Key points

  • Where a creditor has several remedies at its disposal, it is free to determine how and in what sequence it will pursue those remedies.
  • A court must allow a mortgagee to enforce its rights under a mortgage, subject only to a very limited jurisdiction to grant a short reprieve if there is a reasonable prospect that the mortgagor would be able to satisfy the debt owed in full.

United Overseas Bank (“the Bank“) granted two housing loans to Mr Pereira and his wife. The Bank also extended loan facilities to Mr Pereira’s company (the “Company“), which were secured by personal guarantees given by Mr Pereira to the Bank.

As security for both the guarantees and housing loans, Mr Pereira mortgaged two properties to the Bank. One of the properties was Mr Pereira’s family home, while the other was an apartment.

Owing to defaults in repayment of the housing loans and the loan facilities, the Bank commenced a mortgage action against Mr Pereira as guarantor, and obtained orders for vacant possession of the two properties. The Bank took possession of the apartment, but Mr Pereira applied for a stay of execution of the order to take possession of the family home on the basis that the Company would be able to repay its debt to the Bank because of potential offers to acquire the Company’s shares and assets.

The lower courts dismissed Mr Pereira’s application. On appeal, Mr Pereira sought an open-ended stay of execution so as to allow the sale of the Company’s assets to be completed.

The decision

The Court of Appeal dismissed Mr Pereira’s appeal for the following reasons:

  • It is clear that a creditor can proceed against the guarantor if it so wishes without having first to proceed against the principal debtor.
  • Once the creditor chooses to proceed against the guarantor by realising its security under the terms of the mortgage, the court cannot stop the creditor from doing so but can only grant a short reprieve if the guarantor shows that there is a reasonable prospect that the debt would be satisfied in full.
  • As the Bank had chosen to proceed first against Mr Pereira as the guarantor by enforcing the mortgage, and the full amount of the debt owed to the Bank remained outstanding more than one year after the order for vacant possession was made, whatever short reprieve the court had jurisdiction to grant had already been spent by the time of the hearing of the appeal.

This case illustrates that the Singapore courts place a high premium on preserving the commercial value of a guarantee. They will not rewrite the terms of the parties’ contract to prevent the creditor from enforcing its rights indefinitely. In addition, the creditor is not obliged to wait for the principal debtor to discharge its obligations before commencing an action on the guarantee.

Pereira, Dennis John Sunny v United Overseas Bank Ltd [2017] SGCA 62