United Overseas Bank Ltd v Chia Kin Tuck

• Jurisdiction: Singapore
• Judge: V K Rajah J
• Judgment Date: 25 May 2006
• Neutral Citation: [2006] SGHC 87
• Docket Number: Originating Summons No 1648 of (Registrar's Appeal No 18 of 2006)
• Date: 25 May 2006
• Year: 2006
• Published date: 26 May 2006
• Plaintiff Counsel: Kannan Ramesh and Kanyakumari d/o Veerasamy (Tan Kok Quan Partnership)
• Citation: [2006] SGHC 87
• Defendant Counsel: Koh Tien Hua (Harry Elias Partnership)
• Court: High Court (Singapore)
• Subject Matter: Priority,Debt and Recovery,Whether judgment creditor's writ of seizure and sale against mortgaged property creating security interest having priority over mortgagee's power of sale of mortgaged property where such power of sale arising after judgment creditor's writ of seizure and sale against mortgaged property registered,Sections 73, 135 Land Titles Act (Cap 157, 2004 Rev Ed)

25 May 2006

V K Rajah J:

1 The plaintiff granted Mdm Chua Lan (“the mortgagor”) banking facilities of $1.3m secured by a legal mortgage over 2 Pebble Lane, Singapore 437551 (“the mortgaged property”).

2 On 22 April 2005, soon after the mortgagor defaulted on her loan obligations, the plaintiff demanded payment of the entire outstanding amount. On 13 May 2005, notice of the plaintiff’s intention to exercise its statutory power of entry into possession of the mortgaged property pursuant to s 75(2) of the Land Titles Act (Cap 157, 2004 Rev Ed) (“LTA”) was served on the mortgagor. On 9 June 2005, vacant possession of the mortgaged property was voluntarily surrendered by the mortgagor to the plaintiff. The very next day, on 10 June 2005, the mortgagor was adjudged a bankrupt.

3 When the plaintiff attempted to sell the mortgaged property qua mortgagee, it was challenged by the defendant, a judgment creditor of the mortgagor who had registered a writ of seizure and sale (“WSS”) on 22 February 2005. The WSS was registered against the mortgaged property on 10 March 2005 by the defendant, pursuant to a judgment dated 4 January 2005 (“the Judgment”). The Judgment requires that the mortgagor, inter alia, pay a sum of $1m to the defendant. As a result of the defendant’s objections, the plaintiff did not proceed with an auction scheduled for 31 August 2005.

4 The aborted auction sale prompted a flurry of correspondence between the defendant, the plaintiff, the bailiff of the Subordinate Courts (“the bailiff”) and the official assignee (on behalf of the bankrupt), culminating in a contretemps, the essence of which turned upon whether the plaintiff, the official assignee or the bailiff ought to conduct the sale of the mortgaged property. The defendant initially maintained that the official assignee ought to assume responsibility for the sale of the mortgaged property. The official assignee, however, declined the invitation, drawing the defendant’s attention to s 76(3) of the Bankruptcy Act (Cap 20, 2000 Rev Ed) (“BA”); the official assignee thus took the position that a secured creditor has an unfettered right to deal with secured property upon the bankruptcy of the debtor.

5 The defendant, however, disagreed with the official assignee’s stance. He steadfastly maintained that he had a prior right to conduct the sale of the mortgaged property vis-à -vis the plaintiff qua mortgagee.

6 To surmount this impasse the plaintiff commenced the instant proceedings seeking, inter alia, a declaration acknowledging its prior right to conduct the sale of the mortgaged property notwithstanding the registration of the WSS. The application was heard on 12 January 2006 by an assistant registrar. She granted the plaintiff the relief it sought, including an indemnity against any losses sustained by the plaintiff as a consequence of the defendant’s conduct in procuring the issuance of a notice of seizure of the mortgaged property on 17 August 2005. The indemnity was intended to cover any losses between the date of the aborted auction (31 August 2005) and the date the bailiff returned possession of the property to the plaintiff. In her brief grounds recorded in the notes of evidence, the assistant registrar observed:

… I am mystified as to why the defendant has been so insistent on being the one to sell the property, when he concedes that the bank has priority to the proceeds. He makes allusions to some possibility of unfair preference or sale at an undervalue, but does not go so far as to allege this against the bank, and indeed, such an allegation would be completely unsubstantiated.

7 The defendant appealed against the decision of the assistant registrar. The appeal was heard by me on 6 March 2006. Once again, the defendant attacked neither the validity nor the enforceability of the mortgage. No cogent allegations were made; nor was any concrete evidence adduced indicating that the plaintiff would breach obligations qua mortgagee should it have carriage of the sale. The principal argument raised was that the defendant had priority, given that the WSS was registered prior to the mortgagor’s debt falling due to the plaintiff. While acknowledging that the plaintiff had a prior right to the sale proceeds from the mortgaged property, counsel for the defendant nevertheless adamantly insisted that there was a real and valid distinction between the right to sell the mortgaged property and the right to retain sale proceeds. I dismissed the defendant’s appeal but varied the direction by the assistant registrar requiring that the defendant pay interest. The defendant now appeals against the whole of my decision.

8 To explain my grounds of decision, I begin by examining a judgment creditor’s interest in a property that has been bound by a registered WSS.

The interest of an execution creditor

9 The procurement of a monetary judgment, unless expressly provided by statute, does not create any property rights (ambulatory or otherwise), let alone any security rights. It merely presages a process that could culminate in the issuance of a WSS. Pending execution against specific property, the monetary judgment merely operates in personam. A judgment creditor cannot, on the basis of the judgment alone, lodge a caveat against property belonging to the judgment debtor as no “interest in land” within the meaning of s 115 of the LTA exists. To attach or bind the property of a judgment debtor, the judgment creditor must obtain a WSS.

10 Even when a WSS against specific property is issued, this does not have the effect of creating a security interest. The interest or property in the subject goods or land continues to reside in the judgment debtor pending sale; notwithstanding, the judgment debtor may in certain situations be constrained from further dealings once attachment is effected.

11 It is trite law that the Sheriff or the bailiff cannot by seizure affect the rights of third persons to whom the property has been subject to while in the hands of the debtor. Prof Jeffrey Pinsler, at p 1088 of Singapore Court Practice 2005 (LexisNexis, 2005), cites Sproule Ag CJ in Johore K A R S T Arunasalam Chettiar v Abdul Rahman bin Sulieman [1933] MLJ 48 as accurately summarising the rights of a judgment creditor thus:

A judgment creditor can only attach what his debtor has and his rights are merely to stand in the shoes of the defendant with no added equities in his favour.

The statutory scheme for execution under the LTA

12 Part XIII of the LTA provides a comprehensive scheme by detailing the modalities for execution levied against registered land and by including the formulae for determining priorities between competing interests. While a judgment creditor can only assume the precise residual interest that the judgment debtor has in the property, the LTA provides a statutory mechanism by which a judgment debtor can be restricted from further effective dealings of the subject property. Registration is made an essential prerequisite to “bind or affect” the land: see s 132(1) of the LTA. It bears reiteration that the common law position in relation to the interest(s) of a judgment creditor is not altered by the LTA and further that the registration of a WSS does not create a proprietary interest in the subject property. That a purchaser from the Sheriff or the bailiff can only obtain the judgment debtor’s (proprietor’s) interest subject to any earlier interests that have been created and notified on the relevant land title folio is now settled law: see, for example, National Bank of Australasia v Morrow (1887) 13 VLR 2 at 8 and Bank of China v First National Bank of Boston [1992] 1 SLR 441 at 451, [29]. This general legal principle is statutorily embedded in s 135(1) of the LTA. It would be helpful to reproduce s 135 of the LTA in its entirety:

(1) The interest in registered land which may be sold in execution under a writ shall be the interest which belongs to the judgment debtor at the date of the registration of the writ.

(2) For the purpose of determining the interest in land which belongs to a judgment debtor —

(a) any interest in that land purported to be created subsequent to the date of the registration of the writ; and

(b) any interest in that land created...