Re PCChip Computer Manufacturer (S) Pte Ltd (in compulsory liquidation)

• Jurisdiction: Singapore
• Judge: Lee Seiu Kin JC
• Judgment Date: 13 June 2001
• Neutral Citation: [2001] SGHC 131
• Docket Number: Originating Summons No 1736 of
• Date: 13 June 2001
• Published date: 19 September 2003
• Year: 2001
• Plaintiff Counsel: Thio Ying Ying and Cheong Aik Hock (Kelvin Chia Partnership)
• Citation: [2001] SGHC 131
• Defendant Counsel: Chew Kei Jin (Tan Rajah & Cheah)
• Court: High Court (Singapore)
• Subject Matter: Recipient company under liquidation,Bank paying money paid under mistake of fact,Conditions to be satisfied for return of money,Whether dishonourable behaviour by liquidators in receipt of money necessary,Whether bank entitled to return of money paid by mistake -Whether bank ranks as unsecured creditor with no proprietary right over money,Whether personal involvement in mistaken payment on liquidators' part necessary,Restitution,Whether any difference if mistake one of law,Mistake,Whether liquidators as officers of court should be compelled to return moneys paid under mistake of fact

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Background facts

This is an application by the plaintiffs, as liquidators of PCChip Computer Manufacturer (S) Pte Ltd (`the company`), for directions of the court pursuant to s 273(3) of the Companies Act (Cap 50, 1994 Ed).

The company was incorporated on 3 September 1985 for the purpose of, inter alia, carrying on the business of manufacturing disk drives, CD-ROM drives and optic drives, and of data entry services. It was wound up pursuant to an order of court dated 16 October 1998 and the plaintiffs were appointed as liquidators.

At the time of winding up, the company had several bank accounts in its name. One such bank account was a US Dollar Current Account No BN-802-01787-Q-USD (`the OCBC account`) opened with the defendants (`the bank`).

On or about 31 May 1999, the bank notified the company that the OCBC account had been mistakenly over-credited on 24 June 1998 in the sums of USD85,200 and USD590. The bank explained that on 19 June 1998, the company had paid in two cheques in those sums for credit into the OCBC account. These sums were credited into that account by the bank`s computer system on 22 June 1998. However on 24 June 1998, the computer system again credited those amounts into the OCBC account, thereby resulting in the account being credited twice for those two cheques. The liquidators do not dispute that there was double crediting in respect of the two cheques, which meant that a total of USD85,790 was over-credited. This money was mixed with other funds of the company which totalled about S$747,521 at the time. Thereafter, there were various withdrawals amounting to S$503,774 in June 1998. Further withdrawals were made from July to 18 October 1998, the day the company was wound up.

Upon their appointment, the liquidators wrote to the bank on 16 October 1998 and 26 October 1998 to instruct them to close all the company`s accounts with them and to forward, inter alia, all proceeds in the respective currencies by cashier`s orders made payable to the company. Accordingly, on 27 November 1998, the bank transferred the total amount of USD257,005.63 out of the OCBC account by way of a banker`s draft. This sum of USD257,005.63 was, on 4 December 1998, paid into the company`s US Dollar Account with United Overseas Bank Ltd which, upon such payment, stood at USD258,128.68.

The liquidators do not deny that a sum of USD85,790 was mistakenly paid by the bank. In the ordinary case of a payment under a mistake, the law requires the recipient to repay the money to the person who made it. This used to apply only to payments under a mistake of fact but since the decision of the House of Lords in Kleinwort Benson v Lincoln City Council [1998] 4 All ER 513, it also applies to payments under a mistake of law. But the present case is one of payment under a mistake of fact. The problem here is that the company is now insolvent and the issue is whether the bank is entitled to the return of the money in full or are simply unsecured creditors. The liquidators take the position that the bank do not have any proprietary right to the said money, whether legally or equitably, and merely rank as unsecured creditors of the company. Therefore the bank should lodge their proof of debt and share pari passu in the proceeds of liquidation alongside the other unsecured creditors.

The bank, however, contend that they are entitled to be repaid the money on three alternative grounds:

(1) the bank are entitled to trace the money into the hands of the liquidators as it never belonged to the company and does not form part of its assets for distribution to its creditors;

(2) in the circumstances, the liquidators hold the money as constructive trustees for the benefit of the bank; and

(3) under the principle in Ex p James, re Condon [1874] LR 9 Ch App 609, the court would order the liquidators to return the money.

The first two grounds are related. They are based on the English decision in Chase Manhattan Bank NA v Israel-British Bank (London) [1981] Ch 105[1979] 3 All ER 1025which was followed by the High Court in Standard Chartered Bank v Sin Chong Hua Electric & Trading [1995] 3 SLR 863 . However, I need not go into these grounds as my decision can be supported on the third ground alone, which I now set out.

Principle in Ex p James

The principle enunciated in Ex p James, re Condon [1874] LR 9 Ch App 609 (` Ex p James `), simply put, is that the plaintiffs, who are the liquidators and therefore officers of the court, should be compelled to return the moneys as it would be wrong, on moral principle, to allow the account holder to retain what it was never rightfully entitled to.

In Ex p James , a judgment creditor levied execution on his debtor`s goods and these were sold by the sheriff. On the day of the sale the debtor filed a petition for liquidation by arrangement, notice of which was served on the sheriff four days later. Before the expiration of 14 days after the sale the creditors held the first meeting but no resolution was passed. After the 14 days had elapsed, the sheriff paid the sale proceeds to the execution creditor. Thereafter a bankruptcy petition was filed by another creditor which eventually resulted in the adjudication order. The trustee`s solicitors demanded payment of the sale proceeds from the execution creditor and threatened to take out proceedings. The execution creditor was advised that on the law as it stood he would not have a defence to the claim. He therefore paid over the money to the trustee. When the law was subsequently changed, the execution creditor requested the money to be refunded to him but the trustee sought to retain it for the benefit of the general body of unsatisfied creditors. The Registrar ordered the trustee to refund the money and the trustee appealed. The court dismissed the appeal and affirmed the Registrar`s order to refund the money. James LJ, with whom Mellish LJ agreed, said as follows (at p 614):

I am of the opinion that a trustee in bankruptcy is an officer of the Court. He has inquisitorial powers given him by the Court, and the Court regards him as its officer, and he is to hold money in his hands upon trust for its equitable distribution among the creditors. The Court, then, finding that he has in his hands money which in equity belongs to someone else, ought to set an example to the world by paying it to the person really entitled to it. In my opinion the Court of Bankruptcy ought to be as honest as other people.

In making such an order, the court appears to have relied not on any rule of law or equity, but on the principle that a court would order its officers to act in an exemplary manner and do the right and proper thing.

Although Ex p James concerned a bankruptcy, Farwell LJ in Re Tyler, ex p Official Receiver [1907] 1 KB 865 held that the principle applied to winding up of companies where the court by its officer is in the position of a quasi-litigant.

Re Drysdale

For the next 75 years or so after Ex p James , the principle was applied by English courts in a rather inconsistent fashion. In Re AM Drysdale (deceased), Municipal Comrs of the Town of Singapore v Official Assignee [1949] MLJ 273 (` Re Drysdale `), Murray-Aynsley CJ conducted an exhaustive review of those decisions. The facts in Re Drysdale are as follows. In 1946 and 1947, the Municipal Commissioners passed resolutions to make ex gratia payments to employees in respect of the Japanese Occupation. One such employee had become a bankrupt in 1941 and died, still a bankrupt, in 1945. On 20 February 1948, the Municipal Treasurer paid a sum of money to the Official Assignee in respect of the deceased bankrupt. However, on 30 April 1948, the Municipal Commissioners passed a further resolution to the effect that payments in respect of deceased officers should be made to the dependants of the deceased or such other persons as they should think proper.

The Municipal Commissioners brought a motion to recover from the Official Assignee such part of the money as had been paid out to the creditors. The applicants based their claim on the principle in Ex p James . Murray-Aynsley CJ, after reviewing the authorities, concluded that the principle existed, albeit in an unsatisfactory form. He said as follows at p 276:

The position on the authorities is this, the rule exists in some not very well defined form. Until the House of Lords decides otherwise, there it is. It is a result of the very imperfect formation of a doctrine of quasi-contract in English law. Owing to the lack of an adequate doctrine, cases arise which are rather shocking and the Courts have tried to soften hard cases by bad law. Why only the creditors of a bankrupt should be victims of high-mindedness is not explained.

The absence of an adequate doctrine of quasi-contract caused the unfortunate distinction between payments made in mistake of fact and payments in mistake of law which is not known in countries following the Roman Law and which has no rational justification ...

However, the Chief Justice held that the scope of the principle should not be extended beyond its limited sphere. He continued (at p 277):

... The doctine of Ex parte James is in its limited sphere in bankruptcy, etc., irrational. Its application has been spasmodic and also irrational ... I have had to devote a lot of space in attempting to find out what exactly is the doctrine I am invited to apply. I think it would be wrong to extend its application.

Murray-Aynsley CJ held that there was no mistake of law or otherwise. He refused to extend the principle to the circumstances of the case before him, which was essentially a situation in which the commissioners had changed their minds after making the ex gratia payment. He said at p 277:

I do not think that in the case under consideration there is any mistake of law or otherwise. The Municipal Commissioners were free to make presents to whom they liked. A

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