I had no jurisdiction to grant leave retrospectively. There was no elaboration before me by Mr Tan or Mr Nair as to whether part of the claim by RJ might become time-barred, depending on whether the work or legal costs had been undertaken or incurred more than six years before an order made prospectively. Mr Tan appeared minded to accept the proposition that the court had no jurisdiction to grant leave retrospectively.

11 However, I reserved judgment to consider the far-reaching consequences of such a proposition.

Further research and decision

12 Subsequently, I directed the solicitors for each party to do further research on this point. Eventually, they reverted with, inter alia, the case of In re Saunders (A Bankrupt) [1997] CH 60. This was a decision by Lindsay J in which the learned judge declined to follow the two earlier decisions of Milmo and Rattee JJ when he (Lindsay J) was considering s 285(3) Insolvency Act 1986 on bankruptcy, a provision which he considered similar to s 130(2) of the same Act. However, I noted that Lindsay J had granted leave to appeal and in Bristol & West Building Society v Trustee of the property of Back and another (bankrupts) [1998] BCLC 485, the court also referred to the decision of Lindsay J being under appeal. Upon my further inquiry, the solicitors for each party informed me that they were unable to locate any written judgment of the appellate court. Neither did they inform me of the outcome of the appeal, if any. Accordingly, I assumed that no appeal had been proceeded with.

13 After considering all the authorities cited to me, I decided to grant leave to RJ to commence and continue with his counterclaim i.e leave was granted retrospectively.

My reasons

14 As regards the first issue, I did not find the case of Re The East Kent Shipping Company (Limited) to be of much help. There the claim of the plaintiff was on bills of exchange and was not disputed. It was in such circumstances that the Vice-Chancellor said that, “any creditor who brings an action against a company where an order or a resolution has been made or passed to wind up that company takes a most unnecessary step, and is guilty of incurring costs most uselessly. If one creditor may do so, a hundred might; ….”

15 In The Hull 308, L P Thean J, delivering the judgment of the Court of Appeal, said, at p 311:

Counsel for the interveners very helpfully referred us to the case of Re Exchange Securities & Commodities Ltd & Ors [1983] BCLC 186. In that case, there were ten applications, all by the same nine applicants, relating to ten companies in liquidation. The applicants in respect of each of the companies applied for leave under s 231 of the Companies Act 1948 to commence action against that company. The applicants were all investors in the companies and sought leave to sue the companies with a view to establishing the existence of trust interests on the ground that they were not creditors but beneficiaries under trusts. All the applications were refused by Mervyn Davies J. The learned judge after reviewing the claims and the authorities concluded thus, at pp 195-196:

I must now decide the question put to me. I have tried to take account of all considerations urged upon me on both sides. My decision is that the companies are not to be at liberty to commence the proposed proceeding. My reason for this is that I must do what is right and fair in the circumstances: see the Aro case [1980] CH 196 at p 208. It seems right and fair to me, in the circumstances of this case, not to allow the action. The approach should be, I think, that leave should be refused under s 231 if the action proposed raises issues which can be conveniently decided in the course of the winding up. It seems plain to me that the issues which would be discussed in the proposed Chancery action can perfectly well be decided in the ordinary course of the liquidation. Now that the liquidator is aware of the trust claims and moreover, has by his counsel undertaken to put before the court in a neutral fashion the issue whether or not the various classes of investors have trust interests, it seems to me quite unnecessary to allow a separate action to decide these issues. I add that there seems to me positive benefit in having the issues decided in the liquidation because the procedure should be quicker and less expensive than writ or originating summons proceedings.

The general approach I have mentioned gives way in special circumstances: see, for example, the Redman case and compare the Aro case. I see no special circumstances here. The considerations urged on the plaintiffs’ behalf do not, singly or taken together, seem to me to make it right or fair to allow the action.

For the reasons we have given, this appeal must fail, and we dismissed it with costs.

16 However, the main reason why the Court of Appeal in The Hull 308 was not inclined to grant leave to commence action under s 262(3) was because the plaintiffs were seeking leave to commence and carry on with an action in rem which had been commenced after the commencement of winding up and after provisional liquidators had been appointed. If leave was granted, “it would confer upon the plaintiffs a security on an asset of the defendants which the plaintiffs otherwise did not have and could not have” (see p 310 at E to I).

17 I was of the view that Thean J’s citation of Exchange Securities was not intended to be a general rule discouraging the exercise of the jurisdiction and discretion under s 262(3) in favour of a plaintiff. It all depends on the particular circumstances of each application.

18 Indeed, it was important to bear in mind the facts and arguments in Exchange Securities which led Mervyn Davies J to say what he did. In that case, there were ten applications for leave by nine applicants. As Mervyn Davies J observed at p 195 d:

Counsel for the respondents (Mr Heslop) explained in some detail how he saw the liquidator proceeding if untrammelled by any investor’s action. Section 246(3) enables a liquidator to apply to the court for directions. The provisional...