Citicorp Investment Bank (Singapore) Ltd v Wee Ah Kee

• Jurisdiction: Singapore
• Judgment Date: 09 November 1996
• Date: 09 November 1996
• Docket Number: Suit No 95 of 1996
• Court: High Court (Singapore)

Wee Ah Kee

Plaintiff

and

Citicorp Investment Bank (Singapore) Ltd

Defendant

[1996] SGHC 259

Lim Teong Qwee JC

Suit No 95 of 1996

High Court

Banking–Lending and security–Stocks and shares–Bank granting loan to customer in consideration of option to purchase shares charged to it–Extension of repayment period granted before repayment due and loan agreement providing for parties to vary repayment period before loan falling due–Bank subsequently granting extension of repayment and termination of option in consideration of increase in indebtedness–Clog on equity of redemption–Whether increase in indebtedness supported by good consideration–Contract–Consideration–Sufficiency of consideration–Creditor granting to debtor extension of repayment and termination of option in consideration of increase in indebtedness–Option constituting clog on equity of redemption–Extension of repayment period granted before repayment due and loan agreement providing for parties to vary repayment period before loan falling due–Whether increase in indebtedness supported by good consideration

The defendant bank granted the plaintiff a loan to purchase shares in a company. Under cl 6 (A) of the loan agreement the plaintiff was entitled to prepay the whole of the loan without any premium or penalty. He could also repay the whole of the loan on due date which was 16 January 1995. As security, the plaintiff charged 11,455,000 shares (as consolidated) to the defendant and granted it a call option to purchase 30% of the shares at a specified price. Two years later the loan including interest was repaid in full by the plaintiff. However, in the interim, the parties had entered into an agreement (“the extension agreement”) to extend the date of repayment to 15 December 1995, and for the termination of the call option, in consideration for which the plaintiff agreed to pay an additional sum of US$800,000. Upon repayment of the loan he was entitled to have the mortgaged shares restored to him. In the event, the defendant delivered only 8,480,000 of these shares to the plaintiff. The plaintiff claimed a declaration that the defendant was not entitled to retain possession of the shares on the grounds that the option was void, and that alternatively that it had been terminated by mutual agreement and applied for summary judgment. The assistant registrar ordered that the defendant be given unconditional leave to defend. The plaintiff appealed.

Held, allowing the plaintiff's claim:

(1) The transaction between the parties was a mortgage to secure a loan with an option to purchase part of the mortgaged property. The option once exercised would at once put an end to the plaintiff's right as mortgagee to redeem. The option was invalid and void as a clog on the equity of redemption: at [11], [23] and [24].

(2) At the time the extension agreement was made the loan was not due yet. The parties were at liberty to vary the loan agreement by postponing the due date and the agreement to vary (subject to the contractual requirement for amendments to be in writing) would have been enforceable, or at any rate would not have been unenforceable for want of consideration. The termination of the option was substantially the whole of the consideration for the promise to pay and if it failed as a consideration then the agreement was unenforceable. As the option was invalid and void, if the mortgagor had attempted to enforce it, it would have failed in limine. By terminating it, it gave up no benefit nor did it suffer any detriment. No consideration moved from it and the agreement was nudum pactum and unenforceable: at [26], [31] and [32].

G and C Kreglinger v New Patagonia Meat and Cold Storage Company, Limited [1914] AC 25 (folld)

Lewis v Frank Love Ltd [1961] 1 WLR 261 (folld)

Lisle v Reeve [1902] 1 Ch 53 (refd)

Noakes & Co, Limited v Rice [1902] AC 24 (refd)

Reeve v Lisle [1902] AC 461 (refd)

Samuel v Jarrah Timber and Wood Paving Corporation, Limited [1904] AC 323 (folld)

Staines Urban District Council's Agreement, In re;Triggs v Staines Urban District Council [1969] 1 Ch 10 (folld)

Vernon v Bethell (1762) 2 Eden 110; 28 ER 838 (folld)

Evidence Act (Cap 97, 1990 Rev Ed) ss 93, 94

Jason Lim Chen Thor (Winston Chen & Partners) for the plaintiff

Tan Cheng Han (Drew & Napier) for the defendant.

Lim Teong Qwee JC

1 This is an appeal against the decision of an assistant registrar ordering that the defendants be given unconditional leave to defend. I allowed the appeal and ordered judgment for the plaintiff for a declaration and damages to be assessed. These are my grounds.

The plaintiff's claim

2 The material allegations in the statement of claim are as follows:

1. (a) By a loan agreement dated 21 July 1993 (loan agreement) the defendants agreed for the purpose of financing the plaintiff's purchase of certain shares in a Hong Kong company called Crownhampton International Ltd (CIL) to advance to the plaintiff up to an aggregate principal sum of US$4,250,000 upon the terms and conditions of the loan agreement.

2. (b) It was a condition precedent that before the plaintiff could make his first request for an advance the defendants should first confirm to the plaintiff that the defendants had received inter alia the following documents duly executed by the plaintiff:

   1. (1) acharge (charge) whereby the plaintiff would as beneficial owner and as a continuing security for the indebtedness (as defined) and for the observance and performance by the plaintiff of his obligations under the loan agreement or the security documents (as defined by the loan agreement) charge in favour of the defendants with the intent that it shall take effect by way of first legal mortgage:

      1. (i) 11,900,000 shares of HK$0.50 each in CIL; and

      2. (ii) all other stocks, shares, property, time deposits and other securities beneficially owned by the plaintiff which would then or would thereafter at any time during the continuance of the security created by the charge be deposited with the defendants; and

   1. (2) an option agreement (option agreement) whereby the plaintiff would grant irrevocably to the defendants a call option to purchase during the option period (as defined) from the plaintiff 30% of the total number of shares in CIL purchased by the plaintiff by the use of the advance (s) made under the loan agreement at the specified price (as defined).

1. (c) The charge and the option agreement were executed by the plaintiff on 22 July 1993.

2. (d) Clause 2 (F) of the charge provides: 'Discharge of Security: Subject to Clause 14 when the Indebtedness (as defined by the Charge) has been paid off or satisfied in full, the [defendants] will at the request and cost of the [plaintiff] release the Charged Securities (as defined by the Charge) to or in accordance with the directions of the [plaintiff] freed and discharged from the security created by this Charge.'

3. (e) On 28 July 1993 the defendants confirmed the fulfilment of the conditions precedent.

4. (f) On 10 September 1993 the plaintiff purchased and the defendants advanced to the plaintiff a principal sum of US$4,104,722.07 for the purchase of 33,920,000 shares in CIL. These 33,920,000 shares in CIL together with the 11,900,000 shares in CIL specified in para (1) (i) above totalling 45,820,000 shares were deposited with and registered in the name of Citibank NA (Nominees) Ltd Hong Kong a nominee of the defendants.

5. (g) On 29 November 1993 CIL changed its name to Sum Cheong International Ltd (SCIL) and its share capital was restructured resulting in every four shares of HK$0.50 each in SCIL being consolidated into one share of HK$2 each. Consequently the total amount of shares secured to the defendants under the charge became 11,455,000 consolidated shares.

6. (h) On 15 December...