Tan Holdings Pte Ltd v Prosperity Steel (Asia) Company Ltd

• Court: Court of Appeal (Singapore)
• Judgment Date: 30 September 2011
• Docket Number: Originating Summons No 726 of 2010
• Date: 30 September 2011

Tan Holdings Pte Ltd (in creditor's voluntary liquidation)

Plaintiff

and

Prosperity Steel (Asia) Co Ltd and others

Defendant

[2011] SGHC 219

Steven Chong J

Originating Summons No 726 of 2010

High Court

Companies—Receiver and manager—Nature of receivership order—Interpretation of receivership order

Contract—Contractual terms—Rules of construction—Whether right to call for shares crystallised within agreed period

Contract—Contractual terms—Rules of construction—Whether right to call for shares passed to third party purchaser pursuant to sale and purchase agreement

Courts and Jurisdiction—Court judgments—Declaratory—Plaintiff obtained default judgment over first defendant—Whether liquidator of plaintiff had locus standi to seek declaration of rights between first and second defendants

The liquidator of the plaintiff (‘Tan Holdings’) obtained a judgment in default of appearance against the first defendant (‘Prosperity’) for about S$4.4 m on 27 February 2009. The liquidator of Tan Holdings proceeded to enforce this judgment as a judgment creditor of Prosperity by obtaining a receivership order from the Court on 2 July 2009. Since the original receivership order did not specifically permit the receiver of Prosperity to commence legal action on behalf of Prosperity, the liquidator of Tan Holdings took out an ex parte application on 19 May 2011 to amend several paragraphs in the original receivership order. However, the amended receivership order only permitted the receiver to commence legal proceedings on behalf of Tan Holdings, the judgment creditor; rather than Prosperity, the judgment debtor.

The principal ‘remaining’ asset of Prosperity was an alleged right to call for Further Strategic Shares in the second defendant (‘Abterra’). Abterra ran into financial difficulties sometime in 2004 and entered into a scheme of arrangement with its creditors. The scheme of arrangement was sanctioned by the court on 12 January 2005. Prior to the sanctioning of the scheme of arrangement, Prosperity entered into an agreement with Abterra on 30 August 2004, where Prosperity invested S$6 m in Abterra in exchange for a 70% stake in Abterra's shareholding. In order to preserve Prosperity's 70% shareholding in Abterra, the parties inserted a provision into the agreement, ie, cl 8 A.5, which gave Prosperity the right to call upon Abterra to issue Further Strategic Shares to it whenever Abterra issued shares to other contingent creditors within an agreed period.

However, Prosperity also ran into financial difficulties subsequently and it sold its controlling stake in Abterra to the third defendant (‘GNR’) for about S$4.95 m on 1 September 2006. As a result of the sale, Prosperity was left with only 5% of the shares in Abterra, whereas GNR, having bought shares in Abterra from Prosperity as well as from other sources, now held over 92% of the shares in Abterra.

In the present originating summons, the liquidator of Tan Holdings sought a declaration under O 15 r 16 of the Rules of Court (Cap 332, R 5, 2006 Rev Ed) that on a true and proper construction of cl 8 A.5, Prosperity had a present right to call upon Abterra to issue to it the Further Strategic Shares that had not been called for; and a declaration that the right to call for the Further Strategic Shares remained with Prosperity and did not pass to GNR pursuant to the sale on 1 September 2006.

Held, dismissing the application:

(1) As was held in Masri v Consolidated Contractors International (UK) Ltd (No 2) [2009] 1 QB 450, the appointment of a receiver by way of equitable execution did not have a proprietary effect. Rather, a receivership order had the effect of an injunction restraining the judgment debtor from receiving any part of the property which it covered, if that property was not already in his possession, but it did not vest the property in the receiver. Accordingly, the judgment creditor received no interest in the received property until it was transferred to him in satisfaction of the judgment debt: at [44].

(2) The power of the court to appoint a receiver was set out under para 5 (a) of the First Schedule of the Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed). A chose in action could legitimately be the subject matter of a receivership order: at [46] and [47].

(3) In order for a receiver to seek declaratory relief under O 15 r 16 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed), the six requirements laid down by the Singapore Court of Appeal in Karaha Bodas Co LLC v Pertamina Energy Trading Ltd [2006] 1 SLR (R) 112 (‘Karaha Bodas’) had to be satisfied: at [52].

(4) The fourth requirement in Karaha Bodas required a plaintiff to have locus standi to bring the suit. The jurisdiction of the court to make declarations of rights was confined to declaring contested legal rights of the parties represented in the litigation: at [54].

(5) A receiver derived his power solely from the order of court appointing him. What the receiver could or could not do was a matter of construction of the terms of the receivership order. If a receivership order did not specifically empower the receiver to bring an action on behalf of a particular party, the receiver would have no power to do so: at [59].

(6) The holding in Guaranty Trust Company of New York v Hannay & Company [1915] 2 KB 536 as regards ‘a party having an interest in the subject matter of the declaration’ was intended to address the issue that the plaintiff need not have a cause of action against the defendant in seeking declaratory relief. It was not intended to dispense with the overarching requirement to demonstrate locus standi in order to pursue declaratory relief under O 15 r 16: at [68].

(7) On a true and proper construction of the amended receivership order, the liquidator of Tan Holdings did not have locus standito bring the present application: at [69].

(8) Even if the plaintiff had locus standi to bring the present application, on a true and proper construction of cl 8 A.5, all but one of the contingent liabilities crystallised outside the agreed period of three years. Prosperity had no right to call upon Abterra to issue Further Strategic Shares pursuant to the claims which arose outside the agreed period: at [80].

(9) As for the remaining claim which arose within the agreed period, Prosperity had no right to call upon Abterra to issue Further Strategic Shares pursuant to that claim either. The purpose of cl 8 A.5 was to ensure that Prosperity's 70% shareholding in Abterra was not diluted through the issue of shares to Abterra's contingent creditors. Pursuant to the sale agreement with GNR on 1 September 2006, all the rights, benefits and entitlements attached to the Further Strategic Shares were transferred to GNR. Accordingly, any right to call upon Abterra to issue Further Strategic Shares had passed to GNR and no longer remained with Prosperity: at [84] and [89].

Bourne v Colodense Ltd [1985] ICR 291 (folld)

Gouriet v Union of Post Office Workers [1978] AC 435 (refd)

Guaranty Trust Co of New York v Hannay & Co [1915] 2 KB 536 (refd)

Karaha Bodas Co LLC v Pertamina Energy Trading Ltd [2006] 1 SLR (R) 112; [2006] 1 SLR 112 (folld)

Lee Kuan Yew v Tang Liang Hong [1997] 1 SLR (R) 328; [1997] 2 SLR 833 (refd)

Maclaine Watson & Co Ltd v International Tin Council [1988] 1 Ch 1 (folld)

Masri v Consolidated Contractors International (UK) Ltd (No 2) [2009] 1 QB 450 (folld)

R v Secretary of State for Social Services,ex parte Child Poverty Action Group [1990] 2 QB 540 (refd)

S (Hospital Patient: Court's Jurisdiction) , Re [1995] 1 Fam 26 (refd)

Shephard, Re (1889) 43 Ch D 131 (refd)

Companies Act (Cap 50,2006 Rev Ed) s 290

Supreme Court of Judicature Act (Cap 322, 2007 Rev Ed) First Schedulepara 5 (a)

Rules of Court (Cap 322,R 5, 2006 Rev Ed) O 15 r 16

David Chan and Carol Teh (Shook Lin & Bok LLP) for the plaintiff

Giam Chin Toon SC and Kevin Lim (Wee Swee Teow & Co), and Chia Boon Teck and Wong Kai Yun (Chia Wong LLP) for the second defendant

Tan Cheng Han SC and Charmaine Kong (TSMP Law Corporation) for the scheme manager of the second defendant

Chew Kei-Jin (Tan Rajah & Cheah) for the third defendant.

Steven Chong J

Introduction

1 This case concerns an application by a receiver appointed by a judgment creditor to claim for ‘bonus’ shares in a Singapore-listed company that the judgment debtor was allegedly entitled to. However the application was challenged at the threshold level that the receiver lacked locus standi to claim the ‘bonus’ shares as the receivership order did not purport to permit the receiver to bring the action on behalf of the judgment debtor. Instead the receivership order merely authorised the action to be brought in the name of the judgment creditor and indeed the application was filed on that basis.

2 In addition, the application was also opposed on the merits that the judgment debtor was not entitled to the ‘bonus’ shares in the first place and if it did, the right had been transferred to another party in any event. After hearing the parties, I dismissed the application both on the locus standi issue as well as on the merits.

3 In dismissing the application, I had provided my brief oral grounds which I have elaborated below. This decision will examine the circumstances under which a receiver could be appointed by way of equitable execution in respect of a chose in action allegedly vested in a judgment debtor. The facts of this case were rather complex and needed to be set out in some detail in order to fully understand the nature and origin of the application. It underwent several routes with a view to achieving its objective and along the way, the pivotal locus standi issue was raised but unfortunately, it remained unresolved when the application finally came before me for determination.

Background

The parties

4 The plaintiff, Tan Holdings Pte Ltd (‘Tan Holdings’), is a company...