TONGHUAI @ NANHANG PTE.LTD. v TEO FOOK KEONG

Facts

Tonghuai @ Nanhang Pte Ltd lent money to V Spec Engineering & Supplies Pte Ltd under three loan agreements in 2022, for $300,000, $200,000 and $190,000. Each loan was guaranteed by three individuals, including the respondent, Mr Teo Fook Keong. The respondent and Mdm Wong Lai Kuan, the registered proprietors of a property, also signed documents authorising the applicant to lodge a caveat over it. On 31 October 2022 the applicant lodged a caveat claiming an interest in the sale proceeds of the property.

The respondent became a bankrupt on 5 January 2023. His private trustees took the view that the caveat had been wrongfully lodged and asked for its withdrawal. After the proprietors applied to the Singapore Land Authority to cancel the caveat as vexatious, the Authority gave notice that it would be cancelled unless a court order was served. Because the respondent was a bankrupt, the applicant needed the court's permission under s 327(1)(c)(ii) of the Insolvency, Restructuring and Dissolution Act 2018 to bring proceedings against him on the caveat's validity. It applied by Originating Application No 328 of 2023. The private trustees did not object, though they maintained that there was no caveatable interest.

Issues

1. Whether permission should be granted to commence proceedings against the bankrupt respondent on the validity of the caveat.
2. What standard applies when assessing the merits of a proposed claim at the permission stage.
3. Whether the applicant was entitled to its costs under the indemnity clause in the authorisations to caveat.

Holding

Goh Yihan JC allowed the application and granted an order in terms of the first prayer, giving the applicant permission to commence the proceedings. He declined to award the applicant costs under the indemnity clause and ordered costs to be in the cause.

Reasoning

The judge applied the factors listed in Wang Aifeng v Sunmax Global Capital Fund 1 Pte Ltd and another [2022] SGHC 271. The application was brought promptly after the notice was served, the validity of a caveat could not be decided within the bankruptcy regime, there was no discernible prejudice to other creditors, and the private trustees did not object.

On the merits, Salbiah bte Adnan v Micro Credit Pte Ltd [2015] 1 SLR 601 held that a mere contractual interest in sale proceeds is not caveatable, but other decisions took a different view and there was no binding Court of Appeal ruling. The judge held that the standard is a serious question to be tried, as with interlocutory relief, drawing on Korea Asset Management Corp v Daewoo Singapore Pte Ltd (in liquidation) [2004] 1 SLR(R) 671. That threshold balances two concerns: the court should not examine the merits in detail at this stage, yet it should not permit sterile litigation that would waste the bankrupt's resources. The applicant's position was not unarguable, so the merits did not count against permission, although they did not strongly favour it either.

On costs, the trustees could not complain that the applicant chose to apply while themselves not objecting. But the indemnity clause covered only actions and claims brought against the applicant, not an application the applicant itself brought, so costs were left to follow the outcome of the further proceedings.

From the judgment