United Overseas Bank Ltd v Homely Bath Services & Trading Pte Ltd and another

• Jurisdiction: Singapore
• Judge: Elton Tan Xue Yang AR
• Judgment Date: 24 January 2019
• Neutral Citation: [2019] SGHCR 3
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 251 of 2018
• Year: 2019
• Published date: 31 January 2019
• Hearing Date: 25 June 2018,11 April 2018,15 May 2018,02 November 2018,30 May 2018,18 June 2018,24 April 2018
• Plaintiff Counsel: Mr Ushan Premaratne and Mr Kenneth Yap (KhattarWong LLP)
• Defendant Counsel: Ms Suja Susan Thomas (Ignatius J & Associates)
• Subject Matter: Credit and security,Mortgage of real property,Mortgagee's rights,Landlord and tenant,Recovery of possession,Tenant's rights
• Citation: [2019] SGHCR 3

Elton Tan Xue Yang AR: Introduction

When a registered proprietor of land fails to repay a loan that is secured by a mortgage on the property, the mortgagee may bring an action for possession to realise its security. The action may, in turn, be contested by a tenant who intervenes in the proceedings to protect his occupancy. The court is faced with competing property claims from parties who are connected only by their contractual dealings with the proprietor and who might never have become acquainted but for the proprietor’s default in payment.

To resolve the dispute, the court must consider the contractual and statutory allocation of property rights amongst the parties. This rests in large part on the order of creation as between the mortgage and the lease. If the property is tenanted at the time of the mortgage, the proprietor can only offer to the mortgagee an incomplete legal estate as security, since he has ceded exclusive possession to his tenant. Similarly, a proprietor of mortgaged property can only confer on a tenant a qualified set of rights to possession, profit and enjoyment of the land. All of this boils down to the somewhat quotidian notion that one cannot give what one does not have. The proprietor cannot confer on either the tenant or the mortgagee a greater right than he himself possesses.

The facts of the present case bring the above considerations into focus. The tenant, which has been in continuous occupation of the mortgaged property since 2011, was served a notice to deliver up vacant possession of the property after the landlord company was wound up. Out of the three tenancy agreements between the tenant and landlord, the second tenancy agreement predated the mortgage and it contained an option for the tenant to renew the lease. The third tenancy agreement post-dated the mortgage and purports to allow the tenant to remain in possession until 31 March 2020. The tenant resists the mortgagee’s action for possession on the basis that the latter has allegedly authorised, consented to or acquiesced in the tenancies. Out of the considerable amount of case law on tenants’ challenges to mortgagee applications that was brought to my attention, it appeared that there were only two relevant local authorities, both of which were decided almost 30 years ago and only one of which was directly applicable. In these grounds, I therefore take the opportunity to identify and organise the key principles for application.

Facts The parties

The plaintiff is United Overseas Bank Limited (“UOB”). The first defendant, Homely Bath Services & Trading Pte Ltd (“the Landlord”), mortgaged to UOB its registered estate and interest in four separate units – all of which are commercial properties – as security for the repayment of certain loans. A winding up order was issued against the Landlord on 8 September 2017. The Landlord has not participated in these proceedings.

The second defendant, Skillmax Precision Technologies (S) Pte Ltd (“the Tenant”), is a precision engineering company. It is not disputed that since 2011, the Tenant has had its functioning office and production site at 20 Woodlands Link #05-27 Singapore 738733 (“the Unit”).¹ The Unit is one of the four units mortgaged by the Landlord to UOB.

Tenant’s occupation of the Unit

The Tenant first entered into occupation of the Unit in 2011, following a tenancy agreement dated 15 March 2011 (“the 1st TA”) with the Landlord. The 1st TA was for a term of 36 months from 1 April 2011 to 31 March 2014.²

On 21 March 2014, the Tenant and the Landlord signed a second tenancy agreement (“the 2nd TA”) in respect of the Unit, likewise for a period of 36 months. The tenancy period began on 1 April 2014, which was the day immediately following the expiry of the 1st TA, and ended on 31 March 2017.³

In early 2015, the Landlord made a refinancing request to UOB in respect of loan facilities that it had obtained from another bank. Crucially, UOB accepts that a copy of the 2nd TA was provided to it by the Landlord at the time the refinancing request was made.⁴ On 24 April 2015, UOB issued the Landlord with a letter of offer (“the Letter of Offer”) which incorporated, amongst other things, UOB’s Standard Terms and Conditions Governing Credit Facilities (which was revised by way of a subsequent letter of offer dated 30 June 2015).⁵ The offer of banking facilities was duly accepted by the Landlord on 27 April 2015.⁶ On 27 May 2015, UOB and the Landlord executed a mortgage in respect of two units, one of which was the Unit, with the Landlord as mortgagor and UOB as mortgagee (“the Mortgage”).⁷ The terms of the Mortgage incorporated the covenants and conditions set out in the Memorandum of Mortgage numbered MM I/94778S (“the Memorandum of Mortgage”).⁸ There were two other mortgages over the remaining two units.⁹

The Tenant and the Landlord entered into a third tenancy agreement on 5 February 2017 (“the 3rd TA”). Again, the agreed tenancy period was for 36 months. The tenancy would commence on 1 April 2017 (ie, the day immediately following the expiry of the 2nd TA) and end on 31 March 2020.¹⁰ According to UOB, it only became aware that the Unit was tenanted when one of the Landlord’s staff informed UOB sometime in end October or early November 2017 about this. Prior to that, UOB had not been notified of the 3rd TA and was not aware of its terms.¹¹ Nor had UOB consented to the Landlord entering into the 3rd TA with the Tenant.¹²

Action for possession

On 8 September 2017, a winding up order was made against the Landlord and the Official Receiver was appointed as liquidator.¹³ When this came to UOB’s attention, its solicitors issued a letter of demand to the Landlord on 19 September 2017, recalling all the facilities granted to the Landlord and demanding full payment of the outstanding sum of $687,697.63 as at 19 September 2017 and accrued interest.¹⁴ On 6 December 2017, UOB’s solicitors served notice on the Landlord to deliver vacant possession of the four mortgaged units,¹⁵ and also on the occupiers of each of those units.¹⁶

Upon receiving the notice, the Tenant wrote to UOB, expressing its interest in purchasing the Unit. In the course of several letters, it explained that it had been in occupation of the Unit since 2011 and that it had invested substantial sums to set up heavy machinery and electrical systems in the Unit. If it were required to move out, the Tenant’s survival as a going concern would be threatened and its customers, some of which needed daily support for their production plants, would likewise be affected.¹⁷ UOB nevertheless replied that it would be exercising its right to take vacant possession of the Unit.¹⁸

On 1 March 2018, UOB filed Originating Summons No 251 of 2018 (“the Action”), commencing proceedings under O 83 r 1(1) of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) (“the Rules of Court”) to seek delivery of vacant possession of the four mortgaged units as well as repayment of the sums owed.

Tenant’s application to intervene

At the first hearing on 11 April 2018, counsel for the Tenant, Ms Suja Thomas, appeared before me to express the Tenant’s intention to contest the part of the Action that sought delivery of vacant possession of the Unit. No representative from the Landlord attended this or any subsequent hearing. As the Tenant was not a party to the proceedings at the time (only UOB and the Landlord were), it subsequently filed an uncontested application in Summons No 2839 of 2018 to intervene and be added as a second defendant. I allowed the application on 25 June 2018.

Once the Tenant became a party to the Action, it filed Summons No 3117 of 2018, seeking discovery of various documents and correspondence pertaining to the Mortgage. One of the Tenant’s primary arguments in the application was that as a non-party to the contractual relationship between UOB and the Landlord, it was not in possession of the documentary evidence it needed to demonstrate that UOB had consented to the Tenant’s occupation. On 19 September 2018, I ordered discovery of most of the categories of documents sought. I agreed with the Tenant that the documents were prima facie relevant and that there was a marked asymmetry of information between the parties such that an order for discovery would promote the fair and just disposal of the matter. UOB and the Tenant then proceeded to file their affidavits and submissions in the Action. The substantive hearing of the Tenant’s challenge took place before me on 2 November 2018. At the hearing, Mr Ushan Premaratne, counsel for UOB, informed me that UOB would only be asking for orders in relation to the Unit and not the other units referred to in the Action. I will therefore only consider the Action insofar as it relates to the Unit.

Parties’ submissions

The flow of the Tenant’s primary arguments is as follows. To begin, UOB is bound to honour the 2nd TA pursuant to s 46(1) of the Land Titles Act (Cap 157, 2004 Rev Ed) (“the LTA”). The Tenant explains that UOB had “full knowledge of the prevailing tenancy at the time (i.e. the 2nd TA) and all the terms therein”.¹⁹ It points out that UOB had admitted that a copy of the 2nd TA was provided by the Landlord to UOB at the time the Landlord made its re-financing request (see also [8] above).²⁰ Relying on s 89 of the LTA and the High Court’s decision in Singapore Finance Ltd and another v Matterhorn (Pte) Ltd and others [1989] 2 SLR(R) 105 (“Matterhorn”), the Tenant further argues that UOB’s actions in accepting the Unit as security and in securing its interest with a document titled “Legal Assignment of Rental Proceeds/Charge over Rental Account” (which I will refer to in the interests of brevity as “the Assignment of Rental Proceeds”) were “positive steps emanating from [UOB] from which it is possible to infer [UOB’s] consent or acquiescence to not just the 2nd TA but all future tenancies”. It emphasises that the Assignment...