Pars Ram Brother (Singapore Company) obtained trade financing facilities from various banks, and pledged the goods financed by each bank under a pledge arrangement as security.
The Singapore Company entered into voluntary liquidation. The liquidator discovered that the Singapore Company had mixed the goods making it impossible to identify which goods were financed by which bank.
The Singapore High Court had to determine how the commingling of goods that are subject to several security interests would affect the security interest of each bank.
The High Court held that Philip Wood’s commentary in Comparative Law of Security Interest and Title Finance ‘squarely addresses the situation where goods in which one secured party has a perfected security interest are commingled with goods in which another secured party has a perfected security interest’ and referred to Wood’s citation of Article 9 of the Uniform Commercial Code as authority in such a scenario that if neither party has priority, ‘each secured party is allocated the proportion of the product or mass that the value of that secured party’s collateral bore to the sum of the values of both parties’ collateral at the time that the collateral became commingled’.
The High Court concluded that since each bank already possessed a perfected security interest by virtue of the underlying pledge, the failure by the Singapore Company to segregate the goods did not negate the existence of each bank’s security interest. Accordingly, the commingled goods should be divided among the banks ‘rateably in proportion to the value of their respective contributions’.