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

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 31 October 1995
• Neutral Citation: [1995] SGHC 254
• Citation: [1995] SGHC 254
• Date: 31 October 1995
• Published date: 19 September 2003
• Plaintiff Counsel: Woo Bih Li and Ng Hweelon (Bih Li & Lee)
• Docket Number: Originating Summons No 275 of 1995
• Defendant Counsel: Timothy Kho (David Lim & Pnrs)
• Court: High Court (Singapore)
• Year: 1995

The plaintiffs are a company (the company) which were ordered to be wound-up under an order of court of 28 July 1989. M/s Edwin Khoo Tian Soo, Tan Swan Jeng and Chan Ket Teck are the liquidators. The winding-up petition was presented by the defendants, Societe-Generale, a French bank carrying on business in Singapore.

By this originating summons, the liquidators of the company sought the court`s direction as to the validity of certain set-offs of unsecured loans, owing by the company to Societe-Generale, from the surplus proceeds of a mortgage sale effected by Societe-Generale.

Facts

In 1982, the company, who were the proprietors of lots 339 and 403 TS19 (the property), embarked on a development of the two plots of land into Hotel Merideen and Merideen Shopping Centre. The company applied for a syndicated loan of US$40m from Societe-Generale, who acted as the lead managers and agents. 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$4,500,000, DM1,700,000 and Swiss francs CHF25,213,029.36 were extended by the banks to the company between March 1982 and March 1983.

Upon the grant of the syndicated loan, the company made a first draw-down of CHF31,785,000 and applied it in the reduction of the outstanding bridging loan leaving a balance of CHF6,326,689.24. Societe-Generale did not insist upon the bridging loan being completely repaid because had that been insisted upon, what remained of the syndicated loan would have been insufficient to fund the completion of the development.

Subsequently, eight further draw-downs were made from the syndicated loan and they were utilized by the company for the development. In total, the nine draw-downs amounted to US$39m.

In or about March 1988, the company was unable to honour its loan repayment obligations to the syndicate of banks. Accordingly, on 12 November 1988, Societe-Generale in exercise of their power of sale as mortgagee sold the property for S$180,200,000. Completion of the transaction took place on 24 February 1989.

On 10 March 1989, a part of the mortgagee sale surplus funds in the amount of S$2,239,006.13 was credited into the company`s bridging loan account No 12-32970-0122 and set off against the outstanding bridging loan.

The subject of the present proceedings relate to six instances of set-off effected by Societe-Generale on the dates set out below:

No Amount Date of set-off Account

(1) S$ 28,744.98 13.6.89 bridging loan

(2) S$ 46,635.51 05.9.89 overdraft

(3) S$ 15,243.74 26.9.89 bridging loan

(4) S$ 1,455,270.05 26.9.89 bridging loan

(5) S$ 150,000.00 26.9.89 bridging loan

(6) S$ 10,449.05 26.9.89 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.

On 22 April 1989, pursuant to a compromise reached, the company wrote to Societe-Generale a letter in these 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.

Hereinafter, this letter shall be referred to as `the set-off agreement`.

On 26 April 1989 the company and Societe-Generale executed the agreement (settlement agreement) whereby the company acknowledged that they owed Societe-Generale, 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, Societe-Generale 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 monies due to the company from third parties and to pay such monies into an account maintained by the company with Societe-Generale. However, by mutual arrangement, Societe-Generale did not exercise the right to appoint any firm of accountants to collect the unsecured debts owing to the company and instead allowed the company to collect the receivable and to place the same in the company`s account with Societe-Generale.

Position of the liquidators

The position of the liquidators is that Societe-Generale could not set-off the surplus proceeds of sale against the outstandings in the bridging account and the overdraft account because of s 74(1) of the Land Titles Act (Cap 157, 1994 Ed), which reads:

The money received by a mortgagee who has exercised his power of sale, after discharge of prior encumbrances to which the sale is not made subject (if any), or after payment into court under the Conveyancing and Law of Property Act of a sum to meet any prior encumbrances, shall be held by him on trust to be applied -

(a) firstly, in payment of all costs and expenses properly incurred as incidental to the sale or any attempted sale, or otherwise;

(b) secondly, in discharge of the mortgage money, interest and costs, other money and liability (if any) secured by the mortgage; and

(c) thirdly, in payment of subsequent mortgages and charges (if any) in the order of their priority.

And the residue of the money so received shall be paid to the person who appears from the land-register to be entitled to the mortgaged property or to be authorised to give receipts for the proceeds of the sale thereof.

Since the surplus proceeds of sale were to be held on trust for the company, Societe-Generale were not entitled to effect a set-off.

Case for Societe-Generale

Societe-Generale submitted that they were entitled to effect the set-offs on two bases:

(a) pursuant to s 41 of the Bankruptcy Act (Cap 20); and

(b) by virtue of the set-off agreement and the settlement agreement.

Section 41(1) of the Bankruptcy Act provides as follows:

Where there have been mutual credits, mutual debts, or other mutual dealings between a debtor against whom a receiving order is made under this Act and any other person proving or claiming to prove a debt under the order, an account shall be taken of what is due from the one party to the other in respect of such mutual dealings, and the sum due from the one party shall be set off against any sum due from the other party, and the balance of the account and no more shall be claimed or paid on either side respectively.

Section 41(1) is made applicable to a company winding-up by virtue of s 327(2) of the Companies Act (Cap 50, 1994 Ed), which reads:

Subject to section 328, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable and the valuation of annuities and future and contingent liabilities as are in force for the time being under the law relating to bankruptcy in relation to the estates of bankrupt persons, and all persons, who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section.

Consideration of the authorities

A number of cases were cited by counsel for Societe-Generale on the application or interpretation of s 41(1) which I now propose to examine. The first is Atkinson v Elliot (1797) 7 TR 378; 101 ER 1030 where the debtor bought two lots of tar each at six months` credit. After payment on the first lot became due, the debtor gave the creditor a bill of exchange which exceeded the price for the first lot. The creditor agreed to refund the surplus to the debtor. Later, the debtor became a bankrupt and the creditor sought to set-off the surplus funds against the price of the second lot which was not yet due. It was argued that such a set-off should not be allowed as the creditor held the surplus funds on trust for the debtor. There was then in operation a provision similar to our s 41(1) of the Bankruptcy Act. Lord Kenyon CJ said that `where there is a trust between both parties there is a mutual credit` and he held the set-off should be allowed. Similarly, Grose J said:

It has been objected that the defendants cannot set-off the £170 because it is contrary to their express agreement: but consider that the bankrupt by his agreement was bound to pay his acceptance for £230 at a future day, but that his bankruptcy disabled him; that was a credit on one side; and credit was constituted on the other by giving a bill which became due at a subsequent time. It is clearly therefore a case of mutual credit and it is just that one demand should be set-off against the other.

Next, there is the case Rose v Hart (1818) 8 Taunt 499; 129 ER 477 and the interesting aspect of it is the interpretation given by the court to the expressions `mutual credits` and `mutual debts`. Briefly there the debtor had prior to bankruptcy deposited cloths with a fuller for the purpose of being dressed. Following the debtor`s bankruptcy, his assignee tendered payment to the fuller for work done on such cloths but the fuller required payment of the general balance for other work done by him for the debtor prior to bankruptcy before he would release the cloths. Gibbs CJ said:

Something more is certainly meant here by mutual credits than the words mutual debts import; and yet, upon the final settlement, it is enacted merely that one debt shall be set against another. We think this shews that the legislature meant such credits only as must in their nature terminate in debts, as where a debt is due from one party, and credit given by him on the other for a sum of money payable at a future day, and which will then become a debt, or where there is a debt on one side, and a delivery of property with directions to turn it into

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