Malayan Banking Berhad v Hwang Rose and Others

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 26 February 1997
• Neutral Citation: [1997] SGCA 10
• Docket Number: Civil Appeals Nos 89 and 90
• Date: 26 February 1997
• Year: 1997
• Published date: 19 September 2003
• Plaintiff Counsel: Ng Kai Ming and Janice Wu (PK Wong & Advani)
• Citation: [1997] SGCA 10
• Defendant Counsel: Alvin Yeo and Sim Bock Eng (Wong Partnership),JB Jeyaretnam (JB Jeyaretnam & Co)
• Court: Court of Appeal (Singapore)
• Subject Matter: Banking,Whether agent of bank,Whether constructive notice of any misrepresentation,Whether bank has notice of undue influence,Whether sale at best or proper price,Misrepresentation,Guarantee to secure issue of standby letter of credit,Contract,Whether bank has power to sell bonds,Whether presumption of undue influence,Whether guarantor liable,Undue influence,Lending and security,Father executing guarantee in favour of bank on son's request,Extension of letter of credit,Deposit of bearer bonds as security for standby letter of credit

There are two appeals before us. First, there is CA 89/96 which is an appeal by Malayan Banking Bhd (the bank) against the decision of the High Court dismissing their claim against the three respondents for the sum of $1,636,252.25 together with interests arising from the facility granted by them to the first respondent (Rose Hwang). They claimed this sum against Rose Hwang as the principal debtor and against the second respondent (Patrick Tan) and third respondent (Tan Sr) as the guarantors. This is the main appeal. Next, there is CA90/96 which is an appeal by Rose Hwang (although it was filed expressly as an appeal by Rose Hwang and Patrick Tan) against the decision of the High Court dismissing her counterclaim against the bank for the loss arising from the sale or disposal of certain bearer bonds belonging to her but held by the bank as security for the facility. The determination of this appeal depends entirely on the outcome of the first appeal.

The facts

The party who played a pivotal role in the dispute which gave rise to the present litigation is Patrick Tan. He is the husband of Rose Hwang and the son of Tan Sr. He is in the business of construction and development with interests in Singapore, Malaysia and Hong Kong. Among other things, he owns and controls a Malaysian company, Prinsip Dinamik Sdn Bhd (Prinsip) which in 1990 purchased a plot of land in Ukay Heights near Kuala Lumpur for development.

In early 1991 or thereabouts Patrick Tan was interested in purchasing zero coupon bonds issued by NatWest Australian Bank Ltd and intended to use the bonds to raise finance for his development in Ukay Heights. He approached a Malaysian bank called Bank Buruh (Malaysia) Bhd (Bank Buruh), which on 11 December 1991 agreed to grant to Prinsip a loan of RM$13m for a term of ten years. Strangely enough, the purpose of the loan as stated in the letter was not for the purchase of any bonds but for the working capital of Prinsip. The loan was repayable by a `bullet` payment at the end of ten years, but interest thereon was to be paid monthly. The security stipulated was a standby letter of credit for 90 days issued by a prime bank and on expiry to be replaced by a cash deposit of not less than RM$16m and a deposit of the title deeds of the Ukay Heights property and also a joint and several guarantee executed by Patrick Tan and one Shee Koon Ruay.

Having obtained the offer of a term loan, Patrick Tan proceeded to look for a bank which would provide the standby letter of credit. He was introduced by a business associate to one Wong Kwok Hoy (Wong) who was then the branch manager of the bank in Singapore. Wong was agreeable to provide the standby letter of credit and required the amount of RM$13m to be deposited with the bank as security. After several discussions it was eventually agreed that the deposit would be placed in an account to be opened by Rose Hwang with the bank and the standby letter of credit would be issued on her account. Accordingly, arrangement was made for Rose Hwang to open an account with the bank and apply for the issue of a standby letter of credit in favour of Bank Buruh as security for the term loan of RM$13m. The standby letter of credit was issued on 24 December 1991 and was expressed to expire on 24 March 1992. The loan was disbursed by Bank Buruh to Prinsip on 28 December 1991, and the entire amount was converted into S$7,745,400 and transferred to Rose Hwang`s account with the bank and was held by the bank as security.

Of this amount, a sum of S$7.5m was on 14 January 1992, on instructions from Rose Hwang, remitted to NatWest Australian Bank Ltd which was then converted to A$6,162,695.15 and on 15 January 1992 was used to purchase A$14,860,000 NatWest Australian Bank Ltd zero coupon bonds due on 15 January 2002 (the bonds). These are bearer bonds earning interest at 9.2% per annum which is capitalised and forms part of the face value of A$14,860,000 on maturity. The bonds were intended to be held by the bank as security. Hence, after the purchase, they were held in safe custody by Natwest Capital Markets Ltd in the name and on behalf of the bank.

For reasons which were not explained, the temporary standby letter of credit issued by the bank was not replaced by the securities as stipulated in Bank Buruh`s letter. By 24 March 1992 the letter of credit was due to expire. But Bank Buruh were willing to give an extension of time to Prinsip to repay the loan and the bank in turn were agreeable to extend the standby letter of credit at the request of Rose Hwang. It was first extended to 31 March 1992, later to 7 April 1992 and finally to 21 April 1992.

On the first extension of the standby letter of credit, Patrick Tan executed a guarantee in favour of the bank whereby he guaranteed the liability of Rose Hwang. A fresh guarantee on similar terms was executed by him on each of the other two occasions when the standby letter of credit was extended. As for Tan Sr, he executed a similar guarantee in favour of the bank when the standby letter of credit was extended the second time. On the third and final occasion when the standby letter of credit was extended to 21 April 1992, Tan Sr did not execute a fresh guarantee, but a solicitor, Josephine Low of Michael Khoo & BB Ong, wrote to the bank`s solicitors confirming on his behalf that the guarantee executed by him on 31 March 1992 would continue to subsist.

On 15 April 1992, Bank Buruh called on the standby letter of credit and the bank in turn called on the three respondents to put them in funds to meet the payment.

On 21 April 1992 the bank`s solicitors, PK Wong & Advani (PK Wong) wrote to the first and second respondents` solicitors, Michael Khoo & BB Ong (Michael Khoo) informing them that Bank Buruh had made a demand for payment under the standby letter of credit and that the bank were obliged to make payment thereunder on 22 April 1992, and giving notice that the bank would sell the bonds if the respondents failed to put the bank in funds on the following day. On 22 April 1992 in compliance with the demand the bank paid to Bank Buruh the sum of RM$13m under the letter of credit; but no payment was made to the bank by the respondents.

Following the payment, lengthy correspondences took place between the two firms of solicitors on behalf of their respective clients. For our purpose it is necessary to refer briefly to the essential ones passing between them. On 23 April 1992 PK Wong wrote to Michael Khoo demanding immediate payment of the full amount the bank had paid under the standby letter of credit together with interests thereon and giving notice that if the respondents failed to make payment by 4pm the following day, the bank would proceed to sell the bonds and thereafter claim from the respondents any shortfall in the amount realised from the proceeds of sale. Michael Khoo responded on the following day requesting the bank to hold the matter in abeyance until 6 May 1992, as the first and second respondents anticipated that by that time funds would be available and a draft facility agreement providing finance to Patrick Tan or his company would be finalised. This was not acceptable to the bank and further exchanges of correspondence took place between the two firms. Eventually the bank agreed to hold the matter in abeyance until 6 May 1992, if the respondents would deposit with them a sum of S$1m to cover any shortfall in the amount realised from the sale of the bonds. On 30 April 1992 Michael Khoo informed PK Wong that Rose Hwang agreed to place with the bank the deposit of S$1m. Unfortunately no payment was made by 6 May 1992.

On that day the bank received instead a letter from Global Trade Insurance Management Pte Ltd (Global) stating that they had been approached by Rose Hwang and Patrick Tan to furnish a guarantee to the bank for the sum of S$1m `against [Patrick Tan`s] failure to pay this amount` and that they were then working out `the security arrangements` with Rose Hwang and Patrick Tan and their `overseas bankers`. In response PK Wong immediately wrote to Michael Khoo stating that any guarantee from Global must take the form of a standby letter of credit issued by a local bank. In other words, on behalf of the bank they rejected the proposed guarantee from Global. Following that letter a meeting took place on 9 May 1992 at which were present representatives of the bank, Patrick Tan, and one Gerard Lim of Global. However, nothing was achieved at that meeting.

On 20 May 1992 Patrick Tan informed the bank that his bankers were prepared to finance 85% of the current value of the bonds and he requested the bank to hold the bonds until further notice and, that if the bank insisted on selling the bonds, he would like to know the price prior to the disposal. In response PK Wong wrote to Patrick Tan stating that the bank would not be prepared to release the bonds unless and until they received full payment of the outstanding sum owing on account of Rose Hwang and that if the bonds were sold on that day, the price thereof would be in the region of `S$5.530m`. This amount was in error, as the correct amount was A$5.5m. In a subsequent letter PK Wong corrected this amount. On 26 May 1992, Patrick Tan wrote to the Bank stating that the true value of the bonds was approximately S$7.94m. PK Wong immediately replied on the same day stating that the indicative price for the bonds was approximately A$5.5m and requested Patrick Tan to provide or identify the buyer for the bonds for S$7.94m and to inform the bank accordingly. There was no response from Patrick Tan on such buyer, and on the following day at about 1.30pm the bank sold the bonds for A$5.5m.

The amount realized by the bank was S$6,740,800 which was applied to account of payment of the amount owed by Rose Hwang. After this payment there was still a balance due amounting to S$1,636,252.25 as at 4 June 1992. On 10 June 1992 the bank instituted proceedings against the three...