Hong Leong Finance Ltd v Famco (S) Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: Judith Prakash JC
• Judgment Date: 25 September 1992
• Neutral Citation: [1992] SGHC 253
• Docket Number: Originating Summons No 170 of 1989,Suits Nos 6568, 6569 and 6659 of
• Date: 25 September 1992
• Published date: 19 September 2003
• Year: 1992
• Plaintiff Counsel: Michael Khoo with Josephine Low (Michael Khoo & BB Ong)
• Citation: [1992] SGHC 253
• Defendant Counsel: Sng Kheng Huat (Low Yeap & Co),Sim Yong Chan (MPD Nair & Co)
• Court: High Court (Singapore)
• Subject Matter: Hire-purchase agreement,Enforceability of guarantees against directors,Liability of guarantor,Credit and Security,Guarantor,Indemnity,Right of nominee director to be indemnified by appointor for personal liabilities incurred in execution of duties,Agency,Rights of agent,Nominee directors providing personal guarantees for benefit of company,Guarantees and indemnities,Right to be indemnified by appointor company,Personal guarantees provided by directors to secure financing

Cur Adv Vult

These three actions arise out of a series of hire-purchase transactions entered into in 1983 between the plaintiffs, as owner, and the first defendants, Famco (S) Pte Ltd (`Famco`), as hirer. As security for the payment obligations of Famco, the plaintiffs required and received various guarantees. Famco having defaulted, the plaintiffs commenced these actions against it and the various guarantors to recover the balance due. By the time the trial started, in April 1992, the plaintiffs had obtained judgment in default against Famco and several of the guarantors. The remaining defendants who were contesting the actions were the second and third defendants in each suit, Chew Beng Gim (`Chew`) and Cheng Tye-Loke Leonard (`Cheng`), and the seventh defendant in Suit No 6568 of 1985, SPP Ltd (`SPPL`). In addition, in the two suits in which SPPL was not a defendant, Chew and Cheng had instituted third party proceedings against SPPL asking for an indemnity if they were found liable to the plaintiffs.

I will deal first with the issues and evidence in relation to the main actions and will thereafter consider the third party actions.

The main actions

The issues in the main actions

The first hire-purchase transaction took place in June 1983. It forms the subject matter of Suit No 6659 of 1985 in which the plaintiffs claim against, inter alia, Chew and Cheng the sum of $46,608.14 and interest at 16%pa until date of payment. The second transaction, which took place in October 1983, is the subject matter of Suit No 6568 of 1985. The plaintiffs` claim thereunder against Chew, Cheng and SPPL, is for $567,760.62 and interest thereon at 16%pa until date of payment. Finally, Suit No 6569 of 1985 reflects the plaintiffs` claim of $21,046.77 and interest thereon, at the same rate, in respect of a hire-purchase transaction that took place in December 1985. Henceforth in this judgment, these three transactions will be distinguished by reference to the month in which they occurred.

Chew and Cheng took a common line of defence to all three claims. They averred that they were appointed as directors of Famco at the instance of SPPL which wanted representatives on the board of Famco as, at all material times, Famco was an associate company of SPPL. The management of Famco was the sole responsibility of its two executive directors, viz one Kee Ah Fok @ Kee Kum Piew (`Kee`) and one Yap Teck Huat (`Yap`). Yap and Kee were the persons who arranged to buy the various machines specified in the suits and who negotiated with the plaintiffs for the finance by way of hire purchase of such goods. Chew and Cheng denied knowledge of each of the hire-purchase agreements and pleaded that whilst they did sign personal guarantees in respect of these transactions, the forms they signed were blank and the guarantees were furnished on the plaintiffs` representation that they were to be temporary and interim comfort pending the furnishing of a corporate guarantee by SPPL.

In the case of the October transaction, SPPL did in fact furnish a corporate guarantee in September 1986. Chew and Cheng therefore pleaded that the guarantee they had executed supporting this transaction was wrong in law or, alternatively, null and void or, in the further alternative, not legally binding on them and ceased to have any effect after 1 September 1986, ie the date on which the SPPL guarantee was issued.

In respect of the other two transactions where no corporate guarantee was issued by SPPL, Chew and Cheng denied liability on the grounds that the guarantees executed by them had been wrongfully obtained or they had been misled into executing such guarantees or that such guarantees were null and void and not legally binding on them.

SPPL`s defence was that the plaintiffs, together with Chew, Cheng and Ong Tiong Soon (`Ong`), had induced them into giving the corporate guarantee of September 1986 to support the October transaction but had failed to disclose to them certain material facts relating to the October transaction and consequently they had been discharged from all liability under their corporate guarantee. At all material times Ong had been the chief executive officer cum managing director of SPPL and Chew and Cheng had sat on its board.

The evidence for the plaintiffs

In December 1982, Chew who knew the plaintiffs from previous dealings, contacted them and arranged for a loan on behalf of another company of which he was a director, Feng Yuan Holdings (`FYH`). This loan was secured by a charge of shares purportedly belonging to FYH.

Sometime before June 1983, Chew contacted the plaintiffs again and indicated that he wanted to obtain hire-purchase financing for some machines located in Johore. PW2, Mr James Sim (`Sim`) and PW1, Ms Tan Meng Leng (`Ms Tan`), who were employed by the plaintiffs in the positions of senior manager and marketing officer respectively, visited Chew at his office to discuss the financing request. During that meeting they were told that Famco would be the borrower. Ms Tan asserts that Chew informed her of the shareholders and directors of Famco. FYH was named as a shareholder holding 70,890 shares out of a total issued share capital of 120,000 shares. Ms Tan was not told that Famco was a subsidiary or associate of SPPL and, in fact, SPPL`s name was not mentioned in connection with the transaction at all. The machines to be financed were located in Johore at the premises of a company known as Chan Wah Lee Plywood Sdn Bhd (`Chan Wah Lee`) and were to be sold by Chan Wah Lee to the plaintiffs and then let to Famco on hire-purchase terms. After the transaction was completed, the machines were to remain in Johore. The actual user of the machinery was a company called Sejati Plywood Sdn Bhd (`Sejati`) which, unknown to the plaintiffs, was in fact Chan Wah Lee under a new name.

The plaintiffs agreed to give the financing and, as security, they required not only the machines but also, in accordance with their usual practice, personal guarantees of all the directors of Famco. At that time Famco had altogether five directors.

When the hire-purchase agreement which incorporated a guarantee was ready for signature, Sim and Ms Tan took it down to Famco`s office in SPP Building in Alexandra Road. Only Chew and Cheng were available to sign the documents. Chew, on behalf of Famco, signed the hire-purchase agreement and also the delivery receipt acknowledging receipt of the machinery hired. He then signed the guarantee which was part of the hire-purchase agreement. Cheng also signed this guarantee. Chew`s signatures were witnessed by Sim and Cheng`s by Ms Tan. As the other directors were not available to sign the guarantee at that time, Chew and Cheng signed a letter of undertaking agreeing to procure that they sign the guarantee. The hire-purchase agreement and guarantee signed by Chew and Cheng were dated 6 June 1983. The other three guarantors subsequently signed a separate guarantee dated 22 June 1983.

The October transaction was, again, initiated by Chew. The plaintiffs were informed that Famco was interested in buying certain plywood machinery from a Malaysian company known as Johore Plywood Manufacturing Co Sdn Bhd (`Johore Plywood`) and they were asked to finance the purchase. This was sometime in early October 1983. The plaintiffs were given a valuation report which showed that the value of the equipment was MR978,650 but they were informed by Famco that in fact the purchase price was only MR770,000 as Famco had received a discount from the vendor who needed to get rid of the equipment as it was closing down. Once again, the plaintiffs indicated that they required the personal guarantees of Famco`s directors as security. Chew agreed and, in addition, offered the plaintiffs a second charge over the shares which had been charged to them in 1982 by FYH. This security was accepted by the plaintiffs.

Ms Tan took the completed documents which consisted of an agreement for hire purchase, the actual hire-purchase document and the guarantee, down to Famco`s office at SPP Building for signature. She remembers clearly that all the directors of Famco were present at that time. Chew signed the agreement for hire purchase, the hire-purchase agreement and the delivery receipt on behalf of Famco and then all the directors signed the guarantee. At that time, the directors of Famco were Chew, Cheng, Kee, one Robert Lai and Ong. Ms Tan witnessed their signatures. These documents were dated 26 October 1983. The deposit of shares agreement which created the second charge on the shares was signed on behalf of FYH by Ong, witnessed by Tan and dated 26 October 1983 as well. In fact the documents were signed prior to 26 October 1983 and that date was used as the date of the documents since it was the date on which the plaintiffs released the cashier`s order in payment of the purchase price of the machinery to the vendor, Johore Plywood. Once again it was contemplated that the machinery would remain in Johore after the hiring commenced. The plaintiffs understood that it would be used by a Malaysian company. In the event, though it is not clear whether the plaintiffs were aware of this at the time, the user of the equipment was Sejati.

The December transaction was the final transaction initiated by Chew on behalf of Famco. It involved the financing of one unit caterpillar wheel loader. The plaintiffs agreed to buy this machine for about $60,000. Chew requested the plaintiffs to take the personal guarantees from Cheng and himself only instead of from all Famco`s directors as the amount involved in this transaction was very small. The plaintiffs agreed to his request. When the hire-purchase agreement and guarantee had been prepared by the plaintiffs` documentation unit, Ms Tan took them down to Famco`s office and, as Chew and Cheng were not available, she left them with Sharon Neo, Chew`s secretary. Chew subsequently signed the hire-purchase agreement and delivery...