The Decision

The recent Court of Appeal decision in the case of Asiatic Enterprises (Pte) Ltd v United Overseas Bank Ltd raised interesting issues regarding contingent charges.


The United Overseas Bank had granted banking facilities to Asiatic Enterprises. Clause 10 of the bank's Standard Terms provided that upon the occurrence of any of the stipulated events of default, the respondent would be entitled "as equitable chargee" (i) to attach all outstanding credit to any property of the company and (ii) to lodge a caveat against any real property registered in the company's name.

Upon Asiatic's failure to pay, the bank declared the occurrence of an event of default and lodged caveats against three of Asiatic's properties. In each of the caveats, the bank claimed an interest in the premises as an equitable chargee by virtue of the facility letter, the Standard Terms and the occurrence of an event of default. The bank also registered the charge over the three properties with the Registrar of Companies.

The Decision

The High Court held (i) that a charge had been created when Asiatic accepted the facility letter and (ii) that the certificate of registration of charge was conclusive evidence of this.

On appeal, however, the Court of Appeal found that Clause 10 did not create a floating charge or any security on any of the property belonging to Asiatic, as the language used was not that of charge by the company of its assets. The court held that on its ordinary and natural construction, Clause 10 gave the bank a right or entitlement, upon the occurrence of any event of default, to impose a security on the property of the company. The first thing the bank was entitled to do under Clause 10 was to create or impose a charge on any of Asiatic's properties. However, the court found that as the mechanism for creating or imposing a charge had not been specifically provided for in the clause, only mechanisms provided by law were available to the bank.

Therefore, if the bank possessed funds or movable property of the company, it could have appropriated them as security for the outstanding amount due. As for movable or immovable property of the company not in the bank's possession however, it was held that Clause 10 did not provide a mechanism to enable the bank to create or impose a charge on such property.

The court did not regard the act of lodging a caveat (which was the second thing the bank was entitled to do under Clause 10) as being an appropriate mechanism for creating a charge over land. The court reasoned that the Land Titles Act requires that a caveator should have a pre-existing claim of an estate or interest in land before he lodges a caveat. The court felt that it was impossible chronologically for the lodgment of a caveat to also be the act that gives rise to the claim to an interest in land needed to support the caveat.

The certificate of registration of the charge was held to be inconclusive of the fact of the creation or validity of the charge. It was only conclusive evidence that the statutory requirements for registration had been met.

For more information on this topic please contact Leena Pinsler or Kelvin Tan Miang Ser at Drew & Napier by telephone (+65 535 0733) or by fax (+65 535 4864) or by e-mail ([email protected] or [email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com.

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