Roberto Building Material Pte Ltd and Others v Oversea-Chinese Banking Corporation Ltd (No 2)

• Jurisdiction: Singapore
• Judgment Date: 16 July 2003
• Date: 16 July 2003
• Docket Number: Civil Appeal No 100 of 2002
• Court: Court of Appeal (Singapore)

Roberto Building Material Pte Ltd and others

Plaintiff

and

Oversea-Chinese Banking Corp and another

Defendant

[2003] SGCA 30

Chao Hick Tin JA

,

Judith Prakash J

and

Tan Lee Meng J

Civil Appeal No 100 of 2002

Court of Appeal

Companies–Receiver and manager–Scope of duties of receiver and manager owed towards mortgagor company–Credit and Security–Remedies–Receivership–Amount of time lender must give debtor before appointing receiver and manager–Credit and Security–Remedies–Receivership–Scope of lender's duties to debtor when appointing receiver and manager

Under a loan arrangement with the first respondent (“OCBC”), the first appellant (“Roberto”) was granted credit facilities of up to $31m, on a term that the facilities were repayable upon demand. Two forms of security were furnished. First, Roberto mortgaged its property (“mortgaged property”) to OCBC. Second, the second to fourth appellants, who were directors of Roberto, gave a joint and several letter of guarantee to OCBC. Subsequently, Roberto granted a fixed and floating charge over its remaining assets to OCBC.

On 3 April 2000, OCBC gave notice to the appellants to repay the total outstanding sum within 14 days from the date of receipt of that notice. On 17 April 2000, Roberto's auditors informed OCBC that a UK company (“Chelsfield”) was a potential buyer for the mortgaged property and that it would revert with an offer on 20 April 2000. OCBC did not receive any indication of an offer by 22 April 2000 and proceeded to appoint the second respondent, Mr Ho, as receiver and manager, with a view to realise the assets secured under the debenture.

Subsequently, Chelsfield made an offer to purchase the mortgaged property. The second to fourth appellants failed to get OCBC to revoke Mr Ho's appointment. Several other proposals were also made by the appellants to induce OCBC to revoke the appointment without success. The deals with potential buyers eventually fell through and the mortgaged property remained unsold.

The appellants alleged that OCBC and Mr Ho had breached their duties as lender and as receiver and manager respectively. The appellants also alleged that OCBC did not give Roberto sufficient time to repay the debt before appointing a receiver and manager and the appointment was therefore invalid.

Held, dismissing the appeal:

(1) Before exercising his power of appointing a receiver and manager, the lender had to act in good faith. In order to show bad faith, there should have been dishonesty or improper motive on the lender's part. Negligence per se was not bad faith as the lender had no general duty of care to have regard to the interests of the debtor. There was no evidence that OCBC had acted in bad faith or so recklessly as to amount to bad faith: at [23], [24] and [28].

(2) Where money was payable on demand, a debtor was only permitted to have such time as was necessary to enable him to implement the mechanics of payment. He was not entitled any time to raise the funds, either from banks or from other sources: at [34].

(3) A receiver and manager owed no general duty of care to the mortgagor company. His primary duty was to the debenture holders of the company. He had no duty to exercise the power of sale and he was entitled to determine the time for sale so long as he acted in good faith: at [51].

(4) In effecting a sale of mortgaged property, a receiver and manager had to exercise reasonable care as to the manner in which the sale was carried out so as to obtain its true market value. The fact that the sale price of the property was much lower than the book value per se did not suggest a lack of reasonable care. It was the process of effecting the sale which was critical: at [63].

ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513 (refd)

B Johnson & Co (Builders) Ltd, In re [1955] Ch 634 (refd)

Bank of Baroda v Panessar [1987] 1 Ch 335; [1987] 2 WLR 208 (folld)

Bond v Hong Kong Bank of Australia Ltd (1991) 25 NSWLR 286 (refd)

Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 51 ALR 609 (refd)

Cripps (Pharmaceuticals) Ltd v Wickenden [1973] 1 WLR 944 (folld)

Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 (refd)

Downsview Nominees Ltd v First City Corporation Ltd [1993] AC 295 (refd)

Lee Nyet Khiong v Lee Nyet Yun Janet [1997] 2 SLR (R) 173; [1997] 2 SLR 713 (folld)

Lloyds Bank plc v Jeffrey Lampert [1999] Lloyd's Rep Bank 138 (refd)

Medforth v Blake [2000] Ch 86 (folld)

Mister Broadloom Corporation (1968) Ltd v Bank of Montreal (1979) 25 OR (2d) 198 (not folld)

Palk v Mortgage Services Funding plc [1993] Ch 330 (refd)

Ronald Elwyn Lister Ltd v Dunlop Canada Ltd (1978) 85 DLR (3d) 321, HC (not folld)

Ronald Elwyn Lister Ltd v Dunlop Canada Ltd (1982) 135 DLR (3d) 1, SC (not folld)

Shamji v Johnson Matthey Bankers Ltd [1991] BCLC 36 (folld)

Sheppard & Cooper Ltd v TSB Bank plc [1996] BCC 653 (refd)

Toms v Wilson (1862) 4 B&S 442; (1862) 122 ER 524 (refd)

Waldron v Royal Bank of Canada [1991] 4 WWR 289 (refd)

Kenneth Tan SC, Foo Jien Huei (Kenneth Tan Partnership) for the appellants

V K Rajah SC, Lee Eng Beng, Chio Yuen-Lyn and Lynette Koh (Rajah & Tann) for the first respondent

Michael Hwang SC, Edwin Tong and Loong Tse Chuan (Allen & Gledhill) for the second respondent.

Judgment reserved.

Chao Hick Tin JA

(delivering the judgment of the court):

1 This was an appeal by a borrower and three guarantors against a decision of the High Court dismissing their claims against the lender bank and the receiver and manager appointed by the bank pursuant to rights under a deed of debenture. The claims were in negligence. We heard the appeal on 19 May 2003 and dismissed it for lack of merit. We now give our reasons.

Background

2 The first appellant, Roberto Building Material Pte Ltd (“Roberto”), was a Singapore company previously engaged in the business of supplying materials to the building industry. The second, third and fourth appellants were the directors of Roberto and were also the guarantors of the debts owed by Roberto to the first respondent, the Oversea-Chinese Banking Corporation (“OCBC”), a local bank. The third and fourth appellants were the wife and brother respectively of the second appellant. The second respondent, Mr Don Ho, was the receiver and manager (hereinafter referred to as “the Receiver” or “Mr Ho” as may be appropriate), appointed by OCBC pursuant to powers under a deed of debenture.

3 Under a loan arrangement made with OCBC, Roberto was granted credit facilities of up to $31m, in the form of overdraft, letters of credit and trust receipts. It was a term of the arrangement that the facilities were repayable upon demand. As agreed, two forms of security were furnished. First, Roberto mortgaged its property at No 7 Tai Seng Drive to OCBC. Second, on 13 March 1996, the second to fourth appellants gave a joint and several letter of guarantee to the bank.

4 The borrowing by Roberto escalated so much that by May 1998, the total facilities overdrawn reached $33.1m, exceeding the agreed limit. At the bank's request, Roberto brought the amount owing down to the agreed level. Later, still being concerned, OCBC wanted Roberto to reduce the outstanding further to $28m, which Roberto agreed.

5 There were discussions between the parties to restructure the loan. In December 1998, Price Waterhouse (“PW”) was appointed as Roberto's financial consultants. In their initial report made in March 1999, PW remarked that the problem with the company was that there was an excessive level of stocks and a lack of proper cash flow management. Another problem was that it had used short term borrowing to fund long term assets, which was not the appropriate thing to do. In its final report, PW recommended that a fixed and floating charge over its remaining assets be granted in favour of OCBC and that some measures be taken to address the ills of the company. Accordingly, a fixed and floating charge was duly executed on 5 May 1999.

6 However, OCBC was only prepared to restructure the debts if the measures recommended by PW to reduce the level of stocks and bad or doubtful debts were carried out. OCBC duly informed Roberto that unless stocks were reduced, the bank would not be able to continue to support the company. But, as it turned out, not only did Roberto not reduce the stock level, it increased stocks by new purchases, some even as late as on 29 June 1999. Moreover, while arithmetically the debts owing had come down, the decrease was due to write-offs rather than actual collections. Thus, on 1 July 1999, OCBC suspended the credit line.

7 Thereafter, Roberto asked for a six-month period to obtain refinancing. OCBC was, however, only prepared to give it up until end September 1999. When this deadline was not met, it was eventually extended to 31 December 1999. Roberto still did not manage to obtain refinancing.

8 In the meantime in August 1999, Roberto issued its audited financial statement for the year ended 31 March 1998 which showed that its current liabilities exceeded its current assets by $13.2m. The company was already in pretty bad shape. There were serious doubts that Roberto would be able to continue as a going concern.

9 In early 2000, Roberto owed Jurong Town Corporation the sum of $366,766.63 as arrears in rental in respect of the mortgaged property. OCBC, to protect its interest, paid up the outstanding rent due to the landlord, Jurong Town Corporation. There was also outstanding property tax due to the Inland Revenue Authority of Singapore in the sum of $884,102.91 and Roberto was warned that if $664,862.91 was not received by 21 January 2000, action would be taken to sell the mortgaged property.

10 Also in early 2000, indications were given by Roberto that it would be collecting two substantial sums from its trade debtors, $1,061,984.49 by January 2000 and $1,973,189.04 by March 2000, and that these sums, when...