United Overseas Bank Ltd v Bank of China

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 28 September 2005
• Neutral Citation: [2005] SGCA 46
• Docket Number: Civil Appeal No 20 of 2005
• Date: 28 September 2005
• Year: 2005
• Published date: 03 October 2005
• Plaintiff Counsel: Alvin Yeo SC, Sim Bock Eng and Sng Sannie (Wong Partnership)
• Citation: [2005] SGCA 46
• Defendant Counsel: Rebecca Chew and Kelvin Poon (Rajah and Tann)
• Court: Court of Appeal (Singapore)
• Subject Matter: Doctrine of subrogation invoked by lender against third party and not borrower,Applicable principles,Paramount mortgagee sending letter to developer of property with specific representation on terms of discharge,Equity,Whether reliance on representation reasonable,Estoppel,Equitable subrogation,Whether first letter constituting representation to purchaser's financier,Subsequent letter sent by paramount mortgagee to developer varying terms of discharge,Whether denial of subrogation resulting in unjust enrichment of third party

28 September 2005

Chao Hick Tin JA (delivering the judgment of the court):

1 This appeal raised the issues of estoppel by representation and subrogation in a tussle between a paramount mortgagee of a development and a subsequent mortgagee of one of the houses in the development which was sold by the developer to a couple. The question was whether, as between the two mortgagees, which mortgagee should, following the default of the purchasers, be entitled to have possession of the house. Belinda Ang Saw Ean J upheld the decision of the assistant registrar who ruled in favour of the paramount mortgagee. We heard the appeal on 26 July 2005 and dismissed it with costs. The following were our reasons.

The background

2 In the action below, the plaintiff was the Bank of China (“BOC”), the respondent in this appeal. BOC was the successor-in-title of the Kwangtung Provincial Bank (“KPB”), which was the paramount mortgagee pursuant to an instrument of mortgage dated 8 July 1995. Hereinafter reference to “BOC” shall include KPB. The first defendant to the action was Yong Tze Enterprise (Pte) Ltd (“YTE”), the developer and the mortgagor of the development land to KPB. Three detached houses were to be built on the land. The mortgage was executed by YTE as security for the facilities granted by KPB.

3 In December 1995, YTE sold one of the houses, identified as “Plot 1” in the development plan and later known as “114 Toh Yi Drive” (“the Property”) to Ong Cher Keong (“Ong”) and his wife Tan Hwee Cheng Esther (collectively “the Ongs” or “the couple” as may be appropriate). We should mention that Ong was a director of YTE and was in charge of YTE’s affairs.

4 The purchase of the Property by the Ongs was in part financed by a loan from OCBC Finance Ltd (“OCBC”), previously known as Focal Finance Ltd. In accordance with the loan arrangement, in October 1996, the Ongs, by a deed, assigned their rights under the sale and purchase agreement with YTE to OCBC. On 5 November 1996, OCBC lodged a caveat, as mortgagee, against the Property. On 18 December 1996, following the grant of additional banking facilities by KPB to YTE, the latter executed a further mortgage (“the second mortgage”) over the development land in favour of KPB. With the consent of OCBC, the second mortgage was registered with priority over the caveat lodged earlier by OCBC.

5 Towards the end of 2000, the Ongs refinanced their purchase of the Property with the United Overseas Bank Limited (“UOB”) which offered a loan of $3.1m to discharge the debt owed by them to OCBC. UOB paid off OCBC on 16 January 2001. The UOB loan was to be secured by a legal mortgage of the Property. At the time, since a separate legal title to the Property had not yet been issued, the Ongs executed a mortgage-in-escrow in favour of UOB. The separate legal title to the Property was issued shortly thereafter on 3 March 2001.

6 In January 2002, YTE was in default of its repayment obligations to BOC. In August 2003, the Ongs defaulted on their loan and voluntarily surrendered possession of the Property to UOB.

7 In August 2004, BOC instituted the present originating summons against YTE claiming for possession of the Property as well as the outstanding amount due under the paramount mortgage. About a month later, UOB applied to be added as the second defendant to the proceedings. Though named as the first defendant, YTE took no part in the proceedings.

8 The nub of the problem in the proceedings centred on two letters. The first was dated 20 July 1996, written by M/s Helen Yeo & Partners, the solicitors for KPB, to the solicitors for YTE. This was in response to a request from YTE for partial release of the paramount mortgage over the Property. The letter read:

Please be informed that [KPB is] agreeable to the sale of [the Property] at $4,230,000 on the following terms:

(1) all sale proceeds are to be forwarded to [KPB] for the Borrower’s Account through us;

(2) [KPB] shall give a discharge on the [Property] upon receipt of 85% of the sale price; and

(3) upon discharge of the [Property], the overdraft facility shall be reduced by $1.5 million and the Development Loan shall be reduced by $500,000.00.

9 The second was KPB’s letter of 20 May 1999 addressed to YTE. This letter was issued following a review of the loan granted to YTE whereby KPB decided to vary the terms for a partial discharge of the paramount mortgage set out in the earlier 1996 letter. In this letter, KPB stated, inter alia:

Please also be informed that with immediate effect our terms of discharge with regard to the sale of units in the development, including Plot 1 which has been sold are revised, as follows:-

a) All sale proceeds pertaining to each unit shall be forwarded to the Bank for your Account.

b) The Bank will give a Partial Release/Discharge of any unit sold only after the receipt of full 100% of the respective sale prices. In this connection, kindly review the sale of Plot 1 and ensure that all progress payments due and payable to date have been/will be forwarded to the Bank.

[emphasis added]

This letter will be referred to as “the 1999 letter” and the earlier letter of 20 July 1996 as “the 1996 letter”.

10 It would be noted that the loan by UOB to the Ongs was made well after the 1999 letter had been written by BOC which varied the terms under which a partial discharge of the paramount mortgage would be allowed in respect of the individual units in the development.

11 We ought to mention that in the offer letter of 29 November 2000 from UOB to the Ongs it was stated that “an undertaking by the developer’s mortgagee to discharge the property from [its paramount] mortgage” would be required. While it was unclear whether this condition meant that UOB required a direct undertaking given by the paramount mortgagee to UOB, we would have thought, for the reasons which would appear later, that UOB should have asked for a direct confirmation from KPB. However, UOB never approached KPB to confirm the terms of the 1996 letter or give a fresh undertaking.

Hearing below

12 At the hearing below, UOB resisted BOC’s application for possession of the Property on two main grounds. First, that the defence of estoppel by representation applied. UOB alleged that the representation was set out in the 1996 letter which stated that KPB would allow a discharge of the Property from the paramount mortgage upon payment of 85% of the purchase price by the Ongs into the account maintained by YTE with KPB (“the 85% payment representation”). UOB argued that the 1999 letter could not apply to it because that letter was never brought to its attention. Second, that the principle of subrogation applied, ie, upon UOB paying off the amount which the Ongs owed OCBC, UOB would have stepped into the shoes of OCBC and thereby be entitled to enjoy the benefits under the 1996 letter.

13 At this juncture, we ought to mention that the estoppel which UOB appeared to rely upon was promissory estoppel. The judge seemed to think that this was a case of estoppel by representation. Halsbury’s Law of England vol 16(2) (LexisNexis UK, 4th Ed Reissue, 2003) at para 956 states:

An estoppel by representation arises when there has been a representation made by one person on which another person relies and on which he acts so as to alter his own previous position; thus it may be described as ‘reliance-based’ estoppel. In common law estoppel by representation, the representation relied on is a straightforward statement of fact; in promissory estoppel, which was an equitable development from common law estoppel by representation, the representation is a promise not to enforce the representor’s rights. A further category of equitable reliance-based estoppel is proprietary estoppel, where the representation consists of a promise of an interest in land.

There is controversy as to whether for promissory estoppel to arise, there must be a subsisting legal relationship between the parties: see Spencer Bower, The Law Relating to Estoppel by Representation (LexisNexis UK, 4th Ed, 2004) (“Spencer Bower”) at pp 441–443, paras XIV.1.1–XIV.1.2 and p 467, XIV.2.23. However, we did not think that the present case was an appropriate occasion to go into an analysis of the various categorisations of estoppel; neither was it necessary. For our purposes here, we had assumed that the categorisation advanced by UOB was correct.

14 In response, BOC contended that if any representation was made it was by YTE’s solicitors. Moreover, it was unreasonable on the part of UOB to have relied on a representation which was made in a letter more than four and a half years ago, bearing in mind that in the interim, there was a second mortgage, a fact which UOB would have discovered if the latter had made a search. On subrogation, BOC submitted that there was no evidence that OCBC relied on the 1996 letter. More importantly, subrogation should not apply because it had not been shown that BOC had been unjustly enriched at the expense of UOB. Finally, as both estoppel and subrogation are equitable remedies, BOC contended that UOB was not entitled to either relief as UOB was guilty of laches.

15 We should at this juncture state that while UOB claimed that the Ongs had paid about 95% of the purchase price into the account of YTE with BOC, the judge found that BOC had, in fact, only received $3,446,000 (about 81%) of the purchase price. Before us, the appellant could not really show that this finding of the judge was wrong; receipts of the developer showing 95% had been paid did not mean that KPB had received the same amount. The appellant, however, submitted that even if that finding were correct, it was prepared to pay the shortfall on the 85%. It seemed to us that strictly, as UOB could not show that 85% of the purchase price of the Property had been received by KPB at the time the present proceedings were instituted, the defence should fail. So should this appeal.

16 Be that as it may, the judge...