International Factors Leasing Pte Ltd v The Personal Representative of Tan Hock Kee & Others

• Jurisdiction: Singapore
• Judge: Woo Bih Li JC
• Judgment Date: 18 November 2002
• Neutral Citation: [2002] SGHC 270
• Docket Number: Suit No 1443 of 2001
• Date: 18 November 2002
• Year: 2002
• Published date: 19 September 2003
• Plaintiff Counsel: Sean Lim and Tan Aik How (Hin Tat & Partners)
• Citation: [2002] SGHC 270
• Defendant Counsel: Hri Kumar and Gary Low (Drew & Napier LLC)
• Court: High Court (Singapore)
• Subject Matter: Application for stay of execution,Summary judgment,Whether to grant stay of execution where counterclaim existing,Contractual terms,Counterclaim by defendants,Contract,Use of excess payment by borrower towards reducing principal sum due,Civil Procedure,Application for summary judgment

Judgment

GROUNDS OF DECISION

Background

1. The Plaintiff International Factors Leasing Pte Ltd (‘IFL’) claims against the First and Second Defendants Tan Hock Kee (deceased) and THK Realty Pte Ltd (‘THK Realty’) payment of an outstanding loan and interest. The Third to Fifth Defendants, i.e Tan Hock Keng, Thng Sock Ching and Tan Ah Geok are guarantors. The loan was for $12 million and disbursed under two accounts. It was secured by mortgages over various properties.

2. IFL then applied for summary judgment against the Defendants. At the hearing before the Assistant Registrar, judgment was ordered to be entered against all the Defendants as follows:

(i) Interlocutory Judgment be entered against the Defendants for the principal amounts due under the loans and the guarantees and simple interests such sums to be assessed by the Registrar

(ii) The Defendants have unconditional leave to defend the claim for compound interests/default interests

(iii) The Defendants have leave to apply for a stay of execution for the sums assessed to be due to IFL pending the counterclaim by way of a separate application to be supported by an affidavit that provides a quantification of the Defendants’ counterclaim

(iv) Cost of the Interlocutory Judgment shall be paid by the Defendants to IFL such cost to be reserved to the Registrar assessing the quantum of the principal and interests due to IFL

(v) Cost of the balance claim shall be cost in the cause.

3. At the hearing before the Assistant Registrar, two main contentions were raised by the Defendants. Firstly, the Defendants argued that IFL had claimed default interest at 18% per annum against the Defendants and such interest amounted to a penalty, relying on the Singapore Court of Appeal case of Hong Leong Finance Ltd v Tan Gin Huay & Anor [1999] 2 SLR 153. Secondly, the Defendants claimed that IFL had breached their duties as mortgagees in possession owed to the Defendants and that they had a set-off or counterclaim against IFL.

4. IFL appealed against this decision but the Defendants did not. The appeal was heard by me on 28 June 20002 and, after hearing arguments, I allowed the appeal and granted summary judgment for certain sums. After hearing further arguments on 22 July 2002 and 17 September 2002, I maintained my decision. The Defendants then orally applied for a stay of execution and, after hearing arguments, I dismissed the application for a stay of execution. The Defendants have appealed against my decision.

The default interest of 18% per annum

5. The terms of the loan to the First and Second Defendants are set out in a Term Loan Agreement dated 29 September 1995. Under clause 8.4, if there is a default in payment, Tan Hock Kee and THK Realty are liable to pay interest at 18% per annum (‘the Default Interest’), over and above the principal sum and the usual interest payable if there was no default.

6. Before me, the Defendants’ position as stated in the written submission of Mr Hri Kumar, their Counsel, was still that the Default Interest was a penalty and hence unenforceable. The written submission also pointed out that as IFL did not adduce any evidence on the principal amount due, the Assistant Registrar gave IFL’s Counsel the option of adjourning the hearing to file a further affidavit or for interlocutory judgment to be entered. As IFL opted for the latter, it was not open to IFL to complain about the Assistant Registrar’s orders.

7. Mr Sean Lim, Counsel for IFL, said that while he did select the second option, he also did subsequently apply to adduce further evidence, to which the Defendants’ Counsel did not object. Accordingly, further affidavits were filed on behalf of IFL. The material affidavit is the third affidavit of Doreen Chia Lee Yoon, an Assistant Vice President of IFL. What she did was to exhibit a calculation of the sums due under each of the two accounts on the basis that the Default Interest is not applied at all by IFL.

8. In response, Mr Kumar submitted that while he did not object to the application of IFL to adduce further evidence, he had reserved the Defendants’ position. However, as regards the new calculation exhibited in Doreen Chia’s third affidavit which did not include any Default Interest at all, Mr Kumar said he had no response.

9. As IFL had been allowed to adduce further evidence in the face of no objection by Mr Kumar, even though he reserved the Defendants’ position, I was of the view that Mr Kumar could no longer insist that IFL should not appeal against the Assistant Registrar’s order. Furthermore, since Mr Kumar did not have any response to the new calculation, I allowed the appeal and granted IFL summary judgment for the sums based on the new calculation. This was on 28 June 2002. At the same time, I adjourned the rest of the appeal for both Counsel to consider what submissions they wished to make as to whether the interlocutory judgment should still stand in respect of the balance of IFL’s claim or unconditional leave should be granted to the Defendants for that balance. I also allowed the Defendants to make an oral application for stay of execution at the adjourned hearing.

10. However, by the time the appeal was fixed for further hearing on 22 July 2002, Mr Kumar had raised an argument in respect of the new calculation. He submitted that the new calculation showed that the Defendants had made an excess payment of about $5,800 on one occasion which was applied by IFL to pay the next interest payment due. He submitted that IFL was not entitled to do that and should have applied the excess payment towards reducing the principal whereupon all the interest calculated thereafter would be consequently reduced and hence the sums claimed, even under the new calculation, were excessive.

11. Mr Lim’s response was that the allegation of an excess payment was on the basis that no Default Interest was chargeable. If it was, then there was no excess payment. However, even if no Default Interest was chargeable, it did not follow that IFL was obliged to apply the excess towards reducing the principal. He pointed out that under the terms of the term loan, payment of principal was not allowed unless certain conditions were complied with. For example, the borrowers had to pay a pre-payment fee and give three months’ prior notice in writing or pay three months’ interest in lieu of such notice. Furthermore, pre-payments had to be in multiples of $100,000. These terms applied to another ‘over-payment’ as well, which he drew to my attention.

12. Upon hearing this submission, Mr Kumar conceded that when payments were made, there was no intention to make any capital pre-payment but he argued that this meant that the terms relied upon regarding pre-payment by Mr Lim did not apply. Notwithstanding this concession, Mr Kumar maintained that the excess should be used to reduce the principal.

13. In my view, if the Default Interest is not enforceable, and this resulted in some over-payments, it did not follow that the excess must be used to reduce the principal. Otherwise, that would be tantamount to effecting a capital pre-payment which, firstly, was never intended and, secondly, did not comply with the terms applicable to a capital pre-payment. If Mr Kumar was right, a borrower could easily circumvent any term on capital pre-payment by simply paying more than what was due, without paying the requisite fee and giving the requisite notice, or interest in lieu of notice. In my view, IFL had already acted reasonably and correctly by applying the excess to reduce the next interest amount due in its new calculation.

14. However, Mr Kumar had raised another point i.e whether the borrowers should have been given interest on the excess in the interim. My tentative view was that they were not entitled to such interest and, even if they were, that was a matter for a counterclaim.

15. I would add that the arguments about the excess being used to reduce the principal or, alternatively, earning some interest would not have resulted in a significant reduction in the monies to be paid by the Defendants, even if either of the arguments were successful. It seemed to me that the strategy of the Defendants was simply to prevent or delay IFL from obtaining judgment for any sum. Had I accepted either one of these arguments, I would nevertheless have allowed IFL to come up with another calculation showing the slightly reduced sums as a result of the successful argument and granted judgment on those reduced sums.

16. In the circumstances, I did not rescind or vary my earlier order. As for the balance, IFL was prepared to agree that the Defendants be granted unconditional leave to defend, and I so ordered.

Alleged breach of duty as mortgagees

17. The Defendants then alleged that IFL had breached its duty as mortgagee to claim a set-off or counterclaim so as to support their oral application for a stay of execution pending the disposal of their claims against IFL. Their allegations were really in the nature of counterclaims.

18. The First Defendant Tan Hock Kee had mortgaged properties at 538 to 556 (even numbers only) Geylang Road, Singapore (‘the Properties’) to IFL as security for the loan. The Properties were rented to one Wong Choi Tim (‘Wong’) and Chua Tiong Tiong (‘Chua’) for 12 months from 1 February 2000. At the end of the tenancy, Wong and Chua continued to occupy the Properties on a month to month tenancy. It was only on or about 12 June 2001 that IFL took legal possession of the Properties.

19. The first complaint by the Defendants was that within three days of taking legal possession, IFL entered into a sale and purchase agreement dated 15 June 2001 (‘the S&P Agreement’) to sell the Properties to MKTV Karaoke Lounge Pte Ltd (‘MKTV’) for $12 million. MKTV was a company owned or controlled by Chua. Chua is also known as ‘Ah Long San’, a well-known illegal moneylender operating in Geylang. At the material time, he had been facing...