Bank of China v Yong Tze Enterprise (Pte) Ltd and Another

• Jurisdiction: Singapore
• Judge: Belinda Ang Saw Ean J
• Judgment Date: 14 April 2005
• Neutral Citation: [2005] SGHC 68
• Docket Number: Originating Summons No 1085 of (Registrar's Appeal No 366 of 2005)
• Date: 14 April 2005
• Year: 2005
• Published date: 14 April 2005
• Plaintiff Counsel: Kelvin Poon and Rebecca Chew (Rajah and Tann)
• Citation: [2005] SGHC 68
• Defendant Counsel: Alvin Yeo SC and Sim Bock Eng (Wong Partnership)
• Court: High Court (Singapore)
• Subject Matter: Defendant bank's loan used to retire loan from predecessor bank and to refinance debt to paramount mortgagee,Letter from paramount mortgagee to paramount mortgagor with representation to release property from paramount mortgage under certain circumstances,Estoppel,Subrogation,Applicable principles when court considering whether to allow subrogation,Paramount mortgagee's letter to paramount mortgagor stating terms for discharge from paramount mortgage whilst predecessor bank's loan in operation,Plaintiff bank claiming possession of property as successor-in-title of paramount mortgagee,Competing interests of plaintiff bank and defendant bank for possession of mortgaged property,Defendant bank allegedly acting in reliance of representation contained in letter,Restitution,Equity,Whether elements of estoppel by representation made out,Whether defendant bank entitled to be subrogated to predecessor bank's rights under letter,Whether plaintiff bank estopped from resiling from such representation by paramount mortgagee vis-a-vis defendant bank,Estoppel by representation

14 April 2005

Belinda Ang Saw Ean J:

1 This appeal concerned the competing interest of two banks, the plaintiff and the second defendant, for possession of a three-storey detached house at 114 Toh Yi Drive, Singapore 596568 (“the property”) that was mortgaged to The Kwangtung Provisional Bank (“KPB”) as first and second mortgagee. In the present proceedings, the plaintiff, Bank of China (“BOC”), claimed possession of the property as successor-in-title of KPB. On 28 January 2005, I dismissed the second defendant’s appeal against the order for possession made on 8 December 2004 by Assistant Registrar Ms Lee Kee Yeng. The second defendant, United Overseas Bank Limited (“UOB”), has appealed against my decision.

2 The first defendant, Yong Tze Enterprise (Pte) Ltd, was the developer and mortgagor of three houses built on two plots of land. In December 1995, the first defendant sold one of the houses to Ong Cher Keong (“Ong”) and his wife, Tan Hwee Cheng Esther (“Tan”). The purchase was financed in part by Focal Finance Ltd, renamed OCBC Finance Limited (“OCBC”). OCBC lodged its caveat with the Singapore Land Authority on or about 5 November 1996. Four years later, the purchasers refinanced their purchase with UOB. After defaulting on the UOB loan, the purchasers on or around 18 December 2003 voluntarily gave up physical possession of the property to UOB. On 17 September 2004, UOB was added as a party to the present proceedings. The first defendant did not participate in the proceedings.

3 The dispute primarily centred on a letter dated 20 July 1996 (“the 1996 letter”) written by M/s Helen Yeo & Partners as solicitors for KPB. In that letter which was addressed to the solicitors for the first defendant, KPB approved the sale of the property at the price of $4,230,000 on terms. The terms were:

(1) all sale proceeds are to be forwarded to [KPB] for the Borrower’s Account, through [Helen Yeo & Partners];

(2) [KPB] shall give a Discharge on the unit upon receipt of 85% of the sale price;

(3) upon discharge of the unit, the overdraft facility shall be reduced by $1.5 million and the Development Loan shall be reduced by S$500,000.00.

4 A second letter dated 20 May 1999 (“the 1999 letter”) from KPB to the first defendant is also important. The relevant paragraphs read:

4. Please also be informed that with immediate effect our terms of discharge with regard to sale of units in the development, including Plot 1 [the property] which has been sold are revised as follows:

a) All sale proceeds pertaining to each unit shall be forwarded to the Bank for your Account.

b) The Bank will give a Partial Release/Discharge of any unit sold only after the receipt of full 100% of the respective sale prices. In this connection, kindly review the sale of Plot 1 and ensure that all progress payments due and payable to date have been/will be forwarded to the Bank.

c) Your Overdraft and Development Loan facilities shall be adjusted accordingly upon each Partial Release/ Discharge at the Bank’s discretion.

d) …

5. Save for the above-mentioned, all terms and conditions of our Letters of Offer dated 31 May 1995 and 17 September1996 and the Security Documents shall remain unchanged.

The case for UOB

5 By a letter dated 29 November 2000 (“offer letter”), UOB offered to Ong and his wife a sum of $3.1m to refinance the loan with OCBC and another sum of $211,500 to pay the last 5% of the purchase price of the property. The UOB loan was to be secured by a first legal mortgage over the property. As Central Provident Fund (“CPF”) moneys were to be utilised, there was also a deed of arrangement with the CPF Board. In the offer letter under the heading “Securities”, UOB required “an undertaking by the developer’s mortgagee to discharge the property from their [sic] mortgage”. At the material time, separate legal title to the property had not yet been issued. The security documents thus consisted of a mortgage in escrow executed by Ong and Tan and a deed of assignment in favour of UOB assigning the purchasers’ interest under the sale and purchase agreement dated 27 December 1995. UOB claimed that the 1996 letter operated as the undertaking required in the offer letter. With a partial discharge of the paramount mortgage, UOB could register its mortgage over the property once separate title was issued. As it turned out, the first defendant failed to complete the sale of the property. The purchasers also defaulted on the UOB loan. In 2004, the purchasers were adjudicated bankrupts.

6 The firm of M/s William Lai & Alan Wong (“WL”) acted for UOB. Chua Yak Hoon (“Chua”) of WL was the case handler. Lau Kim Koon, First Vice President, Special Loans Division of UOB, in his affidavit of 8 October 2004, said that UOB, on the advice of WL, disbursed the loan of $3,062,098.78 on 16 January 2001.

7 Before disbursing the UOB loan, Chua spoke to the first defendant’s solicitor, Mr Teo Cheng Tee (“Teo”), who informed her that the plaintiff had agreed to a partial discharge of the paramount mortgage upon receipt of 85% of the sale proceeds. She was also given a copy of the 1996 letter. She had relied upon it in her advice to UOB. In her view, though the 1996 letter was addressed to the first defendant, it was meant for all purchasers and their financiers and for them to act upon it. Banks in the position of paramount mortgagees were aware that developers would pass such letters, which were commonly issued, to prospective purchasers and their financiers in situations involving the financing or the sale of properties where title to the units in the development had not been issued. As such was the conveyancing practice of the day, the plaintiff knew or ought to have known that the purchasers and their financiers, including UOB, would rely on the 1996 letter. It was the second defendant’s case that at the time the UOB loan was disbursed, KPB had already received more than 85%, if not 95%, of the sale proceeds. KPB should have, but did not, give a partial discharge of the paramount mortgage upon receipt of 85% of the sale proceeds.

8 Counsel for UOB, Mr Alvin Yeo SC, submitted that the second defendant, and not BOC, was entitled to possession of the property. The 1996 letter bound BOC. The letter was a representation to all purchasers and their financiers as to the terms upon which KPB would release the property from the paramount mortgage. UOB relied on the 1996 letter and accordingly disbursed the loan which was used to retire the OCBC loan.

9 A second way in which counsel sought to resist the proceedings was to argue that the doctrine of subrogation applied in this case. The second defendant was subrogated to the rights of OCBC as the UOB loan was used to pay off the OCBC debt. Under the subrogated rights, UOB could rely on the 1996 letter in these proceedings to stop the plaintiff resiling from the position represented.

The case for BOC

10 Counsel for the plaintiff, Ms Rebecca Chew, argued that the plaintiff was entitled to the order of possession. The plaintiff had only received $3,446,000, which was approximately 81% of the sale proceeds. OCBC could not have insisted on a partial discharge of the paramount mortgage. In the result, UOB must fail on both issues.

11 Ms Chew further submitted that the 1996 letter was a matter between the first defendant and KPB and it was confined to them. It was for the purchasers or their financiers to obtain the terms of the partial discharge of the paramount mortgage from KPB separately. Further, the 1996 letter was confined to the first legal mortgage as the second mortgage was registered five months after the letter. This state of affairs would have been apparent to UOB’s lawyers from the result of the title search.

12 At the request of the first defendant, KPB granted it additional facilities on 17 September 1996. A second mortgage dated 18 December 1996 was given for this additional facility. Following a review of the first defendant’s account in 1999, KPB in its 1999 letter informed the first defendant and its directors that the paramount mortgage would only be discharged upon receipt by KPB of 100% of the sale proceeds. Tham Wai Keong (“Tham”), a deputy manager of the plaintiff, in his second affidavit pointed out that the 1999 letter was also marked for the attention of Ong, a director and shareholder of the first defendant. Neither the first defendant nor its purchasers (Ong and Tan) objected to the revision of the terms of the 1996 letter. Also, between 29 November 2000 and 16 January 2001, nobody approached KPB, BOC or their solicitors to ascertain the amount of the sale proceeds received by KPB.

Discussions and decision

13 I start with the sale proceeds received by KPB. After considering the evidence and arguments from both sides, I was fully satisfied that KPB had only received $3,446,000 of the purchase price.

14 I noticed that Chua had not prior to the disbursement of the UOB loan sought confirmation from Teo as to the amount of sale proceeds actually paid to KPB. She also did not go to the borrower, Ong, who was someone in the know. Ong was a director and shareholder of the first defendant and one of its authorised signatories. Ong confirmed, in his affidavit filed in the bankruptcy proceedings against him, that the total sum of $3,446,000 was received by KPB and that was the position even...