Bok Chee Seng Construction Pte Ltd v Development Bank of Singapore Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 22 February 2002
• Neutral Citation: [2002] SGHC 30
• Docket Number: District Court Appeal No 600012
• Date: 22 February 2002
• Published date: 19 September 2003
• Year: 2002
• Plaintiff Counsel: Tan Cheng Yew (Tan Jin Hwee, Eunice & Lim Choo Eng)
• Citation: [2002] SGHC 30
• Defendant Counsel: Deborah Barker SC and Chan Kia Pheng (Khattar Wong & Partners)
• Court: High Court (Singapore)
• Subject Matter: Courts and Jurisdiction,Whether court order affects third parties,Interpretation of conclusive evidence clause,Whether precondition for applicability fulfilled,Failure to plead conclusive evidence clause and facts in support of internal management rule,Civil Procedure,Co-director obtain which court order declares new mandate null and void,Conclusive evidence clause,Court judgments,Contractual terms,Rules of construction,Effect on defence's case,Banking,Effect on third parties,Co-director obtain court order which declares new mandate null and void,Pleadings,Accounts,Precondition of certification by chairman and company secretary/director,Defence,Effect on bank,Contract,Companies,Company director purporting to effect new mandate for operation of bank account,Bank honouring cheques pursuant to new mandate

Judgment

GROUNDS OF DECISION

Background

1. This appeal arose out of an action in the District Court brought by Bok Chee Seng Construction Pte Ltd (‘BCPL’). There, BCPL sought to recover from their bankers, The Development Bank of Singapore Ltd (‘DBS’), sums totalling $186,938.38 that they asserted DBS had wrongfully debited from their current account.

2. BCPL had first established their current account with DBS at the latter’s branch at Eunos Station in January 1997. At that time, BCPL had only two shareholders, Mr Peh Chee Chuan and Mr Phua Ah Pok, who were also the company’s only directors. The directors’ resolutions passed on 7 January 1997 authorising the opening of the account also provided that it should at all times be operated only by the two directors acting jointly. I shall refer to this mandate relating to the operation of the account as ‘the original mandate’.

3. The January 1997 resolutions were in the standard form required by DBS for the opening of a current account by a company and were ten in number, the individual resolutions being distinguished by the alphabets (A) to (J). Resolutions (F) and (G) played an important part in the subsequent legal proceedings. These provided:

‘(F) That the Secretary of the Company be, and hereby is, authorised to certify to the Bank the name of the present officers of the Company and other persons authorised in terms of this resolution and offices respectively held by them, together with specimens of their signatures. In the event of the Company appointing another person/s in place of authorised person/s the Company shall notify the Bank that a Resolution has been passed to that effect, whereupon the said contents of this Resolution shall apply to such substituted signatories.

(G) And that a copy of any resolution of the Board if purporting to be certified as correct by the Chairman of the meeting and by the Company Secretary or another Director shall as between the Bank and the Company be conclusive evidence of the passing of the resolution so certified.’

4. In July 1997, Mr Phua purported to pass a resolution accepting the resignation of the then company secretary and appointing one Mr Chua Thong Jiang, Andrew as the new secretary of BCPL. This resolution was dated 22 July. The next day, Mr Phua purported to pass another resolution whereby the original mandate was revoked and a new mandate was effected. By this new mandate, Mr Phua was authorised to act as the sole signatory of the company’s cheques and the sole operator of the current account. Mr Peh was not a party to either of the resolutions and did not become aware of them until some time later. Both resolutions were signed by only one director namely Mr Phua.

5. On the same day, 23 July 1997, DBS received three documents from BCPL purportedly evidencing the new mandate. These were:

(1) a document entitled ‘Change in Authorised Signatories – Resolution Passed by the Board of Directors’ which was DBS’s standard form resolution for such a situation. This document was signed by Mr Phua as the Chairman of the Meeting of Directors and by Mr Chua as BCPL’s company secretary;

(2) a copy of Form 49 dated 22 July 1997 showing that The Mui Ngo had resigned as BCPL’s company secretary with effect from 22 July and that Mr Chua had been appointed as their company secretary with effect from the same date; and

(3) a document on BCPL’s letterhead entitled ‘Extract of Resolution Passed by the Board of Directors of Bok Chee Seng Construction Pte Ltd on 23 July 1997’ and which read as follows:

‘RESOLVED that:

(a) Authority previously given to the authorised signatory to operate the Current Account with The Development Bank of Singapore Ltd, Eunos Station MRT Branch, Singapore be and is hereby rescinded.

(b) Henceforth the Current Account with the aforesaid bank be and is hereby authorised to be signed by SINGLY by Phua Ah Pok.’

6. From that day onwards, DBS observed the new mandate and honoured cheques drawn on BCPL’s current account that were signed solely by Mr Phua. Between 11 August 1997 and 31 March 1998, 100 cheques were paid and the amounts thereof totalling $263,736.97 were debited against the current account.

7. On 3 October 1997, Messrs Ng Yap & Partners, acting as solicitors for Mr Peh, wrote to DBS to inform them that a dispute had arisen between the directors of BCPL namely Mr Peh and Mr Phua. The letter went on to give DBS notice that it should freeze the company’s current account with immediate effect. On 7 October 1997, Mr Peh wrote directly to DBS. He confirmed that he had instructed Messrs Ng Yap & Partners to act for him in the dispute between himself and Mr Phua and asked DBS to provide him with copies of the statements of account in respect of the current account for the months of July, August, September and October 1997. On 13 October 1997, DBS replied to Messrs Ng Yap & Partners’ letter to say that they were unable to freeze the account of BCPL without a directors’ resolution or court order. Mr Peh did not take any steps to obtain a court order.

8. A year later, in September 1998, Mr Peh commenced an originating summons against Mr Phua and one Mr Chew Boon Cheng asking for relief pursuant to s 216 of the Companies Act (Cap 50). The originating summons was heard in December 1998 by Chan Seng Onn JC and, at the conclusion of the hearing, among the orders made were the following:

‘(1) that the affairs of BCPL are being conducted and/or the powers of the directors are being exercised in a manner oppressive to the Plaintiff [Mr Peh] and/or in disregard of his interests as a member and/ or shareholder;

(2) the Defendant(s) have done act(s) and/or passed resolution(s) which have prejudiced the Plaintiff’s rights and/or unfairly discriminated against the Plaintiff namely in the removal of the Plaintiff as a signatory to the Company’s bank account and the appointment of Chew Boon Cheng to the Board of Directors;

(3) the resolutions passed by the Company on 22 July 1997, 23 July 1997, 25 July 1997, 12 August 1997 and 13 August 1997 exhibited to this Originating Summons as Annexure A be declared null and void and/or be rescinded.’

The resolutions impeached by order (3) above involved the appointment of Mr Phua as company secretary, the acceptance of the resignation of The Mui Ngo as company secretary, the rescission of the original mandate given to DBS, the appointment of Mr Phua as sole operator of the account, the change of registered office of the company, the appointment of Mr Chew as a director and the appointment of new solicitors for the company.

9. Subsequently, Mr Peh took control of BCPL and discovered the 100 cheques that Mr Phua had signed singly. BCPL took the stand that DBS had not been authorised to make payment on these cheques because the resolutions which purported to change the original mandate and make Mr Phua the sole signatory were null and void. Having paid out without the necessary mandate DBS had acted wrongfully and must reimburse BCPL with the amounts paid out. In the event, the amount actually claimed was $186,938.38 since BCPL subsequently accepted that the cheques making up the balance of the $263,736.97 had been issued to genuine creditors of the company.

10. DBS resisted BCPL’s claim. They took the position that from 23 July onwards, BCPL’s only authorised signatory was Mr Phua and they relied on the documents given to them by BCPL on that date. Accordingly, they asserted that at all material times, they had acted with authority and in accordance with the terms of the new mandate as evidenced by the aforesaid documents given to them. They did not accept that the new mandate was invalid and/or null and/or void by reason of the order of court made on 11 December 1998 (‘the court order’) by Chan JC in Originating Summons 1306 of 1998.

The decision below

11. The action was heard by District Judge Hoo Sheau Peng who elucidated the broad issues that she had to decide as follows:

(1) first, the nature, effect and ambit of the court order ie whether it had retrospective effect so that by relying on the new mandate, DBS had acted in breach of the original mandate or whether, as argued by DBS, the effect of the court order was simply to cancel, with effect from the date of the order, the directors’ resolution changing the original mandate;

(2) secondly, whether DBS was entitled to act on the new mandate in the light of the contractual provisions between the parties or in the light of the indoor management rule as set out in Royal British Bank v Turquand [1856] 6 E & B 327; and

(3) thirdly, whether DBS had displayed good faith and/or had taken reasonable care when honouring BCPL’s mandate.

12. In relation to the first issue, the Judge came to the following conclusions:

(1) Essentially, s216 of the Companies Act provides for personal remedies to be sought by a member of a company. In this instance, Mr Peh had applied to the court for relief under s 216 against Mr Phua and Mr Chew. He had apparently made out all his grounds and one relief granted was, by way of the court order, to declare the resolution of 23 July 1997 which effected the change in the mandate ‘null and void and/or be rescinded’.

(2) In the Judge’s opinion the court order had retrospective effect. ‘Null and void’ meant that the resolution was null and void from the start. The word ‘rescinded’ was distinguishable from ‘terminated’ and meant rescission ab initio. The Judge pointed out that if the court had wished to invalidate the resolution, it could have ordered that the resolution be cancelled as such power was given to it by s 216 (a).

(3) Essentially the court order meant that there was no such resolution of 23 July 1997 at all, that Mr Phua was not authorised to be the sole signatory of the account, restoring Mr Peh’s position as a co-signatory of the account pursuant to the original mandate. However, it did not follow that a third party would be bound by the court...