In the recent Court of Appeal decision in SCK Serijadi Sdn Bhd v Artison Interior Pte Ltd (“SCK Serijadi”), the Court of Appeal made clear that the service of a garnishee order nisi does not turn a judgment creditor into a secured creditor.
Brief facts. The appellant (employer) obtained a judgment against the respondent (contractor) for $250,000.00. In due course, the appellants obtained and served two garnishee order nisi on the garnishee on 15 September 2017 and 2 October 2017.
On 4 October 2017, the appellant’s solicitors informed the respondent’s solicitors of the show cause hearings for both applications fixed on 10 October 2017.
On 6 October 2017, the respondent’s solicitors informed the appellant that the respondent had been placed under creditors’ voluntary winding up on 5 October 2017.
The appellant accordingly filed an application to High Court for leave to proceed with the garnishee proceedings and to be allowed to retain the benefit of the attachment as against the liquidator.
The key issue was whether the service of the garnishee order nisi rendered the appellant a secured creditor. This is because in general, the court would more readily grant leave for secured creditors to proceed with enforcing their security under s. 299(2) Companies Act.
Service of garnishee order nisi did not render the judgment creditor a secured creditor. Both the High Court and the Court of Appeal held that the appellant was not a secured creditor by virtue of the service of the garnishee order nisi.
In this regard, the Court of Appeal made clear that the language of “equitable charge” should be jettisoned in the context of garnishee proceedings, and held that the effect of the service of a garnishee order nisi is simply that provided in O 49 r 3(2) Rules of Court.
This provision “which is in the form of a rule of civil procedure, does not create substantive or proprietary rights from thin air, and is a prohibition that is in some aspects akin to an injunction… the service of the garnishee order nisi did not create any security interest which rendered the appellant a secured creditor.”
Need to show inequity. Both the High Court and the Court of Appeal held that a judgment creditor would need to show some form of “inequity” to justify the granting of leave, such as in Re Grosvenor Metal Co, Ltd [1949] 2 All ER 948 where “execution had been stalled by representations expressly made by the judgment debtor.”
In particular, the Court of Appeal stated that while “the appellant might not have intentionally attempted to steal a march on other creditors, that would be the effect of granting leave. The inquiry is not whether or not the judgment creditor did anything wrong – the statute draws a line between complete and incomplete executions and attachments, and where the judgment creditor falls on the wrong side of the line, it is for him to show that the equities of the case nonetheless justified a different treatment.”
Implications. SCK Serijadi therefore makes clear that the service of a garnishee order nisi does not render a judgment creditor a secured creditor for the purposes of s. 299(2) Companies Act.
However, more importantly, SCK Serijadi is a reminder of the importance of ensuring that executions are completed timeously, lest the judgment creditor be caught wrong-footed by unforeseen and unplanned for exigencies.
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