Overseas Union Bank Ltd v Chua Kok Kay and Another

• Jurisdiction: Singapore
• Judge: K S Rajah JC
• Judgment Date: 12 September 1992
• Neutral Citation: [1992] SGHC 239
• Date: 12 September 1992
• Subject Matter: Failure to let out mortgaged property,Principles applicable,Illegality,Banking,Mortgage of real property,Transaction contravened provisions of Malaysian Exchange Control Act 1953,Selling mortgaged property below fair market value,Loan in Singapore currency to a Malaysian citizen,Enforceability,Loan contract,Whether plaintiffs in default of their duties as mortgagees in possession,Illegality and public policy,Credit and Security,Whether transaction illegal and unenforceable under Singapore law,Loan transaction,Loan in Singapore currency made and carried out in Singapore to Malaysian citizen,Mortgagee’s rights,Staututory illegality,Whether Singapore court may give effect to Malaysian Exchange Control Act 1953 in the circumstances,Whether illegal and unenforceable under Singapore law,Contract,Lending and security
• Docket Number: Suit No 4715 of 1986
• Published date: 19 September 2003
• Defendant Counsel: Michael Khoo (Cheah Kok Lim with him) (Low Yeap & Co)
• Court: High Court (Singapore)
• Plaintiff Counsel: Geraldine Chia (Bee See & Tay)

Cur Adv Vult

This is a claim for the repayment of a loan by the plaintiffs who are bankers carrying on business in Singapore. The defence of the first defendant, the borrower, is that the loan is illegal and unenforceable under the provisions of the Exchange Control Act 1953 of Malaysia. The defence of the second defendant, the guarantor, is that the guarantee is a nullity and unenforceable as being a guarantee for an illegal loan. It is necessary to set out the facts at some length. There is a counterclaim for breach of duty by the plaintiffs as mortgagees.

The first defendant was the owner of 53 Cairnhill Road, #13-03 Cairnhill Plaza, Singapore. In 1983 the property was mortgaged with the United Overseas Bank for $450,000. The first defendant was and is a Malaysian who lives in Batu Pahat, Malaysia where he manages his business.

The first defendant wanted to raise more funds for his business in Malaysia and contacted the second defendant on the telephone to ascertain if the second defendant could help raise a loan on his property in Singapore. The second defendant approached the plaintiffs` manager of Grange Road branch, Yen Kum Wah (`Yen`). In the course of his negotiations, he told Yen that the first defendant was a Malaysian because the second defendant was aware of the restrictions placed on the taking of money out of Malaysia. The second defendant asked Yen if there would be any problems for a Malaysian to borrow money in Singapore and Yen told him that a Singapore address may have to be used to transact the loan. The second defendant thereafter left everything to Yen after telling the first defendant to apply for the loan by way of an overdraft for $750,000 and open a current account with the Grange Road branch.

The second defendant, the brother of the first defendant, lives in Singapore and is a director of a company located in Yen San Building. The company and the second defendant both had accounts with the plaintiffs` branch at Grange Road.

On 31 May 1983 the solicitors for the plaintiffs wrote to the defendants` solicitors stating that the plaintiffs had agreed to grant to the first defendant an overdraft facility of $700,000 on his current account to be secured by a legal mortgage of 53 Cairnhill Road, #13-03 Cairnhill Plaza. Interest was to be at 21U2% above the bank`s prime lending rate or at such other rate as the bank may from time to time decide.

The first defendant wrote to his solicitors on 6 August 1983 confirming that the terms and conditions set out in the letter of 31 May 1983 were acceptable to him and opened a current account giving his Malaysian address. The address was subsequently changed to a Singapore address. The plaintiffs thus had notice that the first defendant was a Malaysian.

The second defendant signed a personal guarantee in Singapore on 13 June 1983 in consideration of the plaintiffs agreeing to make the advances to the first defendant. The guarantee is for a sum of $700,000. The second defendant signed the guarantee when Yen told him that the guarantee was required because the first defendant is a Malaysian. To avoid delay, the second defendant signed the guarantee, although no guarantee was required in the letter of 31 May 1983. Yen advised that the loan should be split to save interest. The second defendant accepted the advice.

The facilities for $700,000 were split into:

(a) overdraft facility of $250,000;

(b) term loan of $450,000 repayable by monthly instalments.

In 1985 the first defendant defaulted and the plaintiffs` solicitors demanded payment of $829,679.21 comprising outstanding housing loan of $525,297.16 and outstanding overdraft of $304,382.05 with interest at 4%pa above prime rate chargeable on the overdraft. The first defendant was not given notice when the interest was changed from 21U2% above the bank`s prime rate to 4%.

On 7 July 1986 the first defendant`s solicitors wrote to Fuji Bank, the tenant then occupying the premises, giving notice that the first defendant had assigned the rental receivable under the tenancy agreement to the plaintiffs. Fuji Bank was told to make all future rent payments with effect from August 1986 to the plaintiffs. The rent was $3,000pm. The tenancy was due to end in May 1987 and the defendant told the plaintiffs that action had been taken to lease the premises and, when let, all rents would be paid to the plaintiffs.

On 22 July 1987 Hoe & Tan Co (Pte) Ltd offered to rent the premises for two years at $2,600pm, including maintenance fees. There was to be a deposit for two months with an option for another year at market rent. The first defendant`s solicitors also wrote to the plaintiffs on 23 July 1987 stating that the first defendant had found a new tenant and requested the plaintiffs` consent to enter into a lease on the basis that all rents shall be paid to the plaintiffs. On 22 August 1987 the Bank of Tokyo offered to lease the premises for two years from 30 August 1987 at $2,600. The plaintiffs rejected the offer by their letter of 1 September 1987. The defendants were told that the plaintiffs do not consent to any leasing because the plaintiffs propose to sell the premises. The defendants were asked to deliver the keys to the premises. The defendant was ordered to give vacant possession and pay costs on a solicitor and client basis on 16 November 1987; possession was given on 28 November 1987.

Between 30 May 1988 and 21 April 1989 interest was shown in purchasing and/or renting the property by:

(a) City Real Estate;

(b) Dean Property Pte Ltd;

(c) Trevorse Housing;

(d) Bernard Valuers;

(e) Property Search Pte Ltd;

(f) Orient Property Management Pte Ltd;

(g) Gateway Property Consultants Pte Ltd.

The agents were told to contact the plaintiffs when they contacted the defendants.

Rent

The valuation report by Jones Lang Wootton dated February 1988 recommended the estimated monthly rental of the premises to be in the region of $2,500. The plaintiffs, however, advertised the premises as being available for rent at $3,300pm on 22 April 1988. From May 1988 to July 1988 the rent was fixed at $3,200.

The second defendant was a real estate agent who was, inter alia, in the business of letting out property. After November 1987 he ceased contacting the plaintiffs` property manager because offers made were rejected.

Sale

The property was advertised for sale at $650,000 from 3 March 1989. The defendants were not told that the property would be sold for $600,000, although it was advertised for $650,000.

The defendants were properly advised that after the mortgagees take possession, the mortgagees have to look after the interests of the property when the defendants became anxious when the efforts of the real estate agents made no impression on the plaintiffs. A subsidiary of the plaintiffs, Overseas Union Realty Services Pte Ltd (`OURS`) was given the task of managing the property.

The valuation surveyor

Teo Yik Weng is a chartered valuation surveyor. He was a defence witness. In his valuation report dated 20 February 1992, the fair market value of the premises for litigation purposes for the period November 1987 and March 1989 is given. He has allowed for the fact that he inspected the property only from the outside and has set out what he has assumed. The market data approach was adopted. After the recession in 1986, the prices of residential properties started to move generally upwards and the market trend was a gradual increase. There was no decline after the early part of 1987. The market was rising from November 1987 and has not declined since then.

In Mr Teo`s opinion the fair market value of the property with full vacant possession was:

(a) $613,000 in November 1987; and

(b) $700,000 in March 1989.

The valuation report of Landlink Agency puts the fair market value at:

(a) $610,000 in November 1987; and

(b) $710,000 in March 1989.

The valuation given by Mr Teo and the Real Estate Statistics Quarterly prepared by the URA shows a degree of coincidence that lends added weight to his evidence. Mr Teo was of the opinion that $560,000 as valued by the plaintiffs` valuer was low and gave his reasons. He was also of the opinion that verbal valuations given over the phone can be no more than a guide and require further examination. If that is not done, the verbal valuation should not be accepted.

Under cross-examination, he conceded that forced sales have an effect on the price and said:

(a) in November 1987 it would be $582,350 and rounded it off to $580,000;

(b) in March 1989 - $665,000;

but added the 5% difference would not apply in a buoyant market and that this case cannot be regarded as a forced sale.

Mr Teo was asked if the sale of the property in March 1989 could be termed a forced sale when possession was taken in November 1987 and the sale of the property takes place in March 1989. His reply was `definitely not`. Mr Teo was cross-examined. His evidence is tested evidence which I accept.

The first defendant`s housing loan as at January 1987 with interest added up to 31 December 1987 was $604,175.95. If the property had been sold in November 1987 for $613,000 there would have been a surplus on the housing loan. The overdraft account stood at $323,513.58.

Accounts

The defendant first asked the plaintiffs for accounts on 16 August 1989 and said that the completion statement and credit advice notes were insufficient to discharge their liability to account as mortgagees in possession. The plaintiffs were asked to supply a full statement of accounts of all the rents and other incomes received from Fuji Bank Ltd after possession was given on 28 November 1987. The plaintiffs did so only on the morning of the first day of the trial on 23 August 1991. The plaintiffs did not make a distinction between their rendering of accounts as mortgagees in possession and as bankers until 23 August 1991.

On 22 November 1989 the plaintiffs were told that their...