Singapore: "All-Monies Mortgage" – Form And Also Substance

Last Updated: 15 March 2019
Article by Liew Kai Zee
Most Popular Article in Singapore, March 2019

Oversea-Chinese Banking Corp Ltd v Yeo Hui Keng (Tan Peng Chin LLC, third party) [2019] SGHC 45 ("OCBC v Yeo Hui Keng")

The Singapore High Court recently ruled against a party seeking to invalidate an "all-moneys" mortgage between her and the bank via the doctrine of non est factum (mistake on the nature of the transaction). In its decision, the High Court also considered whether a party could be estopped from seeking to avoid its liability under such a mortgage in the event that non est factum was successfully pleaded.

Facts

On January 2013, Oversea-Chinese Banking Corporation Limited ("OCBC") ("Plaintiff") took an "all-moneys" mortgage over the jointly owned property at 17 East Coast Drive, Singapore ("Property") by Mdm Yeo Hui Keng ("Defendant") and her late husband Mr Kung Yeok Heng ("Mr Kung"), and all their other assets ("OCBC Mortgage"). The OCBC Mortgage was in exchange for granting credit facilities totaling an initial sum of US$8.5m ("Original Credit Facilities") to King-Repa Trading (S) Pte Ltd ("Company"). The Original Credit Facilities was for the refinancing of existing loans that were extended by Bangkok Bank Public Company Limited ("Bangkok Bank") to the Company in 1996. Bangkok Bank's mortgage to secure the initial loan was also an "all-moneys" mortgage. The Original Credit Facilities was later increased to US$9.8m and finally to US$10.8m ("Revised Credit Facilities").

The OCBC Mortgage was executed in the presence of solicitors from Tan Peng Chin LLC ("Third Party"). The Third Party was, at the relevant time, acting for all the parties involved in the OCBC Mortgage, ie, the Plaintiff, the Defendant and Mr Kung.

Pursuant to the Company failing to make payment, OCBC exercised its right to take possession of the Property, the sale of which was used to pay off a part of the sums owed under the Revised Credit Facilities. Other outstanding sums under the Revised Credit Facilities were set off against the Defendant's accounts with the Plaintiff.

The Plaintiff brought the suit to recover the remaining sums under the Revised Credit Facilities. However, the Defendant contended that the OCBC Mortgage was invalid, thus she was not liable under the OCBC Mortgage for the entire sum due under the Revised Credit Facilities. The Defendant also took out a third party action against the Third Party, alleging that the Third Party was negligent in advising her that the OCBC Mortgage was an "all-moneys" mortgage when she was asked to sign it.

Issues

The High Court had to decide on three issues arising from the facts of the case:

(a) whether the Plaintiff and the Defendant were bound by the OCBC Mortgage, and accordingly, whether the non est factum defence applied to void the OCBC Mortgage?;

(b) if the defence of non est factum was successful, whether the Defendant was estopped from seeking to avoid her liabilities to the Plaintiff under the OCBC Mortgage?; and

(c) whether the Third Party was negligent when it represented the Defendant in the OCBC Mortgage transaction?

Decision

On the first issue

The starting point was that a person of full age and understanding was normally bound by his signature on a document, whether he read or understood it or not. If successfully proven, the defence of non est factum would render the transaction entered into by the OCBC Mortgage , void.

The High Court stated at the outset that the "sanctity of contract ... must be adhered to and respected", the defence of non est factum should thus "only be allowed in exceptional situations". To do so, the Defendant had to prove that:

(a) the OCBC Mortgage which the Defendant signed was radically different from what the Defendant had thought she signed; and

(b) the Defendant had exercised reasonable care and was not negligent when she signed the OCBC Mortgage.

Based on the facts, the High Court held that these two elements were not fulfilled and thus the defence of non est factum was not made out.

Firstly, an "all-moneys" mortgage (such as the OCBC Mortgage) was not radically different from a mortgage limited to the Property as perceived by the Defendant. Both were commercial instruments used to provide security for a banking facility. The differing point was only the extent of the mortgagor's liability. In any event, the High Court found that the Defendant knew that she was asked to sign an "all-moneys" mortgage before signing on the OCBC Mortgage.

Secondly, based on the account of events leading up to the signing, the High Court found that the Defendant took a perfunctory approach towards the signing of the mortgage documents, and was thus negligent and careless when signing the OCBC Mortgage. The High Court highlighted that clients still had a duty of basic care even when signing documents in the presence of their solicitors.

On the second issue

The High Court held that even if the defence of non est factum was successful, the Defendant continued to be liable to the Plaintiff under the OCBC Mortgage on the principle of equitable estoppel. The Plaintiff relied on the Third Party to handle the execution of the OCBC Mortgage, which meant that the Plaintiff could only rely on the signed OCBC Mortgage and other relevant documents, as unequivocal representations that the Defendant understood and agreed to be bound. The Plaintiff also had sufficient safeguards through letters and instructions to both the Defendant and Third Party, to ensure that the Defendant was sufficiently advised on her obligations under the mortgage.

On the third issue

The High Court found that the Third Party was not negligent in advising the Defendant and Mr Kung on the nature and terms of the OCBC Mortgage. To begin with, the solicitor did owe a duty of care to explain to the Defendant that the terms of the OCBC Mortgage was an "all-moneys" mortgage. The natural dependency on solicitors for the conduct of legal matters meant that the precise legal situations should be explained with "limpid clarity", especially where unsophisticated or vulnerable lay clients were involved. In situations involving multiple clients with conflicting interests, it was also incumbent upon the solicitor to fully advise the client who was prejudiced as to the terms and effects of the transaction.

Conclusion

Although the Plaintiff succeeded in defending the challenges to the "all-moneys" mortgage, this case is still a useful and timely reminder to all banks on the importance of ensuring that their obligors fully understand the nature of the transaction and its documentation. This is especially so where unsophisticated or vulnerable lay obligors are involved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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