The Asiatic Enterprises (Pte) Ltd v United Overseas Bank Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 25 November 1999
• Neutral Citation: [1999] SGCA 85
• Citation: [1999] SGCA 85
• Defendant Counsel: Ronnie Quek and Francis Lim (Allen & Gledhill)
• Published date: 19 September 2003
• Plaintiff Counsel: Sarjit Singh Gill SC and Vinodh Coomaraswamy (Shook Lin & Bok)
• Date: 25 November 1999
• Docket Number: Civil Appeal No 76 of 1999
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether occurrence of event of default creates security interest in favour of bank,Charges,Effect of certificate of registration,Whether lodgment of caveat created estate or interest in land,Creation of charge,Whether charge created by bank's standard terms,Equitable charge,Caveats,Land Titles Act (Cap 157),Whether certificate of registration conclusive evidence as to creation or validity of charge,Land,Registered charge,Credit and Security,s 134(2) Companies Act (Cap 50),Effect of caveat

(delivering the judgment of the court): This appeal arises from the respondent`s application to the High Court for an order that its equitable charge over the premises, [num ]15-17, [num ]15-18 and [num ]15-19, International Plaza, Singapore (`the properties`), belonging to the appellant be enforced by sale. The application was allowed by the court below. The appellant now appeals against that decision.

The facts

The relevant facts that gave rise to the appeal were as follows. By a letter dated 8 December 1997 (`the facility letter`), the respondent offered to the appellant various banking facilities on certain terms and conditions stated there. One of the terms was that the banking facilities to be granted would also be subject to the respondent`s Standard Terms and Conditions Governing Banking Facilities annexed to the letter (the `Standard Terms`). The offer was accepted by the appellant on the same day, ie 8 December 1997.

For our purposes, cl 10 of the Standard Terms is of particular relevance. In so far as material, it provides as follows:

Events of default

On the occurrence of any of the following events of default (i) the Bank [the respondent] shall cease to be under any further commitment to you [the appellant] and all outstandings under the entire credit line (`the Outstandings`) shall become due and payable immediately; (ii) the Bank shall, in addition to the rights set out herein, be entitled (as equitable chargee) to attach the Outstandings to any property of yours (whether real or personal) and to lodge a caveat against any real property that may now or hereafter be registered in your name whether singly or jointly ...

(a) If you breach any term of this Agreement including failure to pay any amount due under this Agreement on the due date or on demand, if so payable;

(b) If you are unable to pay your debts when they become due or commit an act of bankruptcy or insolvency;

(c) ...

(d) ...

(e) If you default under any other agreement involving the borrowing of money or the granting of advances or credit which gives the holder of the obligation concerned the right to accelerate repayment or withdraw the advance or credit;

...

In March and April 1998, the appellant failed to pay the respondent the amounts which had become due and payable under several trust receipts. By a letter dated 16 June 1998, the respondent informed the appellant that its failure to pay constituted an event of default under cl 10(a) of the Standard Terms, and requested repayment of all outstanding sums due under the banking facilities. When the appellant failed to meet this demand, the respondent on 9 July 1998 lodged a caveat against each of the properties. In each of the three caveats, the respondent claimed an `estate or interest` in the premises in question as an `equitable chargee` by virtue of the facility letter, the Standard Terms and the occurrence of one or more of the events of default as specified in the Standard Terms.

On 15 July 1998, pursuant to s 131(1) of the Companies Act (Cap 50, 1994 Ed), the respondent registered the charge with the Registrar of Companies by filing with the registry Forms 33 and 34 in respect of its charge over the properties. In the forms, the date of creation of the charge was declared to be 16 June 1998. Following the filing of the forms, a certificate of registration of charge was issued by the registry on 16 July 1998, stating:

a charge/debenture dated 16/06/1998 created/executed by [the appellant] in favour of [the respondent] ... has this day been registered and numbered 199803666 in the register of charges.

Most of the appellant`s creditors were banks and as at 15 July 1998, the appellant owed 15 banks various sums in aggregate exceeding US$32m. The only substantial assets of the appellant are the properties.

On 29 July 1998, the respondent applied to the High Court by way of originating summons for an order that its equitable charge over the properties be enforced by sale. Subsequently, another creditor of the appellant, The Hongkong And Shanghai Banking Corporation Limited (`HSBC`), petitioned for the appellant to be wound up. Pursuant to HSBC`s application, provisional liquidators of the appellant were appointed on 2 October 1998, and on 30 October 1998, a winding-up order was made against the appellant. However, the respondent was granted leave to proceed with the originating summons notwithstanding the winding-up order. Through its liquidators, the appellant opposed the application of the respondent.

The decision below

The learned judge hearing the application considered cl 10 of the Standard Terms and held that it gave rise to a charge in favour of the respondent which was in the nature of either a `floating charge on the undertaking or property of a company` (s 131(3)(g) of the Companies Act) or `a charge on land wherever situate` within the meaning of s 131(3)(e) of the Act. He said at [para ] 19 of his judgment:

The characteristics of a floating charge are:

(1) it is a charge on a class of assets of a company present and future;

(2) the class is one which, in the ordinary course of business of the company, would be changing from time to time; and

(3) it is contemplated by the charge that, until some future step is taken by or on behalf of those interested in the charge, the company may carry on business in the ordinary way as far as concerns the particular class of assets ( Re Yorkshire Woolcombers Association Ltd [1903] Ch 284 at p 295).

The facts of the present case show quite clearly that all three characteristics listed above exist and that cl 10 is in the nature of a floating charge on the property of the Defendants within the meaning of Section 131(3)(g).

The learned judge found that the charge was created on 8 December 1997 upon the appellant`s acceptance of the respondent`s offer of banking facilities, and particulars of the charge should have been lodged for registration within 30 days of that date pursuant to s 131(1).

Notwithstanding the fact that the particulars of the charge were not lodged for registration within the time prescribed by that section, the learned judge held that the certificate of registration of the charge of 16 July 1998 issued by the Registrar of Companies under s 134(2) of the Companies Act was conclusive evidence that the requirements as to registration had been complied with, and thus precluded the charge from being set aside on the ground that s 131 had not been satisfied in any respect. He was of the opinion that the misstatement of the date of creation of the charge as 16 June 1998, instead of 8 December 1997, in the Registrar`s certificate did not affect the conclusive evidential effect of the certificate as provided for in s 134(2). The learned judge also rejected the appellant`s collateral arguments that cl 10 of the Standard Terms had not been incorporated into the agreement between the appellant and the respondent relating to the facilities, that the clause was a particularly onerous term which had not been fairly brought to the attention of the appellant at the time of contracting, and that the charge should be struck down as an impermissible attempt to circumvent the pari passu rule which requires unsecured creditors of an insolvent company to share the assets of the company rateably in proportion to the debts owed to them. Thus, he concluded that the respondent`s equitable charge over the properties was valid against the appellant`s liquidators and could be enforced by way of sale.

The appeal

The main issues with which we are concerned in this appeal are, first, whether a charge over the properties in favour of the respondent was created under cl 10 of the Standard Terms at the time the Facility Letter was accepted, ie on 8 December 1997 as determined by the learned judge; and, second, if no such charge was in fact created at that time, whether by reason of the default on the part of the appellant and the lodgment of the caveats against the properties by the respondent on 9 July 1998, a charge on the properties in favour of the respondent was then created.

Clause 10 of the Standard Terms

The appellant`s case is that cl 10 of the Standard Terms does not give rise to a charge in the respondent`s favour, but merely gives the respondent a contractual right to take an equitable charge subject to the occurrence of two contingencies, namely, (i) an event of default and (ii) the lodgement of a caveat against any of the appellant`s real property. The appellant says that the security interest, if any, created by cl 10 is neither a present security interest nor an inchoate security over property to be acquired in the future. If any interest is created by that clause, it can only be a contingent security interest.

The respondent`s case is also that cl 10 does not create a charge outright, and no charge was created on 8 December 1997, but instead cl 10 gives to the respondent an option, exercisable upon default by the appellant, to take a charge over any of the latter`s property to secure the amount then outstanding and due to the respondent. According to the respondent, no equitable charge arose in its favour until 9 July 1998, when it exercised the option under cl 10 by lodging the caveats against the properties. Thenceforth, the charge was created.

We do not think that the text of cl 10 of the Standard Terms warrants a construction that it creates a floating charge or any security on any property of the appellant. The clause in substance provides that the respondent, upon the occurrence of one of the events of default therein stated, would be entitled (i) `to attach the Outstandings [then due] to any property` of the appellant, and (ii) to lodge a caveat against any real property then registered or thereafter to be registered in the name of the appellant. Giving the clause its ordinary and natural construction,...