Cash in joint account can't be used to pay one party's debts: Court

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The money was not much but the implications were far-reaching for banks and joint-account holders.

The High Court has ruled in a test case that monies in a joint account held in a bank cannot be held for a creditor under a garnishee order to satisfy debts owed by one of the account holders.

Judicial Commissioner Kannan Ramesh made clear that the benefits of introducing such a practice would be outweighed by “the operation, cost and policy difficulties affecting creditors, debtors and third parties alike”.

In judgment grounds released yesterday, he noted the “surprising absence” of any local court ruling on a point of some importance to the banking community.

At issue was $117.34 in a DBS Bank joint account held by businessman Cham Poh Meng and his wife.

Mr Cham had been ordered in January to pay the director of One Investment and Consultancy, a British Virgin Islands company, some $1.5 million in interest following a court-settled spat for sums due under an agreement.

About 10 days later, the director took out a garnishee order against DBS Bank, arguing for the sum in the joint account to be used to settle Mr Cham’s judgment debt.

After hearing the parties, an assistant registrar agreed and approved the garnishee order for half of the total sum in the account, presuming that the contributions by Mr Cham and his wife were equal.

DBS, represented by Allen & Gledhill lawyers Tham Hsu Hsien and Hoh Jian Yong, appealed and argued that joint accounts cannot be subject to garnishee orders and there were no ” policy imperatives” to depart from a principle followed in most Commonwealth countries.

Mr Cham did not appear at the High Court hearing in May while WongPartnership lawyer Nicholas Seng had been instructed by the plaintiffs not to contest the appeal.

JC Kannan held that there was “no basis in law or fact” to assume that husband and wife were each entitled to an equal share of the joint account, pointing out that the “potential prejudice to the joint-account holder or holders was obvious”.

He said there was no chance for Mr Cham’s wife to challenge the garnishee order, which was “potentially unfair” to her as a joint-account holder not required to be notified.

He said even if the decision to freeze half of the money in the account had gone ahead, it would not have stopped Mr Cham from withdrawing the remaining sum.

This would result in his wife bearing the entire burden as all that would remain would be the frozen half.

The judge conceded that the strongest reason for allowing the freeze was that a debtor “could easily ring-fence his assets from creditors by transferring funds into a joint account with a third party”.

But the benefits of allowing garnishee orders to joint accounts would be “disproportionate” to difficulties such as finding out how much each account holder contributed to the account, which the bank was ill-equipped to do.

One way out was for the plaintiffs to apply for a person to be appointed by the court to manage the funds in the joint account, he suggested.

“Whether the balance should lie further in favour of the interests of creditors is a matter best left for legislative reform,” said JC Kannan.


This article was first published on Oct 5, 2016.
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Wednesday, October 5, 2016 – 17:00
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