Singapore High Court Rejects Debtor’s Second Attempt To Raise Same Arguments In Bankruptcy Proceedings.

13 June, 2016

 

It is established law that a debtor may apply to set aside a statutory demand (“SD”) issued pursuant to s 62(a)(i) of the Bankruptcy Act (Cap. 20), or apply to stay or dismiss a bankruptcy application, by commencing an Originating Summons (Bankruptcy) (“OSB”) against the creditor. Recently, the Singapore High Court (“HC”) in Liew Kai Lung Karl v Ching Chiat Kwong [2016] SGHC 98 considered the following scenario:

 

(a) The debtor attempted unsuccessfully to set aside the SD in the first OSB application;

 

(b) The debtor raised arguments in the second OSB application to dismiss or stay the creditor’s application for a bankruptcy order; and

 

(c) The arguments raised in the second OSB application were not, but could have been, raised in Court of Appeal proceedings relating to the first OSB application. 

 

Brief Facts
 

The Appellant had entered into one principal and three supplementary deeds of settlement with the Respondent following the failure by the Appellant’s company, Realm Capital Limited (“Realm”), to make payment to the Respondent’s company,
Ever Tycoon Limited (“Ever Tycoon”) under certain facility agreements and the Appellant’s failure to make payment to Ever Tycoon under certain personal guarantees. Pursuant to the deeds of settlement, the Appellant was to pay certain sums to the Respondent in exchange for the Respondent’s agreement not to sue, inter alia, the Appellant until 1 March 2013 (which was later extended to 1 May 2014 under the three supplementary deeds of settlement), in respect of an unpaid loan of $4m.

 

In addition, the parties consented to reach an agreement regarding the reinvestment or settlement of additional liabilities and obligations owed by, inter alia, the Appellant to the Respondent and Ever Tycoon (“the balance principal”) by 1 May 2014, failing which the Appellant and Realm would be jointly and/or severally liable to pay to the Respondent and Ever Tycoon the balance principal and interest.

Although the Appellant paid certain sums due under the deeds of settlement, the parties failed to reach agreement on reinvestment or settlement of the balance principal by the deadline of 1 May 2014. The Respondent accordingly served the SD on the Appellant.

 

In the first OSB application, the Appellant unsuccessfully attempted to set aside the SD. In the resulting Registrar’s Appeal, Chan Seng Onn J rejected the Appellant’s arguments that the service of the SD was irregular and that there were genuine triable issues raised based on, inter alia, a dispute as to the debt owed. On appeal to the Court of Appeal (“CA”) in Civil Appeal No 77 of 2015 (“CA 77/2015”), the Appellant raised, in the Appellant’s Case, the same arguments that he had relied on at the Registrar’s Appeal, but they were subsequently abandoned at the appeal.

 

The Respondent subsequently applied for a bankruptcy order as the Appellant failed to comply with the SD. In the second OSB application, which the present case was concerned with, the Assistant Registrar (“AR”) dismissed the Appellant’s application to dismiss or stay the Respondent’s application for a bankruptcy order. The Appellant argued that as the facility agreements forming the foundation for the SD were never utilised, there was no disbursement of funds by Ever Tycoon to Realm. Moreover, the Appellant argued that he was acting under a mistake of fact in executing the personal guarantees in favour of Ever Tycoon, and claimed that he was misled by his former solicitors into believing that he had executed these personal guarantees.

 

The AR dismissed the second OSB application, given that the CA had already affirmed the validity of the SD in CA 77/2015 and the documents and facts that formed the basis of the Appellant’s arguments in the second OSB application had in fact been canvassed in the Appellant’s Case for CA 77/2015, but those arguments were not raised at the appeal.

 

The Appellant appealed to the HC and submitted that there were at least three major triable issues:

> Whether the Appellant had executed the principal deed of settlement (“the Deed”) under a unilateral mistake of fact;
> Whether the Respondent was aware of the fact that the Appellant had executed the Deed under a unilateral mistake of fact; and
> Whether the Appellant realised his unilateral mistake of fact only after 11 May 2015.

 

Summary of Decision
 

The HC dismissed the appeal as the Appellant had not raised any triable issues. Further, the HC held that to allow the Appellant to raise new arguments, which could have been raised in CA 77/2015, would be tantamount to an abuse of process.

 

Capabilities Delivered Locally 

 

A. Standard to obtain a stay or a dismissal of bankruptcy proceedings

 

The HC noted that although a debtor need only raise triable issues in an application to obtain a stay or a dismissal of bankruptcy proceedings, an allegation of a “substantial and bona fide dispute over the debt” was insufficient as the Court must also take into account the “protection of the interests of a meritorious creditor and minimization of wastage of court resources”.

 

1 The HC held that the standard had not been met in this case as “it appeared incredible”

 

2 that the Appellant had only raised the purportedly triable issues belatedly, when these issues were fundamental to whether there was even an existing debt. Moreover, the Appellant had also made part payment of the debt pursuant to the Deed.

 

Furthermore, there was no evidence with respect to the Appellant being misled by his former solicitors, that the deeds of settlement were not genuine, and that the Respondent had knowledge of the Appellant’s apparent mistake. For these reasons, the HC found the debtor’s claims unmeritorious.

 

B. Extended doctrine of res judicata 

 

The HC also found that the arguments raised by the Appellant in the second OSB application should have been raised at the first OSB application before the CA in CA 77/2015, and that the extended doctrine of res judicata would apply. In the interest
of finality in litigation, a litigant should not, except in special circumstances, be permitted to “argue points which were not previously determined by a court or tribunal because they were not brought to the attention of the court or tribunal in the earlier proceedings even though they ought properly to have been raised and argued then”.

 

3 The HC held that there were no bona fide reasons for not raising the triable issues during the CA hearing in CA 77/2015. Moreover, there were no justifications regarding the Appellant’s failure to apply for leave to adduce new evidence in CA
77/2015. The HC therefore held that it would be an abuse of process if such arguments were allowed to be made in the second OSB application.

 

Conclusion
 

This case shows that it is essential to raise all necessary arguments at the first application to set aside a SD. Unless there is new evidence discovered after the conclusion of the first application, or any other bona fide reason for raising new
arguments in a second OSB application to dismiss or stay the bankruptcy application arising from the unsatisfied SD, the extended doctrine of res judicata will apply to exclude any arguments that could have been raised in the earlier application.
Lawyers should therefore advise their clients to put all arguments before the court at the application to set aside a SD, as they will not be allowed to have a second bite of the cherry at a subsequent application to stay or dismiss the bankruptcy
 

 

1. [2016] SGHC 98 at [13]
2. [2016] SGHC 98 at [14].
3. [2016] SGHC 98 at [16].