SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd

JurisdictionSingapore
CourtCourt of Three Judges (Singapore)
JudgeSteven Chong JA,Quentin Loh J,Chao Hick Tin SJ
Judgment Date15 January 2019
Neutral Citation[2019] SGCA 5
Citation[2019] SGCA 5
Hearing Date13 November 2018
Defendant CounselA Rajandran (A Rajandran)
Subject MatterInsolvency Law,Stay of Proceedings,Winding Up
Plaintiff CounselChia Swee Chye Kelvin (Lumen Law Corporation)
Docket NumberCivil Appeal No 231 of 2017
Published date19 January 2019
Date15 January 2019

[2019] SGCA 5

Court of Appeal

Steven Chong JA, Quentin Loh J and Chao Hick Tin SJ

Civil Appeal No 231 of 2017

SCK Serijadi Sdn Bhd
and
Artison Interior Pte Ltd

Chia Swee Chye Kelvin (Lumen Law Corporation) for the appellant;

A Rajandran (A Rajandran) for the respondent.

Case(s) referred to

Aro Co Ltd, Re [1979] Ch 613; [1979] 2 WLR 150 (refd)

Bond Worth Ltd, Re [1980] Ch 228 (refd)

Choice Investments Ltd v Jeromnimon [1981] QB 149; [1981] 2 WLR 80 (refd)

Diablo Fortune Inc v Duncan, Cameron Lindsay [2018] 2 SLR 129 (refd)

Galbraith v Grimshaw and Baxter [1910] 1 KB 339 (folld)

Grosvenor Metal Co, Ltd, Re [1950] Ch 63; [1949] 2 All ER 948 (refd)

Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd [2017] WASC 152 (refd)

Joselyne, ex parte; Re Watt (1878) 8 Ch D 327 (not folld)

Korea Asset Management Corp v Daewoo Singapore Pte Ltd [2004] 1 SLR(R) 671; [2004] 1 SLR 671 (folld)

Lyford v Commonwealth Bank of Australia (1995) 130 ALR 267 (refd)

N Joachimson v Swiss Bank Corp [1921] 3 KB 110 (refd)

National Provincial and Union Bank of England v Charnley [1924] 1 KB 431 (refd)

Power Knight Pte Ltd v Natural Fuel Pte Ltd [2010] 3 SLR 82 (folld)

Société Eram Shipping Co Ltd v Compagnie Internationale de Navigation [2004] 1 AC 260; [2003] 3 WLR 21 (refd)

Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584; [1980] 3 WLR 457 (refd)

Telecom Credit Inc v Midas United Group Ltd [2019] 1 SLR 131 (refd)

Tiong Polestar Engineering Pte Ltd, Re [2003] 4 SLR(R) 1; [2003] 4 SLR 1 (refd)

Transbilt Engineering Pte Ltd v Finebuild Systems Pte Ltd [2005] 3 SLR(R) 550; [2005] 3 SLR 550 (folld)

William Henry Rogers and Maria Henrietta Riches, trading as Rogers & Son v William Whiteley [1892] AC 118 (refd)

Legislation referred to

Companies Act (Cap 50, 2006 Rev Ed) ss 299, 299(2), 334, 334(1), 334(1)(c), 334(2)(b)

Rules of Court (Cap 322, R 5, 2014 Rev Ed) O 49 rr 1(2), 3(2), 6, 6(1)

Rules of the Supreme Court (Revision) 1965 (SI 1965 No 1776) (UK) O 49 r 1(2)

Insolvency Law — Winding up — Stay of proceedings — Judgment creditor serving garnishee order nisi on garnishee — Judgment debtor wound up before show-cause hearing — Judgment creditor applying for leave to continue garnishee proceedings — Whether judgment creditor rendered secured creditor by reason of service of garnishee order nisi — Whether judgment creditor should be granted leave to continue garnishee proceedings — Sections 299(2) and 334(1) Companies Act (Cap 50, 2006 Rev Ed)

Facts

The appellant obtained judgment against the respondent in the District Court for the sum of $250,000 plus interest and costs. In a bid to enforce this judgment, the appellant commenced two sets of garnishee proceedings seeking to attach debts owed to the respondent by the garnishee. The appellant successfully obtained two garnishee orders nisi which it served on the garnishee. Before the show-cause hearing, however, the respondent was placed under creditor's voluntary winding up. Under s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed), a stay of proceedings took effect whereby no action or proceeding against the respondent could be proceeded with except with leave of court. Pursuant to s 334(1) of the Companies Act, the appellant would not be entitled to retain the benefit of the attachment as against the liquidator, unless the court ordered otherwise. The appellant thus applied to the High Court for leave to proceed with the garnishee proceedings and to be allowed to retain the benefit of the attachment as against the liquidator.

The High Court dismissed the application, holding that the default position under ss 299(2) and 334(1) of the Companies Act was that the appellant was neither entitled to continue with the garnishee proceedings nor to retain the benefit of the incomplete attachment, and there was no reason for the court to depart from this position in the present case. The appellant appealed on the basis that the service of the garnishee order nisi rendered it a secured creditor whose rights were unaffected by the intervening winding up of the respondent.

Held, dismissing the appeal:

(1) The Court of Appeal had previously held in Transbilt Engineering Pte Ltd v Finebuild Systems Pte Ltd[2005] 3 SLR(R) 550 (“Transbilt”) that a judgment creditor who had obtained a garnishee order nisi was to be treated as an unsecured creditor, and absent exceptional circumstances, was not entitled to proceed with the incomplete attachment. The facts of the present case were indistinguishable from Transbilt: at [1] and [2].

(2) The true effect of service of a garnishee order nisi merely prevented the garnishee from dealing with the debt in a way that was inconsistent with the order. It did not create any security interest which would render the appellant a secured creditor: at [30].

(3) There were no operative equities which would move the court to exercise its discretion to grant the appellant leave to proceed to complete the attachment. The mere fact that the appellant had effected service of the garnishee order nisi could not justify the granting of leave. To hold otherwise would run contrary to the provisions of the Companies Act which provided that, as a default position, the benefit of an attachment could only be retained by the creditor if the attachment was complete before the company was placed under winding up (s 334(1)(c)), and such attachment was only deemed complete when the debt was actually received (s 334(2)(b)). A judgment creditor would need to show some form of inequity to justify the granting of leave, and this was a high threshold which the appellant had not met: at [32] and [34].

[Observation: While it had been established in case law that service of a garnishee order nisi created an “equitable charge” over the garnished debt, the use of the term “equitable charge” in this context was liable to confuse in two respects. First, it was unclear whether, and in what sense, such an equitable charge created a proprietary interest in the garnished debt. The term “proprietary interest” could refer to an absolute right to have the subject property applied for the sole benefit of the rightholder, and which the rightholder could assert against all third parties (“the Broad Definition”). Alternatively, it could also refer to a less extensive right to prevent the owner from exercising his full, unfettered right to deal with the subject property in a manner that was inconsistent with the rightholder's interest (“the Narrow Definition”). It would only be correct to say that a garnishee order nisi created a proprietary interest according to the Narrow Definition, because it merely created an obligation on the garnishee not to pay the attached debt to the judgment debtor in breach of the order nisi: at [17] to [19] and [29].

Secondly, the use of the term “equitable charge” suggested that the holder of such an equitable charge was akin to a person who held an equitable charge as security for a debt, this being the paradigmatic use of a charge. However, the equitable charge created upon service of the garnishee order nisi was materially different from an equitable charge which created security for the repayment of a debt. Where the equitable charge was used to create security for repayment, the creditor was given the right to resort to the property to satisfy the debt on the condition that it remained unpaid, and this condition was necessarily fulfilled in every situation where the creditor sought to enforce its security. On the other hand, where an equitable charge arose from a garnishee order nisi, the judgment creditor was given only a contingent right to resort to the property, depending on whether some good cause might be shown otherwise. Whether such “good cause” might be shown was a future contingency which would be thwarted where the judgment debtor was placed under winding up before the show-cause hearing. Such a judgment creditor was thus not in the same position as a secured creditor who had already accrued an entitlement to have the charged property of the debtor made available to satisfy the debt by virtue of the debtor's default in repayment: at [22] to [25].]

15 January 2019

Steven Chong JA (delivering the grounds of decision of the court):

Introduction

1 This court in Transbilt Engineering Pte Ltd v Finebuild Systems Pte Ltd[2005] 3 SLR(R) 550 (“Transbilt”) at [4]–[5] held that a judgment creditor who has obtained a garnishee order nisi is to be treated as an unsecured creditor and absent exceptional circumstances, is not entitled to proceed to have the garnishee order nisi made absolute after the commencement of winding-up proceedings.

2 In this appeal, the appellant sought to distinguish the present case from Transbilt on the basis that in Transbilt, the garnishee order nisi obtained by the judgment creditor had not been served when the company went into liquidation. We found this factual distinction to be unmeritorious not least because it was manifest from the facts of Transbilt that the order nisi, though not mentioned explicitly, must have been served on the garnishee. The appellant relied on a number of authorities in which the courts have held that service of a garnishee order nisi creates an equitable charge in the sense that it binds the garnishee not to pay the debt over to the judgment debtor pending the garnishee show-cause hearing. On the strength of such an equitable charge, the appellant argued that it had a proprietary interest in the garnished debt and should, accordingly, be treated as a secured creditor for the purposes of obtaining leave under s 299(2) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The appellant accepted that its sole purpose in seeking to continue the proceedings was to complete the attachment.

3 We recognised that the argument that service of the garnishee order nisi created an equitable charge in favour of...

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