Arab Banking Corp v United Overseas Bank Ltd

JudgeChao Hick Tin J
Judgment Date28 March 1991
Neutral Citation[1991] SGCA 5
Citation[1991] SGCA 5
Defendant CounselWoo Bih Li and Claire Wong (Allen & Gledhill)
Published date19 September 2003
Plaintiff CounselSarbjit Singh (Lim & Lim)
Date28 March 1991
Docket NumberCivil Appeal No 111 of 1988
CourtCourt of Appeal (Singapore)
Subject MatterWhether appellants were subsequent incumbrancer of the property as their charging order absolute was not registered against the property with the Registry of Deeds,Mortgaged property sold by respondents,Sums due and payable to respondents under guarantee,Whether mortgagee obliged to hold surplus moneys from the sale on trust for a subsequent incumbrancer,Execution creditor having no notice of act of bankruptcy or of bankruptcy proceedings against debtor,Guarantees and indemnities,Whether creditor's claim to surplus sum from sale affected by bankruptcy of debtor,Creditor's rights under execution,Insolvency Law,Sale completed and proceeds received by mortgagees before debtor adjudicated bankrupt,O 50 r 1 Rules of the Supreme Court 1970,Surplus from sale,s 26(3) Conveyancing and Law of Property Act (Cap 61),s 49 Bankruptcy Act (Cap 20),Bankruptcy,Mortgage of real property,Guarantees,Credit and Security,Set-off,ss 2 & 4 Registration of Deeds Act (Cap 269, 1989 Ed),Statutory power of sale of mortgaged property,Mortgagee’s power of sale,Whether respondents entitled to set-off debt against surplus,Mortgaged property sold under statutory power of sale

Cur Adv Vult

This is an appeal against the decision of Lai Kew Chai J in which he dismissed the claim of the appellants against the respondents for the sum of $845,285.13 representing the balance of the proceeds of sale of several plots of land marked on the Government Resurvey Map as lots 749, 753, 755 and 756 of Town Subdivision 25 and situate at Nassim Road. We shall refer to these plots of land collectively as `the property`.

The relevant facts giving rise to the appeal are briefly these.
The property at all material times, prior to the sale, was beneficially owned by one Sng Hock Seng (Sng); the legal estate thereof was vested in another person, Sim Lek Tee (Sim), who, by a deed of trust dated 7 July 1981, declared that he held the property in trust for Sng, the latter having paid the entire consideration for the purchase of the property. By two indentures of mortgage dated 6 July 1983 and 7 June 1984 respectively, the property was mortgaged to the respondents to secure the account of Sim with the respondents and the payment of all moneys owing from Sim from time to time to the respondents, in aggregate, up to the limit of $1,200,000. We shall refer to these two indentures jointly as `the mortgages`. Though Sim was a bare trustee of the property, the mortgages were expressed to secure his indebtedness and other liabilities to the respondents, and it is not clear from the terms of the mortgages whether they were executed by Sim at the request and for the benefit of Sng. However, nothing turns on this and no question arises as to the propriety or validity of the mortgages.

Between the dates of these two mortgages, Sng executed two guarantees: one guarantee dated 2 March 1984 in favour of the appellants and the other guarantee dated 16 March 1984 (which he executed together with four others) in favour of the respondents, and both guarantees were expressed to guarantee the due payment of all moneys and liabilities owing from a company called City Securities (Pte), now in liquidation (City Securities).
In 1986 or thereabout, City Securities became insolvent, and as of 2 July 1986, the amount due and owing from City Securities to the appellants was US$2,922,040.64. The appellants instituted legal proceedings against Sng and four others, who had each executed similar separate guarantees to the appellants, for recovery of this amount in Suit No 4032 of 1986; judgment was entered against them on 31 July 1986. Following that, the appellants instituted execution proceedings against Sng and obtained a charging order nisi on the property on 7 August 1986. The charging order nisi was registered against the property with the Registry of Deeds on 12 August 1986. About three months later, the appellants on 3 October 1986 obtained a charging order absolute and on 10 October 1986 an order for appointment of a receiver to enforce the charge. Both these orders, however, were not registered against the property with the Registry of Deeds.

In October 1986 or thereabout, Sim was in default of payment of moneys due to the respondents under the mortgages, and on 21 October 1986, the respondents in exercise of the statutory power of sale entered into an agreement for the sale of the property at the price of $1,600,000, and the sale was completed on 22 January 1987.
The proceeds of sale were applied by the respondents in settlement of the amount due under the mortgages and costs and other expenses incurred, and there remained a surplus of $845,285.13. It is this amount that forms the subject matter of dispute between the appellants and the respondents, which we will discuss in a moment.

On 27 January 1987, Sng committed an act of bankruptcy, in that he failed to comply with the requirements of a bankruptcy notice taken out against him by Hill Samuel Merchant Bank Asia Ltd.
However, the receiving order and the adjudication order were not made against him until about one year later, on 29 January 1988. It is not clear whether the appellants had, at any time, any notice of the act of bankruptcy committed by Sng; there was no evidence to show that they had. It certainly appears from the correspondence in exchange between the respective solicitors for the appellants and respondents that neither of them had any notice of Sng`s act of bankruptcy or the bankruptcy proceedings taken against Sng at any time up to the date when the receiving and adjudication orders were made against him.

We now come to the dispute between the appellants and the respondents.
The appellants claimed the surplus amount of $845,285.13 on the ground that they held a charge on the property, the charge being created by the charging orders, and that under s 26(3) of the Conveyancing and Law of Property Act (Cap 61) (the CLPA), the respondents were constituted a trustee of this amount and were obliged to pay it to the appellants as the subsequent incumbrancer. The respondents rejected this claim. They maintained that the process of obtaining the charging orders is a form of execution of the judgment against Sng and that the appellants had not completed execution at the date when the receiving order and the adjudication order were made against Sng. The respondents further maintained that they were entitled to set off against this amount the sum due and payable to them by Sng under the guarantee dated 16 March 1984.

The appellants therefore brought proceedings by way of Originating Summons No 720 of 1988 against the respondents claiming the sum of $845,285.13.
The claim was resisted. It was heard before Lai Kew Chai J who dismissed it, holding that the appellants had not completed execution of the judgment against Sng within the meaning of s 49 of the Bankruptcy Act (Cap 20) and, in the alternative, the respondents had a right to set off against this amount the sum due to them from Sng under the guarantee. He said:

Learned counsel for the defendants made two submissions. First, he submitted that the plaintiffs have not completed their execution within the meaning of s 49(1) and (2)(c) of the Bankruptcy Act (Cap 20) as construed by the Court of Appeal in Official Assignee of the Property of Lim Chiak Kim v United Overseas Bank Ltd [1988] 3 MLJ 189 . Secondly and, alternatively, it was canvassed on behalf of the defendants that they had a right to set-off against the balance of the proceeds of a sale which was otherwise due to Sng Hock Seng. He observed that if Sng Hock Seng had claimed the surplus the defendants` legal set-off would have been a complete answer. I entirely accepted these submissions.



It is this part of the judgment, against which the whole of the appeal has been directed.
Principally, three issues have been raised:

(i) whether the appellants are entitled to be paid the surplus amount of $845,285.13 under s 26(3) of the Conveyancing and Law of Property Act;

(ii) if they are so entitled, whether their entitlement is affected by s 49 of the Bankruptcy Act and

(iii) whether the respondents have a right of set-off as held by the learned judge.



We turn to the first issue.
The respondents as a mortgagee had exercised the power of sale and received the proceeds of sale. They were obliged under s 26(3) of the CLPA to hold the proceeds in trust to be applied in the manner as therein provided. Section 26(3) is in the following terms:

The money which is received by the mortgagee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject (if any) or after payment into court under this Act of a sum to meet any prior incumbrances, shall be held by him in trust to be applied by him, first, in payment of all costs, charges and expenses, properly incurred by him as incident to the sale or any attempted sale, or otherwise; and secondly, in discharge of the mortgage money, interest and costs, and other money (if any) due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.



The provision of this subsection is in pari materia with s 105 of the Law of Property Act 1925 of England, which is as follows:

The money which is received by the mortgagee, arising from the sale, after discharge of prior incumbrances to which the sale is not made subject, if any, or after payment into court under this Act of a sum to meet any prior incumbrance, shall be held by him in trust to be applied by him, first, in payment of all costs, charges, and expenses properly incurred by him as incident to the sale or any attempted sale, or otherwise; and secondly, in discharge of the mortgage money, interest, and costs, and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof.



It has been held that where there is a subsequent incumbrancer the selling mortgagee is obliged under that section to pay the surplus proceeds (ie the balance, after payment of the amount due under the mortgage and the costs and expenses incurred) to that incumbrancer and not to the mortgagor: Re Thomson`s Mortgage Trusts; Thomson v Bruty [1920] 1 Ch 508.
In that case, there were four mortgages created over a farm. The second mortgagee, with the privity of the mortgagor, sub-mortgaged the principal sum and the second mortgage to a sub-mortgagee. Subsequently, the first mortgagee sold the farm under the statutory power of sale, and after payment of the principal, interest and costs due under the first mortgage there remained a surplus, and the question arose as to the payment of that surplus. It was held that the first mortgagee was under an obligation under s 21(3) of the Conveyancing and Law of Property Act 1881 (which section is in pari materia with s 26(3) of our CLPA) to pay the surplus to the sub-mortgagee. Eve J said, at...

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