Marina Bay Sands Pte Ltd v Osuki Yohei [2019] SGHCR 07

Bankruptcy No 359 of 2019 (“B 359”) is an application by the plaintiff, Marina Bay Sands Pte Ltd, for a bankruptcy order to be made against the defendant, Osuki Yohei. B 359 is founded on a statutory demand dated 17 December 2018 (the “SD”). Not unusually, the plaintiff’s solicitors purported to serve the SD by mailing, pursuant to the parties’ agreement, a copy of the SD to the defendant’s last known business address. Unusually, however, the SD was returned unclaimed. Was the SD validly served in such circumstances? Counsel for the plaintiff, Mr Victor Choy, submitted that it was. After hearing Mr Choy on two occasions, I reserved judgment. This is my decision.

Background facts

Pursuant to this judgment, the plaintiff issued the SD for the sum of $2,030,598.65. The SD was dated 17 December 2018. Two days later, on 19 December 2018, the plaintiff’s solicitors mailed a copy of the SD in a prepaid envelope by way of certificate of posting via Singapore Post Limited to the defendant’s last known business address. This was pursuant to cl 10 of a Credit Agreement between the plaintiff and the defendant (“cl 10”), which provided as follows:

As it turned out, however, the SD was returned unclaimed to the plaintiff’s solicitors with the remark “[n]o such name/company”.

Relying on the SD and the presumption under s 62(a) of the Bankruptcy Act (Cap 20, 2009 Rev Ed) (the “BA”) (see [9] below), the plaintiff commenced B 359 against the defendant on 13 February 2019. The application was mailed to the defendant in a similar manner as the SD.

B 359 first came up for hearing before me on 14 March 2019. The defendant was absent. However, I was prepared to give him a chance as this was the first hearing, and therefore adjourned B 359 for four weeks. At this hearing, I also highlighted to Mr Choy my concern that the SD was returned unclaimed. To this, Mr Choy submitted that service was nonetheless successful and briefly brought me through two High Court decisions: Re Rasmachayana Sulistyo (alias Chang Whe Ming), ex parte The Hongkong and Shanghai Banking Corp Ltd and other appeals [2005] 1 SLR(R) 483 (“Rasmachayana”) and Oversea-Chinese Banking Corp Ltd v Measurex Corp Bhd [2002] 2 SLR(R) 684 (“OCBC”). At the end of the hearing, I invited Mr Choy to put in written submissions for the next hearing, if he thought this necessary.

The defendant was again absent at the next hearing on 11 April 2019. Mr Choy did not take up my invitation to put in written submissions, but maintained his earlier position in oral submissions. He emphasised that the operative word in cl 10 (see [3] above) was “sending”. As I understand it, the crux of Mr Choy’s submissions was that the act of sending the SD alone was sufficient for there to be valid service; whether the SD was delivered was a separate (and irrelevant) issue.

The law on service of statutory demands

The BA and the Bankruptcy Rules (Cap 20, R 1, 2006 Rev Ed) (the “BR”) prescribe a comprehensive list of requirements in respect of a creditor’s bankruptcy application. For present purposes, it suffices to refer only to some of the key provisions relating to service of statutory demands.

Section 61(1)(c) of the BA provides that one of the cumulative grounds of a bankruptcy application is that “the debtor is unable to pay the debt or each of the debts”. Section 62(a) of the BA then creates a rebuttable presumption in favour of s 61(1)(c) of the BA when, in a creditor’s bankruptcy application: (a) the debt is immediately payable; (b) the creditor has served on the debtor in the prescribed manner, a statutory demand; (c) at least 21 days have elapsed since the statutory demand was served; and (d) the debtor has neither complied with it nor applied to set it aside:

The “prescribed manner” of service referred to in 62(a)(i) of the BA is in turn set out in r 96 of the BR. Rule 96(2) of the BR contemplates personal service as the default modality of service. However, r 96(3) of the BR allows for substituted service when a creditor is not able to effect personal service:

Notwithstanding the modalities of service set out in r 96 of the BR, it is settled law that parties can contractually agree on alternative modalities of service (Rasmachayana at [10]–[31]). Accordingly, statutory demands may be served by: (a) personal service; (b) substituted service; and (c) contractually-agreed modalities of service.

Analytical framework

There is no question that the plaintiff was entitled to effect service in the way that it did (see [3] and [11] above). There would therefore have been valid service of the SD at, or at least shortly after, the time the SD was mailed. The difficulty in the present case arises because the SD was subsequently returned unclaimed (see [4] above). The central question that has to be answered is whether the SD was validly served in such circumstances. This depends on the answer to two subsidiary issues:

(a) first, whether, as a general principle, a statutory demand can be validly served when it is returned unclaimed (the “General Issue”); and

(b) second, whether the parties’ agreement in this specific case covers a situation where the statutory demand is returned unclaimed (the “Specific Issue”).

If the General Issue is answered in the negative, that will be the end of the matter. The conclusion that must follow is that the SD was not validly served. However, if the General Issue is answered in the positive, it will still be necessary to consider the Specific Issue. It is only if the Specific Issue is similarly answered in the positive that the conclusion will follow that the SD was validly served.

The General Issue

I first consider the General Issue. This is whether, as a general principle, a statutory demand can be validly served when it is returned unclaimed. It will be helpful to approach this from two perspectives: (a) precedent; and (b) first principles.

The precedent perspective

Turning first to precedent, both Rasmachayana and OCBC, which were the decisions relied on by Mr Choy, were decisions of High Court Judges. If the present case cannot be distinguished, I would be bound by the ratio decidendi of these decisions (Peter Low LLC v Higgins, Danial Patrick [2017] SGHCR 18 at [31]). In my view, however, neither Rasmachayana nor OCBC provides a direct answer to the General Issue.

In Rasmachayana, the High Court noted (at [21]) that the “crux of the matter” in that case was whether parties could contractually agree on alternative modalities of service. The High Court’s concern was, therefore, with the modalities of service, and not with whether there was service at all. Accordingly, while Rasmachayana settles the issue as to whether parties can contractually agree on alternative modalities of service, it does not shed light on the further issue as to what happens when such alternative modalities of service fail. This latter issue did not arise in Rasmachayana: there was no complaint that the debtors in that case did not have de facto notice of the statutory demand and/or the bankruptcy petition (Rasmachayana at [32]).

This final point is also significant because it gives rise to a critical difference between Rasmachayana, on the one hand, and the present case, on the other. In Rasmachayana, the debtors were represented by counsel. This was the case on appeal (ie, in Rasmachayana itself), as well as at first instance (The Hongkong and Shanghai Banking Corp Ltd v Rasmachayana Sulistyo alias Chang Whe Ming [2004] SGHC 87). It must have therefore been the case that the debtors became aware of the bankruptcy proceedings against them at some point or another. In the present case, there is no evidence that the defendant is even aware of B 359. In fact, the evidence points to the contrary. As I have noted earlier, the application (which bore the hearing date of the first hearing on 14 March 2019) was mailed to the defendant in a similar manner as the SD (see [5]) above). Mr Choy informed me, however, that it was similarly returned unclaimed with the same remark. Mr Choy then informed the defendant of the second hearing on 11 April 2019 by sending a notice of the adjournment pursuant to r 122(3) of the BR. However, this was also returned unclaimed with the same remark. In all likelihood, the defendant remains unaware of B 359 even up till now, and Mr Choy very fairly accepted as much.

As for OCBC, the defendant in that case (“M-Bhd”) had executed two deeds of guarantee which provided, among other things, that service of process in any legal action or proceedings in Singapore against M-Bhd shall be deemed to be good service on M-Bhd if served on its subsidiary (“M-Singapore”), which was named the process agent in Singapore for the purpose of receiving such process on behalf of M-Bhd. The writ was served on M-Singapore. At the time the writ was served, M-Singapore was under judicial management, and it was alleged that the judicial managers did not forward or notify M-Bhd of the writ. Judgment in default of appearance was entered against M-Bhd, and M-Bhd claimed that it came to know of the writ and the default judgment only subsequently. M-Bhd argued, among other things, that the service of the writ was irregular. The High Court rejected this contention. The relevant clause in the deeds of guarantee was cl 33(2), which is set out at [40] below. The High Court held (at [14]) that:

In my view, OCBC is distinguishable from the present case in several respects. First, OCBC concerned service of a writ. It did not involve a bankruptcy application. This is significant because service of bankruptcy processes is governed by an entirely different set of rules and procedures (Rasmachayana at [5]–[6]). Second, M-Bhd ultimately came to know of the proceedings against it, even if this was (on M-Bhd’s case) only after default judgment had been entered. The present case stands in sharp contrast (see [17] above). Third, one can perhaps understand the High Court’s reluctance to find that service of the writ was irregular. M-Singapore was not only M-Bhd’s subsidiary, but also the beneficiary of the banking facilities which M-Bhd had guaranteed. Notwithstanding that the two were separate legal entities, one cannot help but notice some artificiality in the argument that service on M-Singapore was not sufficient. Fourth, M-Bhd had possible recourse against M-Singapore. As the High Court noted (at [14]; see [18] above), whether M-Singapore forwarded the writ to M-Bhd or not was “a matter between M-Bhd and M-Singapore”. No such possible recourse exists in the present case.

In the premises, neither Rasmachayana nor OCBC provides a direct answer to the General Issue. In addition, My Choy informed me that he had not managed to find any other authority that was factually on point. Precedent, therefore, is silent on the General Issue.

The first principles perspective

Precedent being silent on the General Issue, it becomes necessary to consider the General Issue from first principles. In this regard, the High Court in Rasmachayana held (at [20]) that:

While the second part of the above passage deals with the issue of whether parties can contractually agree on alternative modalities of service, the first part is a statement of general principle. It cannot be seriously disputed that there can be no actual service when a statutory demand is returned unclaimed. If there is any valid service at all, such service must necessarily be deemed service. However, I am of the view that there cannot be deemed service of a statutory demand that is returned unclaimed.

First, it is linguistically and conceptually difficult to conclude that there can be deemed service of a statutory demand that is returned unclaimed. Linguistically, it is contradictory to say that there is deemed service (which is a form of valid service) when there has been, as a matter of fact, no service. Conceptually, deemed service covers, in my view, situations where the Court does not know whether there has been actual service, but is prepared to accept that there is valid service notwithstanding. One instance where the Court would be prepared to do so is where service has been effected via a contractually-agreed modality of service (see [11] above). At some risk of oversimplification, the position can be summarised as follows:

I stress that this summary is simply an aid for the purposes of the present analysis. Although it should apply in most circumstances, it is not intended to be an exhaustive categorisation. But seen in this light, deemed service is really just a proxy for actual service. It fills in evidential gaps relating to actual service in certain situations. However, a proxy, by definition, cannot be the diametrical opposite of the very thing it is a proxy for. Deemed service (which is a form of valid service) cannot, conceptually, cover situations where the Court knows that there has been no actual service.

Second, to conclude that there can be deemed service of a statutory demand that is returned unclaimed would require the Court to shut its eyes to reality. It cannot, in my judgment, be correct for the law to allow a legal conclusion that is fundamentally at odds with factual reality.

Third, the service requirements in our bankruptcy regime are closely tied to the notion of notice. In the case of statutory demands, r 108(3)(d) of the BR provides as follows:

In a similar vein, the High Court in Rasmachayana drew a link between service and notice, holding (at [21]) that:

The fact that the service requirements in our bankruptcy regime are closely tied to the notion of notice is significant. If this is correct, then it cannot be said that there is deemed service of a statutory demand if the debtor has had no notice of the same (which would be the case where the statutory demand is returned unclaimed).

Returning to r 108(3)(d) of the BR (see [26] above), this provision, in my view, leaves no room for a situation where the statutory demand is returned unclaimed. In such a situation, the person who makes the affidavit proving service of the statutory demand is simply unable to specify the relevant date because he knows that the statutory demand would not come to the debtor’s attention. In fact, this is evident from Mr Choy’s Affidavit of Service of Statutory Demand under Section 62 of the Bankruptcy Act. In this affidavit, Mr Choy deposed as follows:

Presumably, this was meant to comply with r 108(3)(d) of the BR. However, the choice of words is telling. Mr Choy could only say when he believed the SD “was served”. He could not depose to when, to use the language of r 108(3)(d) of the BR, the SD “would have come” to the defendant’s attention. The SD having been returned unclaimed, Mr Choy knew for a fact that the SD would not come to the defendant’s attention.

Fourth, and finally, the provisions governing the bankruptcy regime are ultimately enacted to secure substantial justice (Rasmachayana at [28]). If there can be deemed service of a statutory demand that is returned unclaimed, then what would follow, if all the other requirements are satisfied, is the making of a bankruptcy order. Although the consequences of a bankruptcy order should not be overstated (Rasmachayana at [29]), the fact remains that a bankruptcy order results in the transformation of the legal status of the debtor (Rasmachayana at [21]; see [27] above). Given this consequence, it would not be substantially just for the Court to make a bankruptcy order when it knows that there has been no actual service of the statutory demand which forms the basis of the bankruptcy application. This is especially so when the debtor remains unaware of the bankruptcy application (which is, in all likelihood, the case as regards the defendant (see [17] above)). For the Court to proceed to make a bankruptcy order in such circumstances would, in my assessment, result in precisely what the High Court in Rasmachayana cautioned against (at [28]): substantial injustice.

For the above reasons, I am of the view that there cannot be deemed service of a statutory demand that is returned unclaimed. First principles, therefore, answer the General Issue in the negative.

Conclusion on the General Issue

Drawing the various threads together, precedent is silent on the General Issue (see [20] above), but first principles answer it in the negative (see [32] above). The net result is that the General Issue is answered in the negative: as a general principle, a statutory demand cannot be validly served when it is returned unclaimed. I make two further points at this juncture.

First, the above analysis does not impose on a creditor a requirement to verify whether there has been actual service of the statutory demand on the debtor. It is clear from [23] above that valid service does not require knowledge of actual service. There can still be valid service in the form of deemed service when the Court does not know whether there has been actual service, but is prepared to accept that there is valid service notwithstanding. The main point of the above analysis is that there cannot be deemed (and, therefore, valid) service of a statutory demand when the Court knows that there has been no actual service of the same.

Second, I accept that that the above analysis is not without its difficulties. For instance, the High Court in Rasmachayana noted (at [23]) that it is a general principle of law that a person can renounce a right introduced for his benefit, and that in the instance of procedure dealing with the service of process the intended beneficiary is undeniably the debtor. At the same time, the above analysis can be sidestepped so long as parties agree to a mode of service that does not allow the creditor to know whether service has been successful. Further, in a case such as the present, the state of service would effectively change, somewhat artificially, from deemed service to no service. Notwithstanding these difficulties, the line must be drawn at some point. For the reasons set out at [23]–[31] above, I am satisfied that the present case falls safely on the wrong side of the line.

The Specific Issue

As I have answered the General Issue in the negative (see [33] above), it is not, strictly speaking, necessary for me to go on to consider the Specific Issue (see [13] above). Nonetheless, I will proceed to briefly do so for completeness. To recapitulate, the Specific Issue is whether the parties’ agreement in this specific case covers a situation where the statutory demand is returned unclaimed.

The parties’ agreement in this specific case can be found in cl 10, which I reproduce again for ease of reference:

What is evident is that cl 10 does not expressly state that the “process or documents” shall be deemed validly served on the defendant whether or not the “process or documents” are successfully delivered, or something to similar effect. This contrasts the relevant clauses in both Rasmachayana and OCBC.

In Rasmachayana, the relevant clause read (see Rasmachayana at [8]):

Similarly, in OCBC, the relevant clause read (see OCBC at [14]):

In my view, cl 10 does not go so far as to cover a situation where the “process or documents” are returned unclaimed. In the usual course, items sent by ordinary post are delivered. Thus, when the parties agreed in cl 10 for the plaintiff to effect service on the defendant by sending by ordinary post, the assumption must have been that the “process or documents” so sent by the plaintiff would be delivered to the defendant. If the parties had intended for cl 10 to also cover a case where delivery has not been successful (such as when the “process or documents” are returned unclaimed), this would have been expressly provided for.

I should also add (very briefly, as this point was not put to Mr Choy) that even if I am wrong on the above, the most that can be said of cl 10 is that it is ambiguous. In this case, the contra proferentem rule would operate so as to resolve the ambiguity against the plaintiff.

Either way, the Specific Issue is answered in the negative: the parties’ agreement in this specific case does not cover a situation where the statutory demand is returned unclaimed.

Conclusion

I have concluded that, as a general principle, a statutory demand cannot be validly served when it is returned unclaimed (see [33] above). Returning to the framework set out at [13] above, it follows that the SD was not validly served. However, even if I am wrong on this point, the parties’ agreement in this specific case does not cover a situation where the statutory demand is returned unclaimed (see [43] above). Accordingly, the same conclusion would result: the SD was not validly served.

Rule 127 of the BR prescribes the circumstances where the Court shall dismiss a creditor’s bankruptcy application. These include: (a) where the creditor is not entitled to make the bankruptcy application by virtue of s 60, 61 or 62 of the BA; and (b) where, in a case where the application is based on a statutory demand, the creditor has not discharged the obligations imposed on him by r 96 of the BR:

I deal first with r 127(c) of the BR. This provision refers to r 96 of the BR, which deals with the requirements as to service of a statutory demand. Rule 96 of the BR has been partly set out at [10] above, but it does not deal with contractually-agreed modalities of service. While an argument can be made that r 127(c) of the BR should nevertheless apply in the present case, it is not necessary to go so far because r 127(a) of the BR clearly applies in any event. Section 62(a) of the BA (which the plaintiff relies on (see [5] above)) only creates a rebuttable presumption in favour of s 61(1)(c) of the BA when, among other things, the creditor has served on the debtor in the prescribed manner, a statutory demand (see [9] above). Since the SD was not validly served, no such presumption is triggered. Section 61(1)(c) of the BA is not satisfied and the plaintiff is not entitled to make B 359.

In the circumstances, I dismiss B 359 pursuant to r 127(a) of the BR. It is not necessary for me to consider if the other requirements of the BA and the BR are satisfied. For the avoidance of doubt, my decision does not affect the plaintiff’s right to take out a fresh bankruptcy application on the same debt, if it manages to subsequently comply with the applicable requirements.