Bank of China v First National Bank of Boston

• Jurisdiction: Singapore
• Judge: Chua F A J
• Judgment Date: 14 January 1992
• Neutral Citation: [1992] SGCA 7
• Docket Number: Civil Appeal No 88 of 1988
• Date: 14 January 1992
• Year: 1992
• Published date: 19 September 2003
• Plaintiff Counsel: TT Rajah and VK Rajah (Rajah & Tann)
• Citation: [1992] SGCA 7
• Defendant Counsel: Tan Sei Bee (Arthur Loke & Partners)
• Court: Court of Appeal (Singapore)
• Subject Matter: Lapsing,Chargees lodged caveat under charging order after caveat of existing equitable mortgagees expired,'Unregistered interest in land',Costs,Charging orders,Caveats,Credit and Security,Unnecessary arguments and submissions,Common law position,Land,O 50 r 1 Rules of the Supreme Court 1970,Costs reduced,Second lodgment of caveat by equitable mortgagees,Priority,Words and Phrases,ss 41 & 117 Land Titles Act (Cap 157),Hearing prolonged unnecessarily,Civil Procedure,s 41 Land Titles Act (Cap 157),Nature of interest charged,Whether interest of chargees takes priority over that of equitable mortgages,Remedies

Cur Adv Vult

The relevant facts in this appeal are not in dispute. The appellants in April 1980 granted overdraft facilities to their customers, Gojo Hartono and Anitawati Susanto, on their joint account, on the security of an equitable mortgage of, inter alia, No 28 Coldstream Avenue, Singapore (`the property`) which belonged only to Gojo Hartono. The security was created by Gojo Hartono by depositing with the appellants the document of title to the property and executing a confirmation of deposit of title deeds dated 24 April 1980. On 3 July 1980 the appellants lodged a caveat bearing No CV/38908 with the Registry of Titles notifying the appellants` interest in the property. The caveat, however, lapsed on 3 July 1985 through effluxion of time under s109(1)(b) of the Land Titles Act (Cap 157) (`the Act`). The appellants did not on or before that date lodge a fresh caveat notifying their interest.

At all material times, Gojo Hartono and Anitawati Susanto were also customers of the respondents. They owed the respondents substantial sums of money, and the latter on 29 November 1985 obtained a judgment in the High Court against Gojo Hartono for two sums, totalling over US$3m and interest thereon. The respondents then proceeded to enforce the judgment, and on 30 November 1985 obtained a charging order nisi on the property under O 50 r 1 of the Rules of the Supreme Court 1970. Immediately thereafter, on 2 December 1985, the respondents lodged a caveat bearing No CV/21718A with the Registry of Titles claiming an interest in the property as `chargee of an estate in fee simple` by virtue of the charging order nisi. On 22 January 1986 the charging order was made absolute by the High Court, and the material part of the order was as follows:

It is ordered that the immovable property or interests in the said property of the first defendant (Gojo Hartono) specified in the schedule hereto do stand charged with the payment of the sum of US$2,949,613.06 and interest of US$67,841 and interest thereon at 8% pa from the date of the judgment of the High Court dated 29 November 1985 to the date of payment due on the said judgment ...

About one month later, on 26 February 1986, the appellants lodged a caveat bearing No CV/24130A with the Registry of Titles claiming an interest in the property as an equitable mortgagee by virtue of the confirmation of deposit of title deeds dated 24 April 1980. That was their second caveat and it claimed the same interest as was claimed in their first caveat which had lapsed. On 31 March 1986, the High Court, on application by the respondents, ordered that the property be sold under its direction, and the order was registered with the Registry of Titles on 4 April 1986. Eight days later, for some inexplicable reasons, the respondents took out also a writ of seizure and sale. Nothing, however, turns on the issue of this document.

Presumably, on lodging the second caveat, the appellants came to know that the respondents had lodged an earlier caveat and they requested the respondents to withdraw that caveat. As the respondents refused to do so, the appellants commenced proceedings in Originating Summons No 429 of 1986, seeking various declarations and consequential orders and, in particular, a declaration that in the event of a sale pursuant to the order obtained by the respondents, such sale be subject to all the interests and rights of the appellants as an equitable mortgagee, or that on such sale, the appellants be entitled to the proceeds of sale in priority to the respondents. The application was resisted by the respondents and was heard before Lai Kew Chai J. He dismissed the application with costs: see [1988] 3 MLJ 401 . He upheld the arguments advanced on behalf of the respondents that the common law rule that a judgment creditor in execution takes only the interest which the debtor possesses in the property and the general equitable principle that as between competing unregistered equitable claims `he who is first in time prevails` had no application in view of s 41 of the Act, which applied. He further held that the charging order created a judicial charge on the property and that s 114 of the Act (which provides that a writ of execution does not bind or affect the land until particulars of the writ have been entered in the land-register) did not apply to a charging order. Against his decision, this appeal is now brought.

Before us, counsel for the appellants mounted extremely elaborate and prolix arguments against the decision of the learned judge raising a host of issues. However, on a proper analysis and stripped of all the unnecessary verbiage, they raised only three main issues, namely:

(i) whether the interest of the respondents under the charging order is an unregistered interest falling within the ambit of s 41 of the Act;

(ii) if so, whether on the true construction of s 41 of the Act the interest of the respondents under the charging order has priority over the interest of the appellants under the equitable mortgage, and

(iii) whether the Rules Committee constituted under s 80(3) of the Supreme Court of Judicature Act (Cap 322) is empowered to make O 50 r 1 which confers on the High Court the power, in enforcing a judgment, to make a charging order imposing a charge on the immovable property of a judgment debtor.

The other issues raised in counsel`s arguments are inconsequential, and a determination thereof does not really assist in the disposal of this appeal. It is therefore unnecessary for us to consider them.

On the first main issue, counsel for the appellants argued that the whole of Div 1 of Pt IV of the Act, which contains ss 37 to 41, is designed to provide protection to a purchaser who has acquired an interest in a property which is subject to the Act. He referred, in particular, to s 39 which contains provisions exonerating a purchaser from the effect of any notice of bankruptcy proceedings, trust or other unregistered interest. A purchaser as defined in s 4 of the Act means a person who, in good faith and for valuable consideration, acquires an interest in land and includes a mortgagee, chargee and lessee. He further contended that s 41 is a corollary to s 39 and is intended to provide protection for unregistered interest of a purchaser (as defined in s 4). A charge on the land as created by a charging order made under O 50 r 1 is not a charge provided in the Act and consequently such a chargee does not fall within the definition of a purchaser in s 4. Accordingly, the interest of a chargee under a charging order is not an `unregistered interest` falling within the ambit of s 41 of the Act. We are unable to accept this argument. The words `an unregistered interest in land` in s 41 are plain and unambiguous and effect must be given to them. We can see no reason for restricting or limiting these words only to interests acquired by a purchaser. It is true that when the Land Titles Act (then the Land Titles Ordinance) was first enacted, there was not in existence any such interest as the interest of a chargee under a charging order made under O 50 r 1. However, the list of unregistered interests was not closed and has never been closed, and it was not the intention of the legislature that only those unregistered interests that could be created at the time the Act was enacted should be entitled to protection by the machinery of a caveat. It has been decided by this court that a charging order made by the High Court under O 50 r 1 creates a charge on the land against which the order was made, and the interest of the chargee may be protected by the machinery of a caveat as provided in the Act: Official Assignee of the property of Lim Chiak Kim, a bankrupt v United Overseas Bank Ltd [1988] 3 MLJ 189 The court said, at p 193:

The next question is the nature of the charge imposed and the extent to which it affected the property. The charge is one constituted by a charging order; it is, in our view, a statutory charge. It is not a legal charge created under s 63(2) of the Land Titles Act. It is, however, a charge on the whole of the estate held by Lim in the property subject to any prior encumbrance. On this point, we need hardly go further than the express provisions in the order nisi as well as the order absolute which expressly ordered the immovable property described therein or the rights and interests in such property of the judgment debtor - which at that time was the whole of the estate - to stand charged with payment of the judgment sum.

The court held that though the charge constituted by the charging order is not a charge falling within s 68(1) of the Act, it is a charge on the property in question, and a caveat may be lodged to protect the interest of such chargee. The court said, at p 194:

Though the charge constituted by the charging order absolute was not a charge registrable under the Land Titles Act, it was nonetheless a charge on the property. The Act recognizes non-registrable interests in land, and under s 104 any person claiming an interest in land, or any person otherwise authorized by any Act to do so, may lodge with the Registrar of Titles a caveat in a prescribed form to protect such interest. That precisely was what the bank did in the instant case. A caveat in respect of the charging order nisi and one in respect of the charging order absolute had been lodged with the Registrar of Titles, and the mortgagees had constructive notice - if not actual notice - of the charge.

On the second main issue, the arguments of counsel for the appellants may be summarized as follows. At common law, a judgment creditor, in enforcing his judgment by levying execution on the property of a judgment debtor, takes only whatever interest the debtor has in the property, and he takes it subject to all the equities existing on the property. In the case of land subject to the Act, as in the instant case, this common...