Joint bank accounts may come under more scrutiny in debt chase

Singapore

CREDITORS can now legally seize money held in joint bank accounts under certain circumstances, the High Court ruled in a landmark judgment last month, departing from its previously-held position that joint accounts cannot be garnished as doing so may be unfair to the banks and the other innocent holders of joint accounts.

While lauding the ruling's potential for enhancing equity in cases of bad debt, some lawyers told The Business Times it may not dramatically up the number of applications to garnish joint accounts, due to the high burden of proof required.

In Singapore, a creditor can take various steps to enforce a judgment against a debtor if the latter refuses to comply. Serving a garnishee order is one such method, where the courts will direct a third party "garnishee" that owes money to the debtor, to instead pay this money to the creditor.

Garnishee orders can also be made on banks and financial institutions, compelling them to freeze the debtors' accounts. Creditors can then recover the amounts they are owed from the accounts.

Where there is a strong prima facie basis (in Latin, prima facie means "at first look" or "on its face") for concluding that all the money in a joint account belongs to the debtor, the account can now be garnished to satisfy a judgment debt, ruled Justice Aedit Abdullah last month.

"To hold otherwise would permit debtors to insulate their assets by holding them in joint accounts, and would result in an arbitrary positon where the recoverability of a judgment debt depended in large part on the manner in which the debtor had decided to organise his finances," the judge said in a ruling made public on Aug 11.

"Such a position would unduly undermine the position of judgment creditors, and would permit judgment debtors to, fortuitously or otherwise, frustrate the rulings of a court."

Ushan Premaratne, a litigation and arbitration partner at Withers KhattarWong, said this case demonstrates the court's desire to take to task people who skirt the law to avoid payment.

But it sets a high threshold for invoking garnishee orders on joint accounts that may be difficult to satisfy, he said, noting also that there is no consensus across the bar on what makes a "strong prima facie" case.

Benedict Teo, a director of Drew & Napier's dispute resolution team, said this ruling represents "an important development for parties looking to enforce judgments or arbitral awards in Singapore".

"With cases of bad debts likely to continue increasing amid the Covid-19 pandemic, this will offer creditors another avenue for recourse," he said.

But Mr Teo also felt that it may not increase the number of applications for such orders as it may be difficult for creditors to meet the requirement of having good evidence that funds in the joint account wholly belong to the judgment debtor. They may be exposed to significant liabilities, otherwise.

In cases where such applications are brought before the courts, there may also be an added inconvenience to the banks, he pointed out, as they may now have to appoint solicitors to appear on their behalf in such garnishee hearings.

In the landmark case, the plaintiff, Timing Limited, sought to enforce an arbitral award against two defendants, private equity firm Pacific Star Holdings and its owner, Tay Toh Hin. When the defendants failed to satisfy the judgment, the case was brought before the court, which heard that Mr Tay jointly held with his wife four Standard Chartered accounts.

The court heard that Mr Tay had used one of these accounts as his "primary account". He also acknowledged that the monies were paid to him personally and "do not belong to (his) wife".

Mr Tay also said he had transferred money from "my Standard Chartered Bank (account) to DBS... to my wife for maintaining household expenses", Justice Aedit pointed out.

Based on these admissions, the plaintiff had contended that monies in all four Standard Chartered accounts were in fact beneficially owned by Mr Tay, "who treated them as his personal accounts".

What Justice Aedit heard was the plaintiff's appeal against an earlier decision that the joint accounts cannot be garnished because there was insufficient evidence to show that all the funds in the joint accounts wholly belonged to Mr Tay.

Previous rulings here and in other Commonwealth jurisdictions had set such a precedent, pointing to how allowing garnishing of such accounts would be unfair to innocent joint account holders.

There was also the argument that a bank does not typically track the source of funds, and establishing that would require a full factual investigation. Banks could incur significant financial and administrative costs to determine whether or not funds held in joint accounts can be released.

In this case, however, the court found that there was strong evidence, including via the defendant's own testimony, that all the money in the joint account belongs to him.

In his ruling, Justice Aedit imposed three requirements, for future cases of applicants seeking to garnish joint bank accounts, to minimise practical difficulties highlighted by past rulings. First, the burden is on the applicant to show a strong prima facie case that all the money in the joint account sought to be garnished belongs to the debtor.

The applicant, and not the bank, should also be the one to serve notice of the garnishee application.

Finally, the applicant must undertake to pay for any costs and reasonably foreseeable losses of the garnishee, or joint account holders, if it is shown that the funds subject to the court order do not belong to the judgment debtor.