Oversea-Chinese Banking Corp Ltd v Chng Sock Lee and Another

• Jurisdiction: Singapore
• Judge: Lai Kew Chai J
• Judgment Date: 12 October 2001
• Neutral Citation: [2001] SGHC 306
• Date: 12 October 2001
• Subject Matter: Whether plaintiffs vary principal contract,Whether signing of guarantee manifestly disadvantageous to defendants,Duty not to misrepresent by suppression of falsehood,Whether plaintiffs have constructive knowledge of undue influence,Whether unauthorised withdrawal of monies from overdraft account exists,Lending and security,Common law principle on 'unusual features' of transaction,Whether parties must act with utmost good faith,Whether defendants induced to execute guarantee by undue influence of husband and father,Contract of guarantee,Banking,Personal guarantee to secure banking facilities,Whether voidable,Whether plaintiffs failed to disclose unusual features of transaction
• Docket Number: Suit No 560 of 2000
• Published date: 19 September 2003
• Defendant Counsel: Mahmood Gaznavi (Edmond Pereira & Partners)
• Court: High Court (Singapore)
• Plaintiff Counsel: Lee Eng Beng and Karen Ng (Rajah & Tann)

: In this action, the plaintiffs who are bankers claim against the defendants, mother and son, respectively called `Mdm Chng` and `Mr Tan`, amongst other items, the sum of $5.5m (in round numbers), interest as agreed and costs on an indemnity basis under a guarantee dated 7 January 1997 (`the guarantee`) and admittedly signed by both of them. Under the guarantee, they and Mr Tan Sim Hock (`the father`), who is the husband of Mdm Chng and father of Mr Tan, unconditionally agreed on a joint and several basis to guarantee the payment on demand of all moneys or liabilities at any time owing or remaining unpaid by a company known as Goldenlite Development Pte Ltd (`Goldenlite`) up to the sum of $10.55m. At all material times, Mdm Chng and Mr Tan were the sole shareholders and directors of Goldenlite. The banking facilities were also secured by Goldenlite`s mortgage of certain properties. Save for the small sum of $84,411, it is not in dispute that Goldenlite defaulted on the overdraft facilities granted by the plaintiffs and that the sums claimed under the guarantee, unless vitiated or discharged, were as claimed in the action.

The defendants denied liability under the guarantee on four grounds. First, they allege that the guarantee was voidable as it was signed under the undue influence of the father of which the plaintiffs had constructive knowledge. When the trial opened, actual knowledge on the part of the plaintiffs was alleged but the defendants on the evidence quite properly abandoned this allegation. Second, they seek to show that the plaintiffs failed to bring to the attention of the defendants the special circumstances which the plaintiffs were aware and which, in effect, would as it did diminish the equity which Goldenlite had in the mortgaged properties. Third, the plaintiffs and Goldenlite had varied the principal contract to one which was substantially different from what the defendants had guaranteed and that, accordingly, the defendants were entitled to be discharged from their obligations under the guarantee. The last ground is that the plaintiffs had allowed Goldenlite and/or the father to withdraw moneys from Goldenlite`s account without proper authorisation and had acted in a manner prejudicial to the interest of the defendants.

The basic facts

Prior to the Asian financial crisis and the events hereinafter recited, the father was a relatively successful property developer. He carried out his business through a group of companies of which he was the principal shareholder. He was also the directing mind of those companies. The plaintiffs were his principal bankers. Goldenlite, however, was an exception. He did not hold any share in that company and he was not a director. As stated earlier, the defendants were the sole shareholders and directors. It was incorporated on 1 November 1994. In early 1996 its share capital was increased to $300,000 represented by 300,000 shares of $1 each. The defendants held all the shares equally.

The father wanted the son, Mr Tan, to help him in his business. The son worked for him in the companies which the father controlled. Goldenlite was incorporated by the father just after the son Mr Tan had completed his National Service.

In all, the plaintiffs granted to Goldenlite two sets of banking facilities. The father and both defendants signed the acceptances of those facilities on the stationery of the plaintiffs. The stationery contained the well-known logo of the plaintiffs. The defendants would have known that they were dealing with the plaintiffs. In January 1996 Goldenlite accepted a set of land loan and construction loan banking facilities of $4.3m to develop a pair of two-storey semi-detached houses in a plot of land at Dunbar Walk (`the Dunbar Walk property`). The terms and conditions of the banking facilities were set out in the facility agreement dated 15 February 1996 and entered into between Goldenlite and the plaintiffs. Those facilities were secured by firstly the joint and several guarantees of the defendants and the father and secondly Goldenlite`s mortgage of the Dunbar Walk property to the plaintiffs. In February 1996 two separate letters of guarantee (`the first guarantee`) were signed by both defendants and the father. They signed those documents before an advocate and solicitor, Ms Cynthia Lim Ai Ming, who witnessed their signatures.

It should be noted that sub-cll 14(f) and (g) of the facility agreement when drafted had provided for some control over the proceeds of sale of the units when eventually developed out of the Dunbar Walk property if and when they were sold by Goldenlite. This was because Goldenlite was not a housing developer subject to the Housing Developers (Control and Licensing) Act (Cap 130). They had expressly required firstly that the agreements of sale of the Dunbar Walk property when sold by Goldenlite had to be in the form as prescribed under the Housing Developers Rules 1985 and secondly under those prescribed forms Goldenlite would have been required to deposit the sale proceeds into a project account from which Goldenlite`s withdrawals would have been controlled and subjected, among other things, to the plaintiffs being progressively repaid in exchange for the plaintiffs` releases pro tanto in favour of the purchasers of units from Goldenlite. At the request of Goldenlite those prudential sub-clauses were deleted. The position of any purchaser of those units from Goldenlite, and indirectly the exposure of guarantors of Goldenlite in respect of its liabilities to its bankers, therefore reverted to the common law position where purchasers had to ensure pro tanto discharges of the plaintiffs` mortgages and Goldenlite`s payment of proceeds of sale in reduction of the liabilities.

Goldenlite obtained from the plaintiffs the second set of banking facilities on 27 December 1996 in the sum of $6,750,000 to purchase and also to develop a pair of two-storey semi-detached houses on a piece of land at Roseburn Avenue, Singapore (`the Roseburn Avenue property`). These facilities were to be secured by a mortgage over the property and by the joint and several guarantee by the father and the defendants for the aggregate sum of $10,550,000. This aggregate sum included the outstanding sums under the Dunbar Walk property facility.

On 7 January 1997 the guarantee was signed by the father and by both defendants. Their signatures were witnessed by Maureen Ann Mei Lian (PW1), an advocate and solicitor, hereinafer called `Ms Maureen`). Ms Maureen was extensively cross-examined. The cross-examination was broadly to determine the extent of her knowledge, if any, of any undue influence which the father was exerting on both defendants at the time when they signed the guarantee so that her knowledge would be that of the bank. The bank officers of the plaintiffs had dealt only with the father and did not have any direct contact with either defendant. Secondly, the questions were directed to ascertain the nature and scope of each and every unusual circumstance which the defendants could conceivably contend should have been disclosed by the plaintiffs as a matter of their duty. Although a contract of guarantee is not one where both parties must act with utmost good faith, and therefore duty bound to disclose for instance all material facts, there is however a duty not to misrepresent by suppression of a falsehood in order to suggest that a particular factual issue in question is in fact the truth. In other words one must not suppress the truth in order to suggest a falsehood, ie suppressio veri suggestio falsi. Our common law accepts the principle which requires a beneficiary of the guarantee (usually a bank) to disclose to the proposed surety `unusual features` relating to its transaction with its principal obligor: see Habibullah Mohamed Yousuff v Indian Bank [1999] 3 SLR 650 where the Court of Appeal must have intended to set forth that proposition in [para ]27...