Dresdner Bank Aktiengesellschaft and Others v Ho Mun-Tuke Don and Another

• Jurisdiction: Singapore
• Judge: Warren Khoo L H J
• Judgment Date: 30 October 1992
• Neutral Citation: [1992] SGCA 75
• Date: 30 October 1992
• Subject Matter: Whether charge void against liquidators,Whether charge created was fixed or floating charge,Crystallization before liquidation,Non-registration,Lending and security,Credit and Security,Stocks and shares,Letters of hypothecation,Considerations,Banking,Crystallization,Nature and scope of security interest created,Whether seizure by interim court order of property charged amounts to crystallization,Whether seizure by interim court order of property charged created new fixed charge,Periodical certificates issued by stockbroking company,Facility letters,Whether joint deposit of property charged amounts to crystallization,Charges,Whether agreement for joint deposit of property charged creates new fixed charge,Floating charges
• Docket Number: Civil Appeals Nos 44, 45 and 48 of 1990
• Published date: 19 September 2003
• Defendant Counsel: Michael J Beloff QC, CR Rajah and Elizabeth Choo (Tan Rajah & Cheah)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Davinder Singh (Drew & Napier),Randhir Ram Chandra (Haridass Ho & Partners),Michael Miller QC and David Hew (Cooma Lau & Loh)

Cur Adv Vult

There are three appeals before us and they arise out of the decision of Chao Hick Tin JC (as he then was) in Originating Summons No 695 of 1987 which was taken out by the respondents, the liquidators of City Securities Pte (in liquidation)(`City`), against 18 banks for determination of certain questions which we shall set out very shortly.

Facts

The relevant facts that gave rise to the appeals are these. City is a private unlimited liability company which until 3 July 1986 carried on business as stockbrokers in Singapore. The 18 banks were bankers of City and had on diverse dates provided City with loans, advances and other credit facilities. As security therefor, these banks, with the exception of Societe Generale, procured the execution by City at various times of instruments which were entitled `Letter of Hypothecation` (`LOHs`) and were expressed to create security interests in favour of the banks respectively over all the stocks, shares and other securities (which we shall collectively call `the shares`) more particularly described in daily or other periodical certificates issued and delivered by City to the banks respectively. In the case of Societe Generale (`Soc Gen`), no LOH was executed in their favour. But in their letter to City dated 19 April 1985 (`the facility letter`) the bank stated, among other things, that they would have a `pledge`, by way of a `letter of undertaking`, over stocks and shares that were bought on behalf of City`s clients over which City had a lien and that City was to furnish to Soc Gen a monthly list of all the `pledged stocks and shares`. Pursuant to the LOHs and, in the case of Soc Gen, the facility letter, daily or other periodical certificates were delivered to the banks by City listing out the shares held to the order and for the account of the banks.

In mid-February 1986 or thereabouts, there was a flurry of intense activities by all these banks. Each of them was making a demand for the shares charged to them under their respective security documents and all, except Soc Gen, commenced legal actions against City and, except Tat Lee Bank Ltd (`Tat Lee`), obtained ex parte interim orders against City (i) requiring delivery up of certificates and blank transfers of the shares in which the banks claimed to have securities under their LOHs and (ii) restraining City from disposing of or dealing with the shares pending the delivery up thereof. Pursuant to such orders, six of the banks, namely, Dresdner Bank Aktiengesellschaft (`Dresdner`), Standard Chartered Bank (`Stanchart`), Banque Internationale A-Luxembourg Bil (Asia) Ltd (`BIL`), Overseas Union Bank Ltd (`OUB`), Banque Nationale De Paris (`BNP`) and Royal Trust Merchant Bank (`Royal Trust`) obtained delivery up by City of the certificates and blank transfers of all or most of the shares claimed by them respectively. Tat Lee, after they had commenced legal proceedings, came to an arrangement with City whereby the certificates and blank transfers of some of the shares claimed by Tat Lee were placed in safe deposit boxes in Tat Lee`s premises and held jointly by Tat Lee and City. Soc Gen, which did not take any legal action, also came to a similar arrangement with City; the certificates and blank transfers of some of the shares claimed by them were placed in safe deposit boxes in Tat Lee`s premises and held jointly by Soc Gen and City. The other nine banks did not succeed in obtaining from City certificates and blank transfers of any of the shares claimed by them, notwithstanding the ex parte interim orders they had obtained; presumably, they were too late and there were hardly any certificates and blank transfers of any shares remaining in the hands of City.

At the end of February and also in the month of March 1986 discussions took place between City and the banks which culminated in the execution of an agreement called the `stand-still agreement` dated 31 March 1986 whereby all the banks agreed that for the period with effect retrospectively from 5pm on 25 February 1986 to 4 May 1986 or such further period or periods as the banks may from time to time in writing unanimously agree, no action whatsoever was to be taken by any of the banks. The purpose of such an agreement was principally to enable City, if it could, to continue to carry on its business. During the `stand-still` period and for 14 days after its expiration or earlier termination, each of the banks undertook, among other things, that they would not sell or dispose of any of the shares held by them under the security documents save and except with the unanimous consent of the other banks. The `stand-still` period was duly extended and finally expired on 2 July 1986. In the meantime, City continued to carry on its business as stockbrokers until 3 July 1986. On that day a petition for winding up of City was filed, and on the following day provisional liquidators were appointed. Approximately four months later, on 31 October 1986, a winding-up order was made and the respondents were appointed liquidators in the winding up of City.

After the winding-up order was made, the shares delivered by City to Dresdner, Stanchart, BIL, OUB, BNP and Royal Trust and also the shares in the possession of the liquidators were sold pursuant to an order of court dated 27 August 1986. The shares in the joint custody of City and Tat Lee and that of City and Soc Gen respectively were sold pursuant to the order of court dated 1 December 1986. All these sales were made without prejudice to the rights of the parties.

On 22 June 1987, the respondents took out the originating summons against the 18 banks and sought the determination of the court on the following questions:

(1) Did any of the LOHs or any daily or other periodical certificates issued by City create a security interest in any of the assets of City or otherwise and, if so, what was the nature of this security interest and what were the assets on which the security interest was created?

(2) Did the facility letter from Soc Gen to City or any periodical certificate issued pursuant thereto by City create a security interest in any of the assets of City and, if so, what was the nature of the security interest and what were the assets on which the security interest was created?

(3) If the LOHs or the facility letter or the periodical certificates did create security interests and if such security interests were floating charges, was there a crystallization of each floating charge and, if so, were the floating charges void against the liquidators and/or the other defendants for non-registration under s 131 of the Companies Act (Cap 50) (`the Act`)?

(4) Did the fact that Dresdner, Stanchart, Royal Trust, BIL, OUB and BNP obtained delivery from City of all or most of the shares claimed by them respectively under the ex parte interim orders of court create in their favour a secured or proprietary interest in such shares, and, if so, what was the nature of the interest?

(5) (i) Did Tat Lee and/or Soc Gen acquire a secured or proprietary interest in the shares referred to in the periodical certificates dated 1 February 1986 and placed in safe deposit boxes at Tat Lee`s premises?

(ii) Was the interest (if any) thereby acquired void against the plaintiffs for non-registration under s 131 of the Act?

The originating summons was heard before Chao Hick Tin JC, and in a very careful judgment, which was reported in [1990] 2 MLJ 257 , he determined the questions as follows:

(1) The security documents in question, ie LOHs and daily or other periodical certificates, created in each case a floating charge over all the shares of City, whether they are in City`s name or otherwise.

(2) The facility letter of Soc Gen and the monthly certificates issued pursuant thereto created a floating charge over all the shares of City.

(3) There was no crystallization of each of the floating charges prior to the commencement of the winding up of City and accordingly each of the floating charges was void against the liquidators and/or the creditors of City for non-registration under s 131 of the Act.

(4) None of the deliveries of the shares obtained by Dresdner, Stanchart, Royal Trust, BIL, OUB and BNP from City under the ex parte interim orders of court created for any of them any secured or proprietary interest in such shares.

(5) Neither Tat Lee nor Soc Gen acquired any secured or proprietary interest in the shares referred to in the periodical certificates and placed in safe deposit boxes at Tat Lee`s premises.

Against the decision of the learned judicial commissioner, three appeals have been brought. Dresdner, Stanchart, BIL and OUB together have appealed in Civil Appeal No 44 of 1990; BNP alone has appealed in Civil Appeal No 45 of 1990 and Tat Lee and Soc Gen together have appealed in Civil Appeal No 48 of 1990. However, Royal Trust, which is one of the banks that had obtained delivery up of certificates and blank transfers of the shares pursuant to the ex parte interim order, did not appeal against the decision. All the three appeals were heard together. The two appeals, Civil Appeal Nos 44 and 45 of 1990 raise the same issues. In Civil Appeal No 48 of 1990, there are two issues which are different, but in all other material respects it also raises the same issues.

Issues

Before us substantially the same issues as those raised below have been raised and they may be restated as follows:

(1) whether the LOHs executed by City in favour of Dresdner, Stanchart, BIL, OUB and BNP respectively and the daily certificates issued by City to them respectively pursuant to the LOHs created a security interest in any of the assets of City, and, if so, what was the nature of the security interest and what were the assets on which the security interest was created;

(2) whether the LOH in favour of Tat Lee and the facility letter of Soc Gen or the daily or monthly certificates issued...