NM Rothschild & Sons (Singapore) Ltd and Others v Rumah Nanas Rubber Estate Sdn Bhd

• Jurisdiction: Singapore
• Judge: Warren Khoo L H J
• Judgment Date: 10 March 1994
• Neutral Citation: [1994] SGHC 60
• Docket Number: Suit No 2103 of 1992
• Date: 10 March 1994
• Year: 1994
• Published date: 19 September 2003
• Plaintiff Counsel: Indranee Rajah and Thio Shen Yi (Drew & Napier)
• Citation: [1994] SGHC 60
• Defendant Counsel: Eugene Lim and Simon Seow (Donaldson & Burkinshaw)
• Court: High Court (Singapore)
• Subject Matter: Guarantor,Shortfall in payment in Malaysian currency,Credit and Security,Principal debtor clause,Guarantees and indemnities,Whether guarantor liable in all situations where principal debtor liable

Cur Adv Vult

This is a trial of certain preliminary issues arising in this suit in which the plaintiffs seek to recover from the defendants as guarantors a shortfall in the amount the plaintiffs were able to recover on a judgment debt due to fluctuations in currency exchange rates. I have taken the following introductory facts from the very lucid judgment of LP Thean J (as he then was) in Suit No 5830 of 1986 between the very same parties who are now before me.

Background facts

On 1 August 1986, a company called Freelin Investment Pte Ltd (`Freelin`) entered into three option agreements with three stockbrokers, namely, EG Tan & Co (Pte) (in liquidation), J Ballas & Co (Pte) Ltd and Ong & Co Pte Ltd, whereby Freelin granted to them an option (which in effect was a right) to require Freelin to purchase from them the following securities: namely, (i) 16,913,000 shares in Grand United Holdings Bhd and (ii) 5,938,000 shares in Supreme Corporation Bhd at the prices and on the terms and conditions therein respectively provided. Immediately thereafter, on 4 August 1986, Freelin entered into a syndicated credit facilities agreement (`the principal agreement`) with the plaintiffs and Oversea-Chinese Banking Corporation Ltd (`OCBC`), whereby the second to sixth plaintiffs and the OCBC (collectively called `the banks`) agreed to grant to Freelin facilities in aggregate up to an amount of $13,710,600 for the purpose of enabling Freelin to purchase the shares comprised in the option agreements. The first plaintiffs were the agent bank. Under the principal agreement, the liabilities of Freelin were secured, inter alia, by six guarantees - one by the defendants and five by five individuals - and each guarantee was expressed to guarantee a fixed percentage of the total sum due or owing by Freelin to the second to sixth plaintiffs. All the six guarantees were in identical terms except for the percentage of the amount guaranteed and other necessary modifications. The defendants` guarantee was dated 4 August 1986 (`the guarantee`) and was executed under seal, under which the defendants guaranteed the payment to the plaintiffs of an amount called the `guaranteed amounts`, which was defined to mean `22.73% of all sums (whether principal, interest, fee or otherwise) whatsoever which are or at any time may be or become due or owing` by Freelin to the first plaintiff and/or the second to sixth plaintiffs under or in connection with the principal agreement.

The facilities provided by the principal agreement consisted of a guarantee facility and a loan facility. Under the guarantee facility, the banks agreed at the request of Freelin to issue to the three stockbrokers three bank guarantees respectively for the amounts as follows: the amount in favour of EG Tan & Co (Pte) Ltd (in liquidation) was $6,300,000; the amount in favour of J Ballas & Co Pte Ltd was $4,514,800 and the amount in favour of Ong & Co Pte Ltd was $2,896,800. The total was $13,711,600.

On 20 August 1986, the three bank guarantees all dated 22 August 1986 were executed and issued by the banks to the three stockbrokers.

On 15 October 1986, as a result of events which I do not need to go into, M/s Drew & Napier, solicitors for the banks, and the first plaintiff as the agent bank, gave notice to Freelin declaring that an event of default under the principal agreement had occurred. That notice further declared that the facilities had been cancelled and required Freelin to pay to the first plaintiff for credit to the cash collateral account a sum equal to the total guarantee outstandings, ie $13,710,600. Soon after this letter, J Ballas called upon the banks to honour the bank guarantee given to it, and, in response, the banks paid to J Ballas a sum of $4,513,800 for 7,523,000 shares of Grand United on or about 22 October 1986.

On 1 December 1987, the plaintiffs commenced Suit No 5830 of 1986 (`the 1986 suit`) against the defendants claiming the sum of $2,434,519.38, being the `guaranteed amounts` under the guarantee and interests thereon as provided in the guarantee. That amount represented 22.73% of the total owing by Freelin to the second to sixth plaintiffs, which is the sum of $13,710,600 minus the amount owing by Freelin to OCBC.

On 3 June 1987, the plaintiffs obtained judgment (`the Singapore judgment` or `the 1987 judgment`) in an O 14 application before the senior assistant registrar of this court in the sum of $2,434,519.38 and default interest at the rate specified from 15 October 1986 to the date of the judgment, and the statutory interest of 8% pa on the sum and default interest from 4 June 1987 to date of payment. The plaintiffs also obtained costs in the fixed sum of $700, the rate for a successful summary judgment application prevailing at that time. The defendants appealed and their appeal was dismissed by LP Thean J on 2 November 1987 and by the Court of Appeal on 16 November 1989.

Registration of judgment in Malaysia

The Reciprocal Enforcement of Judgments Act 1958 of Malaysia, like our own Act of the same title in relation to judgments of superior courts of countries to which it extends, enables a judgment obtained in the High Court of Singapore (in common with those of other designated countries) to be registered in a High Court in Malaysia and to be enforced as if it was a judgment given by the registering court.

On 6 January 1988, the plaintiffs, upon their application to the High Court of Malaya at Johore Bahru, obtained an order for the registration of the Singapore judgment.

Under O 67 r 3(2) of the Rules of the High Court 1980 in Malaysia, which were in similar terms to rules then prevailing in Singapore, the amount of the judgment debt for which registration was sought must be converted into the currency of Malaysia at the rate of exchange prevailing as at the date of the 1987 judgment.

In the application for registration of the Singapore judgment in the High Court at Johore Bahru, the plaintiffs thus had to convert the Singapore judgment debt amount into the equivalent amount in Malaysian currency, at the rate of exchange prevailing not at the date of the registration, but at the date of the original judgment in Singapore. This has given rise to difficulties, because, as a result of the fluctuations in the exchange rate, the amount registered, which the defendants duly paid in Malaysian currency, turned out to be substantially less, in Singapore currency terms, than the amount, in Singapore currency, which the plaintiffs were entitled to get under the terms of the Singapore judgment. The difference, it is agreed, is the sum of $535,350.99. This is the amount which the plaintiffs claim in this suit.

The prima facie position: doctrine of merger

The sum of $535,350.99 is what remains unsatisfied of the Singapore judgment debt. The question is: can the plaintiffs claim against the defendants that sum again?

The doctrine of merger of causes of...