Acute Result Holdings Ltd v CGS-CIMB Securities (Singapore) Pte Ltd
| Jurisdiction | Singapore |
| Judge | Vinodh Coomaraswamy J |
| Judgment Date | 28 February 2022 |
| Docket Number | Suit No 129 of 2019 |
| Court | High Court (Singapore) |
[2022] SGHC 45
Vinodh Coomaraswamy J
Suit No 129 of 2019
General Division of the High Court
Contract — Breach — Client transferring shares into account with broker — Broker transferring shares out of account on instructions of third party — Third party also customer of broker — Contract between broker and client containing conclusive evidence clause — Client not objecting to broker having acted on third party's instructions — Whether broker liable to client for breach of contract
Tort — Negligence — Duty of care — Client instructing broker to transfer shares without change in beneficial ownership — Broker instructing custodian to debit shares from broker's sub-account and to credit shares to transferee's custodian for further credit of transferee's sub-account — Broker and transferee sharing same custodian — Whether circumstantial and causal proximity established
Trusts — Express trusts — Transferor of property intending to create security interest in favour of transferee — Whether there was certainty of intention to create trust and to subject transferred property to trust obligations
Trusts — Resulting trusts — Transferor of property creating equitable charge in favour of transferee — Transferor improving transferee's security interest by converting equitable charge into equitable mortgage — Whether transferor intended to confer or did confer benefit on transferee — Whether transfer of property by way of charge or mortgage was capable of giving rise to resulting trust
Held, dismissing the plaintiff's claims:
Preliminary point on pleadings
(1) On the issue of how Lioncap Global became a trustee for the plaintiff, the plaintiff had changed its case between its pleadings and its closing submissions. For three reasons, however, this technical point alone did not warrant dismissing the plaintiff's changed case: at [63].
(2) First, a pleader's duty is to plead facts. Once the material facts have been pleaded, the pleader could develop the legal consequences of those facts in submissions. The only caveat is that the legal consequences which the pleader develops in submissions had to not take the opposing party by surprise so as to cause it prejudice which could not be remedied. Here, the plaintiff had sufficiently pleaded all the essential facts: at [62] and [64].
(3) Second, it had to be assumed from the plaintiff's decision to change its case that the changed case was its best and final case on the issue. But the plaintiff had failed even on its best case. It therefore made no difference whether its best case had or had not been adequately pleaded: at [65].
(4) Third, given how the defendant had conducted its defence at trial, the defendant was not prejudiced by the plaintiff's changed case, nor did the defendant suggest that it had been: at [66].
Lioncap was not a resulting trustee of the First Tranche Shares
(5) A resulting trust arises when a transferor transfers property to a transferee lacking the intention to benefit the transferee: at [68].
(6) A lack of intention on the transferor's part to benefit a transferee could be established by: (a) a failure to rebut the presumption of resulting trust which arises when a transferee of property does not provide the whole of the consideration for the transfer; or (b) evidence of the transferor's intention regarding the transfer. The court should not resort to the presumption if there is evidence which could prove the transferor's intention or from which that intention could be inferred: at [69].
(7) The time at which to ascertain a transferor's intention is ordinarily the time that it transferred its property to the transferee. But, in this case, the relevant time to ascertain the plaintiff's intention regarding the First Tranche Shares was the date on which the plaintiff undertook the contractual obligation to transfer the First Tranche Shares to Lioncap Global's account with the defendant. Nothing suggested that the plaintiff's intention changed between that date and the dates on which the defendant actually instructed the defendant to carry out the transfer: at [71] and [72].
The plaintiff's security interest was a charge
(8) It was common ground between the parties that the plaintiff: (a) intended, in November 2016, to create a security interest over the Secured Shares in favour of Lioncap Global; (b) did not transfer any property in the Secured Shares to Lioncap Global; and (c) did not create a pledge over the Secured Shares: at [80].
(9) A charge is a security interest that grants the chargee the power to sell or compel a sale of the security but does not involve a transfer from the chargor to the chargee of ownership of the security or of some other property right in the security. The charge merely creates a new proprietary interest in the security and vests it in the chargee. This proprietary interest subsists as an incumbrance on the security until the chargor discharges the secured obligation or until the incumbrance is otherwise released in accordance with the parties' agreement: at [85] and [86].
(10) The security interest that the plaintiff created over the Secured Shares in favour of Lioncap Global was a charge. This was because there was no transfer of ownership of the shares; Lioncap Global acquired only a right to have recourse to the shares in the event the plaintiff defaulted on its debt to Lioncap Asia: at [87].
The plaintiff's intention to benefit Lioncap Global
(11) An intention to create or improve a security interest in favour of a transferee suffices, in itself, to demonstrate the transferor's intention to benefit the transferee and to prevent a resulting trust from arising: at [95] and [99].
(12) The plaintiff had an actual intention to benefit Lioncap Global when it undertook a contractual obligation to transfer the First Tranche Shares to Lioncap Global. The transfer improved Lioncap Global's security interest in the First Tranche Shares by converting the existing charge over the Security Shares into a mortgage over the First Tranche Shares. The plaintiff therefore intended to benefit Lioncap Global by conferring upon it a right which it did not otherwise have: at [96], [97] and [112].
Lioncap was not an express trustee of the First Tranche Shares
(13) Certainty of intention requires clear evidence of an intention on the part of a transferor of property to create a trust and to subject the transferred property to trust obligations: at [114].
(14) The plaintiff's actual intention to create a security interest in favour of Lioncap Global was incompatible with the certainty of intention to create an express trust: at [115].
Lioncap was not liable to the plaintiff in negligence
The defendant does not owe the plaintiff a duty of care
(15) A duty of care would arise in tort if: (a) it was factually foreseeable that the defendant's negligence might cause the plaintiff harm; (b) there is sufficient legal proximity between the plaintiff and the defendant; and (c) policy considerations do not militate against a duty of care: at [123].
(16) There was no causal proximity between the plaintiff and the defendant in respect of the First Tranche Shares. The cause of the plaintiff's loss was the defendant acting on the instructions of the plaintiff's custodian. But the plaintiff did not allege that the defendant breached any duty of care owed to the plaintiff by doing so. The act which the plaintiff alleged that the defendant had carried out negligently was therefore causally remote from the loss which the plaintiff suffered: at [128] and [129].
(17) There was no circumstantial proximity between the plaintiff and the defendant. The plaintiff was not the defendant's customer in connection with the transfer of the First Tranche Shares: at [131].
The defendant's purported breach did not cause the plaintiff loss
(18) Causation is established by showing that, but for the defendant's breach, the plaintiff would not have suffered the loss that it did: at [134].
(19) The factual cause of the plaintiff's loss arose from its own decision to cede control of the First Tranche Shares to Lioncap Global with measures which were ineffective in equity to retain its beneficial interest in the shares: at [136].
The Second Tranche Shares
(20) In the absence of its own fraud, a bank could rely on a conclusive evidence clause in its contract with its customer even if the bank had acted on an instruction without the customer's authority. This is so even if the bank is in breach of contract, failed to exercise reasonable care or failed to heed alarm bells in acting on the instruction. These principles apply not only to banks but to regulated financial institutions such as the defendant: at [149] and [150].
(21) Lioncap Global had the plaintiff's actual authority to operate the plaintiff's account with the defendant without the plaintiff's consent or co-operation: at [144].
(22) Even though the defendant knew that the Second Tranche Shares had been transferred out of the plaintiff's account with the defendant, the plaintiff did not allege that the defendant had breached its contract with the plaintiff until after the defendant encountered difficulty recovering the shares from Lioncap Global. The defendant was thus entitled to rely on the conclusive evidence clause in its contract with the plaintiff to preclude the plaintiff's claim once the time limit for raising any objections has passed: at [147] and [152] to [154].
[Observation: A security interest was simply a right which X granted to Y consensually, ie, by contract, for Y to exercise some sort of right over X's property upon X's default in performing an obligation. The obligation secured by the interest was typically a debt which X owed to Y. But it could be any type of obligation and could even be one which X owed...
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