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The First Defendant company (D1) distributes Mazda cars and has entered into a ‘vehicles sales dealer agreement’ with the Plaintiff company (“Dealership Agreement”). The Dealership Agreement allows Plaintiff to sell Mazda cars.
The Second Defendant (Bank) is a licensed bank which has provided a facility to the Plaintiff (“Facility”). The repayment of the Facilities by the Plaintiff is secured by two debentures created by the Plaintiff in favour of the Bank (“Debentures”). The Debentures provide for, among others, floating charges to be created over all assets of the Plaintiff (“Floating charges”).
All the cars had been purchased by the Plaintiff from D1 with funds from the Facility but D1 had not been paid by the Plaintiff for the cars. The bank officer visited the showroom and found that none of the cars were at the showroom. The Bank then wrote a letter to the Plaintiff but the Plaintiff did not reply. Consequently, the Bank lodged a police report because the cars had been removed from the showroom without the Bank’s consent.
This case concerns an interpleader filed by the Plaintiff and raised the following questions: –
(a) Whether D1 or the Bank was entitled to the Mazda cars?
(b) Whether the Court should exercise its discretion to deprive the Plaintiff of costs of the court proceeding and order the Plaintiff to pay costs to D1 and the Bank?
High Court Rulings
1. The High Court refers to Section 19 and 20 of the Sales of Goods Act 1957 (“SGA”), which read as follow:
“Property passes when intended to pass
19. (1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.
(3) Unless a different intention appears the rules contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer.
Specific goods in a deliverable state
20. Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment of the price, or the time of delivery of the goods, or both, is postponed.”
Whether Dealership Agreement provides for the D1 to retain property in the cars until the D1 has been paid for the cars?
2. According to Section 19(1) of SGA, when property in the cars is transferred from D1 to the Plaintiff depends on the intention of the Plaintiff and D1. To ascertain such intention, Section 19(2) of SGA provides that ‘regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case’.
3. In BSNC Leasing Sdn Bhd v Sabah Shipyard Sdn Bhd & Ors [2000] 2 MLJ, the Court of Appeal had explained the effect of Section 19 and 20 of SGA.
“…In a contract for the sale for specific or ascertained goods, property in them passes from the seller to the buyer according to the intention of the parties. That intention is to be gathered from the terms of the contract, the conduct of the parties and all the circumstances of the case. In the absence of a contrary intention, property in specific goods passes to the buyer at the time the contract is made. And it matters not whether the parties have postponed either payment for, or the delivery of, the goods….
…
Here, Wing Teik and Sabah Shipyard did not express any intention as to when property in the turbine (which comes within the category of ‘specific goods’) will pass from the one to the other. Neither is there any form of conduct or circumstances from which such intention is to be deduced. The rule expressed in s 20 of the Sale of Goods Act 1957 therefore applies with full force. Accordingly, the property in the turbine passed from Wing Teik to Sabah Shipyard when the contract was made. … (Emphasis added.)”
4. The High Court went on to analyse the clauses in the Dealership Agreement to find out whether it was the parties’ intention for D1 to retain property in the cars until all the obligations have been met. After construing the Dealership Agreement, the High Court held that there were no clauses that expressly or by necessary implication, that D1 shall retain property in the cars until and unless D1 is paid in full for the cars by the Plaintiff.
5. Hence, Section 19(3) and 20 of SGA apply here. The property in the cars have been passed from D1 to the Plaintiff when the Dealership Agreement was concluded.
Whether the Cars fall within the ambit of Floating Charges?
6. It is not disputed that when a company creates a debenture over the company’s assets, the debenture holder is a secured creditor of the company. Hence, in this case, the bank is the secured creditor of D1.
7. The salient clauses in the Debentures are as follow: –
SECTION 2.01 DEFINITIONS
‘Charged Assets’ means all the Borrower’s stock of motor vehicles financed by the Financier, both present and future including but not limited to the said vehicles rights title interest that may now or hereafter be charged or otherwise secured in favour of the Financier by and under or pursuant to this Debenture and the proceeds of the security constituted by or pursuant to this Debenture and reference to the ‘Charged Assets’ includes reference to each and every part thereof;
SECTION 5.01 FLOATING CHARGE
As a continuing security for the discharge of all obligations and liabilities and the payment of all principal moneys interest and all other charges costs and expenses owing and incurred by the Borrower to the Financier in connection with the Facility and/or under this Debenture, the Borrower as beneficial owner hereby charges to the Financier by way of a first floating charge on all the Charged Assets of whatever description now or hereafter belonging to the Borrower financed by the Financier under the Facility including the Motor Vehicles referred to in Section 3.01 hereof …
SECTION 5.05 CONTINUING SECURITY
The security herein created is expressly agreed and declared by the Borrower to be and shall be a continuing security for all moneys whatsoever now or hereafter from time to time owing to the Financier by the Borrower …
8. After analysing the clauses in the Debentures, the High Court ruled that:
(i) The Plaintiff owns the property in the cars. The cars would fall within the definition of ‘Charged Assets’ in the Debentures; and
The cars were acquired by the Plaintiff after the execution and registration of the Floating Charges with the Registrar of Companies (ROC). Nonetheless, the cars would form part of the charged assets which ‘hereafter’ belonged to the Plaintiff under Section 5.01 of the Debentures. Furthermore, the Floating Charges are a ‘continuing security’ pursuant to the section 5.05 of the Debentures and would include the cars which had been purchased by the Plaintiff after the execution and registration of the Floating Charges with ROC.
9. As the Mazda cars fall within the wide purview of the Floating Charges, the bank is entitled to the cars.
Whether the Court should exercise its discretion to deprive the Plaintiff of costs of the court proceedings and order the Plaintiff to pay costs to D1 and the Bank?
10. The High Court held that Court has wide discretion to award costs for interpleader proceedings under Order 17 rule 8 of the Rules of Court 2012.
11. In the present case, the High Court Judge exercised its discretion under Order 17 rule 8 of the Rules of Court 2012 to order the Plaintiff to pay costs to both D1 and the Bank. The discretion is exercised based on the following exceptional circumstances: –
(i) the Plaintiff had breached the Dealership Agreement by not paying D1 for the sale of the cars;
(ii) the Plaintiff had not only defaulted on the Facility but had also removed the cars from the showroom without the Bank’s consent. The Plaintiff did not even have the candour to reply to the Bank’s letter. Lastly, the Bank’s police report had been lodged against the Plaintiff;
(iii) D1 and the Bank are blameless in this case; and
(iv) The Plaintiff’s above breaches had caused loss to D1 and the Bank.
Key Takeaway
In the absence of any clause which expressly withhold the transfer of property to the buyer until all obligations have been fulfilled, the property is deemed to have transferred from the seller to buyer when the contract was made, notwithstanding the payments have not been fully paid and/or that the goods have yet to be delivered to the buyer.
About the author
Jessica Wong Yi Sing
Senior Associate
Dispute Resolution
Harold & Lam Partnership
[email protected]
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