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

• Jurisdiction: Singapore
• Judgment Date: 26 June 1999
• Date: 26 June 1999
• Docket Number: Originating Summons No 967 of 1998
• Court: High Court (Singapore)

United Overseas Bank Ltd

Plaintiff

and

The Asiatic Enterprises (Pte) Ltd

Defendant

[1999] SGHC 167

Tay Yong Kwang JC

Originating Summons No 967 of 1998

High Court

Credit and Security–Charges–Nature and creation–Registration–Facility letter giving bank option to create equitable charge over borrower's assets in event of default–Bank exercising option to create equitable charge upon default–Registration of charge–Whether floating charge created–Whether charge created on date of facility letter or date of exercise of option–Legal effect of certificate of registration of charge–Whether extension of time will be granted for registration of charge–Sections 4, 131, 134 (2) and 137 Companies Act (Cap 50, 1994 Rev Ed)

The plaintiff bank UOB granted banking facilities to the defendant company (“the company”) by a facility letter dated 8 December 1997. The facilities were subject to the bank's Standard Terms and Conditions. Clause 10 provided that in the event of default, UOB would be entitled to attach the outstanding sums to any property of the company (whether real or personal) and to lodge a caveat against any real property that might now or hereafter be registered in the company's name whether singly or jointly. In March and April 1998, several trust receipts became overdue. By letter dated 16 June 1998, UOB stated that the company' failure to make full payment of the overdue trust receipts outstanding constituted a default under cl 10 and demanded payment of all outstanding sums under the facilities. The company failed to pay and on 9 July 1998, the bank lodged three caveats against three of the company's properties, claiming in each case an interest as equitable chargee by virtue of the facility letter dated 8 December 1997 and the Standard Terms and Conditions and the occurrence of an event of default.

On 15 July 1998, pursuant to s 131 of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”), UOB lodged Forms 33 and 34 at the Registry of Companies and Businesses (“RCB”) in respect of the charge. On 16 July 1998, the RCB issued a certificate of registration of charge, certifying that “a charge/debenture dated 16/06/1998 created/executed” by the company in favour of UOB “has this day been registered”. On 30 October 1998 the company was wound up.

UOB filed this originating summons for an order that the equitable charges be enforced by sale of the three properties. The liquidators of the company opposed the bank's application on the ground that the charges were invalid and/or unenforceable and/or ought not to have been accepted for registration by the RCB. Various bank creditors filed affidavits confirming that they extended facilities to the company after 7 January 1998 on the basis that the company had not created and would not in future create any security of whatever nature in favour of any creditor. Two creditor banks had conducted RCB instant information searches in April and June 1998, and were led to believe that no creditor had taken security over any of the company's assets. Had the charges been disclosed in the searches, the banks alleged they would have refused to make further advances to the company, cancelled all outstanding facilities and demanded repayment of all sums then due and owing.

Held, allowing the plaintiff's application:

(1) Clause 10 created a floating charge on the property of the company within the meaning of s 131 (3) (g) of the Act, as it contained the characteristics of a floating charge. Further cl 10 came within the purview of s 131 (3) (e) of the Act, read with the extended meaning of “charge” in s 4, because giving the bank an option to take or create a charge was no different from agreeing to give or execute a charge, and the wording in s 4 was also wide enough to cover the events of default contemplated by cl 10: at [19] and [21].

(2) Although the “charge” arising from cl 10 was not registered within 30 days of 8 December 1997 (the date when the facility letter was accepted by the company), a s 134 (2) certificate precluded the court from setting aside or invalidating a charge on the ground that s 131 had not been complied with. Although UOB Forms 33 and 34 stated the wrong date of creation of the charge, this misstatement did not affect the certificate as conclusive evidence within the meaning of s 134 (2) of the Act. If rectification was sought under s 137, the court would only put right the date of creation in the documents lodged. The court had no power to expunge the registration or to cancel the registrar's certificate: at [34].

(3) If UOB took out an application under s 137 for an extension of time to register the charge, the court would have granted the order, provided such extension would not prejudice the rights of any person acquired between the date of creation of the charge and the date of its actual registration. UOB would lose priority to charges created later than its but registered earlier. The court need not consider unsecured creditors who might have advanced moneys to the company during the period between 8 January and 16 July 1998. There was thus no basis for impugning the registration of the charge evidenced by the RCB's certificate, on the grounds that some creditor banks had conducted RCB instant searches and advanced moneys in reliance on such searches: at [35] and [36].

(4) Clause 10 of the Standard Terms and Conditions was not in conflict with the facility letter because cl 2 of the facility letter did not state that the only security required were the personal guarantees of two individuals. It was plain that cl 10 was additional to that term. The court also rejected the company's contention that cl 10 was a particularly onerous or unusual term, which must be brought to the company's attention before it was enforceable. This was especially since the directors of the company were experienced men in the world of commerce: at [41] and [42].

(5) Assuming cl 10 (b) and 10 (d) were designed to create a security interest in favour of the bank upon the company's insolvency and constituted an illegitimate attempt to evade the pari passu principle, they were not the provisions relied on by the bank in declaring an event of default. Even if they were contrary to public policy, they could be excised from the rest of cl 10 without doing violence to its meaning: at [47].

British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758; [1975] 2 All ER 390 (refd)

C L Nye Ltd, In re [1971] Ch 442 (refd)

Chiodo v Murphy (1995) (Supreme Court,Victoria) (refd)

Ehrmann Brothers Ltd, In re [1906] 2 Ch 697 (refd)

Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (refd)

Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433; [1988] 1 All ER 348 (refd)

J J Leonard Properties v Leonard (WA) Pty Ltd (1987) 13 ACLR 77 (refd)

Lin Securities (Pte) Ltd, Re;Chi Man Kwong Peter v Asia Commercial Bank [1988] 1 SLR (R) 220; [1988] SLR 340 (refd)

MIG Trust Ltd, In re [1933] Ch 542 (refd)

Murphy v Wright (1992) (Court of Appeal, New South Wales) (distd)

R v Registrar of Companies, ex p Central Bank of India [1986] QB 1114 (refd)

Robson v Smith [1895] 2 Ch 118 (refd)

Watson v Duff, Morgan & Vermont (Holdings) Ltd [1974] 1 WLR 450; [1974] 1 All ER 794 (refd)

Wilson v Graham (1997) (Supreme Court, New South Wales) (refd)

Yorkshire Woolcombers Association Ltd,In re [1903] 2 Ch 284 (refd)

Companies Act (Cap 50,1994 Rev Ed)ss 4, 131, 134 (2), 137 (consd);ss 131 (3) (e),131 (3) (g)

Ronnie Quek and Ronald Choo (Allen & Gledhill) for the plaintiff

Vinodh Coomaraswamy (Shook Lin & Bok) for the defendant.

Tay Yong Kwang JC

1 By this originating summons, the plaintiffs, as equitable chargees in relation to the properties known as 10 Anson Road #15-17, #15-18 and #15-19 International Plaza, Singapore, claim the following reliefs:

(a) an order that the equitable charges be enforced by sale of the three properties in question by way of public auction, by tender or private treaty on such terms and conditions and generally in such manner as the plaintiffs may think fit;

(b) payment of banker's fees, charges and commissions;

(c) costs on an indemnity basis; and

(d) liberty to apply.

2 The plaintiffs granted banking facilities to the defendants by a facility letter dated 8 December 1997 duly accepted by the defendants on the same day. The said facilities were subject to the plaintiffs' Standard Terms and Conditions Governing Banking Facilities, cl 3 of which provides for all costs and expenses connected with the provision, protection and realisation of securities and with the processing, implementation and recovery of moneys owing under the facilities to be payable on demand on a full indemnity basis together with interest. Clause 10 of the Standard Terms and Conditions provides that in the event of default, the plaintiffs shall be entitled (as equitable chargees) to attach the outstandings to any property of the defendants (whether real or personal) and to lodge a caveat against any real property that may now or hereafter be registered in the defendants' name whether singly or jointly.

3 In March and April 1998, several trust receipts became overdue. By a letter dated 9 April 1998, the plaintiffs demanded payment of at least $500,000 per month towards reducing the sums due under the overdue trust receipts and demanded payment of the first instalment within two weeks of the date of the letter.

4 By a letter dated 16 June 1998, the plaintiffs stated that the defendants' failure to make full payment of the overdue trust receipt outstandings constituted an event of default under cl 10 of the Standard Terms and Conditions and demanded payment of all outstandings under the facilities.

5 The defendants failed to meet the demand and the plaintiffs therefore lodged three caveats against the properties described earlier on 9 July 1998, claiming in each case an...