Rainforest Trading Ltd v State Bank of India Singapore

CourtCourt of Three Judges (Singapore)
Judgment Date21 March 2012
Docket NumberCivil Appeal No 107 of 2011
Date21 March 2012

Court of Appeal

Chao Hick Tin JA


Andrew Phang Boon Leong JA


Tay Yong Kwang J

Civil Appeal No 107 of 2011

Rainforest Trading Ltd and another
State Bank of India Singapore

Samuel Chacko, Charmaine Chan and Yeo Teng Yung Christopher (Legis Point LLC) for the appellants

Pradeep Pillai and Koh Junxiang (Shook Lin & Bok LLP) for the respondent.

Affin Bank Bhd v Precision Tube Product (Malaysia) Sdn Bhd [2010] MLJU 119 (refd)

Ang Sin Hock v Khoo Eng Lim [2010] 3 SLR 179 (refd)

Casey's Patents, Re [1892] 1 Ch 104 (refd)

Cheong Kim Hock v Lin Securities (Pte) [1992] 1 SLR (R) 497; [1992] 2 SLR 349 (refd)

Chwee Kin Keong v Digilandmall.com Pte Ltd [2004] 2 SLR (R) 594; [2004] 2 SLR 594, HC (refd)

Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] 1 SLR (R) 502; [2005] 1 SLR 502, CA (refd)

Eastwood v Kenyon (1840) 11 Ad & E 438; 113 ER 482 (refd)

Gay Choon Ing v Loh Sze Ti Terence Peter [2009] 2 SLR (R) 332; [2009] 2 SLR 332 (refd)

GBH Ceramics Sdn Bhd v How It @ Low Aik [1989] 2 CLJ 427 (refd)

Guthrie Waugh Bhd v Malaippan Muthucumaru [1972] 1 MLJ 35, HC (refd)

Guthrie Waugh Bhd v Malaiappan Muthuchumaru [1972] 2 MLJ 62, FC (refd)

Hongkong and Shanghai Banking Corp v Syarikat United Leong Enterprise Sdn Bhd [1993] 2 MLJ 449 (refd)

Kepong Prospecting Ltd v Schmidt [1968] 1 MLJ 170 (refd)

Kickapoo (Malaysia) Sdn Bhd v The Monarch Beverage Co (Europe) Ltd [2010] 1 SLR 1212 (refd)

Lampleigh v Brathwait (1615) Hob 105; 80 ER 255 (refd)

Low Gim Har Janet, Re [1995] 2 SLR (R) 208; [1996] 3 SLR 343 (refd)

Mc Ardle, deceased, Re [1951] Ch 669 (refd)

MCST Plan No 473 v De Beers Jewellery Pte Ltd [2002] 1 SLR (R) 418; [2002] 2 SLR 1 (refd)

Panwah Steel Pte Ltd v Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd [2006] 4 SLR (R) 571; [2006] 4 SLR 571 (refd)

Pao On v Lau Yiu Long [1980] AC 614 (folld)

Pillans v Van Mierop (1765) 3 Burr 1663; 97 ER 1035 (refd)

Riduan bin Yusof v Khng Thian Huat [2005] 4 SLR (R) 234; [2005] 4 SLR 234 (refd)

Roscorla v Thomas (1842) 3 QB 234; 114 ER 496 (refd)

Sim Tony v Lim Ah Ghee [1994] 2 SLR (R) 910; [1994] 3 SLR 224 (refd)

Sim Tony v Lim Ah Ghee [1995] 1 SLR (R) 886; [1995] 2 SLR 466 (refd)

South East Asia Insurance Bhd v Nasir Ibrahim [1992] 2 MLJ 355 (refd)

Susilawati v American Express Bank Ltd [2009] 2 SLR (R) 737; [2009] 2 SLR 737 (refd)

Thorner v Field (1611) 1 Bulst 120; 80 ER 816 (refd)

Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1 (refd)

Wong Hon Leong David v Noorazman bin Adnan [1995] 3 MLJ 283 (refd)

Woon Brothers Investments Pte Ltd v MCST Plan No 461 [2011] 4 SLR 777 (refd)

Rules of Court (Cap 322, R 5, 2006 Rev Ed) O 57 r 13 (4)

Contracts Act 1950 (Act 136 of 1950) (Malaya) ss 2 (d) , 26 (a) , 26 (b)

Civil Procedure—Originating processes—Applying to convert originating summons into writ action

Contract—Consideration—Past consideration—Loan agreement executed and loan amounts disbursed before creation of equitable mortgage of shares—Whether consideration provided for equitable mortgage of shares was past consideration

Credit and Security—Mortgage of personal property—Stocks and shares

In 2006, Teledata Informatics Limited (‘Teledata’) decided to invest in the second appellant. Teledata and the second appellant entered into a share subscription agreement, pursuant to which the first appellant was incorporated and held 51% of the second appellant's share capital and under which Teledata was to acquire 51% of the shares in the first appellant.

Teledata decided to obtain financing from the respondent bank. On 22 February 2007, the respondent entered into a facility agreement with Baytech Inc (‘Baytech’), a wholly owned subsidiary of Teledata, whereby the respondent agreed, inter alia, to provide a loan of US$80 m to Baytech. The purpose of the facility agreement was for Baytech to use the monies borrowed to obtain majority shareholding in the second appellant by acquiring 51% of the shares in the first appellant. Under cl 4 (vi) of the facility agreement, 51% of the share capital of the second appellant (‘the Pledged Shares’) was to be provided by the first appellant to the respondent as security within 30 days of the execution of the facility agreement.

On 23 February 2007, Baytech fully drew down on the loan facility. On 5 April 2007, the first appellant deposited the share certificates representing the Pledged Shares and a blank signed share transfer form with the respondent. Subsequently, Baytech failed to repay the loan to the respondent.

The respondent sought to enforce its security over the Pledged Shares by commencing Originating Summons No 958 of 2010 (‘the OS’). The first and second appellants (‘the appellants’) argued that the OS should be converted to a writ action on the basis of various allegations of fraud. The judge in the court below (‘the Judge’) refused to convert the OS to a writ action and held that an equitable mortgage carrying an implied power of sale was created over the Pledged Shares in favour of the respondent and an event of default had occurred under the facility agreement, such that the respondent could therefore exercise its power of sale.

The appellants appealed against the Judge's decision on two grounds. Firstly, the appellants argued that the consideration furnished by the respondent for the equitable mortgage of the Pledged Shares was past because the equitable mortgage was created after the respondent entered into the facility agreement and the loan facility was fully drawn down. The appellants argued that the exception to the rule against past consideration established in Pao On v Lau Yiu Long[1980] AC 614 (‘Pao On’) was not applicable on the facts because the grant of and entrance into the loan facility by the respondent was not done at the request of the first appellant as the first appellant was never involved in any negotiations or discussions regarding the loan facility and had no dealings with the respondent, and there was no understanding between the first appellant and the respondent that the first appellant would grant the equitable mortgage to the respondent. This was a new point not raised in the court below. Secondly, the appellants argued again that the OS should be converted to a writ action.

Held, dismissing the appeal:

(1) The court was in just as advantageous a position as the court below to consider the issue of past consideration raised by the appellants. It was also clear that no new evidence was required to be adduced: at [28].

(2) It was fundamentally inconsistent for the appellants' counsel to argue that the equitable mortgage granted over the Pledged Shares should be unenforceable because the consideration provided was past while stating simultaneously that the first appellant had no negotiations and discussions with the respondent whatsoever. If the first appellant had nothing whatsoever to do with the respondent, the appellants' argument had to fail since any argument based on past consideration had to necessarily be premised on what would otherwise have been a separate contractual relationship between, inter alia,the first appellant and the respondent. Although there was no evidence of an express contract between the appellants and the respondent, an implied contract with the respondent would also falsify the first appellant's claim that it had nothing whatsoever to do with the respondent: at [29].

(3) The conditions laid down in Pao On were satisfied on the facts. The very nature of the contractual relationship between the appellants and the respondent viewed in its context would necessarily assume that there was both a request by the appellants that the respondent enter into the facility agreement with Baytech and that there was a common understanding between the parties that the entry into the facility agreement by the respondent would be compensated for by, inter alia, the grant of an equitable mortgage over the Pledged Shares by the first appellant. Clause 4 (vi) of the facility agreement clearly demonstrated that the equitable mortgage over the Pledged Shares was to be granted pursuant to and only after the entrance into and execution of the facility agreement. The appellants' letters to the respondent underscored and confirmed this analysis as they clearly demonstrated that the first appellant deposited the share certificates with the respondent pursuant to the facility agreement and that the second appellant knew the same. It was clear beyond peradventure that the appellants understood, as the respondent did, that the deposit of the share certificates and signed blank share transfer form was made pursuant to the facility agreement. It had to also be emphasised that, by the very nature of the contract between the parties, the grant of an equitable mortgage over the Pledged Shares by the first appellant could only have taken place after the entry by the respondent into the facility agreement with Baytech. The substance and reality of the matter was that the relevant consideration and promise constituted part of a single transaction between the parties. This analysis was wholly consistent with the commercial purpose of all the contracts concerned: at [31].

(4) The issue of whether the OS should be converted to a writ action was dealt with in meticulous detail by the Judge. The court agreed with the reasons given by the Judge and found no merit whatsoever in the arguments proffered by the appellants: at [41].

[Observation: It would generally be difficult for a party to successfully argue that a perfectly sensible and legitimate commercial transaction was unenforceable simply because the consideration provided for the promise was past. The courts would be reluctant to invalidate otherwise perfectly legitimate and valid commercial transactions on as technical a basis as consideration. A strictly chronological approach...

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