Rafiq Jumabhoy v Scotts Investments (Singapore) Pte Ltd (in compulsory liquidation)

[1] This Originating Summons (“OS”) was an application by Rafiq Jumabhoy (“RJ”) for leave to commence and continue with his claim, made by way of counterclaim, in Suit No 736 of 2002 which suit (“the Suit”) had been commenced by Scotts Investments (Singapore) Pte Ltd (in compulsory liquidation) (“SIS”).

[2] The Suit was commenced on 25 June 2002. By then, SIS was already in compulsory liquidation, having been wound up on 1 September 2000. RJ was the third defendant therein. RJ’s Defence and Counterclaim was filed on 25 November 2002. On 10 February 2003, SIS filed a Summons for Direction and on 14 February 2003, directions were given. On 21 February 2003, RJ’s solicitors then filed an application for summary judgment on his counterclaim. It was fixed for hearing on 28 March 2003. However, SIS’ Counsel then took the point that RJ had not obtained leave of court to commence and continue with his counterclaim as required under s 262(3) of the Companies Act (Cap 50). Accordingly, RJ had to apply for such leave and his application for summary judgment was adjourned pending the outcome of his application for leave.

[3] Accordingly, RJ’s application for leave was made by way of the present OS. In its original form, the OS had sought leave to commence and continue the existing counterclaim i.e with retrospective effect. However, RJ then applied and I allowed him leave to amend his OS to include an alternative prayer for leave to commence a fresh action in the event the court would not grant the leave retrospectively.

[4] The hearing of the OS was heard on the same day as the application to amend it i.e 21 April 2003. At that hearing, I was informed by Counsel for RJ and for SIS that SIS would be withdrawing its claim leaving RJ’s counterclaim to be dealt with.

[5] As regards RJ’s application for leave, there were two issues:

[6] Mr Rajiv Nair, Counsel for SIS, submitted that leave should not be granted at all. He submitted that RJ should instead go through the liquidation process which was a summary process, relying on Re The East Kent Shipping Company (Limited) 18 LT 748 and The Hull 308 [1991] SLR 304 which cited Re Exchange Securities & Commodities Ltd & others [1983] BCLC 186.

[7] On the second issue, he relied on In Re National Employers Mutual General Insurance Association Ltd [1995] 1 BCLC 232 (“NEMGIA”) which is authority for the proposition that the court has no jurisdiction to grant leave retrospectively even if the court was minded to grant leave. That was a decision of Rattee J on s 130(2) of the English Insolvency Act 1986 which, for present purposes, is in pari materia with our s 262(3). In reaching that decision, Rattee J followed an earlier decision of Milmo J in Wilson v Banner Scaffolding Ltd, The Times 22 June 1982.

[8] Counsel for RJ, Mr Tan Bar Tien, submitted that, as regards the first issue, the liquidators of SIS would dispute RJ’s claim anyway and were in fact prepared to deal with his claim in the usual process of litigation until the liquidators themselves decided not to pursue SIS’ claim.

[11] However, I reserved judgment to consider the far-reaching consequences of such a proposition.

[12] Subsequently, I directed the solicitors for each party to do further research on this point. Eventually, they reverted with, inter alia, the case of In re Saunders (A Bankrupt) [1997] CH 60. This was a decision by Lindsay J in which the learned judge declined to follow the two earlier decisions of Milmo and Rattee JJ when he (Lindsay J) was considering s 285(3) Insolvency Act 1986 on bankruptcy, a provision which he considered similar to s 130(2) of the same Act. However, I noted that Lindsay J had granted leave to appeal and in Bristol & West Building Society v Trustee of the property of Back and another (bankrupts) [1998] BCLC 485, the court also referred to the decision of Lindsay J being under appeal. Upon my further inquiry, the solicitors for each party informed me that they were unable to locate any written judgment of the appellate court. Neither did they inform me of the outcome of the appeal, if any. Accordingly, I assumed that no appeal had been proceeded with.

[13] After considering all the authorities cited to me, I decided to grant leave to RJ to commence and continue with his counterclaim i.e leave was granted retrospectively.

[15] In The Hull 308, L P Thean J, delivering the judgment of the Court of Appeal, said, at p 311:

[16] However, the main reason why the Court of Appeal in The Hull 308 was not inclined to grant leave to commence action under s 262(3) was because the plaintiffs were seeking leave to commence and carry on with an action in rem which had been commenced after the commencement of winding up and after provisional liquidators had been appointed. If leave was granted, “it would confer upon the plaintiffs a security on an asset of the defendants which the plaintiffs otherwise did not have and could not have” (see p 310 at E to I).

[17] I was of the view that Thean J’s citation of Exchange Securities was not intended to be a general rule discouraging the exercise of the jurisdiction and discretion under s 262(3) in favour of a plaintiff. It all depends on the particular circumstances of each application.

[18] Indeed, it was important to bear in mind the facts and arguments in Exchange Securities which led Mervyn Davies J to say what he did. In that case, there were ten applications for leave by nine applicants. As Mervyn Davies J observed at p 195 d:

[20] In the circumstances, I was minded to grant leave, subject to the second issue.

[21] As regards the second issue, s 262(3) of the Companies Act states:

[22] At first reading, the words “no action or proceeding shall be …” appear imperative and mandatory and suggest that leave cannot be granted retrospectively.

[23] In the Wilson case, Milmo J was reported to have said, “The prohibition against issue without leave of the court imposed by section 231 of the Companies Act 1948 was absolute and unqualified”. Section 231 of the Companies Act 1948 was the forebear of s 130(2) of the Insolvency Act 1986.

[24] In NEMGIA, Rattee J said at p 234 i to 235 a:

[25] Before I elaborate on the decision of Lindsay J in Re Saunders, I should set out s 285(3) and s 130(2) of the Insolvency Act 1986. As I have said, the provision applicable before Lindsay J was s 285(3) but he considered that to be similar to s 130(2).

[26] Section 285(3) of the 1986 Act states:

[27] Section 130(2) of the same Act states:

[28] As I have said, s 130(2) is, for present purposes, in pari materia with our s 262(3) Companies Act.

[29] In Re Saunders, a number of plaintiffs had commenced actions against a solicitor Saunders, and also against another solicitor, without learning of Saunder’s bankruptcy and then sought leave under s 285(3) of the 1986 Act to do so. The plaintiffs’ Counsel raised five heads of argument to persuade Lindsay J that he could and should grant leave retrospectively and, hence, not follow the decisions of Milmo and Rattee JJ.

[30] First, they referred to English cases on the forbears of s 130(2).

[31] Secondly, they referred to other English cases on different Acts where leave is apparently required before proceedings may be commenced.

[32] Thirdly, they referred to difficulties or anomalies if a strict literal construction was applied.

[33] Fourthly, they cited Commonwealth cases from Australia, New Zealand, Canada and India.

[34] Fifthly, they raised arguments of injustices and inconveniences if retrospective leave cannot be given.

[35] Lindsay J noted that, apparently, none of the cases cited for the first, second and fourth heads of argument were cited to Milmo and Rattee JJ.

[36] After a comprehensive review of all the heads of argument, Lindsay J concluded that he could and did grant retrospective leave. It is unnecessary for me to quote extensively from the judgment of Lindsay J. Suffice it for me to say that I found his reasoning highly persuasive. However, I had the following additional reasons.

[37] Although no local cases were cited to me with respect to the second issue, it turned out that in The Hull 308, which SIS’ Counsel had cited for the first issue, the Court of Appeal had proceeded on the assumption that it had jurisdiction to grant leave retrospectively although its decision was not to grant leave at all for the reason I have stated.

[38] As regards Commonwealth cases, the solicitors for SIS drew my attention, after further research was done, to a decision by the High Court of Australia in Emanuele & another v Australian Securities Commission & others 144 ALR 359. This decision was given on 5 June 1997 after the 1996 decision of Lindsay J and thus could not have been cited to him. The case of Emanuele also involved the question whether leave could be granted retrospectively. However, I do not propose going into the details of the facts and legislation there as they are different from those before me. Nevertheless, the case is still useful as an illustration of a situation where the High Court of Australian, albeit by a majority of three to two, took the view that leave of court could be granted retrospectively in the face of emphatic language in provisions which appeared to make the obtaining of prior leave mandatory. I would add that although Gaudron J was one of the dissenting judges, he too was inclined to the view that leave could be granted retrospectively in the context of the legislation there, but not after a certain event had taken place i.e a winding up order had been made (see p 375 line 42 to p 378 line 29 of the report). Under the legislation in that case, certain parties who wanted to apply to the court for a company to be wound up in insolvency were required to obtain leave of court before the application for winding up was made.

[39] As regards the argument of injustice and inconvenience, I was also of the view that while a plaintiff can be expected to make a winding up search before commencing action against a company, his search may not divulge the existence of the winding up order if he has mis-spelt the full name of the company.

[40] Moreover, even if the plaintiff has done his search and then commences action, how often will he be expected to repeat his search in the course of the litigation? After all, it may well be that there is no trace of a winding up order or even a winding up petition against the defendant company at the time just before the action is filed, but, after the action is filed, a winding up petition is filed and a winding up order is then made.

[41] As for the advertisement of a winding up petition in the Gazette and in the press, there are times when the advertisements are placed some time after the petition is filed due perhaps to negotiations between the debtor company and the petitioning creditor. What happens to the steps taken by the plaintiff between the date of the filing of the petition and the advertisements?

[42] I was also mindful of the situation where a plaintiff might have been encouraged (or misled, as Lindsay J said at p 77 at F) into commencing or carrying on with his litigation as appeared to be the case before me. Here, both sides knew SIS was in liquidation. The liquidators must also be more familiar with the requirement under s 262(3). Yet no objection was raised by the liquidators, at the material time, to RJ’s counterclaim having been commenced without leave and, indeed, the liquidators were content for this state of affairs to continue until they decided to withdraw SIS’ claim. I do not say that they were under a duty to tell RJ that he was required to obtain leave, but, assuming RJ’s claim had been pursued to a full trial with oral evidence and submissions and that RJ then obtained judgment, could the liquidators be heard to say that the judgment was a nullity since he had not obtained leave and the court had no jurisdiction to grant leave retrospectively? In the absence of clear words in the legislation requiring such a conclusion, I was of the view that such a conclusion could not be right.

[43] As regards an argument that to allow a plaintiff retrospective leave might deprive liquidators, and hence other unsecured creditors, of limitation defences, the counter-argument was that to deny the jurisdiction to grant retrospective leave would be to leave the plaintiff, who had otherwise commenced his action in time, without a remedy. Indeed it was precisely the limitation defences that were of concern to Lindsay J (see p 65 at E and p 75 at G).

[44] In any event, the question about limitation defences brought to the forefront the purpose of s 262(3).

[45] In Re Saunders, Lindsay J said, at p 78H to 79C:

[46] In NEMGIA, Rattee J said, at p 235:

[47] While I accepted that s 262(3) was intended to protect the interests of the creditors of a company in liquidation, I did not, with respect, accept that that would necessarily mean that there should be no jurisdiction to grant leave retrospectively.

[49] Consequently, I did not think that the purpose of s 262(3) was to allow liquidators, and hence other unsecured creditors, an unexpected windfall which would arise if the court does not have jurisdiction to grant retrospective leave and a plaintiff cannot file a fresh action because of limitation defences.

Plaintiff’s application allowed.