Re Fan Kow Hin

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 16 November 2018
• Neutral Citation: [2018] SGHC 257
• Plaintiff Counsel: Andrew Chan, Alexander Yeo, Chew Jing Wei (Allen & Gledhill LLP)
• Date: 16 November 2018
• Hearing Date: 13 September 2018
• Docket Number: Originating Summons (Bankruptcy) No 479 of 2017 (Summons No 2898 of 2018)
• Published date: 01 March 2019
• Defendant Counsel: David Chan, Cai Chengying, Shirin Swah (Shook Lin & Bok LLP)
• Court: High Court (Singapore)
• Citation: [2018] SGHC 257
• Year: 2018

Aedit Abdullah J:Introduction

By Summons No 2898 of 2018, the trustees in bankruptcy seek the court’s sanction of a funding arrangement in respect of litigation commenced on behalf of the estate (“the funding application”). The funding application is opposed by the defendants to that litigation. The determination of the application turns on a consideration of the provisions of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“Bankruptcy Act”), the English decision in In re Oasis Merchandising Services Ltd[1998] Ch 170 (“Oasis”) (which was followed by the Singapore Court of Appeal in Neo Corp Pte Ltd (in liquidation) v Neocorp Innovations Pte Ltd[2006] 2 SLR(R) 717 (“Neocorp”)), and the effect of the 2017 amendments to the Civil Law Act (Cap 43, 1999 Rev Ed) (“Civil Law Act”), which permits third-party litigation funding in respect of international arbitration, amongst other forms of dispute resolution.

Background

The trustees of the bankruptcy estate of Fan Kow Hin (“the Trustees”) are proceeding with a suit, High Court Suit No 1078 of 2017, against various defendants, seeking, amongst other things, the avoidance of transactions at an undervalue and unfair preferences under the relevant provisions of the Bankruptcy Act (referred to generally and specifically as “the clawback claims”). The applicant Trustees now seek the Court’s approval of an agreement assigning and selling a proportion of the benefits or proceeds of the clawback claims. The defendants to the clawback claims were present at the hearing of the funding application as non-parties (“the Non-Parties”). By consent, they were allowed to make submissions albeit only on the specific questions of whether the fruits of insolvency clawback claims may be assigned and whether such an assignment would be champertous or an abuse of process. The merits of the funding application are to be heard separately, without the involvement of the Non-Parties.

Trustees’ case

The Trustees argued that the assignment of the fruits of an insolvency clawback claim is permitted by law. First, the Trustees submit that the English decision of Oasis should not have been followed, as unlike the statutory regime prevailing in England at the time Oasis was decided, s 102(4) of our Bankruptcy Act expressly provides that the proceeds of clawback claims under ss 98 or 99 shall be comprised in the bankrupt’s estate. These proceeds can be alienated. Second, the courts in Singapore should adopt the position in Australia, which permits the assignment of the proceeds of statutory claims. Third, the assignment proposed in the present case is not champertous or an abuse of process. Fourth, the proceeds are capable of assignment at law.

Non-Parties’ case

As the 2017 amendments to the Civil Law Act only permit third-party funding for international arbitration and related court and mediation proceedings, other forms of third-party funding remained subject to the rule against maintenance and champerty.Re Vanguard Energy Pte Ltd[2015] 4 SLR 597 (“Vanguard”), in which it was held that maintenance and champerty did not apply to a liquidator’s exercise of the power of sale under s 272(2)(c) of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”), had been superseded by the 2017 amendments to the Civil Law Act, which allows third-party funding only in respect of international arbitration and related court and mediation proceedings. Second, the clawback claims arose out of rights personal to the Trustees – rights personal to liquidators are not covered by the exception in Vanguard as they are not the property of the company and cannot be assigned. Third, any development in the law on assignment of the proceeds of litigation should be left to Parliament. Last, should the court be minded to permit the assignment, the criteria laid down in Vanguard should be applied in determining whether such an assignment would be champertous.

The decision

The application is allowed. Under the Bankruptcy Act, the fruits of the litigation are property of the estate, and may be assigned by the trustees: see s 102(4) of the Bankruptcy Act. Even if it were not, such an assignment is not contrary to public policy as being champertous or in maintenance as it is aimed at providing access to justice in the context of an insolvency, in which no other option for litigation funding would be viable.

AnalysisWhether the proceeds of clawback claims constitute property of the bankrupt’s estate under the Bankruptcy Act

The question of whether the proceeds of clawback claims under the Bankruptcy Act form part of the bankrupt’s estate turns on the interpretation of the statutory framework governing such claims under the Bankruptcy Act. On a proper construction of those provisions, I am satisfied that such proceeds are indeed property of the estate.

The parties’ submissions centre on ss 78(1)(a) and 102(4) of the Bankruptcy Act, both of which deal with the composition of the bankruptcy estate:

Description of bankrupt’s property divisible among creditors

78.—(1)The property of the bankrupt divisible among his creditors (referred to in this Act as the bankrupt’s estate) shall comprise —(a)all such property as belongs to or is vested in the bankrupt at the commencement of his bankruptcy or is acquired by or devolves on him before his discharge…

…

Orders under sections 98 and 99

102.—(1)Without prejudice to the generality of sections 98(2) and 99(2), an order under either of those sections with respect to a transaction or preference entered into or given by an individual who is subsequently adjudged bankrupt may, subject to this section —(a)require any property transferred as part of the transaction, or in connection with the giving of the preference, to be vested in the Official Assignee;

…

(4)Any sums required to be paid to the Official Assignee in accordance with an order under section 98 or 99 shall be comprised in the bankrupt’s estate.

[emphasis added]

The Trustees’ argument is that the proceeds of clawback claims are property of the bankrupt which may be alienated under the Bankruptcy Act by law; as such, no question of champerty or maintenance arises. The proceeds of claims for undue preferences and undervalue transactions under ss 98 and 99 comprise part of the bankrupt’s estate under s 102(4) of the Bankruptcy Act, and are thus available for division amongst the creditors under s 78(1)(a) of that same Act (which in fact expressly provides that after-acquired property also forms part of the bankrupt’s estate). The Non-Parties referred to the decision of the High Court in Manharlal Trikamdas Mody and another v Sumikin Bussan International (HK) Ltd[2014] 3 SLR 1161 (“Sumikin”), where it was held that the right to enforce statutory moratoria was personal to the Official Assignee and therefore incapable of assignment at law (at [32], [54]–[55]). That case can be distinguished as it was concerned only with the assignment of rights to enforce moratoria under ss 76 and 105 of the Bankruptcy Act, and not the assignment of the proceeds of clawback claims. A further distinction between Sumikin and the present case is that what is sought to be assigned is not the right to sue under ss 98 and 99, but only the proceeds of any successful suit thereunder. Such proceeds cannot be said to be rights personal to the trustees in bankruptcy. Rather, they are assets forming part of the bankruptcy estate. Likewise, Neocorp, the Trustees say, is also distinguishable because it did not concern the assignment of the fruits of litigation, but rather the right to avoid transactions tainted with unfair preference; and in any case involved a corporate insolvency under the Companies Act which, unlike the Bankruptcy Act, does not expressly define sums recovered under ss 98 and 99 as part of the bankruptcy estate. Also, Neocorp itself appeared to suggest that the proceeds from a transaction unwound under ss 98 or 99 would be a general asset of the company (at [25]).

The Non-Parties contend that nothing in the Bankruptcy Act permits the assignment of the fruits of litigation as the Trustees’ claims arise out of rights personal to the Trustees which could not be said to form part of the bankruptcy estate. They further argue that the statutory provisions relied upon by the Trustees do not assist, as s 102(4) is predicated on orders under ss 98 or 99 first having been made, whereas no such orders were made here.

Section 98 governs transactions at an undervalue; s 98(2) allows the court, upon application by the Official Assignee, to make an order restoring parties to the status quo ante; ie, the position that would have been had the bankrupt not entered into the transactions at an undervalue. Section 99 provides that similar orders may be made in respect of unfair preferences given. Section 102, which is referred to in ss 98 and 99, is concerned with the orders that are made under ss 98 and 99. It is against that context that s 102(4) then provides that “[a]ny sums required to be paid to the Official Assignee in accordance with an order under section 98 or 99 shall be comprised in the bankrupt’s estate”.

In my view, the plain words of s 102(4) of the Bankruptcy Act clearly contemplate that the proceeds from clawback claims under ss 98 and 99 would be part of the estate, which, as s 78(1) provides, is property that may be divided among the creditors. The fact that no order has been made under ss 98 or 99 is immaterial. I accept that the insolvency clawback proceeds contemplated by s 102(4) would only obtain after an order is made pursuant to ss 98 or 99. However, that does not detract from the Trustees’ point that if and when such orders are made, the proceeds obtained therefrom would form part of the bankruptcy estate under s 102(4) of the Bankruptcy Act. I thus do not accept the arguments of the non-parties that it is...