Zhang Hong En Jonathan v Private Trustee in Bankruptcy of Zhang Hong'En Jonathan

JudgeAedit Abdullah J
Judgment Date02 December 2020
Neutral Citation[2020] SGHC 262
Citation[2020] SGHC 262
Defendant CounselKoh Yeong Hung Sasha (Adsan Law LLC)
Hearing Date17 September 2020
Plaintiff CounselLee Ee Yang, Eoon Zizhen, Benedict (Wen Zizhen) and Chin Yen Bing, Arthur (Covenant Chambers LLC)
Docket NumberOriginating Summons No 779 of 2020
Published date06 December 2020
CourtHigh Court (Singapore)
Subject MatterTrustee in bankruptcy,Jurisdiction,Insolvency Law,Bankruptcy
Aedit Abdullah J: Introduction

Zhang Hong En Jonathan (the “Applicant”), a bankrupt, sought the approval of the respondent, his private trustee in bankruptcy (the “Private Trustee”) to defend a third-party action filed against him. The Private Trustee initially granted his sanction, on certain conditions being met, but later rescinded that sanction, requiring further conditions to be complied with. The Applicant then filed the present application, essentially to obtain sanction to defend the third-party proceedings.

Background

Pursuant to a Bankruptcy Order (HC/B 1945/2018) (the “Bankruptcy Order”) made on 1 November 2018, the Applicant was made bankrupt, with monthly contributions and target contributions fixed at S$100 and S$5,200 respectively. Since the making of the Bankruptcy Order, the Applicant had attempted without success to seek gainful employment. This lack of success was primarily because of various medical and physical conditions which the Applicant suffered from. Bearing the Applicant’s ability to obtain gainful employment in mind, the monthly contributions and target contributions were determined at a lower level.

The third-party proceedings which the Applicant is seeking sanction to defend arise out of a suit by various persons against a company (the “Company”) and a number of other defendants who are said to be those in control of that company, for fraud and conspiracy (the “suit”). Third-party proceedings were commenced by some of the defendants in that suit against, inter alia, the Applicant, who was involved in starting the Company and was one of the directors of an associated company.

When the third-party notice was served on the Applicant, sanction was sought from the Private Trustee by the Applicant for him to defend the third-party proceedings. The Applicant contended that it was important that he defend those proceedings as findings in the suit could lead to criminal liability on his part. Following an exchange of correspondence about the appropriate conditions, the Private Trustee granted sanction by way of letter on 5 May 2020. However, this was revoked in June 2020, with additional conditions imposed before sanction would be granted. The Applicant argues that these additional conditions are unduly onerous and sought the reasons for their imposition from the Private Trustee. The Private Trustee refused to provide reasons. A request for the Private Trustee to reverse his decision was also turned down.

The Applicant’s Submissions

The Applicant’s summons sought (a) the reversal of the Private Trustee’s decision to revoke sanction for the Applicant to defend the third-party proceedings against him in the suit, and (b) that the Private Trustee be directed to sanction the defence of those proceedings on the basis of the conditions set out in the Private Trustee’s letter of 5 May 2020 when the original grant of sanction was made.

In his written arguments, the Applicant argued that s 43 of the Insolvency, Restructuring and Dissolution Act (No 40 of 2018) (“IRDA”) imported a judicial review standard, namely irrationality or Wednesbury unreasonableness (see Associated Provincial Picture Houses Ltd v Wednesbury Corpn [1948] 1 KB 223), in determining the reasonableness of a private trustee in bankruptcy’s actions. The Private Trustee had acted in an irrational and/or Wednesbury unreasonable manner in revoking the sanction that had been previously granted. While the Private Trustee now referred to five factors that had allegedly been considered, it was doubtful that these factors were in fact considered in the Private Trustee’s decision.

Moreover, unlike the situation in Singapore Telecommunications Ltd v Official Assignee [2001] 2 SLR(R) 525 (“Singapore Telecommunications”), the Private Trustee will not be stepping into the shoes of the Applicant in the suit. No risk thus accrues to the Private Trustee in these circumstances.

In oral arguments, the Applicant also referred to a number of cases from England and Australia, arguing that they applied a test similar to Wednesbury unreasonableness. It was reiterated in the oral submissions by the Applicant’s counsel that the Private Trustee’s supposed reasons were contrived and an afterthought.

The Private Trustee’s Submissions

The Private Trustee’s primary argument was that there is an absolute bar under s 131(1)(a) of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (“Bankruptcy Act”) on the bankrupt commencing, continuing, or defending legal actions. The Private Trustee cited as authority the decision in Standard Chartered Bank v Loh Chong Yong Thomas [2010] 2 SLR 569 (“Loh Chong Yong”).

The Private Trustee also explained that his decision to initially grant the sanction, and then to later revoke it, was justified by the circumstances. In particular, the Private Trustee indicated that he had initially granted sanction on 5 May 2020 because, inter alia, he was informed that (a) time was of the essence to prepare the Applicant’s defence, (b) the third-party proceedings in the suit were without merit and the Applicant thus had a high chance of success in his defence, (c) the Applicant’s father had undertaken to bear the Applicant’s legal costs, and (d) the Applicant’s counsel had confirmed that they would not claim their legal costs against the bankrupt estate and/or the Private Trustee. In deciding to revoke his grant of sanction, the Private Trustee considered four factors to be material in his considerations. First, the grant of sanction would not benefit the estate. Second, there was insufficient basis to find that not allowing the defence would result in criminal liability. Third, while it was accepted that the costs of defending the suit would not be borne by the estate, the bankrupt would nonetheless need to give security to satisfy party-and-party costs. Fourth, there was also no basis given to the Private Trustee to determine the merits of the case for or against the Applicant in the suit. The case of Tan King Hiang v United Engineers (Singapore) Pte Ltd [2005] 3 SLR(R) 529 was cited as an example of an instance where the Official Assignee had revoked previously-granted sanction when the bankrupt failed to fulfil conditions which had been subsequently imposed.

Further, the Private Trustee asserts that s 131 of the Bankruptcy Act does not require him to give reasons for his determination of sanction. Loh Chong Yong, Singapore Telecommunications ([7] supra), and Ong Eng Kae and another v Rupesh Kumar and others [2015] SGHC 163 were cited as examples illustrating the breadth of the private trustee’s power and discretion under s 131 of the Bankruptcy Act. It was thus contended that full control and prerogative is given to the private trustee under s 131 of the Bankruptcy Act, and that the bankrupt should not be entitled to challenge that.

The Decision

I am satisfied that the approach to be taken is one of deference to the decision of the Private Trustee, unless the decision is so perverse that no reasonable trustee faced with the same facts would have come to the same conclusion. In calibrating what a reasonable trustee would do, one should bear in mind the need to protect the interests of the creditors and the estate, without unduly prejudicing the bankrupt. If all things are equal or if there is a realistic risk of both the interests of the creditors and of the bankrupt being prejudiced, one should prefer the interests of the creditors to those of the bankrupt.

Analysis The Statutory Provision

The starting point in determining the appropriate approach to reviewing the discretion of private trustees is the words of the legislation. In Tan Cheng Bock v Attorney-General [2017] 2 SLR 850 (“Tan Cheng Bock”) at [43], the Court of Appeal emphasised that:

… [I]n seeking to draw out the legislative purpose behind a provision, primacy should be accorded to the text of the provision and its statutory context over any extraneous material. The law enacted by Parliament is the text which Parliament has chosen in order to embody and to give effect to its purposes and objects. In line with this, the meaning and purpose of a provision should, as far as possible, be derived from the statute first, based on the provision(s) in question read in the context of the statute as a whole. This approach also coheres with the language of s 9A(1) [of the Interpretation Act], which suggests the possibility of the purpose or object of a statute being “expressly stated in the written law”.

[Emphasis original]

Turning first to the IRDA, s 43 reads:

Review by Court of trustee in bankruptcy’s act, omission or decision

The Official Assignee, a bankrupt, any creditor of the bankrupt, or any other person, who is dissatisfied with any act, omission or decision of a trustee in bankruptcy in relation to the trustee’s administration of the bankrupt’s estate, may apply to the Court to review such act, omission or decision, and on hearing such an application the Court may – confirm, reverse or modify any act or decision of the trustee; or give such directions to the trustee or make such other order as the Court thinks fit. A trustee in bankruptcy may apply to the Court for directions in relation to any particular matter arising under the bankruptcy.

Sub-section (2) is of broad application, but is not material here.

Section 40 of the relevant predecessor legislation, the Bankruptcy Act, is largely worded in the same terms as s 43 of the IRDA, and reads:

Review by court of trustee’s act, omission or decision

If the Official Assignee, a bankrupt, any of the bankrupt’s creditors or any other person is dissatisfied by any act, omission or decision of a trustee in relation to the trustee’s administration of the bankrupt’s estate, he may apply to the court to review such act, omission or decision and on hearing such an application the court may – ...

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