American International Assurance Co Ltd v Wong Cherng Yaw and Others

• Jurisdiction: Singapore
• Judge: Andrew Ang J
• Judgment Date: 17 April 2009
• Neutral Citation: [2009] SGHC 89
• Court: High Court (Singapore)
• Year: 2009
• Citation: [2009] SGHC 89
• Plaintiff Counsel: Quek Mong Hua and Esther Yee (Lee & Lee),Quentin Loh SC, Elaine Tay and Shannon Tan (Rajah & Tann LLP)
• Subject Matter: Civil Procedure
• Published date: 29 April 2009

17 April 2009

Andrew Ang J:

Introduction

1 This application for interim payment of certain sums made by way of Summons No 4743 of 2008 (“Sum 4743”) was one of two applications made by the defendants in response to the plaintiff’s refusal to release funds which the defendants had invested with the latter under 21 Investment Linked Policies (“ILPs”). The other application by way of Summons No 4476 of 2008 (“Sum 4476”) for interim preservation of the proceeds of the ILPs has since been resolved pursuant to a “without prejudice” agreement between the parties to place the proceeds in a joint stakeholder’s account pending resolution of the main suit, Suit No 670 of 2008. With regard to Sum 4743, I granted the defendants’ application for interim payment and ordered a sum of $1,019,300 which represented the balance of the defendants’ capital invested with the plaintiff to be paid by the plaintiff to the defendants.

The facts

2 The plaintiff is an insurance company with whom the defendants and one Lee Swee Chee invested a total of $1,059,300 under 21 ILPs. The original policyholders of the ILPs are as follows:

	ILP No	Policyholder	Inception	Invested (S$)	Agent
1	U023615760	1st Defendant	08.12.05	10,000	1st Defendant
2	U023615524	1st Defendant	21.03.06	10,000	1st Defendant
3	U024528733	1st Defendant	27.03.07	*60,000	2nd Defendant
4	U121512862	2nd Defendant	03.01.02	*67,900	1st Defendant
5	U023615825	2nd Defendant	05.01.06	10,000	1st Defendant
6	U023882454	3rd Defendant	31.03.06	*33,300	1st Defendant
7	U023882700	3rd Defendant	24.04.06	15,000	1st Defendant
8	U024386755	3rd Defendant	14.12.06	*137,000	2nd Defendant
9	U023615744	3rd Defendant	24.03.06	*80,000	1st Defendant
10	U024152646	3rd Defendant	03.08.06	10,100	1st Defendant
11	U024386632	4th Defendant	21.02.07	20,000	2nd Defendant
12	U024616661	4th Defendant	23.05.07	100,000	2nd Defendant
13	U021574858	4th Defendant	28.12.01	10,000	1st Defendant
14	U090196322	5th Defendant	11.07.07	15,000	2nd Defendant
15	U024057411	6th Defendant	26.05.06	*61,000	1st Defendant
16	U024153344	6th Defendant	11.12.06	30,000	2nd Defendant
17	U024493033	7th Defendant	10.07.07	*80,000	2nd Defendant
18	U023544763	8th Defendant	19.10.05	10,000	1st Defendant
19	U024460655	9th Defendant	23.03.07	50,000	2nd Defendant
20	U024528445	10th Defendant	30.05.07	*80,000	2nd Defendant
21	U080170808	Lee Swee Chee	21.12.07	170,000	2nd Defendant
Note: Figures marked with an asterisk (*) indicate that subsequent top up premiums were made by; the policyholders

3 As a result of various assignments between the defendants and Lee Swee Chee, the policyholders of the 21 ILPs came to be as follows:

	ILP No	Policyholder	Inception	Assignment	Assignor
1	U023544763	1st Defendant	19.10.05	27.06.07	8th Defendant
2	U023615760	1st Defendant	08.12.05	22.10.07	5th Defendant
3	U023615524	1st Defendant	21.03.06	–	–
4	U024528733	1st Defendant	27.03.07	22.10.07	5th Defendant
5	U121512862	2nd Defendant	03.01.02	–	–
6	U023615825	2nd Defendant	05.01.06	–	–
7	U024057411	2nd Defendant	26.05.06	25.10.07	6th Defendant
8	U024153344	2nd Defendant	11.12.06	25.10.07	6th Defendant
9	U024460655	2nd Defendant	23.03.07	06.03.08	9th Defendant
10	U080170808	2nd Defendant	21.12.07	25.12.07	Lee Swee Chee
11	U023882454	3rd Defendant	31.03.06	–	–
12	U023882700	3rd Defendant	24.04.06	–	–
13	U024386755	3rd Defendant	14.12.06	–	–
14	U023615744	3rd Defendant	24.03.06	–	–
15	U024528445	3rd Defendant	30.05.07	02.06.08	10th Defendant
16	U024152646	3rd Defendant	03.08.06	–	–
17	U024386632	4th Defendant	21.02.07	–	–
18	U024616661	4th Defendant	23.05.07	–	–
19	U021574858	4th Defendant	28.12.01	–	–
20	U024493033	5th Defendant	10.07.07	15.06.08	7th Defendant
21	U090196322	5th Defendant	11.07.07	–	–

4 Under an ILP, premiums paid by the policyholder are used to invest in units in funds listed in a “Schedule of Funds” annexed to each policy. The funds listed may differ between different plans. The number of units in a fund which a policyholder could purchase with any given sum under an ILP depends on the price at which the units are to be issued. When a policyholder liquidates the units in the fund due to the policyholder is determined by the price at which the units are redeemed. Under the ILPs, policyholders are also entitled to switch between funds as many times as they want. All the policyholders have to do is to instruct the plaintiff to switch their invested sums from one of more funds into other funds (which process I shall refer to as “fund switches”). These rights are derived from the following contractual provisions which apply to the ILPs:

FUND SWITCH

[The policyholder] may, from time to time, instruct [the plaintiff] to switch all or any of the Units of a Fund via a Fund Switch in writing in such manner and subject to such conditions as [the plaintiff] may from time to time impose. [The plaintiff] reserve[s] the right to revise at any time in [their] discretion any minimum fund switch amount imposed and to terminate or suspend this Fund Switch facility. [The plaintiff] shall not be held responsible for any losses arising from or attributable to [their] decision to terminate or suspend this facility.

...

[The policyholder has] 4 free switches per policy year, and the switches thereafter shall be subject to a Fund Switch Fee of S$25 per switch payable by [the policyholder] through the cancellation of Units. No Fund Switch Fee, however, will be payable on any fund switch into or out of the AIA S$ Money Market Fund [which is one of the funds from which policyholders could choose]. Any unused free switches will be forfeited at the end of the policy year.

5 Somehow, through numerous fund switches over the course of two years or so, the defendants were able to make large profits. Their investments peaked on 7 August 2008 with the ILPs valued at a total of $18,759,523.27, giving the defendants a paper gain of $17,700,223.27. Things, however, were not always so rosy. According to the third defendant, Lim Wee Chee (“Lim”), a former teacher at a junior college, who was authorised to make his affidavit filed on 13 October 2008 on behalf of the other defendants, he had initially suffered huge losses when he first invested in these ILPs. He purchased his first policy (Policy No. U023615744) effective from 24 March 2006 and he suffered losses within the first few months of its commencement. He was naturally interested to find out how the funds worked so as to recoup his losses. He started analysing and observing the performance of the various funds and the markets to which they were linked. He realised that the margin of change for each fund was usually limited to about 3%. By keeping up with the trends of fund prices, he was able to take calculated risks by switching from one fund to another to avoid adverse fluctuations in prices and to ride on positive trends.

6 Pursuant to his right to switch funds, he made more than 300 fund switches over the span of two years and the other defendants also performed similar fund switches. After the first four free fund switches, the defendants would pay the fund switch fee of $25 for each subsequent fund switch and the plaintiff would dutifully carry out the defendants’ instructions. The defendants were not always successful in their speculation. They incurred losses for at least 20% of the switches (the plaintiff contests this figure and argues that the defendants only incurred losses for 10–13% of the switches). In any event, the investments were giving the defendants good returns. So confident was Lim that he was doing something right that he even borrowed money from friends, relatives and banks to invest more money in the ILPs. Throughout all this, Lim and the other defendants had made partial withdrawals from their respective policies without a hitch.

7 Sometime in June 2007, the first defendant who was the plaintiff’s Financial Services Consultant, was queried by his superior on the frequency of the fund switches. He explained that Lim and he had decided to switch funds after analysing the markets. Nothing happened after these interviews and the plaintiff continued to carry out the defendants’ instructions to switch funds. The first defendant was queried again on the same matter in May 2008 by a member of the plaintiff’s Compliance Department and he gave the same reply. Again, the plaintiff continued to carry out the defendants’ instructions to fund switch.

8 The situation, however, changed three months later. On 8 August 2008, when Lim applied to partially withdraw a sum of $495,420 from the proceeds of one of his policies (Policy No U023615744), the plaintiff refused to allow the withdrawal. The plaintiff would later, in defending this application, justify its refusal on the basis of the following contractual provision:

REDEMPTION OF UNITS

[The policyholder] may from time to time instruct [the plaintiff] to redeem Units from [the policyholder’s] Policy for cash by giving [the plaintiff] written notice by way of a partial withdrawal, Regular Withdrawal or a full surrender in such manner and subject to such conditions as [the plaintiff] may from time to time determine.

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