Hong Leong Finance Ltd v Tan Gin Huay and Another

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 16 March 1999
• Neutral Citation: [1999] SGCA 18
• Date: 16 March 1999
• Subject Matter: Mortgagee's right to possession,Interim orders,Mortgage agreement providing for increased rate of interest in event of borrower's default,Increase only payable from and during period of default,Whether court had jurisdiction to refuse to order possession where mortgagees were so Entitled,Default of mortgagors,Liquidated damages or penalty,Remedies,Adjournment,Damages,Whether court had jurisdiction to adjourn summons for possession,Mortgages,Jurisdiction to adjourn only to afford mortgagor chance of paying off mortgage in full,Land,Civil Procedure,Contract,Whether default interest is penalty and therefore unenforceable,Whether default interest is a penalty and unenforceable,No adjournment if no reasonable prospect of mortgagor paying off mortgagee
• Docket Number: Civil Appeal No 174 of 1998
• Published date: 19 September 2003
• Defendant Counsel: Respondents in person
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: K Shanmugam SC, Suresh Nair and Michelle Ng (Allen & Gledhill)

Judgment:

LP THEAN JA

(delivering the grounds of judgment of the court): The appellants are the mortgagees and the respondents the mortgagors of the leasehold property at Geylang Bahru market and food centre, known as Stall No [num ]01-2827, Block 69 Geylang Bahru, Singapore 330069 (`the property`). The appellants applied by way of an originating summons for judgment for the amount owing by the first respondent and secured by the mortgage and for an order for possession of the property. The learned judge hearing the application declined to allow the application, but instead made an order allowing the payment of the amount owing by certain instalments. He also held that the provisions of the mortgage requiring the respondents to pay interest on the outstanding amount at an increased rate upon their default was a penalty. Against the decision of the learned judge the appellants appealed. We allowed the appeal and made an order for possession but stayed the execution of the order on certain terms. We also declared that the default interest was a penalty.

2. The facts

The respondents purchased from the Housing and Development Board (`HDB`) the leasehold interest in the property under an agreement for lease dated 29 January 1997 made between them and HDB (`the lease`). The lease was for a term of 20 years commencing from 1 November 1996 and the purchase price was $116,000. The purchase was financed by the appellants, and only the first respondent was the borrower. By a letter dated 22 November 1996 the appellants agreed to grant to the first respondent credit facilities consisting of: (a). a 15-year term loan of $115,000 repayable in the following manner:

(i). by monthly instalments of $939.65 for two years from the date of the facility letter; and

(ii). by monthly instalments of $1,017.65 thereafter, subject to variations in certain circumstances;

(b). a second term loan of $9,600 repayable 15 years from the date of release of the loan; and

(c). `credit plus facility` up to the limit of $19,400 as working capital repayable on demand.

3.The credit facilities were secured by a mortgage of the property which was made by way of a deed of assignment of the lease and a mortgage-in-escrow both executed on the 29 January 1997 by the first and second respondents. We shall refer to the deed of assignment and the mortgage-in-escrow jointly as the `mortgage`.

4.Soon after the execution of the mortgage, the appellants disbursed the term loan of $115,000 to the first respondent. Thereafter, the first respondent made the instalment payments for the months of February, March, April and May 1997, albeit that they were made late. She then defaulted on the June instalment. No payment was made in July and August or October, but in September one month`s instalment was paid on her behalf by one Goh Nee Kim (`Goh`). Goh also paid two months` instalments amounting to $1,879.30 on 23 December 1997, and the first respondent herself made a payment of $2,000 on 13 February 1998. All in all, the first respondent paid approximately nine months` instalments, and was some seven months in arrears.

5.Meanwhile, the appellants had decided to recall the loan. On 4 November 1997, the appellants through their solicitors served a notice recalling the loan and demanded repayment of the whole amount outstanding in accordance with the terms of mortgage. They also gave one month`s notice to take possession of the property.

6. Proceedings

On 23 January 1998, the appellants filed the OS 78/98 to enforce their security. They sought the following orders: (a). payment of the outstanding sum of $118,093.90 due as at 23 January 1998 and interest of $56.81 per day from 24 January 1998 until full payment;

(b). delivery by the first and second respondents of vacant possession of the property;

(c). enforcement of the mortgage by sale, the proceeds of which were to be applied in payment of the outstanding sums; and

(d). payment by the respondents of costs on an indemnity basis.

7.The originating summons was heard before a judge in chambers. The learned judge declined to allow the security to be enforced, and instead ordered as follows: (a). that the first respondent pay the appellants the sum of $939.65 every month starting from 15 June 1998 and thereafter the same amount on the 15th day of each month, and the sum of $1,017.65 every month starting from 15 January 1999;

(b). that there be liberty to the appellants to restore the originating summons in the event of the first respondent`s default; and

(c). that the first and second respondents pay the appellants` costs on an indemnity basis, not exceeding $1,500 inclusive of disbursements to be treated as part of the loan.

The learned judge also disallowed the appellants` claim for interest payable at an increased rate by reason of the default of the respondents (`default interest`) on the ground that it was a penalty.

8.Before us, there were essentially three main issues: first, whether or not the appellants were entitled to the reliefs sought, namely, (a) judgment for the entire outstanding sum and interest thereon, and (b) an order for delivery of possession of the property; second, whether the learned judge had the jurisdiction to make the order that was made; and third, whether the provisions for payment of default interest were a penalty.

9. Reliefs

Leaving aside for the moment the element of default interest, it was clear that in view of the defaults on the part of the respondents, the appellants were entitled to judgment and an order for possession. It was not in dispute that the first respondent defaulted in her instalment payments for the loan. Those defaults singly or together constituted an event of default under the terms of the mortgage, and the appellants had the right to demand immediate payment of the credit facilities and all other moneys secured by the mortgage. On 4 November 1997, the appellants served on the respondents a notice in writing demanding immediate payment of the entire sum outstanding in accordance with the terms of the mortgage. All the contractual pre-requisites for the demand had been met and the appellants were therefore entitled to immediate payment. The appellants were also entitled to possession of the property. The terms of the mortgage expressly conferred on the appellants the right to enter into possession of the property and to receive the rents and profits thereof.

10. Jurisdiction

We now turn to the issue relating to the jurisdiction of the court on the hearing of an application by a mortgagee. It has been held that where a mortgagee is entitled to possession under the mortgage, the court has no jurisdiction to refuse an order for possession. In Four-Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317, the mortgagee applied to court for an order for possession against the mortgagor on the ground that the latter had defaulted in payment of the principal and interest. The Master made an order for possession which was to expire two months after the service of the order. At the request of the mortgagor, he adjourned the matter to court for hearing before a judge. Harman J held that the mortgagee was entitled to the relief and the court had no power to refuse the relief sought. In the course of his judgment, he said at p 820:

The comments and ... showed an entire misapprehension of what an originating summons for possession is about. They all assumed that it involved some kind of default on the part of the mortgagor, but I said there, and I repeat now, that the right of the mortgagee to possession in the absence of some contract has nothing to do with default on the part of the mortgagor. The mortgagee may go into possession before the ink is dry on the mortgage unless there is something in the contract, express or by implication, whereby he has contracted himself out of that right. He has the right because he has a legal term of years in the property or its statutory equivalent. If there is an attornment clause, he must give notice. If there is a provision that, so long as certain payments are made, he will not go into possession, then he has contracted himself out of his rights.

Later he said at p 822:

The mortgagor said here that his default was of a very small order. So it was. If this were a case where there was discretion in the matter, I should feel that it was a hard case. But the mortgagor has entered into a contract with the mortgagee, and the mortgagee asks for his rights under the contract, and this court, in my judgment, has no power to refuse him those rights.

11.A few years later, a similar case came before Russell J: Birmingham Citizens Permanent Building Society v Caunt and Anor [1962] Ch 883. There, a mortgagee applied by summons for an order for possession of the mortgaged property on the ground that payment of the instalments was in arrear. The mortgagor invoked the Court`s Practice Direction made under the then O 55 r 5A of the Rules of Supreme Court to the effect that on an application by a mortgagee for an order for payment or possession, the Master, if he was of the opinion that the mortgagor ought to be given an opportunity to pay off the arrears, was at liberty to adjourn the application on such terms as he thought fit. Russell J considered the issue in depth and reviewed numerous authorities. He came to the conclusion that where a mortgagee is entitled to possession under the mortgage, the court has no jurisdiction to refuse an order for possession whether on terms that the mortgagor keep up the payments or pay the arrears, without the agreement of the mortgagee. He said at p 912:

Accordingly, in my judgment, where (as here) the legal mortgagee under an instalment mortgage under which by reason of default the whole money has become payable, is entitled to possession, the court has no jurisdiction to decline the order or to adjourn the hearing whether on terms of keeping up payments or paying arrears, if the

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