Hong Leong Finance Ltd v Tay Keow Neo and Another

• Judge: MPH Rubin JC
• Judgment Date: 28 November 1991
• Neutral Citation: [1991] SGHC 172
• Citation: [1991] SGHC 172
• Defendant Counsel: S Gunaseelan (S Gunaseelan)
• Published date: 19 September 2003
• Plaintiff Counsel: George B Pereira (Foo & Quek)
• Date: 28 November 1991
• Docket Number: Suit No 2115 of 1989
• Court: High Court (Singapore)
• Subject Matter: Principles applicable,Credit and Security,Setting aside,Guarantees and indemnities,Guarantee given by directors for banking facilities,Judgment in default of appearance,Guarantor,Whether guarantee avoidable,Civil Procedure,Judgments and orders,Defence of undue influence and plea of non est factum

Cur Adv Vult

This is an appeal by the defendants against the decision of the assistant registrar dismissing their application to set aside a judgment in default of appearance entered against both of them. After hearing arguments, I dismissed the appeal for the reasons hereinafter appearing.

The action concerns the case of two directors of a now defunct company, who having signed, sealed and delivered a guarantee which on the face of it was executed in the presence of a solicitor Mr Thomas Chan, would now like to impugn the guarantee principally on the ground that the said guarantee was obtained from them under undue influence exerted on them by their former employer. The other ground was that the defendants did not know the nature and contents of the document which they purportedly signed and that they did not receive and were not given any independent legal advice before it was signed. As the action wound its way up, it appeared to gather momentum so much so other defences were added. Chief among them were mistake, misrepresentation, fraud, total failure of consideration and past consideration. The manner in which the said guarantee was given is at the heart of this case.

Tay Keow Neo (`Tay`), the first defendant, and Lim Eng Lye (`Lim`), the second defendant, were at all material times two of the three directors of a company known as Rochester Co Pte Ltd (`Rochester`). The third director of Rochester was one Gan Chee Siong (`Gan`). Rochester was a wholly-owned subsidiary of People`s Park Development Pte Ltd (`PPDL`). PPDL was described by the defendants as an umbrella organization with several subsidiary and associated companies.

The defendants, as they would relate, were in the employ of PPDL before they became directors of Rochester. PPDL`s moving force and its majority shareholder was a property developer known as Ho Kok Cheong (`Ho`). In order to facilitate a loan of $10m to Rochester, Ho, Gan and the defendants executed a guarantee on 20 November 1981 under seal addressed to Hong Leong Finance Ltd, the plaintiffs in this action. As the said guarantee and its contents would become a recurring theme in these proceedings, it would be useful to have its material parts reproduced. The material parts of the said guarantee reads:

In consideration of your having at our request agreed to advance to Rochester Company Private Limited, a company incorporated in the Republic of Singapore and having its registered office at Unit 501, 4th floor, People`s Park Complex, New Bridge Road, Singapore (hereinafter called `the borrower`) the sum of dollars ten million ($10m) (hereinafter called `the said loan`) we, Gan Chee Siong (Malaysian I/C No 4042642) of No 944, 26th floor, People`s Park Complex, New Bridge Road, Singapore, Tay Keow Neo (NRIC No 0103789/G) of No 114N Block 4 Spottiswoode Park Road, Singapore, Lim Eng Lye (NRIC No 0318286/Z) of No 160-N Block 26 Jalan Berseh, Singapore, and Ho Kok Cheong (NRIC No 0993994/F) of Unit 501, 4th floor, People`s Park Complex, New Bridge Road, Singapore, hereby jointly and severally undertake and guarantee that in the event the borrower in any way defaults or fails to repay the said sum of $10m, and interest or any part thereof under the assignment dated 23 November 1981 and under the mortgage executed in escrow and made between the borrower of the one part and yourselves of the other part (hereinafter called `the assignment` and `the mortgage` respectively) we shall pay to you all moneys due and to become due under the assignment and the mortgage or on any judgment which may be recovered thereunder and whatever may now or hereafter be the position between the borrower and us as sureties, we the guarantors shall be considered and be liable jointly and severally as principal debtors for all moneys owing by the borrower to you and we further agree that our joint and several liability and the liability of our personal representatives shall not be released nor shall our liability hereunder be affected altered or prejudiced by any time being given to the borrower or by you omitting or neglecting to protect your rights under the assignment and the mortgage or by any other act, omission, matter or thing whatsoever whereby but for this provision, we the guarantors as sureties only would have been so released.

...

Dated 23 November 1981.

In witness whereof the guarantors have hereunto set their hands and seals the day and year first above written.

Signed Sealed and Delivered by the abovenamed

Gan (signed) (seal affixed)

Chee Siong, Tay (signed) (seal affixed)

Keow Neo, Lim (signed) (seal affixed)

Eng Lye and Ho (signed) (seal affixed)

Kok Cheong as guarantors in the presence of: (signed Thomas Chan)

On 20 November AD 1981 before me, Thomas Chan Ti Chuen an advocate and solicitor of the Supreme Court in the Republic of Singapore practising in Singapore personally appeared Gan Chee Siong, Tay Keow Neo, Lim Eng Lye and Ho Kok Cheong who of my own personal knowledge I know to be the identical persons whose names

(signed) (signed) (signed) (signed)

are subscribed to the above written instrument and acknowledged that they had voluntarily executed this instrument at Singapore.

Witness my hand.

(signed Thomas Chan)

The said guarantee was underpinned by the mortgage of certain commercial properties belonging to Rochester. On 28 November 1984, about three years after the execution of the guarantee, Ho and the defendants executed a deed of release dated 30 November 1984. Under the terms of that deed, Ho and the defendants expressly consented amongst other things to the release of Gan from the said guarantee and to the sale of a commercial property belonging to Rochester. That deed too was executed in the presence of solicitor Thomas Chan who certified that Ho and the defendants appeared before him on 28 November 1984 and had executed the instrument voluntarily. One important feature of the second deed was that in cl 2 of its preamble, there was an express reference to the guarantee executed three years earlier which is the subject matter of the appeal.

Rochester defaulted in November 1989 and Ho in the event became a bankrupt. After demands, the plaintiffs issued a writ against both the defendants on 18 November 1989. Before the issue of the writ, the plaintiffs sent registered letters to both defendants. Those letters made it clear that the plaintiffs would look to the defendants for payment if the demands made to Rochester were not satisfied. In October 1982, the outstanding sum owing to the plaintiffs was $11,875,560.36.

Attempts to effect personal service having been proved fruitless, substituted service of the writ of summons including the statement of claim was effected by posting the same on the front door of the residences of both the defendants and on the notice board of the Supreme Court. Since there was no appearance by both defendants, judgment in default was entered against both of them on 20 January 1990. The plaintiffs, after sending letters of demand, followed with the issue of bankruptcy notices against both defendants. Those bankruptcy notices were also attempted to be served personally at the respective residences of the defendants but those attempts were also unsuccessful. Consequently, substituted service was effected on both defendants by posting a copy of the bankruptcy notices on the front door of the respective flats of the defendants and another copy posted on the notice board of the Supreme Court.

On 8 August 1990, the defendants applied to the court to set aside the judgment in default of appearance and all subsequent proceedings taken in this court. In that application, the defendants applied to court for leave to file and serve the memorandum of appearance and defence out of time. Initially, when the matter was before the assistant registrar, Tay filed two affidavits and Lim filed one affidavit in support of their application. In those affidavits, they took identical positions in regard to the issues raised by them. Except in matters where they took a joint position which I shall advert to later in these grounds, it may be convenient to summarize their individual circumstances as averred by them as follows.

Tay

Tay had been in the employ of Ho since 1973. She joined PPDL as an accounts clerk at a monthly salary of $500. Between 1973 and 1981, she was employed at various times in one of the many Ho-controlled companies. She was made a director of Rochester sometime in 1976. According to her, she had never held any shares in Rochester. She was only a nominee director. Her qualifications did not extend beyond an `O` level school leaving certificate. Her salary, upon being appointed director of a number of companies within the PPDL, including Rochester, was only $1,200 in 1981. The maximum salary she reached was $2,000 per month. Though she was made a company director, she never exercised the duties and powers of a director. She merely carried out Ho`s instructions without question.

In her affidavit filed on 21 September 1990, Tay simply denied having executed the said guarantee before any solicitor. In paras 7 and 8 of the said affidavit, she said: `... A few months ago, I received a bankruptcy notice. Upon consulting Mr S Gunaseelan subsequently, I discovered that I had been sued by the abovenamed plaintiffs in respect of a guarantee which I was alleged to have executed in respect of a loan of $10m which the said plaintiffs had supposedly granted to Rochester Co Pte Ltd. ... I do not recall having executed the said guarantee before any solicitor. Messrs Thomas Chan were, as afar (sic) as I can remember, the solicitors for Mr Ho Kok Cheong`s companies. I have not appointed or consulted any solicitors of my own until as aforesaid in para 7 hereof. I only remember having signed documents in the presence of the companies` legal officer,...