Kian Choon Investments (Pte) Ltd v Societe Generale and Another

• Jurisdiction: Singapore
• Judge: L P Thean J
• Judgment Date: 15 January 1990
• Neutral Citation: [1990] SGHC 2
• Docket Number: Suit No 1618 of 1989
• Date: 15 January 1990
• Year: 1990
• Published date: 19 September 2003
• Plaintiff Counsel: Lawrence Wee (Wee Ramayah & Partners)
• Citation: [1990] SGHC 2
• Defendant Counsel: Alan Thambiayah (Cooma Lau & Loh)
• Court: High Court (Singapore)
• Subject Matter: Whether damages adequate remedy,Whether mortgagee could dispose of property without regard to rights of mortgagor,Credit and Security,Mortgagee’s power of sale,Deed of compromise entered between mortgagor and mortgagee whereby possession delivered to mortgagee,Duty to show that sale made in good faith,Civil Procedure,Mortgage of real property,Mortgagee's duties,Whether mortgagor agreed to waive remedies against mortgagee for breach of duty,Sale by mortgagee with option to repurchase,Injunctions,Interim injunction,Effect of agreement,Whether mortgagee absolute owner of property,Mortgagee's sale of land

Cur Adv Vult

The plaintiffs are the owners of the land and premises marked on the Government Resurvey Map as lot 175 of town sub-division II with a building thereon known as The Octagon (the property). They executed two mortgages dated 24 June 1980 and 28 November 1981 respectively in favour of the first defendants (`the bank`) to secure banking facilities. Some years after these two mortgages, that is, in 1988 or thereabouts, the plaintiffs were in default under the mortgages, and on 1 March 1988, the bank appointed receivers to receive the rents and profits of the property. At about that time, several proceedings were instituted by the bank against the plaintiffs, and vice versa. Eventually, the parties came to an amicable settlement, and the terms of the settlement were embodied in a deed of compromise dated 30 November 1988, which was executed by the plaintiffs, the bank and other necessary parties.

In so far as the property is concerned, the deed of compromise provided, inter alia, that possession thereof was to be delivered to the bank subject to existing tenancies and conferred on the bank certain rights, which I shall set out in greater detail shortly. Accordingly, the bank took possession of the property as mortgagee. It appears that some time prior to the execution of the deed of compromise, the plaintiffs had taken steps to bring the property under the Land Titles Act (Cap 157) and applied for strata sub-division for individual floors of the property and for issue of separate subsidiary strata certificates of title to them under the Land Titles (Strata) Act (Cap 158). After the execution of the deed of compromise, the bank continued with the prosecution of these applications, the purpose of which was - so the bank maintained - `to facilitate the disposal of the property in the best interest of both [parties]`. It appears that at or about that date or slightly later - the precise date was not stated - strata sub-division had been approved and the property had been brought under the Land Titles Act (Cap 157), but subsidiary strata certificates of title had not been issued.

After the execution of the deed of compromise (so far as the documents before me show), nothing eventful happened in relation to the property until May 1989. On 11 May 1989, the bank wrote to the plaintiffs offering to take a lease of the 20th, 22nd, 24th and 25th floors of the property for a term of ten years at a rent of $2.15 per sq ft plus service charge then prevailing which was 85 [cent ] per sq ft. They also requested that the plaintiffs should grant to them a period of three months from 1 June 1989 free of rent and service charge. All rents and service charges payable by the bank would be set off against the indebtedness then owing by the plaintiffs to the bank. In response, the plaintiffs through their solicitors wrote to the bank`s solicitors rejecting the offer made by the bank and in turn offering to lease to the bank the four floors for a term of two years from 1 July 1989 at a rent of $3 per sq ft inclusive of service charge. This counter-offer by the plaintiffs was accepted by the bank through their solicitors on or about 16 June 1989.

In the meanwhile, in the month of June 1989 or slightly earlier, the bank initiated steps to sell the property as mortgagee. According to the second defendants (Amcol), the bank sometime in June 1989 - the exact date was not stated - approached Amcol and offered to sell the property to the latter at a price of $1.080 per sq ft and on certain terms. Presumably, arising from this offer, discussions and negotiations between the two parties followed. Each party at or about that time engaged their own valuer to provide a valuation of the property. The bank`s valuers, Jones Lang Wootton, in their valuation report dated 29 June 1989, valued the property at $131,000,000; Amcol`s valuers, Chesterton International, in their valuation report dated 23 June 1989, valued the property at $131,800,000. It seems to me that these valuations were obtained by them respectively for the purpose of the transaction in respect of which they were then having negotiations. After the respective parties had obtained their valuations, there were presumably further negotiations between them as regards the price and other terms of the sale and purchase and, eventually, on 1 July 1989, the parties executed the sale and purchase agreement (the sale agreement), whereby the bank as mortgagee agreed to sell to Amcol the property at the price of $131,000,000 subject to the terms and conditions as therein stated. For the purpose of the application before me, there are two terms which are material. First, under cl 3 of the sale agreement, the property is sold subject to Amcol granting to the bank a lease of the four floors of the property, namely, 20th, 22nd, 24th and 25th storeys, for a term of five years at a rent of $3 per sq ft for the first two years and thereafter at a rent of $5 per sq ft. Secondly, under cl 16 of the sale agreement, Amcol agreed to grant to the bank an option to repurchase six floors of the property, namely, the 20th, 21st, 22nd, 23rd, 24th and 25th storeys, at the price of $30,294,213.10 plus inte rest thereon at the prevailing prime rate of interest of The Development Bank of Singapore Ltd covering the period from the date of completion of the sale under the sale agreement to the date of completion of the repurchase but less the rent paid by the bank to Amcol under the lease. Pursuant to that clause and contemporaneously with the execution of the sale agreement, the option was granted by Amcol to the bank.

The sale subsequently came to the notice of the plaintiffs. They challenged the sale. On 28 August 1989, they instituted this action against both the bank and Amcol. Later, on 7 September 1989, the plaintiffs applied by Summons-in-Chambers No 5250 of 1989 for an interlocutory injunction restraining both the defendants from completing the sale and purchase of the property in pursuance of the sale agreement and from taking any further steps in relation thereto until the trial of the action or until further order. The application was resisted, and I adjourned it to open court for argument. At the conclusion of the hearing, I granted to the plaintiffs, on the usual cross-undertaking by them as to damages, the injunction applied for, subject to the plaintiffs depositing in court prior to 31 October 1989 a sum of $8m or furnishing a banker`s guarantee for the said sum on terms satisfactory to the registrar as security for their cross-undertaking as to damages, in default of which the interlocutory injunction would be discharged or dissolved. I also ordered an early trial of this action.

The plaintiffs complained that the bank as mortgagee in exercising their power of sale have not discharged their duties: they have not acted in good faith in relation to the sale and have not taken reasonable steps to obtain the best price in the circumstances. First, no steps were taken by the bank to give reasonable publicity of their intention to sell the property, such as advertisement in newspapers inviting tenders for the purchase of the property. They merely approached their customers, Amcol, with an offer of the property for sale at a certain price and thereafter negotiated with them; at or about the same time the bank obtained a valuation, and soon thereafter concluded the sale agreement.

Secondly, at or about the same time, that is June 1989, a property called Cecil Court, which is opposite the property, had been put up for sale and tenders had been invited. The bank were also the mortgagee of that property and had engaged a firm of public accountants to take charge of and conduct the sale. The tender closed on 7 July 1989, and the bank did not wait to see the result of the tenders before entering into the sale agreement. Cecil Court was eventually sold for a sum of $98,680,000. The bank should have waited for the sale of Cecil Court to be concluded before initiating steps to dispose of the property. The tenders submitted and price at which Cecil Court was sold would provide useful indicators as to the probable price at which the property would fetch in the open market.

Finally, in selling the property to Amcol, the bank negotiated and obtained benefits for themselves other than the purchase price for payment of the debt owed by the plaintiffs. The benefits consist of: (i) a firm agreement by Amcol to lease to them the four floors of the property for a term of five years, and (ii) an option to repurchase from Amcol the uppermost six floors of the property. These terms, the plaintiffs said, were great advantages to the bank and were restrictions on the sale of the property.

It was also pointed out that the applications for strata sub-division and issue of subsidiary certificates of title to the individual floors of the property were well under way and were nearing completion. The bank as mortgagee could and should have explored the possibility of disposing of individual floors separately which would or might then fetch a higher price.

I now turn to the authorities relied upon by counsel for the plaintiffs in his argument that a mortgagee, in exercising his power of sale of the mortgaged property, owes to his mortgagor a duty to act in good faith and also a duty to take reasonable steps to obtain the best price available in the circumstances. The leading authority on this point is undoubtedly Cuckmere Brick Co Ltd & Anor v Mutual Finance Ltd [1971] 1 Ch 949. In that case, the plaintiffs charged their land to the defendants by way of legal mortgage to secure a certain sum of money. They later obtained planning permission to erect 35 houses thereon but no development took place. The defendants, in exercise of their statutory power, took possession of the land and instructed auctioneers to sell it. There were advertisements for the sale of the land with planning permission for the erection of the...