Pan-Electric Industries Ltd (in liquidation) v Sim Lim Finance Ltd and Others

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 31 May 1993
• Neutral Citation: [1993] SGHC 123
• Docket Number: Originating Summons No 112 of 1988
• Date: 31 May 1993
• Published date: 19 September 2003
• Year: 1993
• Plaintiff Counsel: Sundaresh Menon (with Sim Bok Eng) (Wong Meng Meng & Partners)
• Citation: [1993] SGHC 123
• Defendant Counsel: Yang Ing Loong (Lee & Lee),Tang Khin Wai (with Mark Lim) (Lee & Lee)
• Court: High Court (Singapore)
• Subject Matter: Credit and Security,Stockbroker charged shares to banks as security for facilities granted to them allegedly without authority to do so,Whether banks had rights to shares in priority to depositor,Question of beneficial ownership of shares,Mortgage of personal property,Securities for advances,Deposit of share certificates and blank transfer forms with stockbroker,Whether depositor estopped from denying authority of stockbroker to deal with shares,Stocks and shares,Authority of stockbroker to deal with shares

Cur Adv Vult

This originating summons was taken out on 30 January 1988 by the liquidators of the plaintiff company, Pan-Electric Industries Ltd (`Pan El`), for a declaration that Pan El are the beneficial owners of 6.3 million shares in a public listed company, ACMA Electrical Industries Ltd (`ACMA`), which shares were at that time in the possession of eight financial institutions, the first to the eighth defendants thereto. Pan El was also a public listed company before it was placed under liquidation in 1986. By an order of court dated 8 April 1988, it was ordered that the Associated Asian Securities (Pte) Ltd (`AAS`) be added as the ninth defendant in these proceedings. By a separate order of court of the same date it was also ordered that the originating summons be continued as if it had begun by writ, with directions given for the parties to file the necessary pleadings.

Pleadings

I shall first deal with the pleadings. In their amended statement of claim Pan El allege that sometime in or about October 1985 they delivered the certificates relating to the 6.3 million ACMA shares, together with the relative blank transfers, to the ninth defendants, AAS, to be retained by them on behalf of Pan El. (Counsel for Pan El agreed at an early stage that the date October 1985 is wrong.) At diverse dates subsequently AAS mortgaged or otherwise charged the shares in parcels to the first to the eighth defendants without the knowledge or consent of Pan El to secure AAS`s borrowings with those financial institutions. Pursuant to the mortgages or charges, the share certificates, together with the relevant blank transfers, were deposited with those defendants.

Pan El have asked for the return of the share certificates from the first to the eighth defendants, who have denied that Pan El are entitled to the shares. Pan El have also asked for a declaration that the interest of the plaintiffs in the shares ranks in priority to the claims of the banks.

At the commencement of the hearing of this action before me, a settlement was reached between Pan El and the first, second, fourth and seventh defendants. During the course of the trial, a settlement was also reached with the fifth, eighth and ninth defendants. The trial proceeded before me only as between Pan El and the third and the sixth defendants. These two defendants claim interest in 200,000 and 1,350,000 of the ACMA shares respectively.

In their further and better particulars, Pan El state that `no instructions or intimations were given by (Pan El) to the person or persons who delivered the shares on (Pan El`s) behalf as to the purpose of such delivery`. Pan El further state that no instructions were given to the ninth defendants relating to the disposal of the same; neither was there any agreement between Pan El and AAS relating to the disposal of the same. Pan El aver that the purpose for which the shares were to be retained by AAS `was for the ninth defendant to retain the same on behalf of the plaintiffs`; there was no specific agreement as to the purpose.

The defence filed by the third defendant, OCBC, is that Pan El had delivered and pledged the 200,000 ACMA shares to AAS as security for share transactions of Pan El with AAS who had in turn `charged mortgaged or otherwise pledged` the same to OCBC, with the full knowledge and/or consent of Pan El, to secure banking facilities to AAS. Pursuant thereto the relevant share certificates, with the blank transfers, were on 23 October 1985 delivered by AAS to OCBC as security for the facilities. OCBC further aver that at the time the shares were charged or pledged to them they had no notice of the plaintiffs` interest in or claim to the shares. In the alternative, OCBC plead that on the facts Pan El are estopped from denying that AAS had been expressly or impliedly authorized and/or had been ostensibly authorized to mortgage pledge or otherwise deal with the shares.

The defence of the sixth defendant, OUB, is along similar lines to those of OCBC. Both OCBC and OUB are also relying upon the reamended defence of the ninth defendant, AAS.

At this juncture, it may be necessary for me to refer to the defence filed by AAS, whom as I have indicated earlier are no longer a party to this trial. AAS averred that at all material times they were carrying on the business of stock and share brokers. In the course of that business they took orders from Peter Tham Wing Fai (`Tham`) and Tan Kok Liang (`TKL`) who were both directors of Pan El and members of Pan El`s investment committee. They further averred that both these persons had the actual or implied authority of Pan El to transact share dealings on behalf of and binding upon Pan El. In the further alternative, AAS stated that Pan El held out Tham and TKL as being authorized to act on their behalf by allowing them to have possession of and control over various share certificates, with the relative blank transfers, belonging to Pan El or their subsidiaries.

In further elaboration of the foregoing, AAS stated that in or about the month of February 1984, Tham instructed AAS to receive share certificates representing two million ACMA shares. The certificates were delivered by one Mrs Tan Lay Beng, the company secretary of Pan El. AAS were directed to hold the said two million shares in safe custody pending Tham`s search for a suitable buyer for those shares and until then, AAS could utilize those shares as collateral to secure AAS`s credit and overdraft lines with their bankers, it being at all times understood that in the event the two million ACMA shares were sold at a later date by Pan El, AAS were obliged to withdraw them from the pledge or charge and make delivery to the buyer on behalf of Pan El. On that basis, AAS had used the two million shares as collateral with their bankers.

AAS further stated that this arrangement was, however, altered in November 1984. In that month Tham placed an order with AAS for the account of Orange Grove Property Pte Ltd (`OGP`), a wholly owned subsidiary of Pan El, to purchase 34 million shares in Textile Corporation Bhd (the name of this company was later changed to Grand United Holding), a Malaysian public company. The order was executed. The approximate total cost of the said purchase was in excess of $59.5m. Tham represented to the manager of AAS, one Krishna Kumar s/o Balasundram, that OGP had or would have the requisite funds or financing to pay for the 34 million shares.

On 25 November 1984, Tham left Singapore. In December 1984, TKL informed Krishna Kumar that OGP did not have the requisite funds or financing to pay for the 34 million Textile Corporation shares. TKL accordingly made other arrangements whereby the shares were in part redistributed to alternative purchasers, in part taken by OGP and/or Pan El and in part resold at lower prices than those at which AAS had purchased them. In consequence thereof losses were suffered by AAS to the tune of $25,373,263.25. AAS had no means to pay up the losses. Accordingly, TKL proposed that he would arrange for marketable securities held by Pan El to be deposited with AAS for the purposes of enabling AAS to utilize the same as collateral in raising funds by way of mortgage from AAS`s bankers. TKL further consented and agreed that AAS were at liberty to utilize any other shares and securities previously deposited by Pan El for the same purpose. This proposal was accepted by AAS. Thus Pan El deposited a further 4.3 million ACMA shares with AAS making a total of 6.3 million ACMA shares. Accordingly, AAS became the equitable mortgagees of the shares. AAS in turn mortgaged or otherwise charged the 6.3 million shares in parcels to the first to eighth defendants for valuable consideration.

In their reply Pan El averred that AAS did not and could not have relied upon any holding out or implied representations as to the authority of Tham or TKL in relation to the purported transactions involving the ACMA shares. This was because Tham was also at all material times a director and controlling shareholder of AAS and in respect of the purported share transactions between OGP and AAS, Tham was at the material time acting as the agent of AAS. Furthermore, the alleged purchase of 34 million Textile Corporation shares were not real share transactions entered into for the benefit of Pan El. They were only a guise under which moneys were advanced from OGP to AAS and in pursuance thereof AAS had issued false contract notes to evidence the same.

Issues

Pan El are not disputing that the 200,000 and 1,350,000 ACMA shares were deposited by AAS with OCBC and OUB respectively as collateral for moneys advanced by the two banks to AAS. Pan El are also not suggesting that either OCBC or OUB knew that Pan El have any interest in those shares. But what they are saying is that bearing in mind all the circumstances, the two banks ought to have inquired and if they had inquired they would have known of Pan El`s interest.

The broad issues that require determination in this action are these. First, has it been proved that Pan El were the beneficial owners of the 6.3 million ACMA shares and specifically the two blocks of ACMA shares which were pledged to the two banks? Unless Pan El can prove that at that time of the pledge the beneficial ownership of the shares belonged to them, and that it still belongs to them, the action will fail. Secondly, the purposes for which the 6.3 million ACMA shares were placed with AAS and the extent of the authority granted by Pan El to AAS, if any, to deal in those shares. Thirdly, if the answer to the second issue is that AAS had no authority to deal with the shares, or had only limited authority to deal with them, do the rights of the two banks rank in priority to those of Pan El? This issue in turn raises the question of estoppel.

Of the 6.3 million ACMA shares, four million were held in the name of Raffles Nominees, a subsidiary of Standard Chartered Bank and two million in the name of...