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RECENT NOTABLE CASE
Schemes of Arrangement v Common Law Actions

In late November 2011, Tito and Seng Giap appeared as Counsel before the Court of Appeal on behalf of a long-standing client of the firm, on a question of law involving the continued viability or otherwise of a common law claim (against our client) for personal injuries when our client had undergone and completed a Scheme of Arrangement pursuant to Section 210 of the Companies Act.

The Appeals in question were lodged by our client, after the said question of law was not answered in our client’s favour by the High Court.

Brief facts, insofar as material, are inter alia as follows:-

• The Respondents (i.e. the injury victims) sustained injuries in different industrial accidents in August 2007 and February 2008 respectively;

• Both Respondents shortly after their respective accidents also commenced workmen’s compensation claims against our client via the Ministry of Manpower;

• In August 2008, our client embarked on its Scheme of Arrangement after the same had been approved by the requisite majority of creditors as well as the High Court (n.b. our offices were not involved in the drafting and operation of the Scheme);

• The Scheme was intended to compromise all creditors’ claims except for (insofar as is material for the current case) claimants who had workmen’s compensation accrued due to them – these would be paid in full and with priority;

• The Scheme was successfully completed and terminated in May 2009;

• However, both Respondents did not “participate” in the Scheme. In other words, they did not cast their vote for approval of the Scheme, nor did they file any Proof of Debt under the Scheme;

• Both Respondents subsequently withdrew their respective workmen’s compensation claims and commenced the common law actions against our client in August 2009 and March 2010 respectively;

• Our client then applied for a summary determination of these 2 claims on the aforementioned question of law and which was answered in the negative by the High Court in April 2011, thus leading to the present Appeal.

Both at first instance and upon appeal, the bastions of our client’s case revolved around the following points:-

• Schemes of Arrangements must have finality and certainty to them, for otherwise would undermine the whole intention, purpose and policy behind such Schemes;

• It thus follows that any creditor of our client who did not lodge his common law claims as prescribed by the terms of the Scheme would have such claims entirely extinguished and even so after successful completion of the Scheme;

• However, if the Respondents had maintained their workmen’s compensation claims, according to the explicit terms of the Scheme, any payment due to them thereunder would not be within the ambit of the Scheme: the Respondents would instead be paid their workmen’s compensation claims in full – this liability cannot be avoided by our client.

The Respondents’ positions can be briefly summarised inter alia as follows:-

• First, the Respondents were not Creditors under the Scheme as their claims against our client were covered by a policy of insurance and therefore the legislative policy pertaining to Schemes of Arrangement was not affected should their common law claims be allowed to stand;

• Second, the terms of the Scheme do not prevent any common law claims from being commenced or sustained against our client, in particular claims for unliquidated damages arising in tort;

• Third, local case law clearly establishes that workmen’s compensation claims do not prejudice any common law claims;

• Fourth, the Scheme does not have such effects following its completion so as to completely preclude or extinguish the Respondents’ common law claims;

• Fifth, the Proof of Debt form attached to the Scheme, which Creditors are to fill up in order for their claims to be considered, was formatted in such a manner which did not cater for unliquidated claims such as the Respondents’.

All these arguments by the Respondents were rejected by the Court of Appeal (Chao Hick Tin, Andrew Phang and VK Rajah JJA presiding).

The Court of Appeal had also enquired whether, in the event our client’s appeal was allowed, the Respondents would still have recourse to their prior workmen’s compensation claims.

This question we answered in the affirmative, supported by written evidence originating from the Ministry of Manpower.

In the circumstances, the Court of Appeal allowed our client’s appeal with the usual consequential orders. The net effect, in our opinion, would be that the Respondents’ common law claims against our client are accordingly dismissed.