Bankruptcy | Carriage by Air and Land


Sia Leng Yuen v HKR Properties Ltd [2002] 1 SLR 83
High Court - Originating Summons (Bankruptcy) No 600073 of 2001 (Registrar's Appeal No 600158 of 2001)
Lee Seiu Kin JC
23 October, 1 November 2001

Statutory demand - Setting aside - Whether statutory demand regular - Whether statutory demand should have stated that creditor held security for debt - Debt arising from non-payment of guarantee - Whether security provided by borrower became security from guarantor pursuant to consent order under which creditor agreed to release security to guarantor upon receiving payment from guarantor - Whether security provided by borrower constituted 'security for the debt' for purposes of r 94(5) of Bankruptcy Rules (Cap 20, R 1, 1996 Ed) or 'security in respect of the debt' for purposes of r 98(2)(c) of Bankruptcy Rules (Cap 20, R 1, 1996 Ed) - Bankruptcy Rules (Cap 20, R 1, 1996 Ed) rr 94(5) & 98(2)(c)

Intekhab Khan (J Koh & Co) for the appellant.
Liew Yik Wee (Wong Partnership) for the respondent.

The respondent ('HKR') lent US$3m to Murex Co Ltd ('Murex'), the developer and owner of Blue Canyon Country Club ('BCCC'). Pursuant to the loan agreement, Murex issued to HKR 250 new club memberships in BCCC as security for the loan. HKR agreed to extend the time for repayment of the loan in consideration of the appellant ('Sia') unconditionally guaranteeing payment of Murex's debt to HKR. Sia duly executed this guarantee. When Murex failed to pay HKR, HKR commenced an action against Sia to recover the debt pursuant to the guarantee. That action was settled and the parties entered a consent order on 12 January 2000. The consent order provided for judgment against Sia, for Sia to make payment by various instalments, and for execution proceedings to be taken out against Sia only in the event of default. Paragraph 3 of the consent order further provided as follows: 'With the receipt of each payment, [HKR] will release to [Sia] the number of memberships based on the amount received, rounded down to the nearest number of memberships. The value of each membership to be fixed at USD23,500.'

Sia made some payment pursuant to this consent order but defaulted on the rest. On 1 March 2001, HKR issued a statutory demand pursuant to s 62 of the Bankruptcy Act (Cap 20, 2000 Ed) to Sia to demand the remaining sum, which was around US$2.2m. Sia's application to set aside the statutory demand was dismissed by an assistant registrar. Sia appealed on the ground that HKR had failed to state in the statutory demand that HKR held the new club memberships as security for the loan.

Rule 94(5) of the Bankruptcy Rules (Cap 20, R 1, 1996 Ed) provides that if a creditor holds 'any property of the debtor or any security for the debt', there shall be specified in the statutory demand the full amount of the debt and the nature and value of the security or assets. Rule 98(2)(c) of the Bankruptcy Rules provides that the court shall set aside the statutory demand if it appears that the creditor holds 'assets of the debtor or security in respect of the debt claimed by the demand, and either r 94(5) has not been complied with, or the court is satisfied that the value of the assets or security is equivalent to or exceeds the full amount of the debt'. Sia's counsel argued that even if it was Murex that had provided the security, it was nevertheless 'security for the debt' for the purposes of r 94(5) of the Bankruptcy Rules, so that the statutory demand should be set aside by the court pursuant to r 98(2)(c) of the Bankruptcy Rules.

Held, dismissing the appeal with costs:
The club memberships were not issued by Sia, who was the guarantor of the loan, but by Murex. The club memberships did not become security from Sia pursuant to the consent order. Paragraph 3 of the consent order merely stated that upon receipt of each instalment, HKR was to release to Sia a number of memberships depending on the amount repaid. As a general proposition, there is no logic in any creditor agreeing with the debtor as to the value of any security he holds. The usefulness of any security lies in the ability of a creditor to dispose of it and use the proceeds to repay the debt. If there is a shortfall, the creditor would normally look to other means to enforce the debt. In certain situations, eg where the creditor is prepared to keep the chattel he holds as security, he might agree with the debtor as to its value and, in default of payment, the creditor would obtain ownership of it with the agreed value accruing to the debtor. The present case was clearly not a situation where the creditor had agreed on the value of a security. The club memberships were not issued by Sia but by Murex. As the guarantor against whom HKR had proceeded, Sia would be entitled by way of subrogation to the club memberships held by HKR as security for the loan. The consent order recognised this and provided for HKR to release to Sia the security it held in proportion to the instalment payments. The fixing of the value of each club membership at US$23,500 was in order to determine the appropriate number to release at each stage. It would be for Sia to dispose of the memberships and account to Murex for them. It was not possible to construe para 3 of the consent order as providing that the club memberships constituted security given by Sia.

As regards the argument that even if it was Murex that had provided the security, it was nevertheless 'security for the debt' for the purposes of r 94(5) of the Bankruptcy Rules, in Re Loh Lee Keow, ex p Keppel TatLee Bank [2001] 2 SLR 503, the court held that on a proper interpretation of the Bankruptcy Rules made under the Bankruptcy Act, the word 'security' in rr 94(5) and 98(2) meant 'security on the property of the debtor'. In the present case, the security for the debt was not provided by the debtor, ie Sia, but by Murex. Following Re Loh Lee Keow, it would not be necessary to state in the statutory demand the fact that HKR held the club memberships as security as they were not Sia's property. While this would put the principal debtor in a better position than the guarantor in that the former has the benefit of the security but not the latter, that appears clearly to be the intention of the legislation. In the premises, the statutory demand was regular and the assistant registrar was correct in refusing to set it aside.


Philips Hong Kong Ltd v China Airlines Ltd [2002] 1 SLR 57

High Court - Magistrate's Court Suit No 21209 of 1999 (Registrar's Appeal No 600008 of 2001)
Kan Ting Chiu J
12, 21 July, 6 December 2001

Carriage by air - Limitation of carrier's liability under Warsaw Convention as amended by the Hague Protocol - Computation of number of packages lost or damaged under art 22(2) - Warsaw Convention as amended by the Hague Protocol art 22(2)

Yap Yin Soon (Allen & Gledhill) for the appellant/plaintiff.
Robert Wee (Ho & Wee) for the respondent/defendant.

The consignor Philips Singapore Pte Ltd shipped 1,000 cellular digital spark transceivers from Singapore to Hong Kong to the consignee and plaintiff, Philips Hong Kong Ltd. The transceivers were shipped with the defendant, China Airlines Ltd. An airway bill was made out by the consignor under art 6 of the Warsaw Convention as amended by the Hague Protocol ('the Convention') stating the 'No. of pieces' as '1' and the gross weight as 154kg. In the consignor's invoice attached to the airway bill, the entry under 'Packing List' was '1 pallet'. The pallet arrived at Hong Kong damaged, with a shortage of 440 transceivers of a total value of US$74,360.

The plaintiff accepted that it was not entitled to recover the full value of the 440 lost transceivers and that its claim was limited by art 22(2) of the Convention. Article 22(2)(a) of the Convention states, inter alia, that in the carriage of registered baggage and of cargo, the liability of the carrier is limited to a sum of 250 francs per kilogram whereas art 22(2)(b) states, inter alia, that in the case of loss, damage or delay of part of registered baggage or cargo, or of any object contained therein, the weight to be taken into consideration in determining the amount to which the carrier's liability is limited shall be only the total weight of the package or packages concerned. The Carriage by Air (Singapore Currency Equivalents) Order (Cap 32A, O 2, 1990 Ed) sets the equivalent of 250 francs at $49.58.

After the shortfall in delivery was discovered the defendant requested for the packing details of the transceivers. They received a revised invoice showing eight cartons of 112 transceivers and one carton of 104 transceivers. Four cartons containing 440 transceivers were missing. The total weight of those four cartons was 60kg.

The parties disagreed over whether in applying art 22(2)(b) of the Convention, the compenstion was to be limited on the basis of one package of 154kg as the plaintiff contends, or four packages of a total of 60kg according to the defendant. If it was the former, the compensation payable was $7,635.32 but by the latter, it was $2,974.80.

The question went before a deputy registrar who held that compensation should be computed on the latter basis. The plaintiff appealed against the decision to a district judge and failed. The plaintiff then appealed to the High Court.

Held, allowing the appeal:
Article 11(2) of the Convention states, inter alia, that the statements in the airway bill relating to the weight, dimensions and packing of the cargo, as well as those relating to the number of packages, are prima facie evidence of the facts stated. Once the number of packages is fixed and stated in the airway bill, that is prima facie the number of packages for the purposes of the Convention. As long as the number stated is a correct figure, it will apply.

When the number of packages was stated as '1' in the airway bill, it was a proper description. The defendant was obliged by art 11(2) of the Convention to acknowledge that the number of packages was correctly stated as '1'.