Good Property Land Development Pte Ltd v Societe Generale

• Jurisdiction: Singapore
• Judge: Chan Sek Keong J
• Judgment Date: 04 February 1989
• Neutral Citation: [1989] SGHC 10
• Docket Number: Originating Summons No 1151 of 1988,Suit No 39 of 1989
• Date: 04 February 1989
• Year: 1989
• Published date: 19 September 2003
• Plaintiff Counsel: Manjit Singh (Manjit Darshan & Partners)
• Citation: [1989] SGHC 10
• Defendant Counsel: Molly Lim (Wong Yoong Tan & Molly Lim)
• Court: High Court (Singapore)
• Subject Matter: Credit and Security,Mortgage of real property,Mortgagee's duties in exercising power of sale,Allegation that sale of property made at an undervalue in bad faith,Whether sale at best price reasonably obtainable,Effect where breach of duty by mortgagee not due to fraud, bad faith or recklessness,Mortgagors seeking interlocutory injunction restraining mortgagees from completing sale of mortgaged property,Mortgagee’s power of sale,What mortgagor needs to show,Effect of mortgagor being unable to provide adequate security for period up to estimated date of trial,Appropriate remedy depending on nature of mortgagor's interest in property

Cur Adv Vult

This application by the plaintiffs, as mortgagors, for an interlocutory injunction to restrain the completion of the sale of the property known as the Hotel Meridien (the mortgaged property) by the defendants to Hotel Properties Ltd (HPL) was a sequel to my judgment in Originating Summons No 1151 of 1988 where I ordered the removal of a caveat lodged by the plaintiffs (who were the defendants in those proceedings) prohibiting the registration of any instrument affecting the mortgaged property without the prior consent of the plaintiffs. There, I found that the grounds upon which the caveat was filed were unsustainable in law but I reserved the issue of the availability of an interlocutory injunction to be considered in properly constituted proceedings.

The plaintiffs have now commenced this action and have, in this application, repeated their allegations that the defendants (in these proceedings) as equitable mortgagees of the mortgaged property have exercised their power of sale improperly and accordingly the court should restrain the completion of the sale until the trial of the action. The indorsement on the writ herein also contains a prayer for the agreement of sale between the plaintiffs and HPL to be set aside although HPL have not been sued as co-defendants.

I have already set out in the grounds of decision relating to the previous proceedings a brief summary of the events leading up to the sale of the mortgaged property. Here, I will only outline the case for the plaintiffs that the sale to HPL was improper and the defendant`s case to the contrary. The application before me was, of course, not the trial of the action but only an application for an interlocutory injunction to preserve the status quo by restraining the defendants from proceeding to complete the sale of the property to HPL. Counsel for the parties have, presumably because of the nature of relief prayed for, approached and argued their respective cases as if this application were subject to the ordinary rules governing the grant of interim injunction as laid down by American Cyanamid Co v Ethicon Ltd [1975] AC 396.

The basic question in these proceedings is the extent of the duties of the mortgagee vis-a-vis the mortgagor in exercising his power of sale. It is unnecessary for me to trace the historical development of the law relating to the duties of a mortgagee. As far as this court is concerned, the law is as stated in Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 where the Court of Appeal decided that a mortgagee had two duties: one to act in good faith and the other `to take reasonable precautions to obtain ... the true market value of the mortgaged property at the date on which he decides to sell it`: per Salmon LJ at p 966. The decision in Cuckmere `s case has received the approval of the Privy Council in an appeal from Hong Kong, viz Tse Kwong Lam v Wong Chit Sen [1983] 3 All ER 54. Cuckmere `s case has also been followed by our Court of Appeal in Ng Mui Mui v Indian Overseas Bank Ltd [1986] 1 MLJ 203 .

These duties do not preclude the mortgagee from preferring his own interest to that of the mortgagor provided that he does not disregard the interests of the mortgagor. He is not a trustee of his power of sale vis-a-vis the mortgagor. Thus, the mortgagee is not required to wait for the most propitious market conditions to sell or to delay a sale in the hope of obtaining a better price. He is also not required to consult the mortgagor as to the time and manner of sale. He can sell by private treaty or public auction provided that he takes adequate steps to publicize the sale and bring it to the notice of a reasonable number of prospective buyers.

In the present case, the relevant events as disclosed in the affidavits filed in these proceedings and in the previous proceedings were as follows:

(a) the plaintiffs were in default under the loan agreement since 1985 and have been unable to repay the loan and interest thereon;

(b) the defendants did not declare a default until 18 December 1987 at which time the amount owing was about US$60m and about Swiss F$5m plus about Swiss F$1.3m for default interest; the plaintiffs have disputed these sums on the ground that they have a claim for damages of $32m against the defendants for breach of duty in connection with the defendants` failure to carry out certain currency exchange transactions;

(c) the defendants put the plaintiffs into receivership in March 1988 and the receivers and managers have been in control of the plaintiffs` affairs since then;

(d) the defendants did not appear to have made a firm decision to sell the mortgaged property until about April or May 1988 when (i) the receivers and managers obtained a valuation of the mortgaged property at $113,700,000, and (ii) the plaintiffs began collecting and collating information until September 1988 on the number of prospective buyers and the price indications from them;

(e) in September through to October 1988, the defendants began negotiations with various interested buyers: there was party A who offered $184m but were unable to put down the requisite deposit, there was party B who indicated a price of $70m and asked for the contract documents, there was party C who indicated a price of $180m but eventually offered $173.5m; the other terms under negotiations in each case have not been disclosed to the court;

(f) on 12 October 1988, the receivers and managers obtained another valuation of $147,600,000 for the mortgaged property;

(g) Forbin Ltd (a company controlled by Ng Teng Fong) negotiated (through Richard Ell`s Pte Ltd, international real estate agents) with the defendants on 11 November 1988 to buy the mortgaged property. On 12 November 1988, they were able to offer $180m (which they have alleged was actually accepted by the defendants and which the defendants have denied); prior to these negotiations, Forbin had shown no interest and had merely indicated a price of $150m without the Meridien management agreement, ie they would not undertake to retain Meridien Straits as the managers of the hotel. Their offer of $180m was also to such effect. On 12 November 1988, Forbin was told that the mortgaged property had been sold to HPL, the sale having been concluded in Paris, whereupon Forbin in addition to maintaining that it had a concluded sale with the defendants increased its offer to (i) $181.2m on the same day, (ii) $183m on 14 November 1988, and (iii) $186m later on the same day;

(h) HPL negotiated with the defendants at the same time as Forbin; HPL`s initial indication of a price was $140m. Just before 4 November 1988 this figure was increased to $168m with the Meridien management agreement. On 7 November 1988, HPL indicated that they wished to negotiate at around $173.5m and this was increased to $180.2m on 12 November 1988 when the sale was concluded. The defendants have stated that HPL had made it a condition that the contract must be signed by 12 November 1988. They have also stated that Forbin also made it a condition that the offer of $180m must be accepted on the same day of the offer;

(i) the plaintiffs were informed of the defendants` intention to sell the mortgaged property by a letter dated 3 October 1988 when the defendants said that they would sell it by tender on or about 10 October 1988. The plaintiffs were asked to submit names of interested bidders. On 10 October, the defendants informed the plaintiffs that they were negotiating with a party which had offered the highest price to date and that they were prepared to sell by private treaty. (This was presumably a reference to party A.) The plaintiffs were not informed of the said price. On 18 October 1988, the plaintiffs complained that they were given too short a time to arrange for buyers. On 20 October 1988, the defendants warned the plaintiffs that they were proceeding to sell;

(j) on 4 November 1988, the defendants decided to sell the mortgaged property by closed tender subject to an undisclosed reserve price; the reason for this decision was that the sale to party A fell through. Tender documents were sent out to 43 selected real estate brokers, investment houses, hotel owners and operators, most of whom were in Singapore and some in Hong Kong. Although bids for the mortgaged property could be submitted from 4 November 1988 to 19 December 1988, the plaintiffs reserved to themselves the right to cancel the tender unconditionally at any time before 24 November 1988 even if there were prior bids in excess of the undisclosed reserve price (disclosed in these proceedings as $175m). Subject to this right, the defendants were bound to accept any offer equal to or exceeding the reserve price. The defendants exercised the right of cancellation a few days after they had sold the property to HPL;

(k) according to a memorandum prepared by Richard Ellis after their clients had failed to secure the mortgaged property, the defendants informed them on 11 November 1988 that they were prepared to sell it for $175m with the Meridien management contract and $180m without it. According to the same memorandum, the defendants told Richard Ellis after the sale to HPL that the Meridien group were very good customers of the defendants in Paris and that the defendants did not wish to sell the mortgaged property without the management contract being retained by the Meridien group. The defendants have denied the accuracy of the contents of the memorandum.

The events summarized above are obviously susceptible to different interpretations and indeed the plaintiffs have sought to interpret them to mean the following:

(a) the defendants failed to ascertain the true market value of the mortgaged property before selling it to HPL at $180.2m; no proper valuation was obtained from valuers with expertise in valuing first class hotels like the Hotel Meridien;

(b) the defendants were prepared to sell it...