Motorcycle Industries (1973) Pte Ltd and Another v Indian Overseas Bank

• Jurisdiction: Singapore
• Judge: G P Selvam JC
• Judgment Date: 30 January 1992
• Neutral Citation: [1992] SGHC 14
• Docket Number: Originating Summons No 889 of 1989
• Date: 30 January 1992
• Year: 1992
• Published date: 19 September 2003
• Plaintiff Counsel: Lim Chor Pee (Chor Pee & Co)
• Citation: [1992] SGHC 14
• Defendant Counsel: J Balachandran (Ramdas & Wong)
• Court: High Court (Singapore)
• Subject Matter: Mortgage,Effect of conclusive evidence clause,Breach,Lands,Mortgagee's application for remedy of account,Duties of mortgagee in possession,Limitation of Actions,Whether equity of redemption destroyed when contract of sale entered into,Sale by auction,Whether exempts mortgagee from liability,Effect of conclusive evidence clause in mortgage,s 30 Conveyancing and Law of Property Act (Cap 61),Whether mortgagor's entitlement to apply for sale conditional on offer to redeem,Repudiation of sale contract by purchaser,Whether time-barred,Application by mortgagors for order for account and for sale of property,Whether application time-barred,Particular causes of action,Mortgage of real property,Credit and Security,Property not rented out or resold for extended period of time,Mortgagee’s power of sale

: Facts

Motorcycle Industries 1973 (Pte) Ltd, the first plaintiffs, owed a substantial sum of money to the defendants. On 27 March 1978 the defendants obtained a judgment for $4,629,770.84 and interest and costs against the first plaintiffs and certain individuals who were guarantors. Abacus Realty Pte Ltd, the second plaintiffs, owned Nos 27, 29, 31 and 33 Birch Road, Singapore (the `property`). The property was not subject to the Control of Rent Act (Cap 58) and was registered under the Land Titles Act (Cap 157). In November 1978 the second plaintiffs, in consideration of the defendants agreeing to withhold execution of the judgment, agreed to pay the defendants all moneys due under the judgment, and mortgaged the property to the defendants. The mortgage was subject to a prior encumbrance in favour of The Chartered Bank. The property, however, was under occupation by the plaintiffs as a motor showroom, sales office and store.

As the plaintiffs defaulted in their obligations, the defendants, in exercise of their power of sale, put up the property for sale by public auction on or about 2 July 1981. With the agreement of the plaintiffs, the property was offered for sale with vacant possession. On 3 July 1981 the plaintiffs gave effective vacant possession of the property to the defendants.

At the auction the defendants entered into a contract for sale of the property to one Cheng Lai Geok (`the purchaser`) for the price of $2.6m. As required under the contract, the purchaser delivered a cheque for $650,000, being the deposit of 25% of the purchase price. The purchaser, however, countermanded the cheque, and, on 8 July 1981, repudiated the contract, stating that he `decided not to proceed with the purchase`. The defendants issued a writ against the purchaser on 7 October 1981, claiming specific performance and damages in lieu of or in addition to specific performance. Summons-for-directions were taken out only in September 1982. Although an order was made on 15 October 1982, the action was not set down for trial until after a lapse of some four-and-a-half years.

In the meantime, the plaintiffs had, since 1981, been asking the defendants for accounts and queried why the property had not been rented out. They further pressed the defendants to put the property up for sale. There was no satisfactory response to these overtures from the defendants. Many letters from the plaintiffs to the defendants` solicitors were unacknowledged. The defendants did not seek to find another occupant or to return the property to the plaintiffs.

On 13 September 1989 the plaintiffs filed this originating summons, claiming an order for accounts.

Pursuant to an order made on 6 May 1991, the plaintiffs amended the originating summons to include a prayer that the property be ordered to be sold by way of public auction pursuant to s 30 of the Conveyancing and Law of Property Act (Cap 61) (`the Act`). The section enables the mortgagors to have an order for the property to be sold without having to redeem it.

Shortly before this action came on for hearing in June 1991, the defendants put the property in the market for sale by tender which closed on 25 March 1991. Subsequently, a contract was entered into on 11 April 1991 for sale of the property for $2.33m. The sale was duly completed on 19 June 1991. Accordingly, the defendants were constrained to abandon the relief for specific performance against the purchaser and seek damages only.

The real issue before the court was whether the defendants incurred any liability in failing to place the property in the rental market from the time the first sale was aborted in 1981 until they entered into the second contract for sale in 1991.

Application without offering to redeem

The defendants resisted the application on various grounds. Central to their case was the contract for the sale of the property made in 1981. It was argued for the defendants that the contract for sale made in 1981 destroyed the equity of redemption and thereafter they no longer owed any duty to the mortgagors in respect of the property. The defendants further contended that the mortgagors were precluded from coming to the court for accounts without at the same time seeking to redeem the property.

They sought to support their argument by reference to the following passage in The Law of Mortgages (1989) by Edward Cousins:

It is only in exceptional circumstances that a mortgagor can bring the mortgagee into court without offering to redeem him: namely,

(1) if he claims a sale instead of redemption;

(2) when the proceedings are merely for the purpose of determining questions of the construction of the mortgage deed ; and

(3) when the mortgagee is a party to a trust deed affecting the equity of redemption, for the trust may be enforced without an offer to redeem;

(4) possibly where the mortgagee is not exercising his power of sale bona fide.

They also relied on the following statement in Fisher and Lightwood`s Law of Mortgage (10th Ed):

As a general rule the mortgagor is not entitled to bring the mortgagee before the court except for the purpose of redemption. Hence a mortgagee cannot be made a party to an action relating to the mortgage unless there is expressly or by implication an offer to redeem.

The mortgagors in this case applied for sale. Consequently, the case fell within one of the exceptions to the rule. Additionally, under s 30 of the Act they were entitled to apply for sale without offering to redeem. Further, when the defendants entered into a binding contract for the sale of the property and sought specific performance against the purchaser, they made it impracticable, if not impossible, for the plaintiffs to redeem the property. In any event, after the completion of the sale of the property in 1991, there can be no question of the plaintiffs offering to redeem as there was nothing to redeem. Moreover, where the property has been sold and the mortgagor applies for accounts of the proceeds of sale, he is entitled to allege improper conduct against the mortgagees for not letting the property until sale. These are sufficient reasons to decline the argument.

There is, however, a more cogent reason against the defendants, namely, that where the mortgagor alleges misfeasance against the mortgagee, it is not obligatory for the mortgagor to offer to redeem in order to determine that issue.

The rule that a mortgagor cannot bring an action relating to the mortgage without, expressly or by implication, offering to redeem was first stated in Tasker v Small . Later, it was confirmed in Jefferys v Dickson and National Bank of Australia v The United Hand-in-Hand and Band of Hope Co . In these cases, fault on the part of the mortgagees was not alleged. It was not a practical rule applicable in all circumstances. It had to be confined to cases where the application to court would be inconsistent with the rights of the mortgagees - hence the exceptions. The rule was intended to protect an innocent mortgagee against an unscrupulous and unreasonable mortgagor. It should not apply in the reverse situation. Pennycuick J in Murad v National Provincial Bank Ltd thought that if such a rule applied to a case where the mortgagor sought to restrain a mortgagee who was in breach of his duty to exercise due diligence to obtain the best price, it would be `something of a travesty of justice`. Pennycuick J said:

Mr Browne (counsel for the mortgagee) contended that it was not open to a mortgagor to bring a mortgagee before the court without offering to redeem. ... It was that the principle stated in the passages to which he had referred existed and, with irrelevant exceptions, was applicable where the mortgagor sought relief against the mortgagee of some kind or the other but did not contend that the mortgagee was acting improperly. Mr Hames (counsel for the mortgagor), however, said that the principle had no application where the mortgagor claimed that the mortgagee was acting improperly and sought to restrain that improper act; in particular, that was to say, said Mr Hames, where the mortgagor contended that the mortgagee was proposing to make an improper sale and sought to restrain that sale.

On the face of it, it would be very strange if the principle did apply to such a case. A single example would illustrate this. Suppose there was a property worth o10,000 in mortgage to secure o8,000, and suppose that the mortgagee threatened to sell that property to his own wife at a price of o1,000. Was it really the law that in such a case the mortgagor could not apply to the court to restrain the sale without offering to redeem the mortgage and, indeed, bringing into court the whole sum of o8,000? He (his Lordship) was not concerned to decide this point, but if that was the law, it seemed to him to be something of a travesty of justice.

There are many instances where the mortgagor was permitted to bring the mortgagee to court, alleging that there was improper conduct without offering to redeem.

Applying the above reasoning, I hold that the mortgagor was entitled to bring this action.

Duty of mortgagee in possession

I shall now consider the main issue of the defendants` liability for not renting out the property. The legal position of the mortgage in possession of a...