Tai Sea Nyong v Overseas Union Bank Ltd

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 28 February 2002
• Neutral Citation: [2002] SGHC 40
• Date: 28 February 2002
• Subject Matter: Duty to choose appropriate method of sale,Circumstances under which mortgagee liable to account for such rent,Whether mortgagee under obligation to account for notional rent,Distinction between sale by mortgagee and sale by owner,Land,Duty to advertise sale adequately,Whether permissible to use forced sale valuation of mortgaged property as theoretical estimate of property's value under mortgagee sale,Duty of mortgagee when exercising power of sale,Whether experts' valuations admissible in the absence of fault by mortgagee,Whether sale price conclusive of property's true market value,Sale of land,Whether fair to expect mortgagee to get price that meets experts' valuation,Realising true market value of property,Duty to maintain property,Duty to put potential buyers in competition with each other,Sale by mortgagee in possession,Whether reasonable steps taken by mortgagee to sell property,Efforts to sell property,Whether reasonable steps taken by defendants to get true market value of property,Appropriate focus in assessing whether mortgagee in breach of duty
• Docket Number: Suit No 513 of 2001
• Published date: 19 September 2003
• Defendant Counsel: Hri Kumar and Ajay Advani (Drew & Napier LLC)
• Court: High Court (Singapore)
• Plaintiff Counsel: Carolyn Tan (Tan & Au Partnership)

Judgment

GROUNDS OF DECISION

Introduction

l. This was an action by Tai Sea Nyong (Tai) against Overseas Union Bank Ltd (OUB/the bank) for damages suffered as a result of OUBs alleged breach of duty as a mortgagee in possession. Tai had mortgaged No. 20 Leedon Road (the Property) to OUB and the bank repossessed the Property when he defaulted on his loans. He alleged that OUB sold the Property without taking all reasonable steps to obtain its true market value. Tai also claimed that OUB had an obligation to rent out the Property prior to its sale and should account to him for such notional rent. At the conclusion of the ten (10) days trial, I dismissed Tais claim as being totally devoid of merit; he has now appealed against my decision (in Civil Appeal No. 600147 of 2001).

Undisputed facts

2. OUB extended loan and credit facilities to Tai which were secured by the Property as well as his factory at No. 34 Kaki Bukit Place. In the middle of 1999, Tais business (Hilamda Pte Ltd) suffered a cash flow problem and he defaulted on his loan. As a result, OUB took out an action (in Originating Summons No. 1009 of 1999) to repossess the Property. On 6 August 1999, OUB obtained an Order of Court which inter alia, gave it possession of the Property within 14 days, judgment against Tai in the sum of $15,442,564.76 and the power to sell the Property. However, Tai did not vacate the Property by 20 August 1999. Instead, he instructed his solicitors to write two letters to OUBs solicitors (and he also wrote to OUB directly) between 18 August and 31 August, seeking repeated extensions of time to remain on the Property, on the basis that he was carrying out negotiations to sell the Property. On 31 August 1999, OUB gave Tai an ultimatum to vacate the Property or face contempt proceedings. He did not comply; instead, he instructed his solicitors to seek another extension of time on 3 September 1999. On 13 September 1999, OUB commenced contempt proceedings against Tai and successfully obtained an Order of Court for vacant possession of the Property by 12 November 1999. Tai breached this Order, was fined ($2,500) for contempt of court in Originating Summons No. 1009 of 1999 and finally delivered up vacant possession on 19 November 1999.

3. After taking possession, OUB took steps to sell the Property. In early December 1999, the bank engaged two estate agencies, Edmund Tie and Co. (Edmund Tie) and FPDSavills (Savills) to do valuations of the Property; the bank also engaged its associate Overseas Union Realty Services (OURS) to maintain the Property.

4. In mid-December 1999, OUB orally instructed Knight Frank Pte Ltd (Knight Frank) to market the Property; the company was formally appointed by the bank's letter dated 9 February 2000. As part of its marketing efforts, Knight Frank direct-mailed to clients on its database, fixed FOR SALE signboards at the Property and advertised the auctions scheduled for 6 January and 9 March, 2000, in the English and Chinese dailies. At the two (2) auctions, the reserve price ($12.6m) of the Property set by OUB was not reached. Indeed, there were no bids and no one approached the auctioneers privately after the auction either. Knight Frank also advertised the Property for sale by private treaty, following the auctions. However, no offers were received, despite these efforts.

5. In mid-March 2000, the bank was told by Knight Frank the company had received an offer of $10.9m for the Property. This was followed by an offer on 17 March 2000 made through Colliers Jardine (Singapore) Pte Ltd (Colliers) from Prospect Investment Pte Ltd. (Prospect) of $11.5m. On 10 April 2000, OUBs solicitors wrote to Tais solicitors to inform Tai of these offers and invited him to better these offers in two weeks, failing which OUB would sell the Property. On 13 April 2000, OUB received a better offer of $11.7m through Knight Frank. OUB informed Colliers of the same as which result Prospect increased its offer to $11.7m. Tai did not revert to OUB within the two weeks deadline or at all. Consequently, on 16 May 2000, OUB granted Prospect an option to purchase the Property at $11.7m which was exercised on 30 May 2000; the sale was completed on 22 August 2000.

The plaintiffs case

6. Tai brought up three (3) reasons to found his claim that OUB breached its duty as mortgagees in exercising the power of sale by not taking reasonable steps to obtain the true market value of the Property; these claims were denied by OUB. Tai alleged:-

1. the Property was sold at an undervalue as it was below the open market valuation of the Property;
2. the steps taken to sell the Property were inadequate because the marketing and conduct of the sale were shoddily done by OUB and Knight Frank;
3. OUB failed to properly maintain the Property so that it could be sold at its true market value.

7. Tai relied on the testimonies of two (2) professional valuers namely, Seow It Sze @ Ibrahim Abdullah (Seow) and Tang Kok Kong (Tang), to establish the true market value of the Property. Seow (who described himself as an expert valuer) said he had worked in the real estate line since 1972 whilst Tang (from Henry Butcher Appraisal Group) has had 24 years' experience in valuation. Both witnesses testified that the Property was sold at an undervalue because the price achieved reflected the forced sale value and not the open market value, of the Property. They agreed that the definition of a "forced sale" by the International Valuation Standards Committee was correct; that definition states:

price which arises from disposition under extraordinary or atypical circumstances, usually reflecting an inadequate marketing period without reasonable publicity, and sometimes reflecting an unwilling seller condition, and/or disposal under compulsion or duress.

However, they testified that the forced sale value of the Property was irrelevant and OUB should have obtained the open market value for the Property since it had a reasonable time-frame in which to market and sell the Property properly, notwithstanding it was a mortgagee sale.

8. Seow (PW2) assessed the market value of the Property to be $15.8m as at 16 May 2000. He said he had inspected the Property (from the outside only) and based his valuation on the property remaining in its existing state and without redevelopment potential. In his cross-examination (NE114-115) Seow said he had taken into account various negative features of the Property although he did not record them in his report (dated 3 September 2001) or mention them in his examination-in-chief. Seow testified that the valuations done by the bank's experts Nicolas Cheng (Cheng) and David Chia (Chia) were inaccurate. Cheng had valued the open market value of the Property at $14m while Chias valuation was $13m. However, no reasons were offered as to why their values were wrong. Seow did not think that the value accepted by the property tax department of the Inland Revenue Authority (IRAS) i.e. $11.7m reflected the correct value of the Property. He said this was because IRAS used different criteria and was prompted by reasons different from valuers in assessing the market value of the Property.

9. Tangs valuation (dated 19 February 2001) of the market value of the Property was $14.525m as of 16 May 2000. Like Seow, Tang (PW4) never saw the interior of the Property but relied on Tais description which not unexpectedly, painted the Property in glowing terms. It is noteworthy that by the dates of their valuations, the house on the Property had already been demolished. In his report, Tang stated that he relied on current prices paid for five (5) properties that were considered similar to the Property which prices he then adjusted to take into account negative aspects of the Property. Questioned by counsel for the bank (NE232), Tang agreed that Chengs valuation of $14m was reasonable. He also agreed that the comparables which Cheng and Chia took into account were reasonable (save for No. 2 Dalvey Estate used by Chia which was a conservation bungalow). His only comment was that Cheng should have considered the re-development potential of the Property and if he had done so, the valuation would have been closer to his own. However, Tang rejected the value of $11.7m accepted by IRAS as an indication of the market value of the Property.

10. With respect to the marketing of the Property, Tai relied on the testimony of Tan Wee Seng (Tan), a real estate agent who had 20 years of experience in marketing various types of properties in Singapore. Tan (PW3) criticised Knight Franks marketing efforts for the following reasons:

(a) Knight Frank did not place more prominent advertisements (10 cm x 3 columns) to highlight the re-development potential of the Property. These advertisements should be made exclusively for the Property and placed in major English and Chinese newspapers at least three (3) times a week;

(b) Knight Frank should have properly maintained the Property and conducted more "open houses" during the weekends;

(c) Knight Frank should have placed prominent "For Sale" signs at the Property which should also emphasise its re-development potential.

11. In addition, although Tang and Seow were not experts on marketing, they testified that the reason the bank did not obtain the open market valuation and hence the true market value of the Property was due to OUB's failure to properly market the Property. According to Seow, it was unreasonable of OUB to accept the offer of $11.7m after two failed auctions, even though interest on the principal debt owed by Tai was accruing at $1.5m a year. He suggested that OUB should have looked at the marketing process and in the meantime, should not accept such a low offer. As for Tang, he testified that when Knight Frank failed to sell the Property in the two auctions, OUB should have continued its attempts to sell the Property at the market value instead of concluding the sale hastily at its forced...