Tan Kia Poh and Another v Hong Leong Finance Ltd

• Jurisdiction: Singapore
• Judge: Karthigesu JA
• Judgment Date: 10 November 1993
• Neutral Citation: [1993] SGCA 80
• Docket Number: Civil Appeal No 190 of 1992
• Date: 10 November 1993
• Published date: 19 September 2003
• Year: 1993
• Plaintiff Counsel: Vincent Yeoh (Phang & Co)
• Citation: [1993] SGCA 80
• Defendant Counsel: Antony Lee (Ong Tan Nair & Kwek)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether respondents breached agreement in advancing moneys even after company breached obligations under the financing agreement,Guarantees and indemnities,Defence of variation not properly pleaded,Whether respondents ought to have known of the breach of obligations,Specificity,Discharge from liability,Material prejudice to respondents' case if submissions allowed,Whether collateral warranty existed that facilities were limited to a ceiling of $300,000,Guarantor,Civil Procedure,Credit and Security,Pleadings,O 18 r 8(1) Rules of the Supreme Court 1990

This was an appeal from a decision of Goh Joon Seng J, in which he granted the respondents` claim against the appellants for the sum of $192,962.08 and interest thereon as being due from them as guarantors of a company called Futraco Pte Ltd (`Futraco`), which imported textile goods wholesale from China and sold them to various retail outlets. We dismissed the appeal with costs and now give reasons for our decision.

On 6 January 1982, a number of related transactions took place among the parties and Futraco. At the time the appellants and three others were directors and shareholders of Futraco.

Firstly, in a written `accounts receivable finance agreement` (`the financing agreement`) of that date, it was agreed that:

In consideration of the [respondents] agreeing to grant or continuing to grant the financial facilities to [Futraco] to such extent and for so long as the [respondents] in its absolute discretion thinks fit [Futraco] convenants [sic] and undertakes that it will pay to the [respondents] all its obligations ... together with:

(a) interest the rate of ... 1U24% per day;

(b) ... or at such other rate or amount as may be agreed to in writing from time to time by the parties hereto.

`Obligations` was defined as meaning all indebtedness and liabilities whatsoever of Futraco to the respondents. Further, Futraco covenanted in cl 4(m):

... that the balance of the net amount of receivables after the deduction of such reserves as the [respondents] may in its discretion deem proper and necessary shall at all times be at least 143% of the obligations.

`Receivables` was defined as meaning all debts present or future owing or accruing due to Futraco in the course of its trade or business, including all its book debts.

Secondly, particulars of charge in Form 34 were lodged with the Registry of Companies on the same date, stating that the financing agreement was the instrument creating a charge given by Futraco over its debts, securing the sum of $300,000. The charge was duly registered in the Register of Charges on the same day.

Thirdly, a guarantee dated the same day was executed by the five directors of Futraco, including the appellants (`the guarantee`). In it they agreed that:

In consideration of [the respondents] granting loans, advances and other financial accommodation to [Futraco] on the terms and conditions of a financing agreement (accounts receivable) dated 6 January 1982 we hereby jointly and severally guarantee on demand by [the respondents] the punctual payment by [Futraco] of all sums due under the said financing agreement and the due performance of [Futraco`s] obligations thereunder and we further jointly and severally undertake to indemnify you against all losses ... suffered by [the respondents] in consequence of any failure by [Futraco] to perform any of [Futraco`s] obligations with the said financing agreement.

Apart from an acknowledgment that their liability would be unaffected by the granting of any indulgence by the respondents to any one or more of themselves or to Futraco, the guarantee contained no other terms material to this case. It was barely half a sheet of paper long.

Fourthly, a resolution was passed by the board of Futraco that:

any two directors of [Futraco] jointly be and are hereby authorized and empowered to execute ... the said financing agreement and any modifications thereof or supplements thereto ...

On 22 December 1982, the appellants and a third director, Tan Teow Kee, resigned from the board of Futraco.

By a letter dated 11 March 1983, the respondents issued to Futraco an offer that the respondents would grant to Futraco additional facilities of $50,000 thereby making the total facilities extended to Futraco the sum of $350,000 `secured by the aforesaid financing agreement and on the same terms and conditions`. Futraco confirmed and accepted the same.

On 14 March 1983, the remaining two directors of Futraco passed a resolution to corresponding effect. A new charge was registered on 17 March 1983 but despite the apparent agreement that the additional facilities would be secured on the same terms and conditions as the financing agreement of 6 January 1982, the accompanying particulars of charge stated that the charge was over Futraco`s debts and additionally `by way of floating charge` over Futraco`s inventory. Notably, no such charge was in fact created by the letter of 11 March 1983 as stated in the new particulars of charge, and the certificate of registration of charge only said as follows:

This is to certify that pursuant to a letter of offer which was accepted on the same date, the financing agreement dated 6 January 1982, executed by Futraco Pte Ltd in favour of Hong Leong Finance Limited to secure the original amount of $300,000 and now securing an additional $50,000 has this day been registered and numbered 1233/83 in the register of charges.

Since no floating charge was created, what was registered and numbered 1233/83 in the register of charges was simply the letter stating that $50,000 more in financing facilities would be provided to Futraco for exactly the same security as before, a charge over Futraco`s book debts and no more. Thus, despite the particulars of charge, no floating charge came into existence then.

On 9 February 1985, Futraco and the respondents executed a supplemental financing agreement of that date in which Futraco agreed `to give the [respondents] ... additional security ... for the existing obligations under the financing agreement`. The additional security was by way of a floating charge `over the whole of [Futraco`s] undertaking and all and singular of its property and assets whatsoever and wheresoever situate ...`.

On 5 July 1985, the respondents demanded payment of $192,962.08 from the five guarantors. Proceedings were commenced on 24 July 1985. The appellants` case was that they were discharged from liability under the guarantee for several reasons. First, they had effectively revoked their guarantee in December 1982; second, the increase in facilities extended in March 1983 was effected without their knowledge or consent and was a breach of an agreement or warranty collateral to the guarantee that the facilities would not exceed $300,000; and...