DBS Bank v Tam Chee Chong: Unfair Preference & Judicial Management

DBS Bank Ltd appealed against the High Court's decision to set aside a charge granted by Jurong Hi-Tech Industries Pte Ltd (under judicial management) to DBS, arguing it was not an unfair preference. The Court of Appeal dismissed the appeal, finding that JHTI's decision to grant the charge was influenced by a desire to improve DBS's position over other creditor banks in the event of JHTI's insolvency. The court found no proper commercial consideration for the charge, reinforcing the conclusion that JHTI had positively wished to improve DBS’s position in the event of its insolvency.

1. Case Overview

1.1 Court

Court of Appeal

1.2 Outcome

Appeal Dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

DBS Bank's appeal was dismissed, affirming the trial judge's decision that a charge granted by Jurong Hi-Tech Industries was an unfair preference.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
DBS Bank LtdAppellantCorporationAppeal DismissedLost
Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management))RespondentOtherJudgment for RespondentWon

3. Judges

Judge NameTitleDelivered Judgment
Chan Sek KeongChief JusticeYes
Andrew Phang Boon LeongJustice of the Court of AppealNo
V K RajahJustice of the Court of AppealNo

4. Counsels

Counsel NameOrganization
Tan Chuan ThyeStamford Law Corporation
Kevin KwekStamford Law Corporation
Linda Esther FooStamford Law Corporation
Pradeep PillaiShook Lin & Bok LLP
Sarjit Singh GillShook Lin & Bok LLP
Zhang XiaoweiShook Lin & Bok LLP

4. Facts

  1. JHTI was a wholly-owned subsidiary of JTIC, a public company listed on the Singapore Exchange.
  2. DBS provided banking facilities to the Companies, subject to negative pledges and pari passu distribution.
  3. Ms. Lin, Chairman of JTIC, informed DBS of the Companies’ financial position and potential asset sales.
  4. The Companies faced financial difficulties due to the global recession and credit crunch.
  5. DBS continuously pressed for payment of short-term loans from the proceeds of sale of MAP Shares.
  6. Ms. Lin signed a security document creating the Charge on 74,411,620 MAP shares.
  7. The Companies were placed under judicial management on 20 February 2009.

5. Formal Citations

  1. DBS Bank Ltd v Tam Chee Chong and another (judicial managers of Jurong Hi-Tech Industries Pte Ltd (under judicial management)), Civil Appeal No 230 of 2010, [2011] SGCA 47

6. Timeline

DateEvent
DBS offered banking facilities to the Companies.
DBS agreed to provide banking facilities to the Companies jointly and severally.
Ms. Lin presented the Companies’ financial position to DBS.
The Companies’ total borrowings reached S$340m.
JHTI deposited 18.6m MAP shares with ABN-AMRO.
ABN-AMRO requested that the MAP Shares be put in a custodian account.
The Companies encountered significant financial difficulties.
JTIC signed a non-binding term sheet with Global Emerging Markets (GEM).
Ms. Lin signed a security document which created the Charge.
The Security Memorandum was fully executed.
JTIC announced an investigation into alleged irregularities.
KordaMentha Pte Ltd called a meeting of all the Creditor Banks.
DBS registered the particulars of the Charge with the Accounting and Corporate Regulatory Authority.
The Companies received letters of demand from KBC, Maybank, ABN-AMRO, OCBC and BTMU.
Trade creditors filed actions in court to recover their debts.
The Companies were placed under judicial management.
JHTI’s judicial managers commenced proceedings against DBS.
The Judge allowed the application, holding that the Charge was an unfair preference and JHTI was insolvent.
Judgment reserved.

7. Legal Issues

  1. Unfair Preference
    • Outcome: The Court of Appeal held that the Charge was an unfair preference under s 227T of the Companies Act, read with s 99 of the Bankruptcy Act.
    • Category: Substantive
    • Sub-Issues:
      • Desire to prefer creditor
      • Influence of desire on decision
      • Proper commercial considerations
    • Related Cases:
      • [2011] 2 SLR 310
      • [1990] BCLC 324

8. Remedies Sought

  1. Order to set aside the Charge

9. Cause of Actions

  • Application to set aside a charge as an unfair preference

10. Practice Areas

  • Commercial Litigation
  • Banking Litigation
  • Insolvency Litigation

11. Industries

  • Banking
  • Finance
  • Electronic Manufacturing Services

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Tam Chee Chong and another v DBS Bank LtdHigh CourtYes[2011] 2 SLR 310SingaporeThe decision from which this appeal arose, holding that the charge was an unfair preference under s 227T of the Companies Act.
Sharp (Official Receiver) v Jackson and othersHouse of LordsYes[1899] AC 419United KingdomCited for the principle that the debtor must have a dominant intention of preferring the creditor before the relevant transaction could be set aside, a principle that has been superseded.
Lin Securities Pte v Royal Trust Bank (Asia) LtdHigh CourtYes[1994] 3 SLR(R) 899SingaporeCited for the principle that the debtor must have a dominant intention of preferring the creditor before the relevant transaction could be set aside, a principle that has been superseded.
Re MC Bacon LtdHigh CourtYes[1990] BCLC 324United KingdomSeminal decision on the scope of s 239 of the Insolvency Act 1986 (UK), which introduced the test of whether the debtor was influenced by a subjective desire to prefer a specific creditor.
Re Libra Industries Pte Ltd (in compulsory liquidation)High CourtYes[1999] 3 SLR(R) 205SingaporeCited as an example of a Singapore case that has cited with approval and followed Re MC Bacon Ltd.
Amrae Benchuan Trading Pte Ltd (in liquidation) v Tan Te Teck GregoryHigh CourtYes[2006] 4 SLR(R) 969SingaporeCited as an example of a Singapore case that has cited with approval and followed Re MC Bacon Ltd.
Leun Wah Electric Co (Pte) Ltd (in liquidation) v Sigma Cable Co (Pte) LtdHigh CourtYes[2006] 3 SLR(R) 227SingaporeCited as an example of a Singapore case that has cited with approval and followed Re MC Bacon Ltd.
Liquidators of Progen Engineering Pte Ltd v Progen Holdings LtdHigh CourtYes[2010] 4 SLR 1089SingaporeCited as an example of a Singapore case that has cited with approval and followed Re MC Bacon Ltd.
Buildspeed Construction Pte Ltd (in liquidation) v Theme Corp Pte Ltd and anotherHigh CourtYes[2000] 1 SLR(R) 287SingaporeCited for the apt comments of Lim Teong Qwee JC in Buildspeed Construction Pte Ltd (in liquidation) v Theme Corp Pte Ltd and another [2000] 1 SLR(R) 287 at [50]–[52] regarding the drafting oversight in s 329 of the CA.
Re Conegrade LtdUnknownYes[2003] BPIR 358United KingdomCited for Lloyd J's explanation of the logical implications of the subjective statutory test for unfair preference.
Re Fairway Magazines Ltd; Fairbairn v HartiganUnknownYes[1993] BCLC 643United KingdomCited for the principle that if the company is influenced by ‘proper commercial considerations’ and not by a ‘positive wish to improve the creditor’s position in the event of its insolvent liquidation’, then the debenture will be valid.
Re Sweetmart Garment Works Ltd (in liquidation)UnknownYes[2008] 2 HKLRD 92Hong KongCited for the principle that evidence of the desire to improve the position of a particular creditor may be express or inferential.
Watt or Thomas v ThomasHouse of LordsYes[1947] AC 484United KingdomCited for the principle that an appellate court will not ordinarily disagree with the findings of fact of the trial judge, especially where he has heard oral testimony and has based his findings on his evaluation of the witnesses’ credibility.
Chow Yee Wah & Anor v Choo Ah PatPrivy CouncilYes[1978] 2 MLJ 41MalaysiaCited for the principle that an appellate court will not ordinarily disagree with the findings of fact of the trial judge, especially where he has heard oral testimony and has based his findings on his evaluation of the witnesses’ credibility.
Chartered Electronics Industries Pte Ltd v Comtech IT Pte LtdHigh CourtYes[1998] 2 SLR(R) 1010SingaporeCited for the principle that an appellate court will not ordinarily disagree with the findings of fact of the trial judge, especially where he has heard oral testimony and has based his findings on his evaluation of the witnesses’ credibility.
First Wyoming Bank v MudgeSupreme Court of WyomingYes(1998) 748 P 2d 713United StatesCited for the principle that a creditor who induces the debtor to breach the latter’s negative pledges to other creditors may be liable for the tort of interfering with the contractual relations of the debtor with those creditors.
Coöperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International, Singapore Branch) v Jurong Technologies Industrial Corp Ltd (under judicial management)Court of AppealYes[2011] SGCA 48SingaporeCited as a related appeal, Civil Appeal No 5 of 2011.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed) s 227TSingapore
Bankruptcy Act (Cap 20, 2000 Rev Ed) s 99Singapore
Companies Act (Cap 50, 2006 Rev Ed) s 329Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Unfair preference
  • Judicial management
  • Negative pledge
  • Pari passu
  • Charge
  • Insolvency
  • Creditor Banks
  • MAP Shares
  • Security Memorandum
  • GEM Deal

15.2 Keywords

  • Unfair preference
  • Judicial management
  • Insolvency
  • Charge
  • DBS Bank
  • Jurong Hi-Tech Industries
  • Bankruptcy Act
  • Companies Act

17. Areas of Law

Area NameRelevance Score
Unfair Preference90
Judicial Management80
Bankruptcy75
Company Law70
Banking and Finance60
Pari Passu55
Negative Pledge55
Contract Law50
Commercial Disputes40

16. Subjects

  • Insolvency
  • Corporate Law
  • Banking
  • Finance