Re: OCEAN TANKERS (PTE.) LTD

Facts

Ocean Tankers (Pte) Ltd applied on 6 May 2020 to be placed under judicial management under the Companies Act and was placed under judicial management on 7 August 2020, before the Insolvency, Restructuring and Dissolution Act 2018 (IRDA) came into force. On the judicial managers' application in HC/CWU 117/2021, filed on 12 July 2021, it was wound up on 16 August 2021, and the judicial managers became its liquidators.

The company had chartered vessels to a debtor, whose identity was anonymised. After the judicial management began, the debtor started an arbitration against the company, and the company counterclaimed for unpaid freight. The debtor then took two assignments of claims against the company from a related company in its group (the assignor). The first covered a claim over missing petroleum products on Vessel A, which had merged into an overseas default judgment against the company. The second covered claims concerning cargo on Vessel B, a storage agreement containing a non-assignment clause, and a document issued by the company recording a cargo transfer which, on the debtor's pleaded case, falsely recorded that transfer. The debtor raised the assigned claims in the arbitration as a set-off. The judicial managers said the debtor was trafficking in claims to cut its liability. They applied in HC/SUM 3297/2021 for a declaration that the assignments were void, and in HC/SUM 2989/2021 for directions on whether legal or insolvency set-off could be asserted for claims assigned after judicial management began.

Issues

1. Whether the assignment of the Vessel B claims was barred by the non-assignment clause, and whether a prohibited assignment still takes effect in equity or as a trust.
2. Whether any of the assigned claims were bare rights to litigate that could not be assigned, and whether the debtor had a genuine commercial interest in them.
3. Whether the debtor could rely on legal set-off for a claim assigned after the judicial management order.
4. Whether insolvency set-off applied on the winding up, including when mutuality is tested for a company placed in judicial management under the Companies Act, whether its assets were held on a statutory trust, and whether the s 219(3) IRDA exclusions applied.

Holding

S Mohan J allowed the judicial managers' applications in part. The declaration was granted only for the second assignment: the Vessel B claims assignment was void or ineffective as a champertous assignment of bare rights to litigate. The first assignment, of the default judgment debt, was valid. The court declined to answer the first question on legal set-off as hypothetical. It answered the second question in the affirmative as to insolvency set-off, holding that insolvency set-off on the assigned judgment debt took effect immediately before the winding up commenced, so there was no need to address legal set-off. Costs were reserved.

Reasoning

The non-assignment clause, which referred to the transfer of rights and obligations under the agreement, covered only contractual rights, not the tort claim based on the document. Following Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, an assignment in breach of such a clause is ineffective at law and in equity, and the deed showed an absolute transfer, not a trust.

A judgment debt is assignable like any other debt, and a default judgment is still a judgment, so the first assignment was valid. The Vessel B claims had not become judgments and were bare rights to litigate. They were not ancillary to any property transfer, since the contractual rights were not assigned and the document claim depended on them. Group membership alone gave no genuine commercial interest; the debtor took the claims only to use them as a set-off.

Legal set-off is not self-executing and must be given effect by a judgment or, the judge held, an arbitral award by a tribunal with jurisdiction over both claims. None had been made while the company was in judicial management, so the first question was hypothetical.

For insolvency set-off, the IRDA's definitions and its transitional provision in s 526 showed that a company placed in judicial management under the Companies Act is not a company in judicial management under s 219. So mutuality was tested just before the winding up commenced. No statutory trust arises over a company's assets in judicial management, which aims to keep the company going, not distribute its assets. Mutuality therefore existed. Neither s 219(3) exclusion applied.

From the judgment