Re City Securities Pte

• Judgment Date: 27 April 1990
• Date: 27 April 1990
• Docket Number: Originating Summons No 695 of 1987
• Court: High Court (Singapore)

Re City Securities Pte

[1990] SGHC 31

Chao Hick Tin JC

Originating Summons No 695 of 1987

High Court

Credit and Security–Charges–Shares charged unascertainable and chargor had right to trade in the shares–Whether letters of hypothecation created fixed or floating charge over shares–Non-registration–Impact of non-registration on secured creditor–Crystallisation–Crystallisation must take place in relation to all assets over which floating charge applied

The liquidators of a stockbroking company, City Securities Pte (“City”), sought the court's determination of the legal nature and effect of certain security instruments created by City in favour of 18 banks who were the defendants herein. Prior to the presentation of the winding-up petition, City had at diverse dates obtained loans, advances or credit facilities from each of the 18 defendant banks. As security for the facilities obtained, City executed in favour of each of the first 17 defendants a letter of hypothecation whereby City charged to each bank all stocks and shares held by City in the course of its business, which were more particularly listed out in daily certificates that City would furnish to each bank. The instrument held by the 18th defendant was a “facility letter” issued by that defendant, whereon City endorsed its acceptance. All the defendants subsequently made demand upon City under their respective security instruments (“demand for delivery”) and, with the exception of the 18th defendant, commenced actions in the High Court and obtained (except the third defendant) ex parte interim orders against City requiring City to deliver up shares over which the banks claimed security rights under their security instruments and restraining City from disposing of or dealing with them pending delivery up. Pursuant to these interim orders the first, second, fourth, fifth, seventh and eighth defendants obtained delivery up of some or all of the share certificates they claimed to be entitled to. The third and 18th defendants managed to persuade City to place some shares in the joint custody of City and either of the two banks respectively. These six defendants, together with the third and 18th defendants, would be referred to as the “scrip banks”.

It was argued by the plaintiff that the charges were floating charges registrable under s 131 of the Companies Act (Cap 50, 1988 Rev Ed) (“the Act”) and were therefore void; and that there was no crystallisation of the floating charges.

Held, declaring that the letters of hypothecation were floating charges and no crystallisation had occurred:

(1) As the shares charged were unascertainable and City had the right to trade in the shares, the letters of hypothecation could not be considered as creating fixed charges. On a true construction they created a floating charge. The security instruments should have been registered in accordance with s 131 (1) of the Act, and being unregistered they were void against the liquidators and any creditor of the company. The consequence of non-registration was to turn a secured creditor into an unsecured creditor: at [64] and [67].

(2) As the floating charge was over all the stocks and shares, crystallisation could only take place in relation to all. Neither the institution of an action nor an interim order brought about crystallisation: at [77] and [78].

[Observation: Physical possession of scrips by the third and 18th defendants did not constitute a pledge as exclusive possession of the same had not been given to them: at [85].

Delivery of the share certificates pursuant to an order of court to the fourth defendant did not constitute a pledge or a lien; the delivery was obtained pursuant to an unregistered floating charge, and as the charge was void for non-registration, then any security obtained ancillary thereto must also be void: at [102].]

Askrigg v Student Guild of the Curtin University of Technology [1990] 1 ACSR 40 (distd)

Bond Worth, In re [1980] Ch 228 (refd)

Brightlife, Re [1987] Ch 200; [1986] 3 All ER 673 (refd)

Ehrmann Brothers Limited, In re [1906] 2 Ch 697 (folld)

Esberger & Son v Capital & Counties Bank [1913] 2 Ch 366 (refd)

Evans v Rival Granite Quarries [1910] 2 KB 979 (refd)

Flinders Trading Co, Re [1977-1978] ACLC 29738 (folld)

Harrold v Plenty [1901] 2 Ch 314 (folld)

Hart v Barnes [1983] 2 VR 517 (refd)

Hilton v Tucker (1888) 39 Ch D 669 (refd)

Hubbard & Co, Re (1898) 68 LJ Ch 54 (folld)

Illingworth v Houldsworth [1904] AC 355 (folld)

J & D Contracting, Re [1971] QLR 101 (folld)

Jackson & Bassford, In re [1906] 2 Ch 467 (refd)

Lin Securities (Pte Ltd) v OSK & Partners Sdn Bhd [1987] SLR (R) 134; [1987] SLR 242 (folld)

Mercantile Bank of India v Chartered Bank of India, Australia and China [1938] AC 287; [1937] 1 All ER 231 (distd)

Molton Finance Ltd, In re [1968] Ch 325 (folld)

NV Slavenburg's Bank v Intercontinental Natural Resources [1980] 1 WLR 1076; [1980] 1 All ER 955 (folld)

R v Consolidated Churchill Copper Corp [1978] 5 WWR 652 (refd)

Row Dal Constructions, Re [1966] VR 249 (refd)

Siebe Gorman v Barclays Bank [1979] 2 Lloyd's Rep 142 (distd)

Toomer, In re; ex parte Blaiberg (1883) 23 Ch D 254 (refd)

Waters v Windows [1984] VR 503 (refd)

Wrightson v McArthur & Hutchinsons [1921] 2 KB 807 (refd)

Yolland, Husson & Birkett,In re [1908] 1 Ch 152 (refd)

Yorkshire Woolcombers Association,Re [1903] 2 Ch 284 (refd)

Companies Act (Cap 50,1988Rev Ed)s 131 (consd);s 137

Companies Act 1900 (c 48) (UK)s 14

Companies Act 1948 (c 38) (UK)s 95

Richard Yorke QC, C R Rajah and Elizabeth Choo (Tan Rajah & Cheah) for the plaintiffs

Peter Cresswell QC, Davinder Singh and Indranee Rajah (Drew & Napier) for the first and second defendants

Michael Miller QC, David Hew and Yap Shao Sin (Cooma Lau & Loh) for the third and 18th defendants

Gavin Lightman QC, Chan Cher Boon and Aqbal Singh (Chan Cher Boon & Partners) for the fourth defendant

Davinder Singh and Indranee Rajah (Drew & Napier) for the fifth and seventh defendants

Sarjit Singh Gill and S Dilhan (Shook Lin & Bok) for the sixth, ninth and tenth defendants

Peter Cresswell QC and Randhir Ram Chandra (Haridass Ho & Partners) for the eighth defendant

Woo Bih Li, Anthony Lee and Chew Seok Yam (Allen & Gledhill) for the 12th, 13th, 15th and 16th defendants

Sarbjit Singh and Liew Tuck Yin (Lim & Lim) for the 14th defendant

Tok Boo Leong (Chung & Co) for the 17th defendant.

Judgment reserved.

Chao Hick Tin JC

1 This originating summons was taken out by the plaintiffs, the liquidators of a stockbroking company, City Securities Pte (hereinafter called “City”), to determine the legal nature of certain security instruments created by City in favour of 18 banks who are the defendants herein.

2 Pursuant to a creditor's petition filed on 3 July 1986, City was wound up by an order of court made on 31 October 1986. In the meantime, on 4 July 1986, provisional liquidators were appointed. Prior to the presentation of the winding-up petition, City had at diverse dates obtained loans, advances or credit facilities from each of the 18 defendant banks. As security for the facilities obtained, City executed in favour of each of the first 17 defendants a letter of hypothecation whereby City charged to each bank all stocks and shares held by City in the course of its business, which were more particularly listed out in daily certificates (in the case of the fourth defendant, periodic notices, and the 18th defendant, periodic certificates) furnished or to be furnished by City to each bank. The instrument held by the 18th defendant was just a “facility letter” issued by that defendant, whereon City endorsed its acceptance. The letters of hypothecation and this facility letter shall hereinafter be collectively referred to as the “security instruments”.

3 In mid-February 1986, each of the defendants made demand upon City under their respective security instruments and all, except the 18th defendant, subsequently commenced actions in the High Court and obtained (except the third defendant) on different dates ex parte interim orders against City requiring City to deliver up shares over which the banks claimed security rights under their security instruments and restraining City from disposing of or dealing with them pending delivery up. Pursuant to these interim orders the first, second, fourth, fifth, seventh and eighth defendants obtained delivery up of some or all of the share certificates they claimed to be entitled to. The third and the 18th defendants managed to persuade City to place some shares in the joint custody of City and either of the two banks respectively. I shall hereinafter refer to these six defendants, together with the third and 18th defendants, as the “scrip banks”.

4 The present application is to seek the determination of the court on a number of legal questions relating to the security instruments and the daily certificates (or periodic notices or certificates) issued by City pursuant thereto. The central issue is to determine the nature and effect of these documents. What is the security interest thereby created, if any? And if the security interest thereby created is a floating charge, is it void against the liquidators and other creditors on the ground of non-registration under s 131 of the Companies Act (Cap 50, 1988 Rev Ed)? Further, is there crystallisation of the floating charge by virtue of certain actions taken by the scrip banks, including the taking of possession of share certificates?

Relevant provisions of the letters of hypothecation

5 The provisions in each of the security instrument bear a large degree of similarity. In order not to overly burden this judgment, I propose only to set out the relevant provisions of the letter of hypothecation issued by City in favour of Dresdner Bank (first defendant). As regards the other banks, I think it should suffice (except the fourth...