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  • Banking and Finance
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  • Bank of America National Trust and Savings Association v Herman Iskandar and another[1998] 1 SLR(R) 848; [1998] SGCA 22
    all material times the appellants never sent the reminders to Lui 16 In 1983 Lui were winding down their law practice and handed the file to LAJ Smith Co In the years following there were several changes of solicitors acting for Lugito s estate LAJ Smith Co acted from November 1984 to November 1986 A C Fergusson acted from April 1987 to September 1990 Haridass Ho Partners acted from September 1990 to July 1993 and Drew Napier from July 1993 to December 1997 A C Fergusson and Haridass Ho Partners had written to the appellants for information with respect to the large account Until a specific query was made by Haridass Ho Partners in 1991 the appellants did not say that Herman was a joint account holder of the large account or that he could give instructions to the appellants for renewal of the fixed deposit in his own capacity 17 On 5 January 1988 A C Fergusson wrote to the appellants stating that he acted for Herman as executor of Lugito s will and asked for a confirmation of the balances in Lugito s accounts The appellants refused initially to provide information because of the then banking secrecy provisions in the Banking Act until the production of the certified true copy of the letters of administration or grant of probate or written permission from the personal representatives of the estate Herman signed a letter authorising the release of information but he used a new signature which differed from that which appeared on the account opening forms for the large account On 29 February 1988 the appellants replied to Herman s letter saying that they refused to provide the information on the ground that the signature on the letter differed from the file records 18 All along Herman believed that the moneys in the large and small accounts were continuing to earn interest Meanwhile the estate duty on the Lugito estate remained unpaid and interest on the unpaid estate duty was running at 12 per annum He knew that this exceeded the interest that the large account would be earning and wanted the money to be released to pay estate duty By this time he was a customer of the appellants private banking department His private bankers with the appellants were Brian Williamson and Yap Yip Leong Yap Lip Leong had earlier informed Herman in a meeting in Jakarta either just before Herman received the appellants letter of 29 February 1988 or soon thereafter that his signature in his letter of 15 January 1988 was different from those in the appellants file records 19 Herman had used the same signature which he used to establish a deposit account with the appellants in Hong Kong in the early 1970s He had transferred some of these funds from his Hong Kong accounts to the Singapore branch and he thought this was how the Singapore branch had his old signature Yap Lip Leong asked him to sign whatever other signatures he had used with the appellants on a photocopy of his letter of 15 January 1988 However Yap Lip Leong did not tell him that he was a joint account holder of the large account 20 On 15 March 1988 he wrote a letter directly to Yap Lip Leong of the appellants requesting the appellants to release the estate money in the large account to the Comptroller of Estate Duty in payment of estate duty The learned judicial commissioner drew the inference that Herman was unaware that he could withdraw the money in the large account as the surviving holder of the large account or that the money in the large account was not earning any interest Nevertheless the appellants made no attempt to correct Herman s mistaken impression 21 In reply to Herman s letter of 15 March 1988 the appellants solicitors Shook Lin Bok wanted to know a the capacity in which Herman made the request b the accounts in relation to which the request was made c the amounts for which the request was made and d copies of all documents relating to the above Mr Fergusson who was then acting for Herman replied by letter dated 20 April 1988 providing the required information He also inquired the status of the two fixed deposit accounts Shook Lin Bok replied by letter dated 14 June 1988 stating the balances currently standing to the credit of the two accounts This was the first time the appellants gave an indication that the large account was a joint account However the appellants did not say who the signatories to the joint account were 22 At this juncture it is most unfortunate that the solicitors acting for Herman did not notice that the amounts in credit in the two fixed deposits stood at exactly the same amount as at 1979 ie the appellants had not credited any interest to the two accounts since 1979 It was only in 1991 when Haridass Ho Partners took over the matter and on specific queries from the firm as to why the moneys in the two accounts were not earning any interest that the appellants replied stating that they had no instructions to place the amounts on interest bearing deposit since 1979 On 28 August 1991 Haridass Ho Partners instructed the appellants to place the moneys in the large account on a seven day interest bearing deposit and the moneys in the small account on a one month interest bearing deposit The appellants effected these instructions with immediate effect 23 It was only on 3 September 1991 that the appellants solicitors Shook Lin Bok revealed that the large account was a joint account in the name of three parties ie Lugito Herman and Lily By a letter dated 4 May 1992 Haridass Ho Partners demanded full repayment of all moneys in the large and small accounts inclusive of all the interest accrued thereon within seven days of the date of the letter The appellants failed to make such payment On 1 October 1992 the respondents commenced their present action against the appellants demanding the repayment of the moneys standing in the large and small accounts as well as the interest that would be payable if the two accounts had been renewed annually 24 On 3 February 1993 the appellants paid the respondents the sum of 1 585 727 73 in respect of the large account representing 1 534 539 87 and interest accrued from 28 August 1991 to 2 February 1993 On 17 February 1993 the appellants paid 5 902 12 in respect of the small account representing 4 855 56 and interest from 28 August 1991 to 15 February 1993 The appellants adamantly refused to pay any interest from 24 January 1979 to 27 August 1991 25 In the court below the respondents argued that the appellants were bound to comply with the lawful and reasonable instructions in the letter by Lui dated 23 June 1979 to renew the fixed deposit for a year and to keep them informed Further they argued there was an implied term in fixed deposit contracts that the bank would contact a fixed deposit account holder to inform him of the maturity of the fixed deposit and seek his instructions The appellants were in breach of this duty since they ought to have sought instructions from Lui whom the appellants knew were the solicitors acting for the Lugito estate 26 The appellants raised several defences which were all rejected by the learned judicial commissioner The appellants argued that under rule 2 found on the face of the TCD the production of the TCD was a condition precedent to the renewal and the TCD was never produced at all material times The appellants argued that they were under no obligation to obey Lui s instructions and further there was no room to imply a contractual term that the bank was under an obligation to seek the instructions of its customers the fixed deposit account holders on the maturity of the fixed deposit Even if there was such a contractual term the appellants had fulfilled their duty by sending reminders to the Cairnhill address the address provided by Lugito at the time of the opening of the account The appellants argued that in any event the respondents causes of action were hopelessly time barred since any breaches of duty on the part of the appellants took place in 1979 or at the latest in 1980 27 The learned judicial commissioner accepted all the arguments raised by the respondents He held that the appellants were contractually bound to comply with Lui s instructions to renew the fixed deposit for a year It was not a condition precedent for the TCD to be produced before renewal of the fixed deposit The production of the TCD was only necessary where the customer had sought repayment of his principal sum and the interest The appellants were contractually obliged to take reasonable steps to seek instructions from the respondents on the maturity of the fixed deposit the attempts made by the appellants were short of what a reasonable banker would do The respondents claims were not time barred as the breaches by the appellants were of a continuing nature 28 In the result the appellants were ordered to pay compound interest to the respondents on a 1 534 539 87 from 25 January 1979 to 3 September 1991 at the appellants TCD rate for six month deposits for the whole of the period with no rests during such period b 4 855 56 from 1 July 1980 to 27 August 1991 at the appellants TCD rate for monthly deposits c the difference in interest between the interest paid to the respondents from 28 August 1991 to 2 February 1993 on 1 534 539 87 and the interest that should be paid for that period on the principal amount with compound interest as calculated in a and d the difference in interest between the interest paid from 28 August 1991 to 15 February 1993 on 4 855 56 and the interest that should be paid on the principal amount with compound interest in b Consequential orders on the interests payable on the judgment sum and costs were made The appeal Duty to comply with customer s instructions 29 Before us counsel for the appellants attacked the holding of the learned judicial commissioner on various grounds Counsel argued that the appellants were under no obligation to renew the deposit in the large account for a period of a year notwithstanding the receipt of Lui s instructions of 23 June 1979 Lui was acting on behalf of the executors to Lugito s estate and had instructed that the amount standing to the credit of the large account be renewed on maturity which was on 24 January 1979 Counsel advanced two arguments under this issue first the terms in the fixed deposit did not confer any contractual option to renew the appellants were only under an obligation to repay the deposit moneys and the interest for a year on its maturity to the customer What Lui did when they requested for a renewal of the deposit was only an offer made to the appellants which was not accepted by the appellants Second it was a precondition that the TCD be produced before renewal could take place and even though this precondition was communicated to Lui no expired TCD was ever produced Counsel attacked the findings of the learned judicial commissioner that the appellants did not actually communicate to Lui s office that renewal would not take place until and unless the old TCD was produced 30 The essence of the contract between a banker and customer in a contract of fixed deposit is that the customer deposits an amount for a specified period of time at an agreed rate of interest The balance standing to the credit of a customer s fixed deposit account is a debt due to him from the bank and this sum together with interest is payable either on demand or at a predetermined date If the deposit is renewed at maturity the bank would roll over the deposit and the interest payable into a new deposit and fix the interest rate at the then prevailing rate An analysis of some of the incidents of the banker customer contract was stated by Atkin J in N Joachimson a firm name v Swiss Bank Corporation 1921 3 KB 110 at 127 as follows The bank undertakes to receive money and to collect bills for its customer s account The proceeds so received are not to be held in trust for the customer but the bank borrows the proceeds and undertakes to repay them The promise to repay is to repay at the branch of the bank where the account is kept and during banking hours 31 In DFC New Zealand v Goddard 1992 2 NZLR 445 at 447 Cooke P said It is elementary that an unsecured deposit whether for a term or at call with a bank or similar financial institution creates normally only a debtor and creditor relationship and not a trust and that this applies to an authorised deposit of trust funds 32 Hence in the absence of any special relationship between the bank and the customer such that the bank is held out to be a fiduciary the amount is not held by the bank as a trustee In Hart Inspector of Taxes v Sangster 1957 Ch 329 it was held that separate deposits into the account do not constitute separate contracts but instead remain as one continuous contract This contract is made at the time the account is opened and both withdrawals and payments into the account are effected in performance of this contract 33 The terms of the TCD were silent as to the renewal of the deposits There was no dispute that Lui had by the letter dated 23 June 1979 clearly instructed the appellants to renew the fixed deposit standing in the large account for a period of one year When such an instruction is given it is really unarguable that what the account holder is saying is that the deposit is to be renewed on the banker s usual terms and interest rates for the amount given presumably at the then prevailing interest rate There was no ambiguity in respect of the instructions The instructions were not uncertain since there was an objective market standard to be applied at all times That was indeed how the appellants understood the instructions in the same mandate of 23 June 1979 to consolidate the two current accounts one in Singapore currency and the other in US currency and to place them on a one year deposit 34 Counsel relied on Paul Felthouse v Bindley 1862 11 CB NS 869 for the proposition that an offeror was not entitled to treat an offer as having been accepted by the offeree if the offeree did not respond to the offer However the proposition that silence did not amount to acceptance did not apply where it was one continuing contract between the customer and the bank The only question was what sort of terms were agreed by the parties It must be that the bank was contractually bound to accept further deposits into the account on the instructions of the customer if they were above a prescribed minimum as long as the banker customer contract existed between the parties If the appellants refused to accept the instructions either to place any further money in the fixed deposit account or to renew the deposit with the accrued interest when maturity date was reached the appellants should at the very least give reasonable notice to the customer before terminating the account In this case the appellants never terminated the banker customer relationship In fact the appellants acted on the same mandate in transferring the money in the two current accounts into a new fixed deposit account and sending the TCD to Lui The appellants themselves said that they contacted Lui for the return of the expired TCD in respect of account No 202831 before they would renew the deposit in the large account All these showed that the appellants never terminated the contract between the parties 35 The second argument advanced by counsel was on the construction of rule 2 found on the face of the TCD Rule 2 provided that the receipt must be duly stamped upon repayment The terms of the TCD were that the bank received from the customer a stated sum of money to be placed on fixed deposit for a certain period repayable with interest at the stipulated rate upon presentation of this receipt subject to the following rules Rule 2 was one of the rules It is clear that these terms were concerned with repayment to the customer and not renewal of the deposit Counsel s argument that rule 2 also applied to the renewal of the deposit is not persuasive at all 36 Counsel for the appellants relied on Voo Foot Yiu v Oversea Chinese Banking Corp Ltd 1936 MLJ 169 and Re Wee Cheow Keng deceased 1953 MLJ 206 in arguing that there was every reason why the appellants required the return of the expired TCD In Voo Foot Yiu it was held that where money in a deposit account was stated to be repayable only on the production of the deposit receipt the bank repaid the money at its own risk when it made payment of the deposit to someone who did not have the deposit receipt However Voo Foot Yiu is distinguishable from the facts in the present case which concerned the renewal of the deposit and not repayment When a fixed deposit reached maturity and the whole amount payable thereunder is instructed to be renewed on a fresh deposit all the principal and accrued interest remains in the same fixed deposit account albeit on a fresh deposit There is no repayment of the sums in the deposit account to the customer 37 In Re Wee Cheow Keng deceased a father deposited 100 000 with the bank in the joint names of himself and his infant son The bank issued a receipt which provided that the amount shall be received by the named persons or bearer in Singapore Murray Aynsley CJ at 207 said by way of dicta that This document the receipt was not negotiable and it could not be assigned at law by mere delivery Parties cannot by contract make a chose in action negotiable nor can they create a chose in action which is assignable other than in accordance with the statute Delivery would at most operate as an equitable assignment and an assignee could only sue the bank in his own name after the procedure required by statute for the legal assignment of a chose in action had been completed 38 We fail to see why the appellants perceived that the return of the expired TCD was important The decision in Re Wee Cheow Keng deceased made it clear that a deposit receipt was not negotiable The appellants TCD was not a negotiable instrument Transferring an unexpired TCD in itself could not transfer any rights in ownership to the transferee This is a fortiori the case with an expired TCD 39 The learned judicial commissioner held that even if the presentation of the TCD was a condition precedent to the renewal of the deposit the appellants were obliged to act with reasonable care and skill to duly notify the respondents clearly unequivocally and promptly that they were refusing to renew the deposit until the expired TCD was presented and the failure to do so was a breach of contract In our view the appellants were under an implied duty of care to the account holders to give such a notice and such a breach gave rise to an estoppel The appellants by their conduct were estopped from insisting on the presentation of the expired TCD a provision which was inserted only for the benefit of the appellants The practice of the appellants from 1973 the date on which the account was opened to 1978 the date of Lugito s death was to automatically renew fixed deposits on the maturity date without insisting on the presentation of the TCD The appellants did not write a single letter from 1979 to 1991 to state that the large account could not be renewed because the expired TCD was not returned In all the inquiries made by Herman s solicitors to the appellants no mention was made that the expired TCD was not returned In 1991 when the appellants were asked why interest was not paid since 1979 their answer was not the non return of the TCD but the lack of specific instructions to place the moneys in an interest bearing account 40 Counsel for the appellants attacked the learned judicial commissioner s finding that there was no actual communication by the appellants to the respondents of the necessity of returning the expired TCD The learned judicial commissioner did accept that Tan Bee Choo also known as Cindy Koh a clerk with the appellants in the fixed deposit department at the time the 23 June 1979 letter was received made a telephone call to the office of Lui on 27 June 1979 She testified that she called and spoke to a Ms Tan a clerk in the firm This was supported by a contemporaneous note made by Tan Bee Choo The learned judicial commissioner made a finding that while such a telephone conversation did take place it was probable that all she told Ms Tan was to ask for the large account s TCD He was not prepared to find that Tan Bee Choo did communicate explicitly to Ms Tan that the deposit of the large account moneys would not be renewed until the expired TCD was produced This was a finding of fact made by the learned judicial commissioner who had seen and heard Tan Bee Choo s evidence and who had assessed the probative value of the contemporaneous note which only stated that she had spoken to Ms Tan who would get the original TCD from the client In our view he was perfectly entitled to come to such a finding 41 In addition the learned judicial commissioner held that in any event such a conversation would not be sufficient to discharge the appellants burden in establishing that they had given the respondents proper notice of their refusal to renew unless the expired TCD was returned This conversation was between a clerk with the appellants and a secretary with Lui A reasonable banker would have informed Mr Lui Boon Poh personally or given the firm written notice hereof Counsel for the appellants argued that there was no requirement that all communications between a bank and its customer must be in writing citing the example of telephone banking We think that this missed the point completely Whether it was appropriate to use the telephone as a means to convey information would depend on the importance of the information The appellants position that they would not renew the fixed deposits without the return of the original TCD should have been clearly communicated to Mr Lui Boon Poh personally or to the firm It was unreasonable for Tan Bee Choo to leave the instructions to return the expired TCD with a secretary of the solicitor without confirming it in writing Proper notice of their stance taken was important and would have required the appellants to confirm their position in writing Duties of the bank on the maturity of the fixed deposit 42 We now turn to the second issue which is the scope of the bank s duty of care to the customer when it has not obtained the customer s instructions to deal with the money in the fixed deposit on its maturity This issue concerns both the large and small accounts This issue is far more contentious Counsel for the appellants argued that in relation to the large account even if they ought to comply with the instructions given in the 23 June 1979 letter they were under no obligation to pay interest for any longer than that one year period The respondents relied on the implied terms in the banking contract There were no express terms in the contract as evidenced on the face of the TCD the opening account cards loan time deposit form and the time deposit confirmation regarding notification to the customer on maturity of the deposit or the renewal of the fixed deposit 43 Counsel for the respondents relied on the letter of 23 June 1979 which contained an instruction to the appellants to keep us Lui informed The learned judicial commissioner held that these words keep us informed would be understood by a bank taking reasonable care and skill in interpreting ascertaining and acting in accordance with the instructions of its customer to mean that the respondents required them to communicate with Lui on all matters in relation to the large account which they would in the normal course of their operations communicate with the account holders of the large account The failure of the appellants to ask Lui upon the maturity of the deposit of the large account moneys whether the deposit should be renewed was a breach of duty We disagree with the learned judicial commissioner that the words to keep us informed import contractual effect This request was far too vague to constitute a binding mandate It was more of words of mere courtesy and was insufficient to import a binding obligation to require the appellants to inform them periodically the state of the fixed deposit account 44 Counsel for the respondents sought to imply a term that the bank is under a duty of care to contact the account holders for instructions on the maturity of the fixed deposit The appellants should not only have renewed the deposit for a year following the instructions of 23 June 1979 but should also have reminded Lui that the large deposit had matured 45 In Energy Shipping Co Ltd v UDL Shipping Singapore Pte Ltd 1995 2 SLR R 609 the Court of Appeal accepted that whether a term must be implied must be a necessary term irrespective of whether one accepts the business efficacy test propounded by Bowen LJ in The Moorcock 1889 14 PD 64 or the officious bystander test enunciated by MacKinnon LJ in Shirlaw v Southern Foundries 1926 Ltd 1939 2 All ER 113 Counsel for the respondents relied on the implied duty of care arising in the contractual relationship of banker and customer found in Redmond v Allied Irish Banks 1987 FLR 307 which applied the dicta in Selangor United Rubber Estates Ltd v Cradock No 3 1968 1 WLR 1555 and Karak Rubber Co Ltd v Burden No 2 1972 1 WLR 602 These authorities supported the general proposition that a banker owed a customer a duty to take reasonable care and skill in acting in accordance with the instructions of the customer In Selangor United Rubber Estates Ltd Ungoed Thomas J held in the context of a bank s duty to the customer in respect of the conduct of its customer s business at 1608 as follows To my mind a bank has a duty under its contract with its customer to exercise reasonable care and skill in carrying out its part with regard to operations within its contract with its customer The standard of that reasonable care and skill is an objective standard applicable to bankers Whether or not it has been attained in any particular case has to be decided in the light of all the relevant facts which can vary almost infinitely 46 Counsel for the appellants argued that the dicta in Selangor United Rubber Estates Ltd was too wide and was criticised in Lipkin Gorman v Karpnale Ltd 1992 4 All ER 409 In Lipkin Gorman Cass was a partner in a solicitors firm and was a compulsive gambler He drew cheques on the firm s client account with the bank and made the cheques payable to cash as well as to the building society from whose account Cass withdrew the proceeds Those cheques were honoured by the bank even though the branch manager knew of Cass gambling activities and was aware that the method used for the drawing of the cheques was unusual May LJ criticised the application of the reasonable banker test used in Selangor to the claim against the banks for negligence and at 421 he said In my opinion whether it was by concession or not it was wrong to equate the duty to inquire where there has been fraud and the bank is proved to have known of it with that where all that is being alleged is that the bank has been negligent Nor was it necessary to rely upon any such equivalence in order to decide the issues in the Selangor case It was because of this error I think that both Ungoed Thomas J in Selangor 1968 2 All ER 1073 at p 1118 1968 1 WLR 1555 at p 1608 and Brightman J in Karak 1972 1 All ER 1210 at p 1231 1972 1 WLR 602 at p 629 stated the common law of duty of care on a paying banker in the normal case of a current account in credit too highly The relationship between the parties is contractual The principal obligation is upon the bank to honour its customers cheques in accordance with its mandate on instructions There is nothing in such a contract express or implied which could require a banker to consider the commercial wisdom or otherwise of the particular transaction Nor is there normally any express term in the contract requiring the banker to exercise any degree of care in deciding whether to honour a customer s cheque which his instructions require him to pay In my opinion any implied term requiring the banker to exercise care must be limited 47 Lipkin Gorman was concerned with how the reasonable banker test should be applied in the context of whether a bank had been negligent in honouring a cheque drawn within the authority of its customer s agent without enquiries The formulation of the reasonable banker test in ordinary transactions remained the same but the criticism only went to when the court should hold that the bank would be put on inquiry and its failure to investigate amount to negligence 48 In our view the bank is under an implied duty of care to take reasonable steps to inform the account holders on the maturity of their fixed deposits Counsel for the appellants argued that it would be unrealistic to expect the appellants to continually send reminders and that an absolute duty for the bank to seek out the customer was too onerous a duty and would be tantamount to requiring the bank to act as a part time detective This argument is exaggerated Reasonable steps in many cases would ordinarily mean in the absence of special circumstances writing once to the customer at the address provided when it has not received any instructions for renewal Obviously the bank could not be under an absolute duty to seek out its customer 49 We fail to see how imposing such an obligation to send reminders was contrary to fundamental principles in the banker and customer contract Counsel relied on Holden The Law and Practice of Banking 5th ed vol 1 and Clare Co v Dresdner Bank 1915 2 KB 576 for the proposition that unless and until called upon by the customer to pay either by paying over the balance or by honouring a cheque or other payment instruction the banker was neither expected nor obliged to act 50 The authorities relied on by the appellants were not inconsistent with the duty of care imposed by a bank in reminding the customers of the maturity of the deposit Holden stated that the ordinary rule that a debtor must seek out his creditor did not apply between the bank and customer in the context of repayment of the deposit Holden at p 55 The customer had no right of action against his banker in respect of money deposited until after a demand had been made and so time did not begin to run against the customer under the Limitation Act Cap 163 1996 Ed until such demand In Clare Co v Dresdner Bank 1915 2 KB 576 the court held that the customers were not entitled to demand payment on their account from the bank s London branch when their account was at the Berlin branch The banker s duty was only to repay the money upon demand being made by the customer at the branch of the bank where the account was kept 51 Whether we ought to impose a duty of care on the bank to send reminders to fixed deposit account holders had nothing do with when limitation was to set in or at which branch the customer could demand repayment of the sums deposited The rule that the banker was not obliged to seek its customer dealt with the banker s obligation to repay the deposit and had nothing to do with general duties of care imposed on the banker 52 Reverting to the present case the facts are very unusual and unfortunate for the respondents The attempts which the appellants made in contacting the account holders were the reminders which they sent to the Cairnhill property Tan Bee Choo and Lilian Hui a customer service officer adduced evidence of a comprehensive method of using a computer generated device to send reminders to the account holders The system according to them was that it would ensure that a reminder was sent seven days before the fixed deposit was due to mature and if the appellants had still not received any instructions on what to do with the deposit upon maturity another reminder would be sent seven days after the maturity of the deposit Further reminders would then be sent After five reminders a registered letter would be sent as a last resort This system was already in place in the appellants However all the reminders were sent to the Cairnhill property occupied by the first family which was at loggerheads with the respondents The upshot was that the respondents were not informed of those reminders The appellants did send a registered letter on 22 January 1981 which was returned unclaimed This would be obvious to anyone including the appellants that no instructions would come from that address or that the customer had moved from the address or could no longer receive correspondence through that address 53 The appellants did not give a satisfactory explanation as to why there was no follow up action or any attempt to contact Lui or Mr Lui Boon Poh whom they knew from the 23 June 1979 letter were the solicitors acting for the executors of Lugito s estate The appellants had indeed taken Lui s instructions in respect of consolidation of the two current accounts and could not possibly dispute that they were entitled to ignore Lui as a source of instructions Moreover Tan Bee Choo testified that she accepted that Lui were the proper source of instructions and had called the solicitor s office to request for the return of the expired TCD The letter of 23 June 1979 from Lui was recorded on a caution card in the appellants records with respect to the large account In 1985 the appellants claimed that they lacked any form of instructions and forced the account into dormancy 54 On Lugito s death on 21 November 1978 the right of survivorship operated and legal title to the joint account vested in Herman and Lily On Lily s death on 17

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  • Intraco Ltd v Multi-Pak Singapore Pte Ltd[1994] 3 SLR(R) 1064; [1994] SGCA 142
    confirming that 20 000 shares of 100 each in the capital of the respondents had been allotted to the appellants at par payable in cash in full within one month On 5 June 1984 Leslie Tan submitted a memorandum to the executive committee of the board of directors of the appellants to the effect that the respondents had agreed to take over the debts owed by City Carton in exchange for shares in the respondents On 6 June 1984 the respondents were informed by the appellants that the latter s board of directors had approved the subscription of the shares in the respondents On the same day a cheque for the sum of 2 371 079 62 payable to the appellants was signed by Peter Ng and David Ng as directors of the respondents which was intended as payment for the assignment of the debts The respondents board resolution approving the allotment of shares to the appellants was passed on 11 June As part of the agreement to subscribe for shares in the respondents the appellants also agreed to advance to the respondents a loan of 371 079 62 Accordingly two cheques were issued by the appellants to the respondents one for 2m for the shares and the other for 371 079 62 for the loan On 21 June 1984 the three cheques were deposited by the two parties to their respective accounts with the same bank at about the same time in the following sequence the two cheques in favour of the respondents were deposited first to the account of the respondents and immediately thereafter the cheque in favour of the appellants was deposited to the account of the appellants On 25 July 1984 Leslie Tan and one Mrs Catherine Kwan the appellant s financial controller and secretary were appointed directors of the respondents 9 Subsequently the respondents were in financial difficulties Barely seven months later on 24 January 1985 the respondents went into receivership and later into liquidation The receivers formed the view that the purchase of the debts owed by City Carton and Box Pak was improper and accordingly proceedings were instituted against the appellants Peter Ng David Ng and Pattinson Temple As we have said the three named individuals were not served with the writ and were not parties to the proceedings Decision below 10 The court below accepted the evidence that City Carton and Box Pak were technically insolvent at the time when the debts were assigned and found that there was little chance of their unsecured creditors being paid The trial judge held that in light of the financial position of the two companies there was no commercial justification for the respondents taking an assignment of the unsecured debts when they were in essence worthless Consequently he found that the directors had misapplied the funds of the respondents and held that they were in breach of their statutory duty under s 157 1 of the Companies Act Cap 50 in that they had failed to act honestly and to use reasonable diligence in the discharge of their duties at all times The learned judge further found that the appellants had actual or at least constructive knowledge of the breach and declared that the appellants held the sum of money received as constructive trustees for the respondents At the same time he also found that the tort of conspiracy had been made out in that the appellants had acted in concert with the directors to commit a breach of their duty under s 157 1 an offence under s 157 3 of the Companies Act Appeal 11 Central to the appeal was the issue whether the purchase by the respondent of the debts owed by City Carton and Box Pak to the appellants was linked to a the subscription by the appellants of the 20 000 shares of 100 each in the capital of the respondents and b the advance of the loan of 371 079 62 by the appellants to the respondents These transactions must be considered in the context of the factual matrix in which the parties were at the material time The facts and events leading to the transactions and the implementation thereof have been set out earlier and it is only necessary to repeat the following The agreement for the assignment of the debts was made between the respondents and the appellants on 24 May 1984 Following that approximately four days later the respondents informed the appellants that 20 000 shares of 100 each had been allotted at par to the appellants and that they were to be payable in cash On 5 June Leslie Tan submitted a memorandum to the chairman and members of the executive committee which was an executive committee of the board of directors of the appellants and exercised the powers of the board The content of this memorandum was informative and it is helpful to set it out in full which was as follows City Carton a manufacturer of paper carton established in 1973 has been together with its subsidiary Box Pak customers of Intraco for the past ten years An ill timed ambitious expansion plan together with the prolonged recession of 1982 and 1983 have brought the company almost to the verge of bankruptcy The total owings of the company as of now is 23m Intraco has over 1983 and 1984 written off about 1 5m and the amount outstanding in our books is about 900 000 A group of outside shareholders have now launched a rescue operation for the company The rescue operation envisages Multi Pak a 30m company started to manufacture paper from pulp and waste paper taking over City Carton as its subsidiary and injecting new cash into it Multi Pak which will commence operation in July promises to be a viable operation as there is considerable demand for paper in Singapore and in the Asean countries Intraco will be appointed as the sole distributor of their products As part of the rescue operation the shareholders of Multi Pak have offered Intraco to take over the entire 2 4m owings by City Carton in exchange for shares in Multi Pak We have agreed to this in principle because if we stay with City Carton and the rescue operation does not materialize there is every danger that we would end up recovering perhaps less than 5 of the original debts As the offer stands we would end up as a shareholder of Multi Pak and recover some of the money by the commission from selling paper The conversion does not involve any cash injection on our part but it seems just the only way for us to recover our credit 12 Unfortunately Leslie Tan who was deeply involved in the negotiations with Peter Ng and David Ng in respect of these transactions had passed away by the time the action came on for trial The memorandum was prepared by him in the ordinary course of business and explained to a certain extent what the appellants sought to achieve with the sale of the debts and the subscription of the shares the appellants being a substantial unsecured creditor of City Carton and Box Pak had obviously decided that a conversion of those debts into equity in the respondents was the best possible method to recover the amounts owed to them The proposal contained therein was approved by the executive committee and on the following day 6 June 1984 the respondents were accordingly informed that the board of directors of the appellants had approved the subscription of the 20 000 shares of 100 each in the capital of the respondents On the same day a cheque for 2 371 079 62 payable to the appellants was signed by Peter Ng and David Ng on behalf of the respondents It was unclear whether the cheque was delivered or handed to the appellants on that day As a matter of inference it seemed to us highly unlikely that the cheque was issued and delivered to the appellants then The respondents would not have taken over the debts and paid for them without some other consideration emanating from the appellants bearing in mind that the debts were known to all parties concerned to be of little value The other consideration as the evidence unfolded consisted of the subscription by the appellants of 20 000 shares of 100 each in the capital of the respondents and the loan of 371 079 62 to the respondents It is true that no mention of this was made in the agreement for the assignment of the debts made on 24 May 1984 But on the facts the inference that the subscription of the shares and the advance of the loan were part of the arrangement for the assignment of the debts was irresistible 13 On 11 June 1984 the board of directors of the respondents resolved that 20 000 shares of 100 each be allotted at par to the appellants payable in cash within one month the shares were duly allotted on 20 June 1984 and payment therefor was made on the following day 21 June The payment for the shares the advance of the loan and the payment for the purchase of the debts by the respective parties were of some significance On that day the appellants issued two cheques in favour of the respondents a one for 2m in payment for the shares and b the other for 371 079 62 for the loan to the respondents the total of these two amounts came to 2 371 079 62 These two cheques were paid and credited to the bank account of the respondents and immediately following that the respondents cheque for 2 371 079 62 payable to the appellants representing the consideration for the purchase of the debts was paid and credited to the appellants bank account 14 Clearly the purchase of the debts by the respondents from the appellants was linked to the a subscription by the appellants of the 20 000 shares in the respondents and b the loan of 371 079 62 by the appellants to the respondents It could not have been a mere coincidence that the cheques for the respective sums were deposited to the respective bank accounts of the parties on the same day and that the total of the amount paid for the shares and the amount of loan equalled the purchase price for the debts Although the agreement for the assignment of the debts was made nearly one month earlier it was not carried out and implemented until the payment for the shares and release of the loan were made The transactions were orchestrated to be completed on the same day and at about the same time In our view the inescapable conclusion is that the appellants subscribed for the shares in the respondents and advanced the loan to them in return for the respondents purchasing the debts from the appellants That in essence was the true nature of the transactions 15 It is relevant to mention also that following the completion of these transactions Leslie Tan and Catherine Kwan both employees of the appellants joined the board of directors of the respondents Again as a matter of inference this must have been agreed to by the respondents and the appellants as part of the arrangement made between them 16 We now turn to the next issue and that is whether in entering into these transactions the directors of the respondents committed a breach of duty On this issue two questions arise first as the purchase of the debts by the respondents was in exchange for the appellants subscribing for shares and advancing the loan whether there was a breach of s 76 of the Companies Act Cap 50 and second apart from s 76 whether in entering into these transactions the directors of the respondents acted in breach of their fiduciary duties to the respondents 17 It is convenient at this stage to set out s 76 so far as relevant which reads as follows 1 Except as is otherwise expressly provided by this Act no company shall give whether directly or indirectly and whether by means of a loan guarantee or the provision of security or otherwise any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or where the company is a subsidiary in its holding company or in any way purchase deal in or lend money on its own shares 18 The respondents relied on the case of Belmont Finance Corp v Williams Furniture Ltd No 2 1980 1 All ER 393 and contended that the transactions contravened s 76 There the third defendant Grosscurth wanted to acquire the entire share capital of Belmont Finance Corp Ltd Belmont which was wholly owned by the second defendant City Industrial Finance Ltd City which in turn was wholly owned by the first defendant Williams Furniture Ltd Williams Grosscurth was the controlling shareholder of Maximum Finance Ltd Maximum Grosscurth and his associates agreed with Williams and City to sell all their shares in Maximum to Belmont for 500 000 and to buy the entire share capital of Belmont from City for 489 000 At the same time Williams and City agreed to lend Belmont 200 000 for 12 months secured on the share capital of Maximum Grosscurth guaranteed to Belmont that the aggregate pre tax profits of Maximum and its subsidiaries for a certain period of time would be not less than 500 000 and City agreed to subscribe for 230 000 1 preference shares in Belmont out of the 489 000 it received for the sale of Belmont The end result was that Grosscurth and his associates became the owners of all the shares of Belmont and through it Maximum Belmont subsequently went into liquidation It was then found on valuation that Maximum was worth only about 60 069 and not 500 000 An action was later commenced against inter alios Grosscurth Williams and City At the trial it was established that at the material time of the transaction the respective parties genuinely believed that Maximum s shares were worth 500 000 and that buying Maximum was a good commercial transaction and on that ground the High Court dismissed the claim On appeal the Court of Appeal held that the purchase of Maximum was not a bona fide commercial transaction in its own right but was merely part of a scheme to enable Grosscurth and his associates to acquire Belmont using Belmont s own funds and that it was not a transaction in the ordinary course of Belmont s business to acquire Maximum and did not enable Belmont to acquire anything which it genuinely needed for its own purpose Accordingly it was held that there was a breach of s 54 of the Companies Act 1948 which was in pari materia with s 76 of our Companies Act Buckley LJ in his judgment said at 403 In truth the purchase of the share capital of Maximum was not a commercial transaction in its own right It was not a transaction whereby Belmont acquired anything which Belmont genuinely needed or wanted for its own purposes it was one which facilitated Mr Grosscurth s acquiring Belmont for his own purposes without effectively parting with Maximum That the purpose of the sale of Maximum to Belmont was to enable Mr Grosscurth to pay 489 000 for Belmont was at all relevant times known to and recognized by Mr James and the members of his team as well as by Mr Copeland There is no good reason disclosed by the evidence to suppose either that Mr Grosscurth and his associates could have sold Maximum to anyone else for 500 000 or that Belmont could have disposed of Maximum for 500 000 to anyone else at any time The purchase of the share capital of Maximum may have been intra vires of Belmont a matter which we have not been invited to consider but it was certainly not a transaction in the ordinary course of Belmont s business or for the purposes of that business as it subsisted at the date of the agreement It was an exceptional and artificial transaction and not in any sense an ordinary commercial transaction entered into for its own sake in the commercial interests of Belmont It was part of a comparatively complex scheme for enabling Mr Grosscurth and his associates to acquire Belmont at no cash cost to themselves the purchase price being found not from their own funds or by the realization of any asset of theirs for Maximum continued to be part of their group of companies but out of Belmont s own resources In these circumstances in my judgment the agreement would have contravened s 54 of the 1948 Act even if 500 000 was a fair price for Maximum 19 In this case counsel for the respondents contended that as the debts purchased by the respondents were worthless the assignment was not in the commercial interests of the respondents and that the only purpose for which the debts were purchased was in order to enable the appellants to become a shareholder of the respondents without having to pay cash for the shares thereby breaching s 76 20 Counsel for the appellant on the other hand contended that it was not a breach of s 76 when a company entered into a transaction with a party in its own commercial interests and not solely to provide financial assistance to the other party to buy shares in it although it resulted in the other being put in funds to acquire the shares We were referred to the following passage from the judgment of Buckley LJ in Belmont No 2 18 supra at 402 If A Ltd buys from B a chattel or a commodity like

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  • Indian Bank v Ramachandran and others[1991] 1 SLR(R) 511; [1991] SGHC 43
    1991 when the plaintiffs claim against the third fourth fifth sixth and seventh defendants were dismissed with costs They have now appealed to the Court of Appeal 3 At the commencement of the hearing of this action Mr R Joethy informed this court that the third and fifth defendants are bankrupt and he no longer represented them The respective counsel for the first defendant and second defendant also informed the court that their clients consented to judgment to be entered against them in favour of the plaintiffs for the sum of 130 000 with interest on the said amount at the rate of 2 per annum above the plaintiffs prime lending rate from 28 October 1983 to the date of payment and all costs charges and expenses which the plaintiffs might incur in obtaining or seeking to obtain payment of all or any part of the above sum to be taxed on a solicitor and client basis Accordingly judgment was entered against the first and second defendants for the said sum of 130 000 with interest and costs as per para 10 b ii and 10 c of the amended statement of claim 4 Counsel for the plaintiffs had during the course of the hearing asked this court to adjourn the plaintiffs claim against the third and fifth defendants I decided that it would not be appropriate to do so as the plaintiffs claims against the third and fifth defendants are that they are jointly and severally liable with the other defendants in this action for the overdraft facilities granted to the company under the first and second guarantees The outcome of the plaintiffs claim against the third and fifth defendants must follow the outcome of their claim against the other defendants in this action 5 Mr Jeganathan PW1 a bank officer of the plaintiffs gave evidence for the plaintiffs and the fourth sixth and seventh defendants gave evidence before this court 6 In January 1982 or thereabouts the company applied for banking facilities from the plaintiffs The company wanted a temporary overdraft facility of 130 000 for a period of 60 to 90 days It intended to apply for a facility of 600 000 subsequently within 90 days The plaintiffs were willing to extend overdraft facilities to the company provided that all the seven directors gave their personal guarantees for the facilities extended to the company The plaintiffs prepared a guarantee on or about 18 January 1982 with the names of all the seven defendants stated therein as co sureties and handed the same to the second defendant for execution by all the seven defendants The said guarantee hereinafter referred to as the first guarantee was signed by all the defendants except the seventh defendant who was away in England pursuing a course of studies The said guarantee was returned to the plaintiffs on 19 January 1982 by the third defendant the general manager of the company The third defendant informed the plaintiffs of the fact that the seventh defendant had not signed the said guarantee as he was away in England 7 On 22 January 1982 the company wrote to the plaintiffs saying that they required the use of the temporary overdraft facilities on an urgent basis The plaintiffs manager Mr Reddy told the second defendant the managing director of the company that he wanted the guarantee of the seventh defendant and the second defendant agreed to get a separate guarantee of the seventh defendant PW1 said in his evidence in chief that the plaintiffs allowed the company to use the facilities on 1 February 1982 when the second defendant Dr Dhanapal promised to obtain a separate guarantee from the seventh defendant when his manager Mr Reddy insisted that he wanted the signature of the seventh defendant before releasing facilities to the company According to PW1 his manager instructed him to prepare a separate guarantee for the seventh defendant to sign The plaintiffs had only one standard form for all guarantees furnished by their clients PW1 took a standard form of the plaintiffs and typed the seventh defendant s name and other particulars on it and the same was forwarded to the company to obtain the seventh defendant s signature on the guarantee and it was returned to the plaintiffs sometime in March 1982 duly signed by the seventh defendant on 14 March 1982 This guarantee was dated 14 March 1982 hereinafter referred to as the second guarantee The first and second guarantees are identical except for the fact that the first guarantee has all the names of the seven defendants shown therein as co sureties and the second guarantee has only the name of the seventh defendant shown therein as surety 8 During his cross examination by counsel for the seventh defendant PW1 was asked to explain what he meant when he said the second defendant told him that he the second defendant would get the guarantee of the seventh defendant PW1 s reply was We could not have released the guarantee for the seventh defendant to sign as we want to hold on to the document PW1 further said that as far as the plaintiffs were concerned the second guarantee was an addendum to the first guarantee 9 The company was allowed to use the overdraft facilities from 1 February 1982 Thereafter the company utilised the overdraft facilities and by 11 March 1983 the company s account was overdrawn by the amount of 130 619 10 Despite requests and demands the company did not settle the amount due under the overdraft account to the plaintiffs The company was wound up pursuant to an order of court on 11 November 1983 10 By a letter dated 29 September 1984 addressed to each of the defendants the plaintiffs through their solicitors demanded payment from the defendants of the amount due to the plaintiffs from the company As no payment was made the plaintiffs commenced proceedings against the seven defendants 11 Paragraph 3 of the plaintiffs statement of claim reads In consideration of the plaintiffs making advances or otherwise giving credit to the company the defendants pursuant to the following written personal continuing guarantees duly signed by the defendants jointly and severally guaranteed the payment on demand of all moneys due to the plaintiffs from the company on inter alia overdraft and default guarantee facilities granted to the extent of 130 000 and all interest thereon Date Amount Guarantors 19 January 1982 130 000 The abovenamed first second third fourth fifth and sixth defendants 14 March 1982 130 000 The abovenamed seventh defendant 12 It is important to note that the basis of the plaintiffs claim is that all the seven defendants are jointly and severally liable under the first and second guarantees for the payment of overdraft facilities extended by the plaintiffs to the company to the extent of 130 000 notwithstanding the fact that a the first guarantee which had all the seven defendants named therein as co sureties was only signed by the first six defendants and b the second guarantee was only signed by the seventh defendant who is the only named surety on that guarantee 13 The third fifth and sixth defendants who filed a separate defence jointly averred that they were not liable under the first guarantee as claimed or at all for the following reasons a the third fifth and sixth defendants signed the first guarantee on the faith reliance and understanding that all seven defendants including the seventh defendant would sign the same The seventh defendant did not sign the first guarantee and the plaintiffs did not fulfil this condition precedent and accepted the said guarantee so altered b if seven sureties were expected to join in making the first guarantee as would be evident from its form and six of them signed it but without their approval or express waiver the seventh did not join in guaranteeing the obligation the six who signed are not bound c that the first guarantee is materially different and varied from one intended to bind the third fifth and sixth defendants d the first guarantee is on the face of it defective and not binding on the third fifth and sixth defendants e the plaintiffs have not followed established and prudent banking practice by requiring the seventh defendant to sign the first guarantee f the third fifth and sixth defendants did not agree to be liable despite the fact that the seventh defendant did not sign the first guarantee and g the first guarantee is replete with inconsistencies and inaccuracies and the third fifth and sixth defendants would so far as is necessary rely on the contra proferentem rule 14 The fourth defendant who filed a separate defence averred that a the first guarantee was to be executed by the seventh defendant as a co surety as it could be seen from the face of it and as the seventh defendant did not sign it the fourth defendant is not liable thereunder to the plaintiffs in any way and for any sum whatsoever and there is no contract and the guarantee is nullified b the fourth defendant never agreed with the plaintiffs that the signature of the seventh defendant was to be dispensed with c the first guarantee for the sum of 130 000 is an incomplete document in that the seventh defendant did not sign it and is not a party to it d it was the duty of the plaintiffs to obtain the signature of the seventh defendant and as they have failed to do so the said guarantee is void and unenforceable against the fourth defendant e the fourth defendant was not contractually bound in law by the first guarantee because of the failure of one of the co sureties namely the seventh defendant to sign it which is a condition precedent to the fourth defendant s becoming liable and f the fourth defendant never consented to be a surety without the seventh defendant joining in to indemnify the plaintiffs 15 The seventh defendant who also filed a separate defence alleged inter alia that a it was agreed between the plaintiffs and all the defendants that in consideration of the plaintiffs making advances or otherwise giving credit to the company the seven defendants shall enter into a guarantee jointly and severally guaranteeing the plaintiffs payment on demand of credit given to the company to the extent of 130 000 b contrary to the said agreement the plaintiffs accepted a guarantee signed by the first second third fourth fifth and sixth defendants dated 19 January 1982 and advanced credit facilities to the company and c unaware that the plaintiffs had accepted a guarantee signed by the first second third fourth fifth and sixth defendants dated 19 January 1982 and advanced credit facilities to the company the seventh defendant signed the guarantee dated 14 March 1982 in the belief that the first second third fourth fifth and sixth defendants would also be parties to the said guarantee and then be equally liable on the same 16 It was the seventh defendant s contention that the second guarantee is not the guarantee that the seventh defendant had agreed to enter into and he is therefore not liable under the same The seventh defendant had averred that there is no consideration for the second guarantee signed by him However this contention was abandoned by him during the course of the hearing 17 There is a reply to the defence of the seventh defendant and there is no reply to the defence of the fourth defendant or to the sixth defendant That reply answered as it could be seen what was raised by the seventh defendant in his defence 18 The main issue before this court was whether the seven defendants are jointly and severally liable to the plaintiffs for overdraft facilities extended to the company under the first guarantee which had been signed only by six of the seven persons named in that guarantee as co sureties and the second guarantee which was executed only by the seventh defendant who is the only named surety on the second guarantee Both guarantees are in the plaintiffs standard form They are identical except that under the second guarantee the seventh defendant is the only nominated surety for the overdraft facilities granted by the plaintiffs to the company and all the seven defendants are nominated as co sureties in the first guarantee 19 The evidence of the fourth defendant DW1 is briefly as follows a He signed the first guarantee in the belief that all the other six directors would do so b Unknown to him the seventh defendant did not sign the first guarantee c The plaintiffs did not give a copy of the first guarantee to him and the first time he saw that guarantee was when these proceedings were instituted against him d He would not have agreed to become a guarantor if all the other six directors did not become guarantors for the overdraft facilities e He never agreed with anyone to dispense with the signing of the first guarantee by the seventh defendant f He had no knowledge of the plaintiffs taking the second guarantee from the seventh defendant and even if he had knowledge of it that knowledge would not affect his case 20 The evidence of the sixth defendant DW2 is briefly as follows a He signed the first guarantee because every other director of the company had to sign the document b He would not have signed the first guarantee if any one of the seven directors had not signed c He would not have allowed a waiver of any one director from signing the first guarantee d The plaintiffs did not tell him that the seventh defendant had not signed the guarantee e The plaintiffs did not give him a copy of the first guarantee f The first time he saw a copy of the first guarantee was after these proceedings had commenced and it was then that he realised only six directors had signed the document 21 The evidence of the seventh defendant DW3 is briefly as follows a While in United Kingdom he was told by his brother Dr Dhanapal that the company was trying to get credit facilities from a bank b He received the second guarantee sometime in March 1982 when he was still in the United Kingdom He signed it on the same day he received it It was 14 March 1982 c Prior to receiving this document he had heard from his brother Dr Dhanapal that it was for purpose of obtaining overdraft facilities from the plaintiffs for the company Dr Dhanapal told him all directors would be signing the document d If any of the directors had not signed he would not have signed Should the company not be able to pay all the directors would be liable They were supposed to be jointly liable e He expected the company to get all directors to sign this document 22 Counsel for the plaintiffs challenged the evidence of the fourth sixth and seventh defendants that they were not given a copy of the first guarantee and were unaware that the seventh defendant had not signed the first guarantee until these proceedings have commenced He also suggested to these three defendants that they were aware that the seventh defendant was away and that he could not have signed the first guarantee and that the reason why the second guarantee was prepared for and executed by the seventh defendant was that the company needed the overdraft facilities urgently and that it was agreed that a separate guarantee would be obtained from the seventh defendant as he was away These suggestions were denied by these defendants 23 Counsel for the plaintiffs also suggested to the fourth sixth and seventh defendants that they had consented to the seventh defendant signing the second guarantee This suggestion was also denied by these three defendants 24 Having considered both the oral and documentary evidence adduced at hearing I found that when the company needed the use of the overdraft facilities urgently the second defendant agreed with the plaintiffs officer Mr Reddy to get the separate guarantee of the seventh defendant who had not signed the first guarantee I also found that the fourth and sixth defendants had not given their consent to the plaintiffs that the seventh defendant need not sign the first guarantee and that the second guarantee signed by the seventh defendant is to be regarded as an addendum to the first guarantee I also found that the fourth sixth and seventh defendants were not given a copy of the first guarantee either by the company or the plaintiffs and that they were only aware that the seventh defendant signed the second guarantee and did not sign the first guarantee after the plaintiffs had commenced proceedings for the recovery of the sum guaranteed by the seven defendants In arriving at the aforesaid conclusions I took into account of the fact that the fourth defendant had at times not given his evidence in a frank and straightforward manner I had also noted that there was no evidence from the plaintiffs witness PW1 that the fourth and sixth defendants had agreed with the plaintiffs or any of the plaintiffs officers that the seventh defendant need not sign the first guarantee and that he should sign a separate guarantee instead The evidence from PW1 was that the second defendant had agreed to get the separate guarantee of the seventh defendant and that it was the third defendant who informed PW1 that the first guarantee was not signed by the seventh defendant The seventh defendant who was away at the material time could not have given his consent for the new arrangements for the execution of two guarantees instead of one guarantee where all seven defendants would have signed as guarantors 25 Plaintiffs counsel submitted that all the other six defendants knew

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  • Building and Construction
    Singapore Law Watch Headline News Commentaries Judgments Legislation Notices Directions Continuing Legal Education Resources Media Press Releases Speeches Publications Online References Sample Clauses Directory of Law Practices Latest Singapore Rankings Events Upcoming Events Archive Events Archive 2013 Events Archive 2012 Building and Construction Display By Year select 2005 2004 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1988 1987 1981 1978 Management Corporation Strata Title Plan No 2297 v Seasons Park Ltd 2005 2 SLR 613 2005 SGCA 16 Decision Date March 29 2005 Man B W Diesel S E Asia Pte and Another v PT Bumi International Tankers and Another Appeal 2004 2 SLR 300 2004 SGCA 8 Decision Date March 9 2004 Samwoh Asphalt Premix Pte Ltd v Sum Cheong Piling Private Limited and Another 2002 1 SLR 1 2001 SGCA 79 Decision Date December 5 2001 Liang Huat Aluminium Industries Pte Ltd v Hi Tek Construction Pte Ltd 2001 SGHC 334 Decision Date November 8 2001 Shia Kian Eng trading as Forest Contractors v Nakano Singapore Pte Ltd 2001 SGHC 68 Decision Date April 3 2001 Xpress Print Pte Ltd v Monocrafts Pte Ltd and Another 2000 3 SLR 545 2000 SGCA 37 Decision Date July 24 2000 SA Shee Co Pte Ltd v Kaki Bukit Industrial Park Pte Ltd 2000 2 SLR 12 2000 SGCA 7 Decision Date February 11 2000 Lian Soon Construction Pte Ltd v Guan Qian Realty Pte Ltd No 2 2000 1 SLR 495 1999 SGHC 259 Decision Date October 2 1999 RSP Architects Planners Engineers Raglan Squire Partners FE v Management Corporation Strata Title Plan No 1075 and Another 1999 2 SLR 449 1999 SGCA 30 Decision Date April 30 1999 Min Thai Holdings Pte Ltd v Sunlabel Pte Ltd and Another 1999 2 SLR 368 1998 SGHC 395

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  • Management Corporation Strata Title Plan No 2297 v Seasons Park Ltd[2005] 2 SLR 613; [2005] SGCA 16
    if the claim was founded in tort This is because under the LTS Act the administration of the common property of a development is vested in the management corporation which will be entitled in its own right to sue in tort with respect to the common property In Ocean Front this court noted at 120 14 that while the management corporation has no proprietary interest in the common property it has certain rights and obligations with regard to the common property which is something akin to possession of the common property This was the basis upon which the court in Ocean Front held that the management corporation had a claim in tort in its own right against the developer This right to sue was extended to cover the contractor and the professional consultants in RSP Architects Planners Engineers v MCST Plan No 1075 1999 2 SLR 449 RSP Architects However a claim in contract would have to rely on the sale and purchase contract entered into by each subsidiary proprietor with the developer 20 Up to the time when the preliminary issues were raised before Choo J the pleadings stood as an action instituted by the appellant on behalf of all the subsidiary proprietors even though by February 2004 the appellant knew from the affidavit of the respondent s witness Mr Jimmy Ho that there were only 319 original purchasers who still owned units in the condominium Moreover the appellant did not appreciate that although there were 319 original purchasers it did not mean that they had all ipso facto authorised the appellant to sue in contract on their behalf and that specific authorisation was required from each original purchaser No attempt was made to amend the pleadings and state explicitly on which of the subsidiary proprietors behalf was the action in contract taken As rightly noted by Choo J it did not necessarily follow that every subsidiary proprietor would sue in contract just because he had the right to do so Neither had the appellant given the names of the subsidiary proprietors who had bought their units from the respondent and had voted at the AGM on 31 March 2002 authorising the management corporation to act Accordingly we agree with these observations made by Choo J at 6 7 Some of the subsidiary proprietors as counsel conceded were sub purchasers who had no contract with the respondent Thus it behoves the appellant to identify all the subsidiary proprietors on whose behalf it is suing in contract Where a cause of action is to be founded on contract every party bound by that contract must be identified and thus every subsidiary proprietor who had a contract with the respondent had to expressly authorise the appellant to sue on his behalf 21 In the light of the pleadings and the factual matrix before Choo J we think he was correct to rule the way he did However on 3 November 2004 the appellant sought to file a list setting out the names of 223 subsidiary proprietors who had purchased their units directly from the respondent and had authorised the appellant to claim on their behalf against the respondent in contract The respondent objected to the inclusion of these documents on the ground that they were not a part of the record at the hearing below and it was too late to insert them now 22 The respondent submitted that the appellant should have prepared the list very much earlier well before the hearing before Choo J If that had been done the first issue would not have arisen As far as admission of fresh evidence before the Court of Appeal is concerned this is governed by ss 37 2 37 3 and 37 4 of the Supreme Court of Judicature Act Cap 322 1999 Rev Ed which read 2 the Court of Appeal shall have full discretionary power to receive further evidence by oral examination in court by affidavit 3 Such further evidence may be given without leave on interlocutory applications or in any case as to matters which have occurred after the date of the decision from which the appeal is brought 4 Upon appeals from a judgment after trial or hearing of any cause or matter upon the merits such further evidence except as to matters subsequent as specified in subsection 3 shall be admitted on special grounds only and not without leave of the Court of Appeal 23 It is quite clear that if fresh evidence is sought to be admitted for the purpose of an appeal against a judgment delivered following a trial s 37 4 will be applied In order that such leave may be granted special grounds must be established To show such special grounds the three conditions laid down in Ladd v Marshall 1954 1 WLR 1489 must be satisfied namely first it must be shown that the evidence could not have been obtained earlier with reasonable diligence second the evidence must be such that if given would probably have an important influence on the result of the case and third the evidence must be apparently credible although it need not be incontrovertible 24 The rulings under appeal were of course not made after a trial But were they made after the hearing of a matter on the merits Arguably they were The answers given by the court were on the merits on the basis of the pleadings Therefore the adduction of the proposed fresh evidence would require the fulfilment of the stringent conditions laid down in Ladd v Marshall In addition and more importantly the pleadings must also be amended 25 Admittedly the decision on the first issue would have the effect of striking out the appellant s claim in contract on the ground that it had no locus standi to make the claim as it failed to disclose on which of the subsidiary proprietors behalf the action in contract was instituted There can be no doubt that the list is vital and could have been prepared earlier Indeed its timely preparation and production would have avoided the first issue being brought up as a preliminary issue It seems to us clear that the list was not prepared earlier because of the perception on the part of the appellant that it was not necessary The appellant did not appear to appreciate that its claim in contract on behalf of the subsidiary proprietors stands on a different footing from that of its own claim in tort as enunciated in Ocean Front 16 supra Thus the appellant failed to satisfy the first condition laid down in Ladd v Marshall The fresh evidence could not be taken into account In any case the real problem was in the pleadings as they failed to identify the specific subsidiary proprietors on whose behalf the claim in contract was made by the appellant 26 As we have mentioned before in the light of the state of the pleadings and the submissions before Choo J he was absolutely correct to have made the ruling he did The appellant had not shown then that it was representing pursuant to s 116 specific subsidiary proprietors who themselves had a cause of action in contract against the respondent However this ruling cannot preclude the individual subsidiary proprietors from instituting a new action in contract against the respondent Neither do we think that the appellant is precluded from instituting a new action in contract against the respondent for and on behalf of specified individual subsidiary proprietors who have such a claim against the respondent The respondent conceded as much 27 Accordingly it seems to us that unless limitation has set in there is much to be said in favour of the court granting leave to the appellant to amend the pleadings to properly set out the basis of its claim in contract so that the trial of both causes in contract as well as in tort can proceed together as the evidence will be common to both causes It would not make much sense if limitation has not set in to compel the appellant or the individual subsidiary proprietors with a claim in contract to institute a fresh action It would clearly be inexpedient to try the remaining portion of the present action which is in tort separately from the new action in contract to be instituted as the evidence will be common to both 28 While there is a Motion filed seeking leave of this court to amend the pleadings to include the names of the subsidiary proprietors who have authorised the appellant to pursue the claim in contract that Motion has been held back pending our ruling on this preliminary issue as well as the second issue As there appears to be some dispute as to whether the wording of the consent given by the 223 subsidiary proprietors is sufficient to authorise the appellant to continue with this action and in order to ensure that the question of limitation is properly addressed we think it would be more sensible that the Motion seeking leave of court to amend the pleadings be placed before the trial judge and we would so direct 29 Before moving on to the second issue it is necessary for us to consider the Court of Appeal decision in MCST Plan No 1938 v Goodview Properties Pte Ltd 2000 4 SLR 576 Goodview Properties a case which the appellant has invited us to revisit It is a basic principle of contract law that before one party may sue another for breach of contract the first party must show that there is a contract between them Because of this principle this court had in Goodview Properties held that the management corporation pursuant to s 116 of the LTS Act could only sue on behalf of those subsidiary proprietors who had direct sale and purchase contracts with the developer and claim in respect of defects to the common property a proportionate part of the damages suffered In other words the damages awarded to the management corporation would abate corresponding to the ratio that the collective share value of the units owned by subsidiary proprietors of the units on whose behalf the action was taken bore against the total share value of all the units in the development 30 At this juncture we should add that with the enactment of the Contracts Rights of Third Parties Act Cap 53B 2002 Rev Ed the CTP Act which came into force on 1 January 2002 the strict privity rule has been modified Under this Act a third party under specified circumstances can sue on the contract even though he is not a party However this Act is not applicable to the present case as it only applies to contracts entered into after it had come into force 31 The appellant submitted that the rule of abatement enunciated in Goodview Properties should be reviewed It gave an example of a development with 100 units assuming each unit is of the same share value to show how the rule could work rather unfairly Supposing of the 100 units 60 were sold to the public and of that only 35 remained as direct purchases from the developer with 25 units having been sub sold The remaining 40 are being kept by the developer Supposing further that the cost of repair would be 1m then following Goodview Properties the management corporation would be awarded only 350 000 based on the ratio of 35 out of 100 a sum which will be grossly inadequate to carry out the repairs As the areas at which repairs are required are common property it will not be possible to differentiate between the various common areas at which repairs are required to be undertaken and the amount awarded would be clearly inadequate to carry out all the repairs What is even more grotesque is that the developer who retains 40 units will stand to gain even though it has taken a contrary position The thrust of the appellant s argument is that regardless of the number of original purchasers who have authorised the management corporation to sue on their behalf the management corporation should be entitled to recover full damages as if all the original purchasers had authorised the action 32 We recognise these abnormalities However the ruling in Goodview Properties necessarily flows from the principle of privity of contract as well as from the scheme of things under the LTS Act as under s 13 1 thereof each subsidiary proprietor is only a tenant in common of the common property to the extent of his share value Nevertheless the position is not as dire as the appellant makes it out to be The management corporation could always sue the developer the contractor and the professional consultants in tort for the defects to the common property as declared by this court in Ocean Front 16 supra While we acknowledge that a claim in tort is perhaps not as efficient as a claim in contract it seems to us that a more comprehensive solution would be to await legislative intervention The Legislature is far better equipped than the courts to deal with policy matters in the field of consumer protection which may require limitations or safeguards A more limited solution might well be to amend the standard sale and purchase agreement prescribed in the Housing Developers Rules Cap 130 R 1 1999 Rev Ed so as to confer upon the sub purchaser of a unit a right to sue in contract pursuant to s 2 1 a of the CTP Act see 30 above 33 We have mentioned above that s 116 is a facilitative provision So also is s 33 2 of the LTS Act which provides that The management corporation may a sue and be sued on any contract made by it b sue and be sued in respect of any matter affecting the common property c sue in respect of any loss or damage suffered by a management corporation arising out of a contract or otherwise and d be sued in respect of any matter connected with the parcel for which the subsidiary proprietors are jointly liable 34 Section 33 2 does not confer upon the management corporation a cause of action It sets out in general terms the competence of the management corporation to sue or defend an action However for a management corporation to sue in contract it must show that it has a cause of action as it has in relation to a claim in tort see Ocean Front 16 supra 35 The appellant sought to rely on the decision of the High Court in Prosperland Pte Ltd v Civic Construction Pte Ltd 2004 4 SLR 129 Prosperland which decision has recently been affirmed by this court in 2005 SGCA 12 to submit that all the more so the appellant should have a cause of action in contract against the respondent The appellant argued in its Case T he developer in Prosperland had parted with the property and had no proprietary interest in the building and yet still had the right to the contractor sic in contract it is submitted that a fortiori a Management Corporation would have the power itself to sue the developer in contract for building defects using section 33 2 b and c of Land Titles Strata Act 36 The comparison of the present case with Prosperland is quite inapt Here the management corporation of the condominium the appellant has no cause of action in contract against the respondent There is no analogy between this case and Prosperland where the developer had a cause of action in contract and the question there was whether the developer was entitled to claim for substantial damages for the breach of the building contract even though at the time of the action the developer no longer owned the development The issue hinged on whether the developer s claim came within the exception propounded in Dunlop v Lambert 1839 6 Cl Fin 600 7 ER 824 That is an entirely different issue Defence of independent contractor 37 We now turn to consider the second issue The general principle is that an employer is not vicariously liable for the negligence of an independent contractor his workmen or agents in the execution of his contract Charlesworth Percy on Negligence Sweet Maxwell 10th Ed 2001 at p 156 and Clerk Lindsell on Torts Sweet Maxwell 18th Ed 2000 at p 249 This principle was applied in Ocean Front 16 supra and RSP Architects 19 supra It would be different if it could be shown that the employer did not exercise proper care in appointing an independent contractor In this latter event liability would arise because of the employer s own lack of care 38 However there are exceptions to this general rule In Salsbury v Woodland 1970 1 QB 324 the English Court of Appeal stated that there were two instances in which the employer of an independent contractor could be held liable for the acts of the latter The first involved extra hazardous acts that is to say acts commissioned by an employer that were so hazardous in their nature that the law had thought it proper to impose a direct obligation on the employer to see that care was taken The second concerned dangers created by work done in or on a highway when an employer had a duty to see that due care was taken for the protection of those who used the highway 39 Non delegable duties can also arise by statute eg the UK Occupiers Liability Act 1957 c 31 There are also other exceptions such as where an employer owes a duty to his employee to ensure that reasonable care is taken Wilsons Clyde Coal Company v English 1938 AC 57 where the case comes within the rule in Rylands v Fletcher 1868 LR 3 HL 330 or where the matter concerns the withdrawal of support

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  • Man B&W Diesel S E Asia Pte and Another v PT Bumi International Tankers and Another Appeal[2004] 2 SLR 300; [2004] SGCA 8
    is wide enough to embrace purely economic loss 24 Next we move to Australia and here it would suffice if we merely cite the Australian High Court case of Bryan v Maloney 1995 128 ALR 163 where the court refused to follow Murphy There a subsequent owner of a house sued the builder for economic losses she suffered on account of inadequate footings The High Court by a majority declined to follow D F Estates and Murphy and ruled that there was sufficient proximity between the builder and the subsequent owner of the house to give rise to a duty of care Their Honours said at 172 and 173 Ultimately it seems to us that from the point of view of proximity the similarities between the relationship between builder and first owner and the relationship between builder and subsequent owner as regards the particular kind of economic loss are of much greater significance than the differences to which attention has been drawn namely the absence of direct contact or dealing and the possibly extended time in which liability might arise Both relationships are characterised to a comparable extent by assumption of responsibility on the part of the builder and likely reliance on the part of the owner No distinction can be drawn between the two relationships in so far as the foreseeability of the particular kind of economic loss is concerned it is obviously foreseeable that that loss will be sustained by whichever of the first or subsequent owners happens to be the owner at the time when the inadequacy of the footings becomes manifest It is difficult to see why as a matter of principle policy or common sense a negligent builder should be liable for ordinary physical injury caused to any person or to other property by reason of the collapse of a building by reason of the inadequacy of the foundations but be not liable to the owner of the building for the cost of remedial work necessary to remedy that inadequacy and to avert such damage 25 However we must observe that the majority in Bryan v Maloney had placed emphasis on the fact that the building was a permanent residence not a commercial building and this distinction seems to be a critical ingredient of their reasoning Subsequent cases declined to extend that decision to commercial buildings eg Fangrove Pty Ltd v Tod Group Holdings Pty Ltd 1999 2 Qd R 236 a decision of the Queensland Court of Appeal and Woollahra Municipal Council v Sved 1996 40 NSWLR 101 a New South Wales Court of Appeal decision 26 Of course we see that there will be difficulties in maintaining a clear distinction between purchasers according to the type of building they buy The majority decision in Bryan v Maloney rests very much on the vulnerability of members of the public in acquiring homes We do not think it would be beneficial nor necessary to pursue this distinction to its logical conclusion for the purposes of determining its soundness 27 Finally we ought to mention that the New Zealand courts have also refused to follow D F Estates and Murphy see Invercargill City Council v Hamlin 1994 3 NZLR 513 which held that the owner of a house was entitled to claim in negligence for the expenses incurred by him to rectify damage to the house against the local council for approving the plans of the house In Canada in the case of Winnipeg Condominium Corporation No 36 v Bird Construction Co 1995 121 DLR 4th 193 Bird Construction the Supreme Court of Canada seems to have taken a similar stance La Forest J delivering the judgment of the court said at 21 In my view where a contractor or any other person is negligent in planning or constructing a building and where that building is found to contain defects resulting from that negligence which pose a real and substantial danger to the occupants of the building the reasonable cost of repairing the defects and putting the building back into a non dangerous state are recoverable in tort by the occupants The underlying rationale for this conclusion is that a person who participates in the construction of a large and permanent structure which if negligently constructed has the capacity to cause serious damage to other persons and property in the community should be held to a reasonable standard of care Later at 36 he said If a contractor can be held liable in tort where he or she constructs a building negligently and as a result of that negligence the building causes damage to persons or property it follows that the contractor should also be held liable in cases where the dangerous defect is discovered and the owner of the building wishes to mitigate the danger by fixing the defect and putting the building back into a non dangerous state In both cases the duty in tort serves to protect the bodily integrity and property interests of the inhabitants of the building see Dutton at p 396 per Lord Denning MR 28 It would be noted that the decision in Bird Construction while it allowed a claim for economic loss was of a narrow compass ie only in respect of the expenses of putting right defects in the building which posed a real and substantial danger Ocean Front 29 We now turn to consider the landmark decision of this court in Ocean Front which broke new ground as far as Singapore law was concerned when it held that the developer of a condominium was liable in tort for non personal injury losses suffered by the management corporation of the development In coming to its decision the court reviewed the English and other cases on the issue including those which we have discussed above However it preferred the approach taken by the House of Lords in Anns rather than in Murphy and also by the courts in Australia and Canada It basically adopted the two step test advanced by Lord Wilberforce in Anns The first step was to determine whether in the particular circumstances there existed that degree of proximity between the plaintiff and the defendant as would give rise to a duty of care by the defendant to the plaintiff and to determine the scope of that duty The second step was having found such a degree of proximity to consider whether there was any material factor or policy which precluded such a duty from arising Under the second step one of the considerations was whether this would result in imposing liability in an indeterminate amount for an indeterminate time to an indeterminate class 30 In holding that the developer was so liable to the management corporation with whom the developer had no contractual relation the court examined the scheme of things under the Land Titles Strata Act Cap 158 1988 Rev Ed the Strata Act the role of the management corporation in a development and the duties of the developer under the Buildings and Common Property Maintenance and Management Act Cap 30 1985 Rev Ed the Common Property Maintenance Act with regard to common property before the establishment of the management corporation It held that the relationship between the developer and management corporation was as close as it could be short of actual privity of contract and based its decision on the following considerations at 141 74 W e regard the following facts of crucial importance in determining that there is sufficient proximity between the developers and the management corporation which gives rise to the duty of care i the management corporation was an entity conceived and created by the developers ii the developers were the party who built and developed the condominium including the common property and undertook the obligations to construct it in a good and workmanlike manner and were alone responsible for such construction iii after completion of the condominium the developers were the party solely responsible for the maintenance and upkeep of the common property iv the management corporation as the successor of the developers took over the control management and administration of the common property and has the obligations of upkeeping and maintaining the common property v the performance of these obligations is very much dependent on the developers having exercised reasonable care in the construction of the common property vi the developers obviously knew or ought to have known that if they were negligent in their construction of the common property the resulting defects would have to be made good by the management corporation 31 The court also indicated that there was no single rule or set of rules for determining whether a duty of care arises in a particular circumstance and the scope of that duty It said that in determining whether a duty of care existed and the scope of such duty all the relevant circumstances would have to be examined This approach was similar to that enunciated by Gibbs CJ in The Council of the Shire of Sutherland v Heyman 1984 1985 157 CLR 424 at 441 In deciding whether the necessary relationship exists and the scope of the duty which it creates it is necessary for the court to examine closely all the circumstances that throw light on the nature of the relationship between the parties 32 The decision in Ocean Front came up for review in the subsequent case of Raglan Squire where the architects of a condominium development were held liable to the management corporation for economic loss arising from poor design There the action was instituted by the management corporation against the developer who in turn brought in the architects as a third party Notwithstanding a challenge by counsel for the architects requesting the court to review its decision in Ocean Front the court reiterated the correctness of its decision in Ocean Front The limits of Ocean Front 33 The next question to ask is whether this court intended in Ocean Front to lay down a general proposition that applying the two step test and whatever may be the subject matter whenever economic losses are suffered by a party and those losses are attributable to a lack of care on the part of another party the first party may claim the losses from the second party It is important to bear in mind that the court was at pains in Ocean Front to explain the special position of the management corporation The court examined the scheme of things under the Strata Act and the Common Property Maintenance Act and how the management corporation came into being The court noted that the management corporation was in fact the creation of the developers It was in this very special factual matrix that the court came to the view that a remedy in tort should be made available to the management corporation who would otherwise be without a remedy 34 It is true that the principle enunciated in Donoghue namely that when a person can or ought to appreciate that a careless act or omission on his part may result in physical injury to other persons or their property he owes a duty to all such persons to exercise reasonable care to avoid such careless act or omission has been extended to claims other than for such personal injuries or property damage see Hedley Byrne Co Ltd v Heller Partners Ltd 1964 AC 465 and Home Office v Dorset Yacht Co Ltd 1970 AC 1004 We also acknowledge that the Donoghue principle is not a statutory definition Its application has not remained static It is evolving It offers an avenue of redress for losses suffered by a person on account of the acts or omission of another where such losses would otherwise be without a remedy While we would not say that for every subsequent case to fall within the scope of the decision in Ocean Front the facts must be identical or the same extreme caution must be exercised in extending the Donoghue principle or the decision in Ocean Front to new situations particularly to a scenario which is essentially contractual Our analysis of the present case 35 It is indisputable that MBS and MBUK knew that the engine supplied under the sub contract would be fitted onto the vessel which was being built by MSE for Bumi The specifications for the engine were known to MBS MBS knew that Bumi required the vessel for its business MBS would also have realised that any defect in the engine would render the vessel inoperable Prima facie such circumstances could give rise to a duty of care 36 However those are not all the relevant circumstances as far as the present case is concerned There are certain contractual arrangements which must be borne in mind As stated before the main contract covered both the hull as well as the engine Under the contract MSE would be sourcing the engine from a third party Though MBS and MBUK supplied the engine Bumi made MSE solely responsible for any defect that could arise in respect of the vessel including the engine The following terms in the main contract are germane to the present proceeding and they are cll 14 1 14 4 17 1 21 and 22 14 1 The BUILDER MSE guarantees the replacement of all parts and equipment of the VESSEL thereof that are manufactured or furnished by the BUILDER under this CONTRACT against all defects which are of defective faulty design constructional miscalculations and or poor workmanship including improper storage fabrication or assembly provided that such defects have not been caused by perils of the sea rivers or navigations or by normal wear and tear overloading improper loading or stowage fire accident incompetence mismanagement negligence or wilful neglect or by alteration or addition by the OWNER not previously approved by the BUILDER and are discovered within a period of twelve 12 months after the date of delivery of the VESSEL and a notice thereof is duly given to the BUILDER as herein provided The BUILDER will be responsible for all fabrications forgings castings machinery equipment or parts of machinery and all constructions which are supplied by sub contractors and will guarantee the above mentioned for a period of twelve 12 months on the basis as laid down in this CLAUSE or for such longer period as the manufacturers thereof may give 14 4 a The BUILDER shall have no responsibility or liability for any other defects whatsoever in the VESSEL than the defects specified in sub CLAUSE 14 1 of this CLAUSE Nor the BUILDER shall in any circumstances be responsible or liable for any consequential or special losses damages or expense including but not limited to loss of time loss of profit or earning or detention of the VESSEL 14 4 c The guarantee hereinbefore replaces and excludes any other liability guarantee imposed or implied by the law 17 1 BUILDER shall be fully responsible for any part of work performed or to be performed by his sub contractors and for the acts and omissions of his sub contractors and persons either directly or indirectly employed by them to the same extent as he is for the acts and omissions of persons directly employed by him 21 This CONTRACT embodies the entire contract between OWNER and BUILDER with respect to the VESSEL 22 BUILDER states that he and his sub contractors are fully experienced and properly qualified to perform the class of construction of the VESSEL provided for herein BUILDER shall act as an independent builder in performing the construction of the VESSEL maintaining complete control over its employees and all of its sub contractors Nothing contained in this CONTRACT or any sub contract awarded by BUILDER shall create any contractual relationship between any such sub contractor and OWNER emphasis added 37 It would be seen that under the main contract Bumi had bargained for a limited warranty limited to defects discovered within 12 months of delivery and the obligation of MSE was only to repair the defects However it was also provided that should MSE obtain a more favourable warranty from the manufacturers MSE would pass the same onto Bumi Consequential losses were expressly excluded 38 It was Bumi s deliberate choice that there was no direct contractual relationship with MBS or MBUK Bumi has in its case challenged the existence of any evidence to suggest that it deliberately arranged the transaction in this manner We are unable to see how this challenge can be valid Under the main contract MSE had contracted with Bumi to build a complete vessel together with the engine Under its terms MSE was to be responsible for all the machineries supplied by sub contractors Clearly if Bumi had wanted to it could have entered into a direct contractual arrangement with MBS and MBUK with regard to the engine Bumi was the paymaster and it was entitled to call the tune But for reasons of its own it felt more comfortable in making MSE wholly responsible for the entire vessel It is true that Bumi did discuss the quotation received from MBS with MBS and MBUK before instructing MSE to accept the quotation But those contacts were not with a view to altering the contractual arrangement but to gauge MBUK s capacity and to ensure that MBS and MBUK understood Bumi s requirements and thus be able to produce an engine which would meet Bumi s needs In any event foreseeability of harm does not automatically lead to a duty of care see Simaan General Contracting Co v Pilkington Glass Ltd No 2 20 supra 39 Pursuant to the main contract MSE entered into a sub contract with MBS for the supply of the engine According to MBS the sale was subject to its standard conditions of sale one of which limited the rights of the purchaser as regards defects in the engine However as there were some doubts as to whether the standard terms did form a

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  • Liang Huat Aluminium Industries Pte Ltd v Hi-Tek Construction Pte Ltd[2001] SGHC 334
    contract The completion certificate for the main contract was issued on 22 March 2001 A sub contract delay certificate dated 8 August 2001 was issued to Liang Huat in respect of Phase 4 31 There was no need for a sub contract delay certificate to be issued before Hi Tek was entitled to claim damages for delay in view of certain provisions in the sub contract but in any event the Architects had issued a sub contract delay certificate for Phase 4 as I have mentioned above 32 Although the sub contract delay certificate was issued some months after the completion certificate for the main contract this was because of Liang Huats failure to substantiate their request for extension of time to the Architects see para 22 of Ng Lay Guats 2 nd affidavit and the correspondence referred to 33 I noted that in any event there was no suggestion that Hi Tek was in a position to influence the Architects 34 Mr Choy submitted that from the sub contract delay certificate the delay attributed to Liang Huat was 97 days As Hi Tek managed to accelerate its work the overall delay to the main contract was reduced to 89 days 35 Liquidated damages payable by Hi Tek to the Owner was 10 000 per day Accordingly Hi Tek was liable to pay 890 000 to the Owner as liquidated damages It was entitled to set off this liability against the 827 081 47 claimed by Liang Huat under the interim certificates in question 36 As for the retention monies Mr Choy submitted that the Owner had retained 334 900 for the entire works when the completion certificate was issued for the main contract although the completion certificate states that 335 700 was withheld by the Owner 37 More importantly Mr Choy referred to the valuation of the QS as at 21 May 2001 which showed that 269 000 out of the 334 900 was the retention sum attributable to the Sub Contract Works and was not to be released yet In other words while other sub contractors were to receive half of the retention sums for their works none was to be released for the Sub Contract Works for the time being 38 This was reinforced by a Certificate of Payment of Main Contractor dated 12 September 2001 by the Architects which specifically identifies 269 000 as being retained in respect of the Sub Contract Works 39 Accordingly Hi Tek had not received from the Owner half of the retention sum attributable to the Sub Contract Works which was supposed to have been paid upon issuance of the completion certificate 40 As regards the allegation that another 700 000 or about 900 000 is claimable by Liang Huat Mr Choy submitted that AP 35 on which Mr Goh relied was dated 22 March 2001 This claim had already been taken into account because an Interim Certificate No 9512 C 30 for the main contract dated 5 June 2001 Interim Certificate No 30 had been issued The date of valuation stated therein was 21 May 2001 i e about two months after AP 35 dated 22 March 2001 41 Mr Choy again referred to the QSs valuation for Interim Certificate No 30 which showed that the balance amount payable to Liang Huat thereunder was 233 404 and not 700 000 or about 900 000 Furthermore this sum was already part of the 827 081 47 payable to Liang Huat under the first head of claim by Liang Huat pursuant to various interim certificates 42 In fact another interim certificate No 31 dated 31 August 2001 was issued thereafter but neither side had exhibited it because Liang Huat had been paid under that certificate 43 Mr Choy submitted that aside from the claim for delay Hi Tek had three more heads of claims against Liang Huat Preliminaries 44 The second head of claim was for preliminaries during the period of delay for which no further extension of time was granted The claim was for 415 000 45 This item was based on a formula which Liang Huat had worked out by taking all the preliminaries dividing it over the contract period including the extension of time given and apportioning the same among the four phases to derive the preliminaries for one month for Phase 4 After deriving that figure Liang Huat then applied it to the 89 days of delay 46 Under this head of claim was a claim for 40 000 being the alleged cost for accelerating the main contract works but there was no supporting evidence for this sub item Debit Notes 47 Hi Teks third head of claim was under various debit notes issued to Liang Huat by Hi Tek over a period of time This amounted to 380 211 47 Mr Choys colleague Mr Leo Tan submitted that about 250 000 thereof was indisputable but as he went through the items it was clear to me that a large part of the 250 000 was also disputed 48 Also under the debit notes some additional preliminaries of 130 000 were claimed This was for part of the period for which extension of time had been granted to Hi Tek However the Owner had refused to pay the preliminaries claimed on the basis that they were not incurred by the reason which gave rise to the extension of time in the first place Accordingly Hi Tek was claiming the same against Liang Huat 49 Hence Hi Tek was claiming these preliminaries against Liang Huat but for a period different from the preliminaries claimed under the second head Defaults 50 Hi Teks fourth head of claim was for alleged defaults by Liang Huat The amount claimed was 637 265 30 51 This also included a claim for preliminaries for the same reason as mentioned for the third head of claim but for periods different from those under the third head of claim Total of claims by Hi Tek 52

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