Chase Manhattan Bank NA v Wong Tui Sun and Others

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 13 November 1992
• Neutral Citation: [1992] SGCA 82
• Citation: [1992] SGCA 82
• Defendant Counsel: Timothy Lloyd QC (Sarjit Singh Gill and Alexia Chan with him) (Shook Lin & Bok)
• Published date: 19 September 2003
• Plaintiff Counsel: Andrew Centlivres Longmore QC (Eugene Lim and Paul Chen with him) (Donaldson & Burkinshaw)
• Date: 13 November 1992
• Docket Number: Civil Appeal No 115 of 1990
• Court: Court of Appeal (Singapore)
• Subject Matter: Shares kept in designated safe in company's premises,Company allowed to deal in shares provided indebtedness secured by shares of sufficient value at all times,Credit and Security,Whether pledge or floating charge created,Charges,Share certificates forming security for bank facility

Cur Adv Vult

This is an appeal against a decision of the High Court on an application by summons-in-chambers by the liquidators of a firm of stockbrokers, EG Tan & Co (Pte), to determine the true nature of a security involving certain specified shares certificate which were placed by the company, pursuant to a share memorandum, in a special safe located in the premises of the company, as security to the appellants, the Chase Manhattan Bank (`the bank`), for banking facilities granted by the bank to the company. Lai Kew Chai J held that the nature of the security created by the memorandum was that of a floating charge and, as the memorandum was not registered as required under s 131 of the Companies Act (Cap 50, 1990 Ed), it was void against the liquidators and any creditor of the company for want of registration. [See [1991] 3 MLJ 301 .] Pending the hearing of the application in the court below, some of the shares in question were, by consent of the parties, disposed of and the proceeds were held to await the outcome of the hearing.

Business relationship between the company and the bank was first established on 27 June 1978 when the company executed a memorandum of deposit and a letter of hypothecation in favour of the bank for an overdraft facility of $5m. This memorandum was duly registered with the Registry of Companies. Shortly thereafter, two further memoranda dated 20 November 1978 and 27 February 1979 were executed by the company in favour of the bank for increases in credit facilities. Like the first memorandum, these two later memoranda were also registered with the Registry of Companies. Each memorandum was expressed to create a charge over securities which had been, or would be, deposited with the bank. The certificates in respect of the shares charged, together with the relevant executed blank transfer forms, were held by the bank. The bank was, however, agreeable to let the company have the flexibility to deal with the shares charged provided that the bank would at all times remain fully secured, that is, share certificates released by the bank to the company would be replaced simultaneously by other share certificates of equivalent value unless the outstanding credit facilities be appropriately reduced.

On 6 July 1982 the bank, pursuant to a request by the company, restructured the credit facilities granted to it. By a letter of that date the bank offered the company a global credit facility of $30m. The following were some of the pertinent terms set out therein:

Security: (1) Pledge of marketable shares acceptable to the bank.

(2) Any other collateral as may be mutually agreed upon by [the] company and the bank from time to time.

Conditions: (1) A minimum of 50% value of the pledged shares are to be kept within the bank`s premises and the balance in [the company`s] office premises.

(2) Actual outstandings, net of any cash collateral, should not exceed 90% of the total market value of all shares pledged.

(3) For the pledged shares to be kept at [the company`s] premises [the company] are to -

(a) provide an identifiable and demarcated safe in which these pledged shares will be stored daily. Access to this storage place should be made available to the bank and the bank will have the appropriate delocking devices to exercise this right;

(b) provide a daily listing of the shares with market-to-market values. This listing is to be delivered to the bank by the following day;

(c) allow the bank to spot check and compare the listings against the actual physical shares stored in the designated safe.

As compared with the earlier arrangement, the most significant aspect of this revised arrangement was that the bank allowed up to 50% of the intended pledged shares to be held by the company in its premises in an identifiable safe marked with the name of the bank. Following this agreed change in the arrangement, the company was required and did sign a revised share memorandum dated 26 August 1982 (hereinafter referred to as `the 1982 memorandum`). A memorandum in satisfaction was executed on 15 July 1980 in respect of the charges created in the earlier memoranda. The 1982 memorandum was not registered with the Registry of Companies.

As the 1982 memorandum is at the heart of this appeal, we will at this juncture set out the pertinent provisions thereof:

We, EG Tan & Co ... have deposited or will deposit with you the securities and hereby charge them to you together with any substituted securities as a continuing security for the payment and satisfaction on demand of all money and liabilities ... which are now or at any time hereafter may be due owing or incurred from or by us to you.

2 The charge hereby created shall affect and the securities subject hereto shall include all dividends or interest paid ...

3 If we make default in paying further securing or satisfying to you on demand any money or liability hereby secured you may without further notice sell or dispose of any securities subject hereto or any part thereof or any substituted securities in such manner and for such consideration ... as you may think fit ...

4 We undertake for ourselves:

(i) that all such securities stocks and shares that are held in your favour and not deposited with the bank shall be specifically kept in a separate safe in our premises and that you shall be given the delocking devices to the said safe;

(ii) that we shall permit you at all times the right of access to our premises to take and transfer all such securities stocks and shares from the said safe;

(iii) that we shall provide you with a daily up-to-date list of all such securities stocks and shares kept in the said safe and to permit you at all times the right of access to our premises to inspect and check all such securities stocks and shares in the said safe and to make record thereof;

(iv) that all such securities stocks and shares so pledged to you shall be kept fully insured by us against loss or damage from whatsoever cause with insurance companies acceptable to you and that claims under the policy or policies shall be payable to you.

5 Any dividends interest or other payments which may be received or receivable by the bank in respect of any securities hereby charged may be retained by it and held in suspense and if the customer shall fail to pay further secure or satisfy to the bank on demand any money or liability hereby secured they may be applied by it as though they were proceeds of sale hereunder and the bank may without further notice complete and register any transfer and sell or dispose of the securities hereby charged ...

6 We undertake ... in respect of securities subject hereto from time to time to execute and sign all transfers powers of attorney and other documents which the bank may require for perfecting its title to the securities hereby charged or for vesting or enabling it to invest the same in itself ...

7 The bank ... exercise at its ... discretion (in our names or otherwise at any time ...) in respect of any of the securities hereby charged any voting rights and all the powers given to trustees by s 14(4) and (5) of the Trustees Act ...

8 Without prejudice to the rights and obligations hereby created, any dividends, interest or other moneys hereby charged which may be received by us after the power of sale hereunder has arisen shall be held in trust for the bank and paid over to it on demand.

9 The security hereby created shall be a continuing one until receipt by the bank of the notice in writing to determine the same ...

(11) The bank may at all times, without discharging or in any way affecting the security hereby created:

(a) determine, vary or increase any credit to the customer;

(b) grant to the customer ... any time or indulgence;

...

(d) deal with exchange release modify or abstain from perfecting or enforcing any securities or other guarantees or rights which it may now or hereafter have from or against the customer ...

(12) The security hereby created shall not be affected by any failure by the bank to take any security ...

(13) Any moneys received hereunder may be placed and kept to the credit of a suspense account for so long as the bank thinks fit without any obligation in the meantime to apply the same or any part thereof in or towards discharge of any money or liabilities due or incurred by the customer to the bank.

(15) We ... in respect of any securities subject hereto will during the continuance of this security pay all calls or other payments due in respect of the said securities and in the event of default the bank may if it thinks fit make such payments on our behalf. Any sums so paid by the bank shall be repayable by us ... to the bank on demand and pending such repayment shall be a charge on the securities subject hereto.

On 3 April 1984, the bank in a letter offered to increase the credit facilities to the company to $50m. As security, the bank stated as before that they required `pledge of marketable securities acceptable to the bank with signed transfer forms`. This letter repeated the same terms as those set out in the earlier letter of 6 July 1982: 50% of the value of the pledged shares were to be kept at the bank`s premises and the remaining were allowed to be kept in a safe at the company`s premises, which safe was to be properly identified to hold shares pledged to the bank; the bank would have access to these shares in the designated safe; and the company was required at the end of each business day to provide a daily listing of all such share certificates which were placed in the designated safe, which list was to be delivered to the bank by the morning of the following day. The bank further reserved the right at any time to transfer all such share certificates kept in the designated safe to the bank`s premises. We would observe that this latter term was not new. It was already embodied in the 1982 memorandum.

On 31 August 1984 the bank further...