29 September 2020
Beneficiaries of guarantees, such as lenders, often assume that because the Singapore Courts no longer insist on a physical seal being affixed in order to hold that a document is a deed, it is sufficient for the guarantee document to be expressed as being “executed as a deed”, obviating the need for consideration.
Indeed, one could perhaps be forgiven for making such an assumption given that it has been held in cases such as Cytec Industries Pte Ltd v Asia Pulp & Paper Co Ltd [2009] 2 SLR(R) 806 that “When the requisite intention is clear, the courts have held that the non-affixation of a seal on a deed was of no material consequence…”
The recent Singapore Court of Appeal decision offers a cautionary tale
The Singapore Court of Appeal’s recent decision in Lim Zhipeng v Seow Suat Thin and another matter [2020] SGCA 89 ("Lim Zhipeng") is, however, a reminder that it should not be taken for granted that a document stated as being “executed as a deed” will always be treated by the Courts as having been, as a matter of fact, executed as a deed.
In Lim Zhipeng, the Court held the guarantee document was not a deed in spite of the usual words being found in it to the effect it was executed as a deed. Fortunately for the lender, the Court nevertheless held that the guarantee contract though not a deed was supported by consideration and enforceable in spite of the fact it was not a deed.
However, the case reminds lenders and other beneficiaries of guarantees to be conscious of the requirements for a document to be treated as a deed by the Court.
The facts
The facts of the case are straightforward.
- Borrower (debtor) and lender were old schoolmates. Lender loaned a six-digit sum to the debtor but failed to make timely repayments as per the agreed repayment schedule.
- The debtor was subsequently adjudicated a bankrupt by reason of bankruptcy proceedings filed by another creditor.
- The debtor’s mother (guarantor) subsequently entered into a guarantee contract with the lender in consideration for the lender’s forbearance to prove his debt in the debtor’s bankruptcy.
- The guarantee contract was signed by the guarantor and the lender and expressed as being “executed as a deed” but no seal was affixed.
Intention to execute as a deed and estoppel
The Court of Appeal examined the facts surrounding the guarantor’s execution of the deed as being relevant to the question whether she had intended the document to operate as a deed, or indeed that she knew why a deed was different from an ordinary contract. The Court of Appeal observed:
- There was no evidence that a lawyer had explained the distinction between a deed and an ordinary contract or what it meant to “seal” a document.
- There was no certificate certifying that the document was the makers' “act and deed” (unlike in the English Court of Appeal case of In Re Sarah Jane Sandilands and others (1871) LR 6 CP 411).
- There was no guarantor’s signature over an inscribed circle with the letters “L.S.” (as was the case in the English case of First National Securities Ltd v Jones and another [1978] Ch 109).
- Although the guarantor did admit in trial she “knew the effect” of what she was signing, this did not imply she knew and intended the document to be a deed rather than an ordinary contract of guarantee. It merely showed she was taking on liability as a guarantor. There was no evidence, apart from this, that the guarantor intended to execute a deed.
Reassuringly, the Court of Appeal did recognise that:
“it would appear to be fairly settled law… that a person who has executed a document that states that it has been “signed sealed and delivered” would, in the usual course, be estopped from denying the sealing if he has delivered the document to the other party knowing that the latter will rely on the document and that party did indeed rely on it to its detriment.”
However, the Court of Appeal took pains to elaborate that it is through the invocation of the doctrine of estoppel, applied to the parties’ conduct, that a party would be entitled to rely on the document being a deed, and hence not be required to prove that consideration was provided by both parties, in order to enforce the obligations therein. The Court of Appeal held:
“In this case it would have been open to the Appellant to plead estoppel and to prove his reliance which would not have been hard to do since he did stop pursuing the Debtor for payment while awaiting receipt of the instalment payments set out in the Guarantee. Unfortunately for the Appellant, estoppel was not pleaded by him and thus cannot be relied on in this case.”
The Court of Appeal quoted with approval Browne-Wilkinson VC’s judgment in the English High Court case of TCB Ltd v Gray [1986] Ch 621:
“[The defendant] has executed a document drafted as a deed and which says that he has thereunto set his hand and seal. The document states in terms that it was signed, sealed and delivered in the presence of Mr. McGuiness. There is therefore a representation of the fact that it was in fact sealed. [The defendant] executed the document with the intention that it should be relied on as a power of attorney and knowing that [the plaintiff] were going to rely on it as such. [The plaintiff] in fact relied on it to their detriment, since they advanced money in reliance on documents executed under the power. The case therefore has all the necessary elements of a classic estoppel. …
… I prefer to hold that in the ordinary case a person so executing a deed is subsequently estopped from denying that he has sealed it rather than to find as a fact that something has occurred which we all know has not occurred.”
If the estoppel doctrine is to be invoked, it goes without saying the requirements of estoppel need to be satisfied. The Court opined, not surprisingly, that these are ordinarily not difficult to satisfy:
- A representation to the effect that there was an intention to rely on the document as being executed as a deed.
- Reliance upon such representation to the other party’s detriment.
In Lim Zhipeng, the lender arguably relied on the guarantor’s representation to his detriment in forbearing to prove his debt in the debtor’s bankruptcy proceedings. But this was not explored since the lender's lawyer failed to plead estoppel (which ultimately led to the lender being unable to rely on the document as being executed as a deed).
Conclusion
Although lenders and other guarantee beneficiaries can expect that ordinarily their guarantors would be estopped from denying their unsealed guarantees were executed as deeds, they should pause to consider if at the very least the requirements of estoppel are satisfied in their case, including demonstrable reliance on the representation that the document was executed as and intended to operate as a deed. Alternatively, affix a seal to render this discussion moot.
For further information, please contact:
Terence Seah Partner, Stephenson Harwood (Singapore) Alliance
terence.seah@shlegalworld.com
