Acute Result Holdings Ltd v CGS-CIMB Securities (Singapore) Pte Ltd (formerly known as CIMB Securities (Singapore) Pte Ltd)

• Jurisdiction: Singapore
• Judge: Woo Bih Li JAD
• Judgment Date: 28 July 2023
• Neutral Citation: [2023] SGHC(A) 27
• Court: High Court Appellate Division (Singapore)
• Docket Number: Civil Appeal No 33 of 2022
• Hearing Date: 01 February 2023
• Citation: [2023] SGHC(A) 27
• Year: 2023
• Plaintiff Counsel: Foo Yuet Min, Koh Will Sheng Wilson, Tan Yi Fan and Aw Wei Jie Daryn Emmanuel (Drew & Napier LLC)
• Defendant Counsel: Vincent Leow, Mak Sushan Melissa and Nicholas Kam Xuan Wei (Allen & Gledhill LLP)
• Subject Matter: Trusts,Resulting trusts,Whether resulting trust compatible with security interest,Express trusts,Whether express trust compatible with security interest,Contract,Breach
• Published date: 28 July 2023

Aedit Abdullah J (delivering the grounds of decision of the court): Introduction

This appeal arose from the decision of the High Court judge (the “Judge”) in Acute Result Holdings Ltd v CGS-CIMB Securities (Singapore) Pte Ltd (formerly known as CIMB Securities (Singapore) Pte Ltd) [2022] SGHC 45 (the “Judgment”). After hearing oral submissions from the parties, we dismissed the appeal in its entirety on 1 February 2023. These are our written grounds of decision. We shall not restate in these grounds the background to this matter, which is set out comprehensively in the Judgment, save to briefly outline the relationship between the parties, the salient facts, and the cases advanced by the parties below.

The facts and the parties’ cases below

The appellant (“Acute”) engaged in various transactions with Lioncap Global Management Limited (“Lioncap Global”) and Lioncap Asia Limited (“Lioncap Asia”), both of which are now defunct. We will refer to the two companies collectively as “Lioncap” where there is no need to distinguish between them. Lioncap Global was a customer of the respondent (“CGS-CIMB”). Acute owned a number of shares in Cabbeen Fashion Limited (“Cabbeen”), which was listed on the main board of the Hong Kong Stock Exchange (see the Judgment at [6]). Two tranches of those shares formed the subject of the present dispute.

First tranche of Cabbeen shares

In November 2016, Acute and Lioncap entered into various agreements under which Acute essentially created a security interest over 130m Cabbeen shares in favour of Lioncap Global (the “November 2016 Agreements”). These shares were originally held in Acute’s brokerage account with PT CIMB Securities Indonesia (“CIMB Indonesia”), and were meant to secure: (a) a HK$2m loan which Lioncap Asia had previously extended to an associate of Acute’s sole director and shareholder; and (b) a further loan of HK$120m which Lioncap Asia was to extend to Acute. We noted that Acute had initially deposited 144m Cabbeen shares in its account with CIMB Indonesia in connection with the November 2016 Agreements. Although it was unclear why an additional 14m Cabbeen shares were placed in the account beyond the agreed 130m which was to form the subject of Lioncap’s security, the Judge found that discrepancy to be immaterial (see the Judgment at [15]–[19]). Lioncap Asia thereafter failed to advance any part of the HK$120m loan to Acute. In March 2017, with Lioncap Global’s consent, Acute withdrew 30m Cabbeen shares from its account with CIMB Indonesia, thereby leaving 114m shares in that account. Acute and Lioncap eventually executed an addendum on 20 April 2017 (the “April 2017 Addendum”) to amend the November 2016 Agreements. Acute and Lioncap specifically agreed that the terms of the April 2017 Addendum were to be treated as part of the November 2016 Agreements, and that the terms in those earlier agreements which were not amended were to remain in effect (see the Judgment at [20]–[29]).

By the April 2017 Addendum and the November 2016 Agreements, Acute and Lioncap agreed that: (a) Acute would transfer 47.08m Cabbeen shares from its CIMB Indonesia account to Lioncap Global’s account with CGS-CIMB; (b) Lioncap Asia would extend a loan of HK$50m to Acute (reduced from HK$120m); and (c) 56.92m Cabbeen shares would be released from the security interest created in Lioncap Global’s favour. Further to the April 2017 Addendum, Acute and Lioncap Global jointly instructed CIMB Indonesia to transfer 56.92m Cabbeen shares from Acute’s account with CIMB Indonesia to an account in Acute’s name with China Merchant Securities (HK) Co Ltd in Hong Kong, and the transfer was duly executed on 24 April 2017. This left 57.08m shares in Acute’s account with CIMB Indonesia (see the Judgment at [30]–[34]). These shares were eventually transferred to an account in Lioncap Global’s name with CGS-CIMB (see [5] below).

Acute also issued two instruction letters on 24 April 2017 and 18 May 2017 (the “First Instruction Letter” and “Second Instruction Letter” respectively, and collectively the “Instruction Letters”) to CIMB Indonesia, instructing the latter to transfer a total of 57.08m Cabbeen shares (the “First Tranche Shares”) from its account with CIMB Indonesia to Lioncap Global’s account with CGS-CIMB. The First Instruction Letter and the Second Instruction Letter related to 47.08m and 10m Cabbeen shares respectively. In both Instruction Letters, it was stated that: (a) Lioncap Global had an intention to borrow shares in the custody of CIMB Indonesia which were owned by Acute, who would remain the beneficial owner of the shares; and (b) the “legal and beneficial ownership” of the shares being transferred was to remain with Acute (see the Judgment at [35]–[39] and [42]). In accordance with the Instruction Letters, CIMB Indonesia transferred from Acute’s account with CIMB Indonesia to Lioncap Global’s account with CGS-CIMB: (a) 47.08m Cabbeen shares on 28 April 2017; and (b) 10m Cabbeen shares on 31 May 2017. This left zero shares in Acute’s account with CIMB Indonesia (see the Judgment at [40] and [43]). The shares were later dealt with by CGS-CIMB on Lioncap Global’s instructions without Acute’s knowledge (see the Judgment at [44] and [48]).

On this factual footing, Acute argued at trial that: (a) Lioncap Global held the First Tranche Shares on a resulting trust or an express trust for Acute; (b) Lioncap Global had acted in breach of trust and/or fiduciary duties as a trustee in dealing with the First Tranche Shares; and (c) CGS-CIMB was liable in knowing receipt and dishonest assistance in connection with Lioncap Global’s breach(es). The crux of Acute’s case was that Acute’s intention in transferring the First Tranche Shares pursuant to the April 2017 Addendum was, similar to its intention in November 2016, simply to create a limited interest in favour of Lioncap Global, and not to confer beneficial interest in the shares on Lioncap Global. Acute also contended that CGS-CIMB had acted negligently in transferring the First Tranche Shares out of Lioncap Global’s account with CGS-CIMB. In response, CGS-CIMB argued primarily that Lioncap Global was neither a resulting trustee nor an express trustee of the First Tranche Shares for Acute and, accordingly, that there was no basis for CGS-CIMB to be held liable as an accessory for any breach of trust or fiduciary duties (see the Judgment at [55]–[56]).

Second tranche of Cabbeen shares

In May 2017, Acute and Lioncap entered into negotiations regarding a further loan facility, once again, to be secured by Acute’s Cabbeen shares. As a condition for continuing the negotiations, Lioncap Global asked that Acute open a brokerage account with CGS-CIMB and deposit 21m Cabbeen shares into that account. Acute opened such an account in July 2017 (“Acute’s CGS-CIMB Account”) and in the same month, deposited 21m Cabbeen shares into that account (the “Second Tranche Shares”). Lioncap Global then immediately instructed CGS-CIMB to transfer the Second Tranche Shares to its account with CGS-CIMB, and CGS-CIMB carried out the transfer in August 2017 (see the Judgment at [138]–[141]).

In respect of these shares, Acute submitted at trial that CGS-CIMB had acted in breach of contract as it was not authorised to transfer the shares to Lioncap Global. Alternatively, Acute contended that CGS-CIMB had breached a duty of care owed to Acute by executing the transfer on Lioncap Global’s instructions (see the Judgment at [142]). CGS-CIMB’s response was that there was no breach of contract because: (a) Acute had conferred actual authority on Lioncap Global to operate Acute’s CGS-CIMB Account; and (b) Acute was contractually precluded by a conclusive evidence clause in clause 2C of CGS-CIMB’s General Terms and Conditions from claiming that the transaction was unauthorised (“Clause 2C”).

The decision below

The Judge dismissed Acute’s claims in respect of both tranches of shares. In respect of the First Tranche Shares, the Judge found that before the April 2017 Addendum was executed, the November 2016 Agreements only created an equitable charge over the First Tranche Shares with Lioncap Global as chargee. At that point, the shares did not need to be transferred to Lioncap Global. Against that backdrop, when Acute subsequently undertook to transfer, and thereafter transferred, the First Tranche Shares to Lioncap Global’s CGS-CIMB account pursuant to the Instructions Letters, Acute must have intended to confer a benefit on Lioncap Global given that Lioncap Global was acquiring a right it did not previously have. Through the transfer, Acute either: (a) converted Lioncap Global’s existing security interest into a mortgage (if Acute intended to transfer its beneficial interest in the shares to Lioncap Global); or (b) improved Lioncap Global’s existing equitable charge by strengthening its control over the shares (if Acute did not intend to transfer its legal or beneficial interest in the shares, as reflected in the Instruction Letters (see [5] above)). The Judge found that in either scenario, Acute’s intention to confer such a “factual benefit” prevented a resulting trust from arising as a matter of fact, principle and precedent (see the Judgment at [96]–[113]). This also prevented an express trust from arising because the intention of Acute and Lioncap to create a security interest was fundamentally incompatible with the certainty of intention required to create a trust (see the Judgment at [114]–[117]). Therefore, no trust and/or fiduciary duties arose, and it followed that there could be no dishonest assistance or knowing receipt on CGS-CIMB’s part (see the Judgment at [119]). The Judge also dismissed Acute’s claim in negligence (see the Judgment at [122]–[137]).

As regards the Second Tranche Shares, the Judge found that Acute had admitted in separate Hong Kong proceedings between Acute and...