Industrial & Commercial Bank Ltd v Li Soon Development Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 19 November 1993
• Neutral Citation: [1993] SGHC 273
• Docket Number: Suit No 164 of 1985
• Date: 19 November 1993
• Year: 1993
• Published date: 19 September 2003
• Plaintiff Counsel: P Selvadurai and Jessie Tong (Rodyk & Davidson)
• Citation: [1993] SGHC 273
• Defendant Counsel: Harry Wee and Kesavapan Nair (Braddell Brothers)
• Court: High Court (Singapore)
• Subject Matter: Whether other co-sureties discharged because of compromise,Guarantor,Duty to exercise reasonable care to obtain proper price,Property was not sold at time when it could have covered whole of debt due,Guarantees and indemnities,Whether duty to guarantors breached,Whether bank's right to repayment on demand was varied by term stipulating time for repayment,Overdraft facility,Credit and Security,Whether amounting to a release of the co-sureties,Securities for advances,Compromise with co-sureties not to execute judgment against them,No duty to sell before security becomes worthless

Cur Adv Vult

The plaintiffs are bankers. By this action commenced in January 1985 they sought to recover from the defendants the sum of $4,288.770 being the outstanding amount due to the plaintiffs from the first defendant (`the company`) as on 18 December 1984, under an overdraft facility. The second to fifth defendants stood as guarantors for the said facility.

By the time this action came on for trial before me (i) the company was already under liquidation, as an order for its winding-up was made on 10 October 1985; (ii) the property held as security by the plaintiffs was already sold and the proceeds thereof applied towards the reduction of the overdraft; and (iii) summary judgment was obtained against the second and third defendants and there was an agreement between them under which, upon payment of a certain sum, the plaintiffs would not execute judgment against them. So the trial proceeded only as between the plaintiffs and the fourth and fifth defendants.

The company was first incorporated in 1973 with the objects of dealing in manufactured goods, machinery and material. It remained very much a dormant company until 1979 when it ventured into the business of construction and development. Then the board of directors consisted of the second to fifth defendants. Besides the said four defendants who were directors and shareholders of the company, one Chee Soon Wah (to whom more references will be made later) and a Mdm Goh Hock Eng were also shareholders.

The paid up capital of the company was $2m with the shareholders holding the following different percentages of shares: second defendant (10%), third defendant (5%), fourth defendant (12%), fifth defendant (25%), Madam Goh Hock Eng (12%), and Chee Soon Wah (35%). Under an arrangement reached between the shareholders, the fourth defendant became the chairman of the company. The second and third defendants and Chee Soon Wah are brothers. It would be seen that the Chee brothers together held 50% of the shares with the other half of the shares held by the other three shareholders (hereinafter referred to as `the second group`).

It appears that the company was run very much like a joint-venture with the Chee brothers on the one side and the second group on the other. The bank account of the company required one signature from each group. The fourth defendant represented the second group and was an authorized signatory to operate the company`s account.

Business relationship between the plaintiffs (hereinafter referred to as `the bank`) and the company commenced in 1980 when, on 12 March, the company applied to the bank to open a current account. On 22 May 1980, the company applied to the bank for an overdraft facility of up to $1,750,000 to be secured by a first legal mortgage of the land known as lot 1248 of MK II (hereinafter referred to as `the land` or `the property` as may be appropriate in the context). This sum of $1,750,000 was approximately 60% of the market value of the land estimated by M/s Richard Ellis to be at $2.9m. At the time an in-principle approval for the development of the land was already obtained. The company also applied for a construction loan to the extent of 50% of the development costs estimated at $2.5m. From the evidence, it would appear that the bank might not have known that the company had bought the land for only $1,024,000. Apparently a figure of $1.8m was mentioned. However, what the bank says is that, for the purpose of determining the proper amount of overdraft to be granted, it was the market value then that counts.

On 24 July 1980, the bank agreed to grant an overdraft facility of $1.5m, secured by a legal mortgage of the land, at the interest rate of 21U2% above prime per annum. As regards the construction loan, the bank requested the company to submit approved construction plans together with estimates of construction costs for the bank`s consideration.

For the overdraft, the bank negotiated mainly with Chee Soon Wah and Mr Lim Sin, an advocate and solicitor, who is the husband of the shareholder Mdm Goh Hock Eng and who represented the second group. Mr Lim was the person who brought the parties together to embark on the development. Throughout he had kept a close watch over the affairs of the company. The fourth defendant invariably consulted him on matters relating to the project.

Chee Soon Wah, who is an architect, was engaged by the company to draw up plans for submission to the relevant authorities. Building plans approval for the development of a four-storey commercial and residential complex on the land was obtained in November 1981.

Discussions proceeded between the bank and the company on the construction loan. The company, through its solicitors, M/s Lim Sin & Thiam Beng, asked for a loan of 65% of the construction costs as evidenced by the architect`s certificates. The construction costs were estimated at $4.6m. Subsequently, the company orally requested that the percentage of the construction loan be raised from 65% to 70%. Those discussions culminated in an offer dated 26 November 1982, by the bank, of an additional overdraft facility of $3m to be utilized for the construction of the building, subject to these conditions:

(i) a further charge on the property;

(ii) personal guarantee of the four directors of the company on a joint and several basis for the total overdraft of $4.5m;

(iii) the additional overdraft of $3m would be advanced progressively against 70% of the architect`s certificates for value of work done;

(iv) repayment would be from the sale proceeds of the units on the first and second storeys, or within one year after completion of the project, whichever is earlier.

The need for a personal guarantee from the directors of the company was, and is, a normal requirement of the bank.

It was further expressly stated that the said additional facility was subject to these terms:

(c) The said facility is subject to determination, modification as our bank may impose.

(d) The duration in which the facility is granted is to be left at our bank`s discretion.

The offer was accepted by the company. A resolution was passed by the company to that effect, which also expressly stated that the facility was to be secured by, inter alia, a personal guarantee of each of the four directors, jointly and severally.

As required by the terms of the offer, on 6 January 1983, the second to fifth defendants entered into a written guarantee agreement with the bank where it was stated that in consideration of the bank `opening or continuing an account with and making advances or otherwise giving credit or accommodation` to the company, they jointly and severally guaranteed, inter alia, to the bank as follows:

(1) We will pay you on demand all money which now is or may during the operation of this agreement be owing to you from the [company] ...

...

(4) This guarantee shall be a continuing guarantee to [the bank] to the extent of Singapore dollars four million and five hundred thousand only ...

(5) This guarantee shall be without prejudice to and shall not be affected nor shall I/we (or any of us) be released or exonerated by any of the matters following:

(i) Any securities negotiable or otherwise including other guarantees which you may now or at any time hereafter hold from the customer or any other person or persons in respect of any money hereby guaranteed.

(ii) The variation, exchange, renewal, release or modification of any such securities or the refusal or neglect to complete, enforce or assign any judgment specialty or other security or instrument, negotiable or otherwise, and whether satisfied by payment or not.

(iii) Any time given or extended to the customer and/or any other person or persons including any of us and the parties to any negotiable or other security instrument guarantee or contract or any other indulgence granted to or compromise composition or arrangement made with the customer and/or any other person or persons whether with or without consent or notice to me/us.

Pursuant to the facility, advances were made to the company with effect from March 1983 for the purpose of the construction of the building based on 70% of the value of work done as certified by the architect. All cheques issued by the company bore two signatures, one of which was that of the fourth defendant.

Starting sometime in December 1983, the relationship between the two groups in the company began to deteriorate. It was only in late September 1984 or early October that the bank came to realize the internal discord in the company. But earlier, on 17 September 1984, the bank wrote a letter to the company care of the address of Chee Soon Wah`s architectural office at Golden Mile Tower, 6001 Beach Road, #10-01 Singapore 0719, in these terms:

We write to inform you that, as at 15 September 1984, your account shows an overdraft usage of $4,114,578.64 against the effective limit of $4,012,000.

Kindly arrange to cover the excesses within ten days from the date hereof.

This letter from the bank was redirected by Chee Soon Wah`s office to the new registered office of the company at M/s Barbinder & Co, Penang Road, who, in turn, forwarded a copy of the letter to all the directors, including the fourth and fifth defendants. More will be said later why the letter was sent by the bank to the company at Chee Soon Wah`s office. The fourth defendant received it on 27 September 1984. On 30 September 1984, the fourth defendant wrote to the second defendant and Chee Soon Wah, querying them how the excess arose. He also suggested that all the shareholders should pay into the company`s account with the bank a proportionate amount to cover the excess as well as the fees which were then due to the consultants. He further complained why the bank`s letter of 17 September 1984 was not attended to by Chee Soon Wah or the second defendant. This was what he wrote:

ICB`s letter was

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