By Tony Johnson Kay Keam and Alden Ho - 25 Aug 2017
It is not uncommon for credit application forms to include
a clause that charges in favour of the creditor all property held
by the debtor. This is typically accompanied with a clause whereby
the debtor appoints the creditor as its attorney for the purposes
of executing a mortgage over the charged property (if the debtor
does not do so).
Section 157 of the Land Transfer Act provides that such a power
of attorney has to be in the form of a deed. Section 9 of the
Property Law Act sets out a number of requirements to qualify a
document as a deed. Those requirements include that the document
must be in writing and that an individual's signature must be
witnessed by another person.
In Thorn v United Steel Limited, the power of attorney
was in writing, was signed by the debtor and was witnessed. The
problem however was that the witness was a manager of the creditor
company. This is not permitted under section 7(a) of the Property
Law Act which states that a witness must not be a party to the
deed. Eventually, the creditor accepted that because the witness
was its own manager, the document did not qualify as a deed. As a
result, the power of attorney could not be relied upon to execute a
mortgage on behalf of the debtor.
This decision serves as a reminder that with deeds, the witness
must not be a party to the deed (including a manager or other
employee). The witness must be someone not associated with either
party.
It may also impact other contracts which purport to grant a
power of attorney relating to real property rights such as building
contracts and agreements for sale and purchase.
A copy of the decision can be found here.
If you wish to discuss any matters raised in this article
contact Tony
Johnson.