Als Memasa v UBS AG

• Jurisdiction: Singapore
• Judgment Date: 15 August 2012
• Date: 15 August 2012
• Docket Number: Civil Appeal No 8 of 2012
• Court: Court of Appeal (Singapore)

Als Memasa and another

Plaintiff

and

UBS AG

Defendant

[2012] SGCA 43

Chan Sek Keong CJ, Andrew Phang Boon Leong JA and V K Rajah JA

Civil Appeal No 8 of 2012

Court of Appeal

Civil Procedure—Pleadings—Amendment—Whether amendments should be allowed to confine claim to one which was prima facie supported by some evidence

Civil Procedure—Pleadings—Striking out—Whether all claims should be struck out if there was prima facie evidence to support one of the claims

Contract—Contractual terms—Non-reliance clauses—Whether non-reliance clauses immunised banks and financial institutions from liability for unauthorised transactions

The appellants (‘the Appellants’) opened three non-discretionary accountswith the respondent, UBS AG (‘UBS’), after two UBS officers managed to persuade them to move their funds and investments from Oversea-Chinese Banking Corporation Limited over to UBS. Various transactions and investments were carried out under these accounts. In particular, Russian bonds having a face value of US$4 m at a cost of about US$3.8 m (‘the Russian bonds’) were purchased for one of the Appellants' accounts. Within less than a month after the Russian bonds were purchased, the value of the Russian bonds dropped drastically and the Appellants' accounts entered into margin call situations. As the Appellants were unable to meet all the margin calls, UBS liquidated a large portion of the Appellants' investments.

The Appellants proceeded to bring an action against UBS. UBS applied to strike out the Appellants' action as pleaded in the statement of claim (‘SOC’), and the Appellants sought leave to amend the SOC. At the hearing before the assistant registrar (‘the AR’), the Appellants' action was struck out and their application to amend the SOC was dismissed. The Appellants appealed against the decision`s of the AR.

The High Court judge (‘the Judge’) upheld the AR's decision to strike out the SOC on the basis that the Appellants had abused the court's process by advancing a false case by pleading ‘a cause of action which they knew must be untrue for many, if not all, [of] the transactions executed by UBS’, and then subsequently tailoring their claims to suit the evidence disclosed by UBS in its striking out application.

The Judge also dismissed the Appellants' application to amend the SOC to specifically plead their claim vis-Ã -vis the Russian bonds transaction. While the Judge found that there was some evidence that one of the Russian bonds transactions might have been executed without the Appellants' prior instructions, he held that the first Appellant (‘AM’) had subsequently affirmed the transaction. The Judge held further that the Appellants were precluded from relying on any misrepresentation because of the non-reliance clauses found in the bank documents. The Judge also considered the Appellants' arguments on the defence of non est factum and held that they were bound to fail.

Held, allowing the appeal:

(1) Given the lack of documentary evidence showing that AM had authorised the purchase of the Russian bonds, the Appellants' limited claim based on the losses arising from the purchase of the Russian bonds should be allowed to go to trial. The Judge's finding of a possible or likely lack of authority in the purchase of the Russian bonds by UBS would ordinarily have given rise to a triable issue, but for the finding that the Appellants had affirmed the purchase: at [20].

(2) If the purchase of the Russian bonds was in fact unauthorised, and UBS's officer had misrepresented to AM the nature of and risks inherent in the Russian bonds in order to induce her to affirm the transaction and continue holding the bonds, it would not amount to a valid affirmation of the unauthorised purchase in law. As between UBS and AM, there could be no affirmation by AM without a sufficient understanding of what she was affirming: at [22].

(3) Although non-reliance clauses were intended to immunise the banks and financial institutions from liability for post-contractual representations made by their officers, they could not immunise UBS from liability for unauthorised transactions: at [25].

(4) Put simply, the factual issues were whether there was any misrepresentation as alleged by the Appellants, whether the purchase of the Russian bonds was authorised or not, and if not, whether it was validly affirmed by the Appellants. A full trial was required to fully explore and investigate these issues: at [23] and [25].

(5) While the Appellants might have overstated their case initially by asserting factually incorrect and unsupportable claims, and to that extent might have abused the process of the court, that would not be sufficient justification for the court to bar them from pursuing a claim which was prima faciesupported by someevidence. The inconvenience caused to UBS by the Appellants in this respect could be adequately compensated in costs: at [30].

[Observation: In the light of the many allegations made against many financial institutions for ‘mis-selling’ complex financial products to linguistically and financially illiterate and unwary customers during the financial crisis in 2008, it might be desirable for the courts to reconsider whether financial institutions should be accorded full immunity for such ‘misconduct’ by relying on non-reliance clauses. Unsophisticated customers might have been induced or persuaded to sign documents containing non-reliance clauses without truly understanding their potential legal effect on any form of misconduct or negligence on the part of the relevant officers in relation to the investment recommended by them: at [29].]

Orient Centre Investments Ltd v Société Générale [2007] 3 SLR (R) 566; [2007] 3 SLR 566 (refd)

Unfair Contract Terms Act (Cap 396, 1994 Rev Ed)

NSreenivasan and Sujatha Selvakumar (Straits Law Practice LLC) for the appellants

Hri Kumar Nair SC, Teo Chun-Wei Benedict and...