Good Property Land Development Pte Ltd (in liquidation) v Societe-Generale

JurisdictionSingapore
JudgeGoh Joon Seng J
Judgment Date17 April 1996
Neutral Citation[1996] SGCA 25
Date17 April 1996
Subject MatterSums due and payable to bank under bridging loan and overdraft,Validity,Winding up,Set-off of unsecured loans,Sale of mortgaged property by defendant bank,Use of proceeds to set off debts owed by company to bank under various accounts,Whether bank entitled to set-off debt against surplus,Debt and Recovery,Sale of mortgaged property by bank,Companies,Governing principles,Right of set-off
Docket NumberCivil Appeal No 117 of 1995
Published date19 September 2003
Defendant CounselTimothy Kho (David Lim & Pnrs)
CourtCourt of Appeal (Singapore)
Plaintiff CounselWoo Bih Li and Ng Hweelon (Bih Li & Lee)
The facts

In 1982, Good Property Land Development (GPLD) who were the proprietors of lots 339 and 403 TS19 , embarked on a development of the two plots of land into Hotel Meridien and Meridien Shopping Centre. GPLD applied for a syndicated loan of US$40m from the respondents, who acted as the lead manager and agent. The loan was secured, inter alia, by a mortgage over the property. However, before the grant of the syndicated loan from the various banks, bridging loans in different currencies amounting to US$4.5m, DM1.7m and Swiss francs CHF25,213,029.36 were extended by the banks to GPLD between March 1982 and March 1983.

Upon the grant of the syndicated loan, GPLD made a first drawdown of CHF31,785,000 and applied it in the reduction of the outstanding bridging loans leaving a balance of CHF6,326,689.24. The respondents did not insist upon the bridging loans being completely repaid because, had that been insisted upon, what remained of the syndicated loan would have been insufficient to fund the completionof the development. Subsequently, eight further drawdowns were made from the syndicated loan and they were utilized by GPLD for the development. In total, the nine drawdowns amounted to US$39m.

In or about March 1988, GPLD was unable to honour its loan repayment obligations to the syndicate of banks. On 12 November 1988, the respondents in exercise of their power of sale as mortgagees sold the property for S$180.2m. Completion of the transaction took place on 24 February 1989. On 10 March 1989, a part of the mortgagee sale surplus funds amounting to S$2,239,006.13 was credited into GPLD`s bridging loan account No 12-32970-0122 and set-off against the outstanding bridging loans.

The subject of this appeal concerned six instances of set-off effected by the respondents on the dates set below:
No Amount Date of Set-off Account

(1) S$28,744.98 13.06.89 bridging loan

(2) S$46,635.51 05.09.89 overdraft

(3) S$15,243.74 26.09.89 bridging loan

(4) S$1,455,270.05 26.09.89 bridging loan

(5) $150,000.00 26.09.89 bridging loan

(6) S$10,449.05 26.09.89 bridging loan

S$1,706,343.33 (total)



The above amounts were the balance mortgagee sale surplus proceeds and were part of deposits earmarked for various payments, as reflected under items 17, 20 and 21 of the schedule of funds.
On 22 April 1989, pursuant to a compromise reached, GPLD wrote to the respondents a letter in the following terms:

In consideration of your agreeing to enter into an agreement with us, a copy of which is attached hereto and initialled for identification purposes, we hereby acknowledge that you shall be entitled to whatever banker`s rights applicable at law with regard to funds standing in our account with your bank.



On 26 April 1989, GPLD and the respondents executed the agreement (settlement agreement) whereby GPLD acknowledged that they owed the respondents, inter alia, CHF4,761,173.64 in respect of the bridging loan account and S$236,159.12 on the overdraft account.
By this agreement, the respondents were given the right to appoint Price Waterhouse Intrust Ltd, or another firm of public accountants acceptable to both parties, to manage the collection of all moneys due to GPLD from third parties and to pay such moneys into an account maintained by GPLD with the respondents. However, by mutual agreement, the respondents did not exercise the right to appoint any firm of accountants to collect the unsecured debts owing to GPLD and instead allowed GPLD to collect the receivables and to place the same in GPLD`s account with the respondents. On 29 June 1989, the respondents filed a petition to wind-up GPLD, and pursuant thereto, GPLD was wound up under an Order of Court dated 28 July 1989.

Issues in the appeal

The appellants` case was that the set-offs applied after 26 April 1989 were wrongfully done.
The settlement agreement of 26 April 1989 only ratified the respondent`s set-offs prior to 26 April 1989 and did not ratify set-offs after that date. In any event, the surplus proceeds of the mortgagee sale were trust moneysheld by the respondents for the benefit of GPLD under s 68(1) of the Land Titles Act (Cap 157, 1985 Ed) which could not be used for set-offs. The appellants also argued that the set-off agreement of 22 April 1989 merely acknowledged the respondents` rights as bankers and did not create any new rights for them. Finally, they contended that the respondents held the surplus funds as agents of the syndicate of banks. Since the debt was owed to the respondents and not the syndicate, there could be no set-off due to the absence of mutuality.

The decision below

The learned judge concluded that there was clearly mutuality within the meaning of s 41 of the Bankruptcy Act.
The surplus proceeds were held by the respondents for GPLD before the intervention of the winding-up. The total sum of $1,706,343.33 was excess money held by the respondents for GPLD and to be paid over to GPLD. At the same time, GPLD was owing the respondents moneys in the overdraft account and the bridging loan account. Thus as at the date of the winding-up of GPLD, there were mutual credits or mutual debts between them. He further added that even if there were no mutuality, there was the set-off agreement which permitted the respondents to set-off the surplus sale proceeds against unsecured debts of GPLD. It would be to ignore commercial reality to hold that the two agreements did not extend to or cover the surplus funds held by the respondents under s 68 Land Titles Act. Accordingly, he held that the set-offs were valid.

The appeal

Set-off after commencement of winding-up - Items 20 and 21

For convenience, we shall deal with items 20 and 21 before proceeding to item 17.
The basic effect of GPLD`s winding-up is to vest its property in the liquidator. GPLD`s assets include, for liquidation purpose, all property belonging to or vested in GPLD at the date of presentation of the petition for winding-up (see s 255(2) Companies Act (Cap 50)) or acquired by GPLD before dissolution. An amount standing to the credit of the customer`s account constitutes a debt owed to him by a bank. For the purposes of liquidation proceedings such a debt is deemed to be an asset due to the customer. The bank, however, is entitled to set off against the amount due to the customer any amount due to the bank from him, such as a sum accrued on an overdraft. This right of set-off, also known as the right to combine the customer`s accounts, exists precisely because, despite the various accounts, the whole is treated as one account. The balance which remains payable to the customer has to be paid over by the bank to the liquidator. Thus it is crucial that, in insolvency set-off, the mutuality must be present prior to the commencement of winding-up.

An instructive case dealing with insolvency set-off is that of MS Fashions Ltd & Ors v Bank of Credit and Commerce International SA (in liq) & Ors (No 2) [1993] 3 All ER 769.
There Hoffman LJ gave a lucid exposition as to the principles governing set-off in companies` liquidation. Though the principles were in reference to the English Insolvency Rules, the principles enunciated are helpful. His Lordship, at p 775-776, stated as follows:

Insolvency set-off has been a creature of statute since the time of Queen Anne (4 & 5 Anne, c 17, s 11). The current provision applicable to companies is r 490 of the Insolvency Rules 1986, SI 1986/1925:

`(1) This Rule applies where, before the company goes into liquidation there have been mutual credits, mutual debts or other mutual dealings between the company and any creditor of the company proving or claiming to prove for a debt in the liquidation.

(2) An account shall be taken of what is due from each party to the other in respect of the mutual dealings, and the sums due from one party shall be set off against the sums due from the other ...

(4) Only the balance (if any) of the account is provable in the liquidation. Alternatively (as the case may be) the amount shall be paid to the liquidator as part of the assets.`

This language is substantially the same as that used in earlier bankruptcy statutes going back to the Bankruptcy Act 1869. Between the Supreme Court of Judicature Act 1975 and the Insolvency Rules 1986, the bankruptcy rule was also applied in company liquidations.



Certain principles as to the application of these provisions have been established by the cases.
First, the rule is mandatory (the mandatory principle). If there have been mutual dealings before the winding-up order which have given rise to cross claims, neither party can prove or sue for his full claim. An account must be taken and he must prove or sue (as the case may be) for the balance. Secondly, the account is taken as at the date of winding-up order (the retroactivity principle). This is only one manifestation of a wider principle of insolvency law, namely, that the liquidation and distribution of the assets of the insolvent company are treated as notionally taking place simultaneously on the date of the winding-up order (see Oliver J in Re Dynamics Corp of America [1976] 2 All ER 669 at p 673, [1976] 1 WLR 757 at p 762). Thirdly, in taking the account, the court has regard to events which have occurred since the date of the winding up (the hindsight principle). The hindsight principle is pervasive in the valuation of claims and the taking of accounts in bankruptcy and winding up. A good example of the principle being applied outside the context of set-off is Re Northern Counties of England Fire Insurance Co, Macfarlane`s Claim (1880) 17 Ch D 337 in which the value of a claim under a fire insurance policy was determined by reference to the loss suffered in a fire which occurred a month after the insurance company had been wound up.

In so far as the local position is concerned, s 41(1) of the Bankruptcy Act (Cap 20) provides as follows:

Where there have been mutual credits, mutual debts, or other mutual dealings between a
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8 cases
  • Panorama Development Pte Ltd v Fitzroya Investments Pte Ltd & Another
    • Singapore
    • High Court (Singapore)
    • November 18, 2000
    ...The judgment in Good Property Land Development Pte Ltd (in liquidation) v Societe-Generale [1996] 2 SLR 239 has decided that under s 41(1) of the pre-1995 Bankruptcy Act, contingent claims are not capable of being the subject of set-off (as seems to be the case), then, the applicable s 88(1......
  • Re Lehman Brothers Finance Asia Pte Ltd
    • Singapore
    • High Court (Singapore)
    • September 14, 2012
    ...Dynamics Corp of America, Re [1976] 1 WLR 757; [1976] 2 All ER 669 (refd) Good Property Land Development Pte Ltd v Société-Générale [1996] 1 SLR (R) 884; [1996] 2 SLR 239 (refd) Gresham Corp Pty Ltd, Re [1990] 1 Qd R 306 (refd) Lines Bros Ltd, Re [1983] Ch 1 (folld) Mah Kah Yew v PP [1968-1......
  • CIMB Bank Bhd v Italmatic Tyre & Retreading Equipment (Asia) Pte Ltd
    • Singapore
    • High Court (Singapore)
    • July 30, 2020
    ...is mandatory. Parties are not permitted contractually to exclude its effect (Good Property Land Development Pte Ltd v Societe-Generale [1996] 1 SLR(R) 884 at [10]; National Westminster Bank v Halesowen Presswork & Assemblies Ltd [1972] AC 785 at 805). Second, it is automatic. Insolvency set......
  • Goj 12A 60 21 Sign
    • Malaysia
    • High Court (Malaysia)
    • March 24, 2022
    ...That same sentiment was echoed by Lai Kew Chai J in the Singapore case of Good Property Land Development Pte Ltd. v. Societe-Generale [1996] 2 SLR 239 when he stated "that for mutuality to exist, two conditions must generally be satisfied. First, each claimant must be personally liable for ......
  • Request a trial to view additional results
7 books & journal articles
  • AT THE INTERSECTION OF PROPERTY AND INSOLVENCY: THE INSOLVENT COMPANY’S ENCUMBERED ASSETS
    • Singapore
    • Singapore Academy of Law Journal No. 2008, December 2008
    • December 1, 2008
    ...Keong J) (appears to suggest that the company retains beneficial ownership); Good Property Land Development Pte Ltd v Societe-Generale[1996] 2 SLR 239 (CA) (beneficial ownership vests in liquidator); Ng Wei Teck Michael v Oversea-Chinese Banking Corporation[1998] 2 SLR 1 (CA) (beneficial ow......
  • SECURITY DEPOSIT ARRANGEMENTS IN INSOLVENCY
    • Singapore
    • Singapore Academy of Law Journal No. 1996, December 1996
    • December 1, 1996
    ...supra, note 12, at 638F. Cf Good Property Land Development Pte Ltd v Societe Generale[1996] 1 SLR 457, reversed on different grounds at [1996] 2 SLR 239. 90 Supra, note 52. 91 Supra, note 53. See also the other cases cited therein. 92 Supra, note 26, at 449E—451B. 93 Ibid, at 450H—451A. 94 ......
  • Insolvency Law
    • Singapore
    • Singapore Academy of Law Annual Review No. 2003, December 2003
    • December 1, 2003
    ...the beneficial interest in the company”s assets vests in the liquidator (Good Property Land Development Pte Ltd v Societe-Generale[1996] 2 SLR 239; see also In re Lines Bros Ltd[1983] Ch 1 at 14). Yet another line of authority, which this reviewer prefers, is that the beneficial ownership o......
  • TRUST FUNDS, ASCERTAINABILITY OF BENEFICIAL INTEREST AND INSOLVENCY SET-OFF
    • Singapore
    • Singapore Academy of Law Journal No. 1996, December 1996
    • December 1, 1996
    ...with authorities from other jurisdictions and the legislative scheme, and which considerably reduces the scope of insolvency set-off. 1 [1996] 2 SLR 239. 2 Among which are Young Hong Mui William v BCCI Hong Kong Ltd[1994] 1 HKC 89; Old Style Confections Pty Ltd v Microbyte Investments Pty L......
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