Pan-Electric Industries Ltd (in liquidation) v Oversea-Chinese Banking Corp Ltd and Another

• Judge: Karthigesu JA
• Judgment Date: 28 January 1994
• Neutral Citation: [1994] SGCA 14
• Citation: [1994] SGCA 14
• Defendant Counsel: Yang Ing Loong (Lee & Lee),Tang Khin Wai and Mark Lim (Lee & Lee)
• Published date: 19 September 2003
• Plaintiff Counsel: Sundaresh Menon, Patrick Ang and Sim Bock Eng (Wong Meng Meng & Pnrs)
• Date: 05 October 1994
• Docket Number: Civil Appeal No 78 of 1993
• Court: Court of Appeal (Singapore)
• Subject Matter: Pledges and pawns,Exception to the nemo dat rule,Plaintiff company depositing with broker shares and transfers executed in blank,No evidence of competing claims for ownership of shares in dispute,Whether plaintiff estopped from denying broker's authority to mortgage shares,Whether company the beneficial owners of mortgaged shares,Bona fide mortgagee for value,Shares,Securities deposited with stockbroker,Authority to pledge shares,Broker mortgaging shares to obtain banking facilities for own benefit,Credit and Security,Significance of previous failure to collect dividends and to confirm beneficial ownership,Weight to be attached to the evidence,Proof of ownership,Securities

Cur Adv Vult

This appeal has arisen out of competing claims over 1.55 million shares in ACMA Electric Industries Ltd (ACMA), a public company whose shares were and are still listed on the Stock Exchange of Singapore. The appellants (Pan-El) were a public company also listed on the Stock Exchange of Singapore. On 30 November 1985, they went into receivership and the liquidation which followed led to the unprecedented closure of the Stock Exchange of Singapore. Pan-El through their liquidators claim to be the beneficial and absolute owners of these shares. These shares were registered in the names of their respective corporate nominees as trustees. As they were the registered proprietors of the shares in the Register of Members of ACMA the legal title therein therefore vested in them. All that Pan-El had, if they had any, was the beneficial ownership in equity of the shares in question. Although one of the features under the Companies Act (Cap 50, 1990 Ed) is that beneficial interests and trusts as between registered members and beneficiaries are kept out of a company`s register of members, one relevant requirement under the Act to note is that all substantial shareholders, as defined, must disclose their substantial shareholdings, legal and beneficial, and such disclosures and notices of changes in or cessation of substantial shareholders were kept in a company`s register of substantial shareholdings: see ss 82-84 and 88 of the Companies Act.

However, Pan-El permitted to be delivered to Associated Asian Securities (Pte) Ltd (AAS) the relevant share certificates together with duly executed blank transfers of the shares in question and other shares. They totalled 6.3 million ACMA shares. The trial judge, Chao Hick Tin J, after understandably lamenting that there was a paucity of or `scanty` evidence led before him, perforce made no determination as to the purpose for which the share certificates and duly executed transfers were deposited with AAS. After having carefully evaluated the entire evidence, he was ineluctably driven to conclude that there was `no credible evidence before [him] to show why 6.3 million ACMA shares [including the shares in question] were held by AAS.` He further ruled that the burden of proof was on the respondents to prove on a balance of probabilities that Pan-El had, either through Tham or TKL [Tan Kok Leong], authorized AAS to sell or pledge [meaning mortgage] the shares`: the words within brackets are added. Tham and TKL were the directors of Pan-El.

AAS were at all material times carrying on the business of a stockbroker on the Stock Exchange of Singapore. Such a deposit of share certificates and duly executed transfers could provide opportunities and temptations to AAS to abuse their position. In this case, the risks for abuse and misuse of the indicia of title accompanied by duly executed transfers were seriously compounded and facilitated such abuse, as was demonstrated by the events that unfolded, because Tham was a common director of both Pan-El and AAS. One could see he was placed in a present or potential position of conflict of interest.

It was therefore not surprising that AAS deposited the share certificates and duly executed transfers as to 200,000 ACMA shares with the first respondents and 1.35 million ACMA shares as security for the banking facilities which the two respondents were extending to AAS. It was common ground that the respondents were bona fide lenders with no notice of Pan-El`s beneficial interests in the shares in question. In those circumstances, the respondents claimed that they were accordingly equitable mortgagees of the shares in question and refused to return them to Pan-El.

During the trial, there were really two issues. First, did Pan-El at all material times, that is at the time the shares certificates and transfers were equitably mortgaged to the respondents by AAS and also at the time of the trial below, beneficially own the shares in question? The burden of proof was on Pan-El and the standard of proof was on a balance of probabilities. The respondents put them to strict proof. The second question, which only required consideration if the answer to the first question was in the affirmative, was whether Pan-El by depositing the shares and transfer forms with AAS were precluded or estopped as against the respondents from denying that they had authorized AAS to sell or mortgage the shares and therefore were precluded from asserting their beneficial ownership of the shares in the light of the facts as found by Chao Hick Tin J and case law.

At the conclusion of the trial, Chao Hick Tin J determined that Pan-El had failed to prove that more probably than not they were the beneficial and absolute owners of the shares in question. Although that finding of fact without further ado could have disposed of the proceedings, Chao Hick Tin J proceeded on the assumed basis that Pan-El were the beneficial owners and very helpfully set out his determination on the second question as to whether the equitable doctrine of estoppel operated against and therefore would consequentially have displaced the equitable ownership of Pan-El and allowed the equitable mortgagee interest of the respondents to have priority in effect over Pan-El`s interest as owners. He considered the authorities and came to the conclusion that the principle of estoppel did not operate and would not have assisted the case of the respondents.

In this appeal, Pan-El strenuously contended that the trial judge had erred in law and in fact in finding that Pan-El had not proved they were the beneficial owners of the shares. Such a finding, they argued, must inevitably mean that another party or parties was or were at all material times the beneficial owner(s) of the shares and this aspect of the case was not considered in the judgment of the trial judge. Since the ACMA shares were worth millions of dollars, it would be an extraordinary feature that no other party had come forward since January 1985 to claim ownership or other interest in the bulk of the shares in question. It was recognized by Pan-El that an appellate court would be slow to disturb any finding of fact by a trial court. But it was said that, in this case, the findings of fact were based on inferences drawn from established and really non-controversial primary facts. Pan-El in this proceedings of course supported the trial judge`s conclusion that they were not estopped from claiming ownership of the shares. On the other hand, both respondents filed their respondents` notices which contained, mutatis mutandis, identical grounds. They contended that the trial judge ought to have found that the shares and the transfers were delivered and `pledged` by Pan-El to AAS as securities for share transactions and AAS in turn charged, mortgaged or otherwise pledged the shares to the respondents. In support of the decision of Chao Hick Tin J, the respondents further contended that Pan-El were estopped from denying that they had expressly and/or impliedly and/or ostensibly authorized AAS to charge, mortgage, pledge and/or otherwise deal with the shares. Finally, they canvassed that as a matter of equity and/public policy the court should not compel the respondents, who were admittedly innocent parties and who had given good value and taken the shares in good faith as securities without notice of the appellants` alleged interest, to suffer loss caused solely by the fraud of TKL, a director and sole member of the appellants` investment committee, who was given unlimited authority to deal with investments in quoted securities.

The undisputed facts

At all material times Tham and TKL were directors of Pan-El. TKL became a director in 1983. At the board meeting on 29 April 1983, the directors decided that Pan-El should diversify their activities and `look for share trading opportunities.` In the same year, the board established an investment committee which was responsible for share trading and investments. The meeting of the board meeting of 15 February 1985 confirmed that the board directed TKL and Tham to continue to serve on the investment committee. At that meeting, the board established an executive committee consisting of M/s Crafter, Tham, TKL and Segarajasingam to approve transactions, including investments, which might affect the group`s profitability by over $2m. According to the board minutes, Tham resigned from the board on 10 July 1985. Following the departure of Tham, the board authorized TKL as a one-member investment committee to act.

Tham, at all material times, was also the managing director of AAS.

On 18 January 1981, Pan-El became beneficial owners of 8,000,000 ACMA shares (or 33% of ACMA shareholdings) in exchange for the transfer to ACMA of their entire shareholdings in one of their subsidiaries, Pan Electric Appliances (Pte) Ltd. On 16 June 1982, Pan-El disposed of 100,000 ACMA shares. On 13 July 1982 they disposed of another lot of 100,000 shares. Just under two years later, on 6 February and 22 May of 1984, they disposed of 650,000 and 756,260 ACMA shares respectively. As at late May 1984, Pan-El still owned 6,393,740 ACMA shares.

The company secretary of ACMA confirmed that in 1984 Pan-El owned 6,393,740 ACMA shares. Pan-El was shown as a substantial shareholder within the meaning of that expression under the Companies Act. He quite properly said that the accuracy of that register depended on the response from a substantial shareholder. In fact, on 19 March 1985, he sent a letter to the company secretary of Pan-El seeking confirmation that Pan-El were still the beneficial owners of those shares. ACMA never got a reply to that letter. In the absence of a reply, and also it is fair to note, in the absence of any advice from any other substantial shareholder, the annual reports of ACMA for the financial years ended 30 April 1985, 1986 and 1987 continued to show Pan-El as still the beneficial owners of the 6,393,740...