Re Rasmachayana Sulistyo (alias Chang Whe Ming); ex parte The Hongkong and Shanghai Banking Corp Ltd and Other Appeals

V K Rajah J:

[1] The petitioner is an international financial institution. The three judgment debtors (“the debtors”), all whom are foreign nationals, are former directors of Andover Pte Ltd (“the borrower”) to whom the petitioner extended substantial banking facilities. As part of the security arrangements for the facilities, the debtors signed a “Personal Guarantee and Undertaking” dated 2 August 1996 (“the Guarantee”). When the borrower defaulted on repayment of its loan obligations to, inter alia, the petitioner, the latter commenced proceedings against the debtors to recover the outstanding amounts. Judgments were subsequently entered by the petitioner against the debtors. As the terms of the judgments were not complied with the petitioner thereafter initiated the present bankruptcy proceedings. The petitioner asserts that as at 9 January 2004, ie, the date of the filing of these bankruptcy petitions, each of the debtors was severally indebted to it in the aggregate sums of US$58,064,279.35 and US$27,820.08 exclusive of accruing interest.

[2] Before filing these bankruptcy petitions, several attempts were made by the petitioner to effect personal service of each of the requisite statutory demands on the debtors at various addresses within the jurisdiction. According to the affidavit of service filed by the petitioner’s process server, three different modes of service were employed to serve the statutory demand: the process server left a copy of the demand at the address of the debtors’ nominated forwarding agent in Singapore; the petitioner also issued an advertisement of the notice of the statutory demand in The Straits Times, an English newspaper circulating in Singapore; and, finally, copies of the statutory demands were left at the last known residential addresses, ie, at 331 River Valley Road, #13-02, and 61 Meyer Road, #15-04. The bankruptcy petitions themselves were, however, only served on the debtors’ nominated forwarding agent. In these proceedings, the petitioner relies principally on a contractual stipulation in the Guarantee to assert that proper service of the relevant bankruptcy documents has in fact been duly effected. The debtors vigorously dispute this.

[3] An assistant registrar first heard these petitions on 2 April 2004. When the petitions were heard, the debtors’ counsel launched a root and branch attack on the bankruptcy proceedings; he contended, inter alia, that there was no jurisdictional basis to grant the petitions and that the statutory demands upon which these petitions are predicated had not been effectively served. These contentions were rejected and the petitions for bankruptcy were summarily granted on 10 September 2004: see [2004] SGHC 87. When I heard the appeals against the learned Assistant Registrar’s decision, I dismissed them albeit on altogether different grounds from those relied upon by the learned Assistant Registrar. The debtors now appeal against my decision.

[4] When the appeals came up for hearing before me, the debtors’ counsel conceded that the court did indeed have jurisdiction to hear and grant the relevant petitions. Notwithstanding, counsel resolutely maintained the debtors’ position that on the existing factual matrix, no proper service of process had been effected. First of all, he argued that parties could not contractually obviate the provisions of the Bankruptcy Rules (Cap 20, R 1, 2002 Rev Ed) (“BR”) that mandated personal service of the statutory notice of demand as well as the bankruptcy petition. Secondly, he contended that the actual contractual stipulations did not in any event envisage or sanction the service of bankruptcy-related documents on the nominated forwarding agent. The first contention, given that it raises an issue of some importance to both legal practitioners and the financial community, entails a detailed and proper consideration of the relevant provisions of the BR as well as an evaluation of any underpinning policy considerations.

[5] Prior to addressing the main issues in the present proceedings, I should, however, refer to one of the grounds relied on by the learned assistant registrar. She had held that though the express terms of O 1 r 2(4) of the Rules of Court (Cap 322, R 5, 2004 Rev Ed) (“RC”) ex facie precluded its general application to bankruptcy proceedings, O 62 r 3(2) of the RC which expressly sanctions the service of court process “in such other manner as may be agreed” between the parties, could nevertheless be relied upon by the petitioner ([3] supra, at [5]):

In my view, the learned assistant registrar fell into error by importing wholesale the provisions of the RC into this aspect of bankruptcy procedure. Contrary to what she has suggested, specific provision has indeed been made in the BR to address the issue of service of the various bankruptcy processes: rr 96 and 109 of the BR expressly and specifically deal with the issue of service of statutory demands and bankruptcy petitions. Indeed, r 109(1) of the BR encapsulates not just the concept of personal service but states precisely how such personal service is to be effected:

With all due respect, the learned assistant registrar is incorrect in asserting that the BR “is silent as to how personal service may be effected”.

[6] Section 11(1) of the Bankruptcy Act (Cap 20, 2000 Rev Ed) (“BA”) should only be resorted to in instances where lacunae in procedural issues exist, ie, where no specific provision has been made. This is decidedly not such an instance, in light of the express and fairly comprehensive regime addressing the modalities for service enacted in the BR. The express reference to “any matter of practice or procedure for which no specific provision has been made by this Act or the rules” in s 11(1) of the BA is not to be interpreted as a statutory charter to whimsically fill in any perceived gaps or supposed interstices existing in the BR; rather it should be construed as a safety net to address issues of general procedure/and or schematic issues. There is a patent and critical difference between “no specific provision” which really means the absence of any relevant provision(s), as opposed to any perception of incomplete or inadequate provisions dealing with a particular aspect of procedure. The BR, while specifically stating that personal service of process is to be employed in serving bankruptcy petitions, has, in addition, stipulated in no uncertain terms how such service is to be effected. If the learned assistant registrar’s approach were correct, then virtually the entire RC could be invoked to supplement the provisions of the BR. Such a startling proposition would be tantamount to driving a coach and fours right through the BR by superimposing the RC on it.

[7] Having dealt with the main thrust of the learned Assistant Registrar’s decision, it now remains for me to explain my conclusion on why contractual service of the relevant bankruptcy documents is permissible in the present bankruptcy proceedings. In my view, the crux of the issue is not whether the RC applies or not but whether parties could properly contract out of, waive or modify the relevant provisions of the BR dealing with service of process. In dealing with the issues at hand it will be helpful to first consider the actual contractual stipulations.

[8] Sub-clause 14(F)(1) of the Guarantee states:

[9] The issue of whether or not bankruptcy petitions constitute “proceedings” for the purposes of sub-cl 14(F)(1) in turn depends on the scope of that term. Sub-clause 14(B) of the Guarantee reads:

[10] The requirements for service of the statutory demand are circumscribed by pragmatism and not by an overtly rigid and technical approach. The emphasis is clearly on the reasonableness of the steps being taken to bring to the debtor’s attention the existence of the relevant statutory demand. Rule 96 of the BR stipulates:

[11] Rule 108 expressly requires proof of service of the statutory demand to be filed in support of the bankruptcy petition. It states:

The legislative scheme vide r 9(3) and r 108(3) of the BR accepts that alternative modes of service other than personal service are permissible as far as the statutory demand is concerned.

[12] Rule 109(1) of the BR, which deals with the service of the bankruptcy petition, provides:

[13] Rule 110 of the BR addresses the issue of substituted service of a bankruptcy petition. It states:

[14] Interestingly, counsel’s research did not unearth any cases in Singapore or England dealing with this point, that is to say, the extent of the parties’ autonomy to provide for contractual service of bankruptcy-related documents outside the statutorily-prescribed procedures. Admittedly, a conservative school of thought prevails among some academics as reflected in the older treatises advocating that bankruptcy proceedings are sui generis and that the draconian effects accompanying a change of status merits nothing less than the actual personal service of all bankruptcy processes; failing that, only court-sanctioned substituted service would suffice. The foundation for such an approach is arguably to be found in the dicta of Bowen LJ in Re Howes, ex parte Hughes [1892] 2 QB 628 at 632:

[15] In this context it is pertinent to note that earlier versions of the English rules of civil and bankruptcy practice also took a strict and uncompromising view of personal service of process. Non-compliance of prescribed procedures would almost invariably be treated as vitiating proceedings. Not surprisingly, the English courts adopted a symmetrical approach in applying the then strict rules of personal service in civil matters to bankruptcy matters. In Re A Debtor [1939] 1 Ch 251 at 256–257, Greene MR observed:

The rules of personal service of process in civil proceedings have now been relaxed to allow for and recognise contractual arrangements for service of process. As a matter of principle, it is appropriate to reassess why the old rigid, doctrinaire approach for service of process in bankruptcy matters advocated by older case law should continue to hold sway and be unthinkingly applied by the court today.

[16] The legitimacy of providing for contractual service of process outside the statutory scheme has previously been appraised in Singapore in the context of the winding-up regime for insolvent companies. In Re Griffin Securities Corporation [1999] 3 SLR 346, the service of a winding-up petition on the company’s solicitors in lieu of the company’s registered office was the subject of a spirited challenge. Rule 25(1) of the Companies (Winding-Up) Rules (Cap 50, R 1, 1990 Rev Ed) (“CWUR”) stipulates:

[17] Rajendran J was not impressed by the contention that the CWUR provides an exhaustive and mandatory code for service of process on insolvent companies. He pointedly and correctly observed at [19]:

[18] In a similar vein, Knox J had earlier observed in the English case of Re Fletcher Hunt (Bristol) Ltd [1989] BCLC 108 at 113:

[19] It should also be noted that the word “shall” is not invariably used in a mandatory sense in the bankruptcy regime. As in the case of the RC it is often used as a convenient and abbreviated reference indicating a directory rather than mandatory tilt in the legislative scheme. Perhaps the best evidence of pragmatism in approaching the BR (and its English progenitor) is to be found in the observations of Lord Esher MR in Re Lord Thurlow, ex parte Official Receiver [1895] 1 KB 724 at 728–729:

[20] The bankruptcy rules on service of process are mandatory in the sense that there must be actual or deemed service of the various processes but only directory in the sense that the indicated method of service has not been exclusively prescribed. There is nothing in the BR or BA pointing to the existence of a legislative scheme for an exclusive code of procedure for personal service. More importantly, there is nothing in the BR that precludes or militates against consensual arrangements for service of processes. In my view, the freedom to contract should not be fettered unless there is a clear contrary indication from the language used or from the purport of the relevant legislative provisions and/or underpinning public interest considerations. The objectives of insolvency legislation will continue to be well served by sanctioning agreements between competent contracting parties on personal issues such as the modalities of service and notice. The principal purposes of such legislation are to prevent fragmentation of assets and to sterilise certain legal rights of an insolvent debtor and these objectives are clearly not contravened or impeded by consensual arrangements on such issues.

[22] While, for example, an attempt to contract out of the pari passu rules relating to the distribution of assets would prejudice other creditors or third parties and would be patently contrary to the policy of the BA and BR, the procedures relating to service of bankruptcy processes are an altogether different matter, arising in a different context. Strictly speaking, they are a personal issue inter se between the creditor and the debtor. Public policy should not and does not intrude into such arrangements. The statutory directive and legislative predisposition for personal service is designed to protect the debtor by ensuring actual notice of the relevant steps before the statutorily-sanctioned change of legal status is implemented apropos an insolvent debtor. It is clearly not an inalienable statutory right or process but rather a protective mechanism that can be contractually modified. It stands to reason that, as a matter of general principle, where a procedural rule is intended to benefit a particular party, that party ought to be able to waive or modify compliance with that particular rule.

[23] It is a general principle of law that a person can renounce a right introduced for his benefit. The maxim “quilibet potest renunciare juri pro se introducto” (see Broom, A Selection of Legal Maxims (10th Ed, 1939) at p 477) when translated means “anyone may, at his pleasure, renounce the benefit of a stipulation or other right introduced entirely in his own favour”. In applying this principle it is essential to have an identifiable beneficiary. In this instance of procedure dealing with the service of process the intended beneficiary is undeniably the debtor. There are no conceivable issues of unfairness or impropriety when an independent contracting party enters into an agreement with his eyes wide open and agrees to certain modalities for service and the requisite procedure for deeming effective notice of legal proceedings.

[24] In any event there is nothing in the BR that either expressly or impliedly indicates that failure to adopt and comply with the precise terms of the statutory directives on service would be fatal, thereby ineluctably precluding alternative modalities for service. It is also pertinent to note that r 278 of the BR expressly stipulates, inter alia, that “Non-compliance with any of these Rules or with any rule of practice shall not render any proceedings void unless the court so directs…” This very plainly and emphatically articulates the legislative intent of according precedence to substance over form and/or technicalities. The elusive historical approach of characterising procedural provisions as either directory or mandatory is largely anachronistic today. The preferred approach in modern times in determining the validity of an Act is to understand the purpose of the relevant procedural rule as well as the scope and intent of the governing statute. This approach does not entail ignoring the usage of words such as “shall” or “must” in legislation. It suggests that any prima facie inference raised by such words may be dislodged after taking into consideration the scope and objectives of the legislation and the consequences arising from alternative constructions.

[25] Finally, there is much to be said for the attainment and implementation of a symmetrical approach in dealing with this procedural thicket vis-à-vis both insolvent debtors and companies. After all, the objectives of and policy considerations relating to bankruptcy and liquidation mirror each other in many essential aspects. Both procedures signal a change in the status of the debtor. To protect the community at large, the debtor is prevented by the abasement of his or its contracting status from pursuing further commercial activity. Both procedures herald the onset of a process that permits the equitable and fair distribution of the assets of the insolvent debtor amongst creditors. The maxim “equity is equality” is the underpinning policy percolating through all aspects of insolvency, whether corporate or personal. As mentioned earlier, public policy will require the court to intervene and avoid contractual provisions that purport to exclude or modify the principle of pari passu distribution whether in bankruptcy or liquidation.

[26] Given the underlying similarity between both processes and in light of the fact that the procedure pertaining to service of winding-up proceedings may be contractually agreed upon (see [17]–[18]), it is only logical that a similar approach be adopted for bankruptcy proceedings. The BR does not ex facie preclude this approach. On the contrary it appears to support this by providing inter alia that substituted service of the bankruptcy petition is permissible in such manner as the court thinks fit: r 110(1) of the BR. This clearly signifies legislative sanction for “reasonable” steps to be taken in order for notice to be deemed to be properly effected. Furthermore it should be noted that the emphasis in r 96 of the BR as regards the statutory notice is once again on reasonable steps being taken. If the BR contemplates and sanctions the adoption of reasonable steps in drawing the debtor’s attention to proposed or actual bankruptcy proceedings, why should the parties not resolve this issue themselves by prior agreement at the outset by agreeing on what in fact constitutes reasonable steps?

[27] This underlying philosophy of pragmatism and substantial justice permeates through the entirety of the BA and BR and is further exemplified by s 158(1) of the BA which states in no uncertain terms:

This is reinforced in s 11(2) of the BA which reads:

[30] To conclude this consideration of the rules of service in bankruptcy proceedings, I refer to the endorsement by the House of Lords in Kenneth Allison Ltd v A E Limehouse & Co [1992] 2 AC 105 of Lord Donaldson’s astute and succinct summary of the approach to be taken in relation to the rules of court in dealing with the issue of personal service in civil proceedings (at 119–120 per Lord Bridge of Harwich):

[31] In my estimation the maxim pacta privata juri publico derogare non possunt (which means that a public right is not overridden by the agreements of private persons) does not apply in the context of the modalities of service of processes under the BR. In the final analysis, if parties agree on what constitutes effective personal service, as they did in the existing factual matrix, this can hardly be considered as objectionable in any way.

[32] It is not disputed that the relevant statutory notices of demand and the bankruptcy petitions were served on the process agent in accordance with sub-cl 14(F)(1) of the Guarantee. It is also noteworthy that in the appeals the debtors’ counsel had not complained that the debtors did not have de facto notice of the statutory demand and/or the bankruptcy petition. The debtors through their counsel, however, vigorously and adamantly contend that the relevant contractual provisions have no application to bankruptcy proceedings. Those provisions, it is argued, apply only to ordinary civil proceedings or in instances where an actual “dispute” has arisen.

[33] The answer to this controversy lies in the construction to be accorded to the word “proceedings” appearing in sub-cl 14(F)(1) of the Guarantee and the contractual definition apparently attributed to that word in sub-cl 14(B).

[34] It is immediately apparent that there are actually two clearly-demarcated limbs in sub-cl 14(B) of the Guarantee. The first part of the definition or “first limb” commences with the words “the parties irrevocably agree” and concludes with the phrase “rules of UNCITRAL”. The second part or “second limb”, which defines the term “proceedings”, begins with the words “any legal actions or proceedings” and ends with the words “or arbitration tribunals”. The critical portion of the second limb clarifying the definition of “proceedings” is the phrase “any legal actions or proceedings arising out of or in connection with this agreement”.

[35] It is plain that the first limb deals expressly with the right of the secured parties to commence proceedings in the courts of Singapore or the Singapore International Arbitration Centre (“SIAC”) at their discretion. It is in effect a non-exclusive jurisdiction clause inserted for the benefit of the petitioner and other secured parties. As a consequence of this express manifestation of intention in sub-cl 14(B) of the Guarantee, the debtors are precluded from raising any jurisdictional issues apropos the courts of Singapore or SIAC in relation to any dispute arising “out of or in connection with” the Guarantee. The first limb does not purport to define the term “proceedings”. I reiterate that the intention to employ the term “proceedings” as a defining term is only found in the second limb. I also note that the words “and that accordingly” have been inserted as a preface to the second limb. This can only mean that the second limb should be viewed as arising consequentially from the agreement reached in the first limb, ie, the non-exclusive submission to the courts of Singapore and the SIAC by, inter alia, the debtors.

[36] Counsel for the debtors strenuously contended that bankruptcy proceedings were not embraced by sub-cl 14(B) of the Guarantee as there was no “dispute” involved or arising in these bankruptcy proceedings. Judgment had already been entered against all the debtors. It was not disputed that the debtors owed to the petitioner the adjudicated amounts. It was further asserted that bankruptcy proceedings are in essence executionary steps and not proceedings revolving around a dispute in the true sense of the word. I had no hesitation in dismissing these nebulous contentions. With respect, his contention was akin to using the tail to wag the dog.

[37] The phrase “legal action or proceedings” has a wide intent and purport both in the Guarantee and in everyday usage. Steps in bankruptcy ought to be regarded as proceedings for the purposes of the Guarantee. For instance, Pt VI of the BA that outlines court procedures in bankruptcy matters is captioned “Proceedings in Bankruptcy” [emphasis added]. This part of the BA inter alia deals with bankruptcy petitions and orders. There are indeed many other such references in both the BA and the BR. Interestingly enough, Pt VI of the BR which includes steps pertaining to the onset of bankruptcy commencing from the statutory demand is captioned “Proceedings in Bankruptcy”. Indeed it bears mention that r 109 of the BR, on which the debtors rely as purportedly having stipulated a mandatory code for personal service is also to be found in this very part of the BR.

[38] For completeness I should add that the word “action” is also to be viewed as having an extensive meaning and scope. For example, in Re A Debtor [1997] 2 WLR 57, the court held that bankruptcy proceedings to be commenced in relation to a stale default judgment was an “action” which was time-barred.

[39] Counsel for the debtors additionally contended that the words “legal action or proceedings” should be narrowly interpreted, given that other provisions in the Guarantee referred to the terms “enforcement”, “execution” and “attachment” as separate and distinct terms from the term “proceedings”. As a consequence, he tenuously argued, the term “proceedings” was only intended to encompass civil proceedings without extending to include steps in execution such as attachments or enforcement proceedings and hence did not embrace bankruptcy proceedings. I do not agree with this. The tenor of the Guarantee suggests nothing in principle or on construction that warrants whittling down the otherwise broad intent encapsulated by the term “proceedings”. The use of the word “any” preceding and in juxtaposition to the words “legal action or proceedings” illustrates an intention to cast a wide net to embrace every conceivable variety of legal proceeding. Indeed, the nebulous basis of this argument becomes manifest when reference is made to sub-cl 14(G) of the Guarantee which states:

In addition, assuming arguendo that these bankruptcy proceedings are not considered to be proceedings stricto sensu, they are in any event incontrovertibly “legal action[s]” in connection with “Proceedings”.

[40] It is overly simplistic to refer to bankruptcy proceedings purely as enforcement or attachment proceedings. Bankruptcy proceedings, like winding-up proceedings, involve the initiation of a process to alter the legal status of an insolvent debtor. It is in effect a collective and representative action on behalf of all creditors to ensure equal distribution of the available assets of an insolvent debtor. In this regard, I find the observations of Millet J (as he then was) in Re International Tin Council [1987] 1 Ch 419 at 455–456 particularly instructive:

These observations are of similar relevance and import in the context of bankruptcy proceedings.

[41] Finally, it must also be noted that the phrase “arising out of or in connection with [the] Agreement” has a wide and generous meaning and would in the existing context encompass matters having both a direct and indirect nexus with the Guarantee; see Sabah Shipyard (Pakistan) Ltd v Government of the Islamic Republic of Pakistan [2004] 3 SLR 184 at [18]. The bankruptcy proceedings commenced by the petitioner irrefutably arose “in connection with” the undertaking given by the debtors in the Guarantee.

[42] In the circumstances there are, in fact, no meritorious grounds available to the debtors to resist these bankruptcy petitions. The debtors were plainly attempting to frustrate the petitioner’s legitimate rights by raising a multitude of arid, if not fatuous, contentions in a misguided and desperate attempt to evade the consequences of failing to honour their contractual responsibilities and undertakings.