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www.ipsofactoJ.com/archive/index.htm
[1990] Part 3 Case 3 [HCB] |
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www.ipsofactoJ.com/archive/index.htm
[1990] Part 3 Case 3 [HCB] |
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HIGH COURT OF BORNEO |
Standard Chartered Bank
- vs -
Central Wood Tiles Sdn Bhd
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Coram HAIDAR J |
22 MARCH 1990 |
Judgment
Haidar J
By this originating summons the plaintiff is praying for the following order:
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(a) |
that the land situate at Pending Industrial Estate, Kuching, Sarawak, containing an area of 8,256 sq m, more or less, and described as Lot 1009, s 66, Kuching Town land district (‘the defendant’s land’) charged to the plaintiff vide memorandum of charge instrument no L 2792/1983 registered at the Kuching Land Registry office on 11 March 1983, be sold by public auction pursuant to the provisions of s 148(2)(c) of the Land Code to satisfy the balance of the principal amount secured under the said charge with interest calculated up to 31 October 1988 totalling $436,062.28 and further interest thereon at the rate of 13.5% pa on monthly rests from 1 November 1988 till date of full and final settlement; and |
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that costs of and incidental to this application be awarded to the plaintiff on a solicitor-client basis. |
The plaintiff filed four affidavits in support thereof and the defendant filed five affidavits in opposition.
The following documents registered at the Kuching Land Registry office are not disputed:
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Memorandum of charge instrument no L 2792/1983 registered at the Kuching Land Registry office oil 11 March 1983 whereby one Chua Beng Thian @ Chua Beng Hian (BIC K 569025) charged his land, Lot 1009, s 66, Kuching Town land district, containing an area of 8,256 sq m, more or less, and another, Perusahaan Getah Kuching Sdn Bhd, charged its parcel of land known as Lot 1387, s 66, Kuching Town land district to the plaintiff as collateral security for facilities granted to Dayasar Corp Sdn Bhd (‘the principal debtor’). |
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(b) |
Memorandum of transfer registered with the Kuching Land Registry office on 2 November 1983, the said Chua Beng Thian transferred his land (Lot 1009) to the defendant, Central Wood Tiles Sdn Bhd for a consideration of $66,090, subject to the charge in favour of the plaintiff for the sum of $ 1,950,000 (see exh ‘B’ to encl 2). |
It is clear that the defendant came into the scene by virtue of a memorandum of transfer of Lot 1009 subject to the charge. It is equally clear that the defendant has no connection with Perusahaan Getah Kuching Sdn Bhd or Dayasar Corp Sdn Bhd but one thing is clear, that is, there is a common personality in the person of Chua Beng Thian as the managing director.
What then is the legal position of the defendant vis-à-vis the plaintiff as chargee as a result of the memorandum of transfer subject to the charge? The plaintiff gave the necessary consent to the memorandum of transfer ‘but subject and without prejudice to the rights of the chargee protected by the said charge’. In this respect s 138 of the Sarawak Land Code (Cap 81) provides as follows:
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In every memorandum transferring any land subject to a charge, there shall be implied the following agreement by the transferee with the transferor and, so long as the transferee shall remain the proprietor, with the chargee, that is to say, that the transferee will pay the principal sum, interest and other moneys secured by such charge at the rate and at the time or times specified in the instrument creating the same, and will indemnify and keep harmless the transferor from and against the principal sum, interest and other moneys secured by such instrument and from and against all liability in respect of any of the agreements therein contained, or by this Code implied, on the part of the transferor. |
Section 138 of the Land Code would seem to show clearly the position of the defendant as transferee in respect of a memorandum of transfer subject to a charge. In other words, the transferee stepped into the shoes of the transferor so long as the transferee remained the proprietor. The issue of the defendant creating a third party charge as alleged is, I think, without any merits as to accept a transfer subject to a charge is entirely different, as can be seen from the clear provisions of s 138 of the Land Code.
The charge in respect of the land (Lot 1387) was discharged by the plaintiff on the payment of $750,000 paid by Dayasar Industries Sdn Bhd. Towards this end, a memorandum of partial discharge of charge vide instrument no L 2354/1987 was executed by the plaintiff on 12 March 1987 and duly registered at the Kuching Land Registry office on 30 March 1987 ‘but without prejudice to the plaintiff’s rights, powers and remedies under or in respect of the residue of the said charge’. According to para 13 of the affidavit of Chua Beng Thian (encl 27), the defendant alleged that no consent was given by it to the said partial discharge. However, at the hearing of this originating summons, Mr. Paul Tang, counsel for the defendant, abandoned this ground.
The only issue is whether the plaintiff is entitled to an order for the sale of the land (Lot 1009). The plaintiff submitted as follows:
the existing memorandum of transfer subject to the charge over Lot 1009 has not been discharged;
the sum of $436,062.28 outstanding as at 31 October 1988 with further interest at the rate of 13.5% pa is still due and owing (see para 5 of the affidavit of Thomas Lai at encl 2);
the basic requirements pursuant to s 148 of the Land Code have been fulfilled (see para 6 of the affidavit of Thomas Lai at encl 2);
there was default in the repayment of the amount outstanding by the defendant (see para 7 of the affidavit of Thomas Lai at encl 2).
Hence, according to the plaintiff, an order for sale should rightly be made. However, the defendant relied on the following grounds in opposing the application for an order of sale of Lot 1009.
(1) THIRD PARTY CHARGE
The facts clearly showed that it is not a matter of the defendant charging its land for the benefits of a third party as such but the defendant acquiring the land in question subject to the charge and as I said earlier, the position of a transfer of land subject to an existing memorandum of charge is plainly clear by virtue of s 138 of the Land Code. Therefore, the contention of the defendant on the issue of third party charge is without merits at all.
(2) RESOLUTION OF DEFENDANT DATED 20 AUGUST 1983 REGARDING PURCHASE OF LOT 1009
The defendant through the affidavit of its director, Chua Leng Khian (encl 32), at para 6 produced the minutes of the meeting of its board of directors (exh ‘CLK–11’) wherein it was resolved that the defendant acquired Lot 1009 for a sum of $66,090 free from all encumbrances. It is not disputed that Chua Beng Thian is both the managing director of the defendant as well as Dayasar Industries Sdn Bhd and also the registered proprietor of Lot 1009.
What the defendant is saying now is that in the face of the resolution passed by the defendant as per exh ‘CLK–11’, Chua Beng Thian and Goh Wui Lee had no authorization from the defendant to execute the memorandum of transfer of Lot 1009 subject to a charge of $1,950,000 in favour of the plaintiff. In respect of the challenge by the defendant on the validity of the charge in respect of the transfer of Lot 1009 Miss Phang, counsel for the plaintiff, submitted that the simple solution to this ‘issue’ is provided by s 20 of the Companies Act 1950 which reads:
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No act or purported act of a company (including the entering into an agreement by the company and including any act done on behalf of a company by an officer or agent of the company under any purported authority, whether express or implied of the company) and no conveyance or transfer of property, whether real or personal to or by a company shall be invalid by reason only of the fact that the company was without capacity or power to do the act or to execute or take the conveyance or transfer. |
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(2) |
Any such lack of capacity or power may be asserted or relied upon only in:
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Mr. Paul Tang, counsel for the defendant, on the other hand submitted that the transfer of Lot 1009 from Chua Beng Thian to the defendant was in excess and an abuse of the powers of Chua Beng Thian as a director of the defendant. According to Mr. Paul Tang, the excess or abuse of the powers is clearly evidenced by the resolution of the directors of the defendant (exh ‘CLK–11’) where it was specifically resolved that:
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the defendant acquired Lot 1009 for a price of $66,090 free from encumbrances; |
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the transfer is subject to and be in accordance with the provisions of the memorandum of articles of association of the company. |
Towards this end, Mr. Paul Tang quoted cl 22 of the memorandum of association and art 77(A) of the articles of association. Cl 22 reads:
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To borrow or raise or secure the payment of money by mortgage, or by the issue of debentures or debenture stock, perpetual or otherwise, or in such other manner as the company shall think fit, and for the purposes aforesaid or for any other lawful purpose to charge all or any of the company’s property or assets, present and future, including its uncalled capital and collaterally or further to secure any securities of the company by a trust deed or other assurance. |
Article 77(A) reads:
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The directors may borrow or raise from time to time for the purposes of the company or secure the payment of such sums as they think fit, and may secure the repayment or payment of any such sums by mortgage or charge upon all or any of the property or assets of the company or by the issue of debentures (whether at par or at a discount or premium) or otherwise as they think fit. |
Clause 22 and art 77(A) may appear to be not independent powers but ancillary powers, i.e. the powers must be exercised for the purpose of the defendant but in my view, on the facts of the present case, cl 22 and art 77(A) may not be the relevant provisions for consideration here. We are not dealing here with the powers of borrowing or raising of money, etc but it is essentially of acquisition of property by the defendant. In my view, cll 20 and 21 would appear to be the relevant provisions (see exh ‘CLK–9’). Cl 20 reads:
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To purchase, take on lease or in exchange, hire or otherwise acquire, any real or personal property, patents, licences, rights or privileges which the company may think necessary or convenient for the purposes of its business, and to construct, maintain and alter any buildings or works necessary or convenient for the purposes of the company. |
Clause 21 reads:
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To pay for any property or rights acquired by the company, either in cash or fully or partly paid shares, or by the issue of securities, or partly in one mode and partly in another, and generally on such terms as may be determined. |
The facts of the case of Rolled Steel Products (Holdings) Ltd v British Steel Corp [1985] 3 All ER 52 relied on heavily by Mr. Paul Tang are different from the facts of the present case and are therefore distinguishable. Be that as it may, it would appear that the defendant is competent to acquire property real or personal generally on such terms as may be determined, and the acquisition of Lot 1009 must therefore be for the benefit of the defendant except that Lot 1009 is encumbered with the charge to the plaintiff. The real issue is whether Chua Beng Thian as managing director of the defendant is empowered to acquire and execute the memorandum of transfer of Lot 1009 subject to the charge on behalf of the defendant in the face of the resolution (CLK–11) made by the board of directors of the defendant in which Chua Beng Thian was a party. It would appear to me from the resolution (CLK–11) that Chua Beng Thian did not disclose that Lot 1009 belonged to him personally when the board considered the acquisition of Lot 1009 for a consideration of $66,090. According to exh ‘CLK–10’, Lot 1009 is valued at $1,500,000 and would anyone sell such valued land for $66,090 without ‘any catch’? Is it expected of the court to believe or accept that the defendant (through its directors) was so naive as to purchase Lot 1009 for $66,090, i.e. about 23 times below the market value? It is difficult to accept. It may well be true that according to Rolled Steel Products Ltd v British Steel Corp [1985] 3 All ER 52 the rule in Royal British Bank v Turquand [1856] 6 E & B 327; 119 ER 886; [1843-60] All ER Rep 435 is not absolute and unqualified when Slade LJ said at p 77:
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This connection might well have been unanswerable if the rule in Royal British Bank v Turquand (1856) 6 E & B 327; [1843-60] All ER Rep 435 were an absolute and unqualified rule of law, applicable in all circumstances. But, as the statement of the rule quoted above indicates, it is not. It is a rule which only applies in favour of persons dealing with the company in good faith. If such persons have notice of the relevant irregularity, they cannot rely on the rule. |
According to exh ‘TL 1’, Chua Beng Thian informed the plaintiff that the Land and Survey Kuching approved the transfer of Lot 1009 to the defendant and he requested the plaintiff for the agreement of the transfer under the same terms and conditions as previously agreed. Chua Beng Thian further informed the plaintiff that he is the major shareholder and managing director of the defendant. The defendant executed the memorandum of transfer through Chua Beng Thian and the secretary of the defendant and the seal of the defendant was used. In view of these facts and the documents, the plaintiff, in my view, acted in good faith when it agreed to the transfer subject and without prejudice to its rights as chargee protected by the said charge without questioning whether Chua Beng Thian and the secretary of the defendant had the authority of the defendant or not to execute the said transfer. In this respect Charlesworth & Cain on Company Law (11th Ed) at p 412, said:
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A company is bound by the acts of its agent within his actual authority, express or implied. As to express actual authority, an individual director may be specifically authorized by the board of directors to make a particular contract on behalf of the company. As to implied actual authority, a director may, under a power in the articles, be appointed to an office, e.g. that of managing director, which carries with it authority to make contract on behalf of the company. |
In respect of a seal of a company, Gower’s Principle of Modern Company Law (4th Ed) stated as follows:
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For example, it is customary to provide that documents shall be sealed in the presence of not the whole board, but one or more directors and the secretary. If, therefore, the third party receives documents sealed in the presence of the appropriate individuals as stated in the articles of association, he is entitled to rely on its formal validity. Even if the board had never resolved that the documents be sealed, he will be protected for he is not entitled to see the minutes of the board meeting which relate to the matter of ‘indoor management’ and has no means of checking whether the internal Regulations have been complied with. |
It is therefore appropriate for the plaintiff to accept Chua Beng Thian and the secretary as having the authority to execute the transfer without any question.
The allegation of the defendant that the resolution was brought to the attention of the plaintiff without being specific is to my mind only a bare allegation and without any merits at all. If the defendant is serious in its allegation it should have written an official letter to the plaintiff bringing to its attention the resolution of the defendant. Without being specific the plaintiff would be in no position to rebut such allegation especially such allegation coming from Chua Beng Thian (see para 3 of his affidavit at encl 31) when he was the one who executed the memorandum of transfer on behalf of the defendant. It is difficult to swallow his statement that he brought to the attention of the plaintiff about the resolution and the plaintiff did not say anything!
The defendant further tried to rely on two other grounds to oppose this originating summons, namely:
that the memorandum of charge did not specify interest and that there is no memorandum of variation of increase of interest and that the memorandum of charge is not in the form required by the Land Code;
that the plaintiff has breached the terms of its offer to Dayasar Corp Sdn Bhd, by unilaterally converting the loan to a fixed loan.
An examination of the memorandum of charge itself (exh A) will show ‘interest at the rate of 13.5% pa or such other rate or rates as shall be fixed from time to time by the chargee ’ is clearly stated. As regards the contention of the defendant that there is no memorandum of variation of charge, the documents ‘CLK 12 to CLK 16’ speak for themselves. As regards the increase in the rate of interest, it is clearly provided in the memorandum of charge at p 3 thereof thus:
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And the chargors hereby agree that notwithstanding the rate of interest herein before mentioned, the chargee may from time to time serve on the chargors notice in writing requiring payment of interest at an increased rate of interest and upon receipt of the said notice the increased rate of interest shall be charged .... |
It is clear that the parties agreed in the memorandum of charge to the right and discretion of the chargee (i.e. the plaintiff) to vary interest by way of a notice in writing (see ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513). Miss Phang, counsel for the plaintiff, submitted that according to Torrens System in Australia by Whalan, in respect of prescribed forms, it is stated ‘the general rule is that the use of the prescribed or authorized forms is obligatory, but variations in the forms sanctioned by the registrar or variations by the parties that are not ones of substance are permissible’. In any event, according to s 146 of the Land Code, it shall not be necessary for the chargee to execute a memorandum of increase of the rate of interest payable under the charge. It is for the chargor (i.e. the defendant) to do so and having failed to do so, he cannot, in my view, rely on its breach to defend this action.
As regards the contention of the defendant that the plaintiff as per the terms of the memorandum of charge had no right to unilaterally convert the overdraft facility of $450,000 to fixed loan facility, in my view, the memorandum of charge is wide enough to cover such action of the plaintiff as the memorandum of charge refers to ‘credit facilities’ which may be in the form of overdraft, fixed loan etc and the amount due and owing falls squarely within the ambit of the memorandum of charge. Further, the terms of the letters of offer as per exhs ‘CLK–13’ to ‘CLK–16’ clearly state that the facilities are subject to review. In any event, the letter of the plaintiff (exh ‘CLK–17’) advised the conversion of the overdraft facility to a fixed loan and in the event of any disagreement shown of the arrangement as per ‘CLK–17’ it would show that such arrangement was accepted as no evidence was adduced of disagreement to such arrangement.
In the circumstances, I am of the view that the proper order that should be made is to make an order in terms of the originating summons filed by the plaintiff herein and I do so order.
Cases
Rolled Steel Products (Holdings) Ltd v British Steel Corp [1985] 3 All ER 52; Royal British Bank v Turquand [1856] 6 E & B 327; (1856) 119 ER 886; [1843-60] All ER Rep 435; ANZ Banking Group (NZ) Ltd v Gibson [1981] 2 NZLR 513
Legislations
Companies Act 1965: s.20
Sarawak Land Code (Cap 81): s.138, s.146, s.148
Authors and other references
Charlesworth & Cain on Company Law (11th Ed)
Gower’s Principle of Modern Company Law (4th Ed)
Whalan, Torrens System in Australia
Representations
P Phang for the plaintiff.
Paul Tang for the defendant.
Notes:-
This decision is also reported at [1990] 2 MLJ 361
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