Velstra Pte Ltd v Dexia Bank NV

• Judge: Chao Hick Tin JA
• Judgment Date: 28 October 2004
• Neutral Citation: [2004] SGCA 49
• Citation: [2004] SGCA 49
• Defendant Counsel: Tan Chuan Thye and Felicia Chua (Wong and Leow LLC)
• Published date: 01 November 2004
• Plaintiff Counsel: Vinodh Coomaraswamy and David Chan (Shook Lin and Bok)
• Date: 28 October 2004
• Docket Number: Civil Appeal No 21 of 2004
• Court: Court of Appeal (Singapore)
• Subject Matter: Sections 17, 21(1), 32(c) Evidence Act (Cap 97, 1997 Rev Ed),Evidence,Whether transaction at an undervalue,Section 98 Bankruptcy Act (Cap 20, 2000 Rev Ed),Avoidance of transactions,Admissibility of evidence,Hearsay,Insolvency Law,Whether insolvent party must have intended to deal with counter party,Transactions at an undervalue,Whether hearsay statement admissible as being statement made against own interest

28 October 2004 Judgment reserved.

Chao Hick Tin JA (delivering the judgment of the court):

1 This appeal raises the question as to whether the payment of a sum of US$20,920,000 made on 5 January 2000 by the appellant company, Velstra Pte Ltd (“Velstra”), which is now under liquidation, allegedly to the respondent was a transaction at an undervalue within the meaning of s 98 of the Bankruptcy Act (Cap 20, 1996 Rev Ed) (“BA”), read with s 329(1) of the Companies Act (Cap 50, 1994 Rev Ed) (“CA”). In the present action, the liquidators of Velstra sought to have the transaction reversed and the money returned.

2 At the High Court, Kan Ting Chiu J held that, in the circumstances of the case, the payment of the sum to the respondent was not a transaction within the meaning of s 98 of the BA. The liquidators, being dissatisfied, have appealed to this court.

The background

3 Velstra is a Singapore company under liquidation on account of insolvency. It was linked to a Belgian company called Lernout and Hauspie Speech Products NV (“L&H”) which specialised in the development of speech recognition, dictation and translation software. The respondent, Dexia Bank NV is a Belgian bank which had absorbed another bank known as Artesia Bank.

4 On 25 June 1999, three persons, namely, Jo Lernout, Pol Hauspie and Nico Willaert (“LH&W”) opened a joint account no 553-2056900-42 (“the joint account”) with Artesia Bank, which bank will hereinafter be referred to as “the respondent” unless the context otherwise requires. The respondent agreed to grant to LH&W in respect of the joint account a rollover credit facility of up to US$20m. A few days after the opening of the joint account, the credit facility granted was drawn down. When the facility expired on 10 October 1999, the loan outstanding in the account had not yet been repaid.

5 Towards the end of 1999, Velstra entered into a loan agreement for US$36m with one Mr Harout Khatchadourian (“HK”). On 30 December 1999, Velstra’s bank, DBS Bank, sent a SWIFT message to the respondent stating that on 4 January 2004 it would be receiving US$36m in favour of Velstra. This message was sent at the request of Velstra, which sole executive director was one Mr Snauwaert.

6 Also on the same day, Velstra instructed the DBS Bank, by the filling up of a telegraphic transfer form (“TT form”), to effect the remittance of US$20.92m to:

Beneficiary Bank : Artesia Bank Brussels
SWIFT CODE ARTEBEBB

Beneficiary’s Bank
A/C No : 553-2056900-42

Beneficiary’s Name : Artesia Bank Brussels
Swift Code ARTEBEBB

Presumably this TT form was submitted in advance of Velstra coming into funds. It would also be fair to assume that the SWIFT message must have been despatched at about the time the TT form was handed in by Velstra. What is interesting to note is that the account number given in the TT form was the joint account of LH&W.

7 We should add that on the same day, 30 December 1999, Velstra instructed DBS, through the submission of three other TT forms, to remit three other sums to the respondent for the account of three other entities, which together with the sum in question in this action, added up to US$36m, the very sum on loan from HK.

8 Upon receipt of the SWIFT message, and in anticipation of funds coming through from Velstra, the respondent debited its own internal account and credited US$21m into the LH&W joint account. This crediting was subject to the “usual reservations”.

9 On 5 January 2000, HK transferred the sum of US$36m into Velstra’s account with DBS Bank which, in turn, remitted it to the respondent in accordance with the instructions in the four TT forms.

10 In the books of Velstra, the remittance of the US$20.92m was recorded as being made in:

(a) payment to CIB (referring to “consortium of investors from Belgium” and meaning LH&W);

(b) repayment of a loan of US$4,811,600 from a consortium of Belgium investors.

These entries were made by the bookkeeper of Velstra who affirmed that she did so on the instructions of Snauwaert.

11 On 5 January 2000, when the respondent received the remittance of US$20.92m, no further book entries were made except that, in relation to the shortfall between the US$21m which the respondent credited into the joint account and the actual sum of US$20.92m received, it debited the difference to the joint account on 13 January 2000.

12 After Velstra was placed under liquidation following a winding up order on 12 April 2002, the liquidator sought to recover the sum US$20.92m remitted to Artesia Bank pursuant to s 98 of the BA, read with s 329(1) of the CA.

The statutory provisions

13 We will at this juncture set out the statutory provisions which govern the matter. The relevant portions of s 98 of the BA read:

(1) … where an individual is adjudged bankrupt and he has at the relevant time … entered into a transaction with any person at an undervalue, the Official Assignee may apply to the court for an order …

(2) The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.

(3) For the purposes of this section … an individual enters into a transaction with a person at an undervalue if –

(a) he makes a gift to that person or he otherwise enters into a transaction with that person on terms that provide for him to receive no consideration;

(b) … or;

(c) he enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the individual.

14 Section 98 is made applicable to a company under liquidation by virtue of s 329(1) of the CA which reads:

Subject to this Act … any transfer … payment … made … by … a company which, had it been made … by an individual, would in his bankruptcy be void or voidable under section 98 ... of the [BA] … shall in the event of the company being wound up be void or voidable in like manner.

Decision below

15 It is not disputed that the remittance of the sum of US$20.92m to the respondent was made within five years of Velstra being wound up. The judge below found that, by the balance sheet test, Velstra was insolvent at the time the payment was made. He dismissed the claim on the ground that there was no “transaction” between Velstra and the respondent within the meaning of s 98. He said that before there could be such a “transaction” it must be established that Velstra had intended to transact with the respondent. As Velstra had no prior dealings with the respondent and was not indebted to the latter nor had ever intended to make any payment to it, there was no transaction between them. That being the position he took, the judge did not proceed to deal with the question whether the transaction was at an “undervalue”.

Issues on appeal

16 It is common ground that in order for the appellant to succeed in this appeal, it has to prove the following ingredients:

(a) That there was a transaction between Velstra and the respondent by virtue of the remittance;

(b) That the transaction took place within five years of Velstra going into liquidation;

(c) That, on 5 January 2000, Velstra was insolvent or had become insolvent as a result of the remittance of US$20.92m to the respondent on that day; and

(d) That the transaction was effected at an undervalue.

17 In the present appeal, ingredient (b) is not in dispute. What the respondent challenges are, in the main, ingredients (a) and (d). However, the respondent also did not admit to ingredient (c) as having been satisfied.

18 Before us, counsel for Velstra submitted that the trial judge had erred in finding that there was no “transaction” between Velstra and the respondent. Counsel emphasised the fact that the sum of US$20.92m was remitted to the respondent and the latter had retained it. To hold that there must be a specific intention on the part of Velstra to remit to the respondent before the remittance would be caught by s 98 would gravely undermine the object of the section. Counsel argued that the correct approach would be to look at the objective facts. There would be a transaction within the meaning of s 98 so long as money or property was received and retained by the counter party.

19 In the alternative, counsel submitted that even if it were necessary to show “intention”, on the facts there was an intention on the part of Velstra to transact with the respondent. This was because the instructions on the TT form clearly indicated that Velstra intended to remit the said sum to the respondent, who was named as the beneficiary.

20 On the issue of undervalue, counsel for Velstra contended that the transaction was so because Velstra had received nothing of value from either the respondent or from any other person in connection with the payment.

21 We propose to deal with the issues raised in this appeal under the following heads:

(a) Whether it is necessary to show that the insolvent party must have intended to deal with the other party who, in fact, received the property or money in order that there could be a “transaction” within the meaning of s 98;

(b) Whether, on the facts in the present case, there was a “transaction” between Velstra and the respondent; and

(c) Whether the “transaction” was at an undervalue.

The question of intention

22 Section 98(1) of the BA applies where, inter alia, an individual who is adjudged a bankrupt, (or in the case of a company, in liquidation) has “entered into a transaction with any person”. The plain meaning of these words would connote mutual dealings, and that the counter party is one with whom the insolvent party wishes to deal.

23 Admittedly, as would be seen from s 98(3) quoted above (at [13]), a gift is also a transaction within the meaning of s 98(1). In the context here, a gift is perhaps an express statutory exception to the mutuality rule. We had in Mercator & Noordstar NV v...