Case Summaries

SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd [2019] SGCA 05

SUPREME COURT OF SINGAPORE

15 January 2019

Case summary

SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd [2019] SGCA 05
Civil Appeal No 231 of 2017

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Decision of the Court of Appeal (delivered by Steven Chong JA):

Outcome: CoA affirms High Court’s holding that a judgment creditor does not become a secured creditor by virtue of having served a garnishee order nisi on a garnishee before a judgment debtor is placed under winding up.

Background to the appeal

1 This was an appeal against the decision of the High Court Judge (“the Judge”) refusing to grant the appellant leave to continue with garnishee proceedings which the appellant had commenced to enforce a judgment debt owed to it by the respondent before the latter was placed under winding up. The Judge’s grounds of decisions are reported at SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd [2018] SGHC 08. The Judge reasoned that pursuant to ss 299(2) and 334(1) of the Companies Act, the default position 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 exercise its discretion to depart from this default position. In so deciding, the Judge rejected the appellant’s argument that before the respondent was placed under winding up, the appellant had become a secured creditor by virtue of an equitable charge created in its favour when it served a garnishee order nisi on the garnishee.

Facts

2 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 Shanghai Chong Kee Furniture & Construction Pte Ltd (“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, a stay of proceedings took effect whereby no action or proceeding 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 filed an application 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.

Decision on appeal

3 The Court of Appeal noted that it had previously held in Transbilt Engineering Pte Ltd (in liquidation) 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] to [2]).

4 Addressing the appellant’s argument that it had become a secured creditor by virtue of the equitable charge created in its favour when it served the garnishee order nisi on the garnishee, the Court of Appeal noted that the use of the term “equitable charge” in this context, though well-established in case law, was liable to confuse in two respects:

5 First, it is unclear whether, and in what sense, such an equitable charge creates a proprietary interest in the garnished debt. The term “proprietary interest” could refer to an absolute right to have the subject property be applied for the sole benefit of the rightholder, and which the rightholder may assert against all third parties (“the Broad Definition”) (at [17]). However, “proprietary interest” 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 is inconsistent with the rightholder’s interest (“the Narrow Definition”) (at [18]). It would only be correct to say that a garnishee order nisi creates a proprietary interest according to the Narrow Definition, because it merely creates an obligation on the garnishee not to pay the attached debt to the judgment debtor in breach of the order nisi (at [19] and [29]).

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

7 Since the true effect of service of a garnishee order nisi is merely that it prevents the garnishee from dealing with the debt in a way that is inconsistent with the order, it does not create any security interest which would render the appellant a secured creditor (at [30]).

8 There were no operative equities which would move the court to exercise its discretion to grant the appellant leave to proceed with the garnishing process. 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 provide that the benefit of an attachment could only be retained by the creditor if the attachment is complete before the company is placed under winding up (s 334(1)(c)), and such attachment is only deemed complete when the debt is actually received (s 334(2)(b)) (at [32]). 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 [34]).

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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