American International Assurance Co Ltd v Wong Cherng Yaw and Others

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 26 June 2009
• Neutral Citation: [2009] SGCA 26
• Docket Number: Civil Appeal No 42 of 2009
• Date: 26 June 2009
• Published date: 01 July 2009
• Year: 2009
• Plaintiff Counsel: Quentin Loh SC, Elaine Tay and Shannon Tan (Rajah & Tann LLP)
• Citation: [2009] SGCA 26
• Defendant Counsel: Quek Mong Hua and Esther Yee (Lee & Lee)
• Court: Court of Appeal (Singapore)
• Subject Matter: Civil Procedure,Whether investors entitled to return of their capital investment from proceeds of their policies,Whether interim payment ought to be ordered in view of appellant's cross-claims,Circumstances when ordered,Interim payments,Capital investment held in joint stakeholder's account pending determination of claim by insurer for alleged overpayment,Order 29 r 12(c) Rules of Court (Cap 322, R 5, 2006 Rev Ed)

26 June 2009 Judgment reserved.

Chan Sek Keong CJ (delivering the judgment of the court):

Introduction

1 The appellant in this appeal was at all material times an insurer that offered insurance policies known as “investment-linked policies”. Each investment-linked policy offered by the appellant (referred to hereafter in the singular as “ILP” and in the plural as “ILPs”) provided a cover on the life of the insured and allowed the policyholder to invest the premiums in the appellant’s investment funds. The appellant was at all material times the trustee of all the units in its investment funds.

2 The respondents in this appeal were policyholders/investors in the ILPs. A dispute arose between the respondents and the appellant around June 2008 concerning the ILPs, culminating in the filing of a suit (“the Suit”) by the appellant, in its own capacity as well as in its capacity as trustee for other policyholders, against the respondents. After the filing of the Suit, the respondents’ investments in the ILPs were liquidated and the proceeds (“the Stake”) were held in a joint stakeholder’s account pending the resolution of the Suit. The respondents subsequently requested for the release of certain sums of moneys from that account but the appellant refused to accede to the request.

3 In response, the respondents brought an application for interim payment of certain sums of money (“the Application”). This appeal arose from the decision of the High Court judge (“the Judge”) on the Application. In his decision, the Judge ordered an interim payment of $1,019,300 to the respondents (see American International Assurance Co Ltd v Wong Cherng Yaw [2009] SGHC 89 (“the GD”)). Before proceeding further, it would be apposite to summarise the salient facts of this dispute.

Background facts

4 The first and second respondents were agents of the appellant and sold ILPs to the third to tenth respondents. The sixth to tenth respondents subsequently assigned their ILPs to the first to fifth respondents. The respondents collectively invested a total of $1,059,300 under 21 ILPs with the appellant.

5 Under each of the ILPs, premiums paid by the policyholder were used to invest in units in funds listed in a “Schedule of Funds” annexed to each of the contracts. The funds listed differed between different ILPs. The number of units in a fund which a policyholder could purchase with any given sum under an ILP depended on the price at which the units were to be issued. When a policyholder liquidated his or her units in the fund, the proceeds due to the policyholder were determined by the price at which the units were to be redeemed. Under the ILPs, policyholders were also entitled to switch between funds as many times as they wanted, chargeable at $25 for every switch after the first four switches which were free. These fund switches were done by the policyholders submitting a formal request to the appellant. The policyholder’s right to switch funds was set out in each of the ILPs as follows:

FUND SWITCH

[The policyholder] may, from time to time, instruct [the appellant] 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 appellant] may from time to time impose. [The appellant] reserve[s] the right to revise at any time in [its] discretion any minimum fund switch amount imposed and to terminate or suspend this Fund Switch facility. [The appellant] shall not be responsible for any losses arising from or attributable to [its] 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 was one of the funds from which policyholders could choose]. Any unused free switches will be forfeited at the end of the policy year.

6 Through numerous fund switches over the course of two years from July 2006 to August 2008, the respondents 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 respondents a paper gain of $17,700,223.27, representing a 1,671% rate of return.

7 According to the third respondent, Mr Lim Wee Chee, in his affidavit filed on 13 October 2008 on behalf of the other respondents, he purchased his first ILP effective from 24 March 2006 and incurred losses within the first few months. He started analysing the fund movements and their underlying markets. 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. He alone made more than 300 fund switches over the span of two years. The other respondents also made similar fund switches in reliance on his decisions.

8 On 8 August 2008, the third respondent applied to withdraw $495,420 from one of his ILPs. The appellant refused to allow the withdrawal. Attempts by the third respondent and other respondents subsequently to partially withdraw or surrender their ILPs were similarly unsuccessful. Furthermore, the respondents’ applications made from 25 August 2008 to 29 August 2008 to switch funds were rejected.

9 Eventually, the third respondent’s solicitors wrote to the appellant on 3 September 2008 demanding payment of the partial withdrawal that the third respondent had sought. After an exchange of correspondence, the appellant commenced the Suit. The basis of the Suit, that emerged later, was that the appellant had made a mistake in valuing the funds by using one-day-old bid prices (unit prices) to effect the fund switches and this resulted in the respondents being given a larger share of the units or liquidated proceeds than what they should have been entitled to, at the expense of other policyholders. In support of the appellant’s case, Mr Martin Knight (“Mr Knight”), the appellant’s vice-president of the Actuary Department, filed an affidavit on 21 November 2008, in which he explained the mistake and how it led to the respondents making enormous gains artificially from the switches.

10 The appellant claims that the respondents had knowingly exploited the mistake vis-à-vis the bid prices. The appellant investigated the respondents’ fund switching activities between March 2008 and May 2008 but the appellant’s case is that it did not discover its mistake at that time. According to Mr Knight’s affidavit, the appellant only realised its mistake in late July 2008 when it looked into the large amounts being switched and the excessively high returns recorded under the respondents’ ILPs.^{[note: 1]}

11 In its written submissions before the Judge, the appellant contended as follows:

(a) that the appellant had made a mistake in valuing the relevant funds by using one-day-old bid prices in determining the bid prices for the fund switches and that the respondents had been unjustly enriched by exploiting the appellant’s mistake in determining the bid prices for the fund switches;

(b) that the respondents had exploited the appellant’s mistake, and thereby knowingly caused a loss of about $11,040,000 to the other policyholders;

(c) that the respondents were liable as constructive trustees for the loss and damage caused to the other policyholders;

(d) that the respondents were liable to the appellant for damages for tortious conspiracy;

(e) that the first and second respondents were in breach of their fiduciary duties and contracts to the appellant in their capacity as agents of the appellant;

(f) that the appellant was entitled to an account and an inquiry to trace and recover the units and/or the proceeds on liquidating the units;

(g) that the appellant was entitled to recover the sums of $239,945.50 and $189,490.93 previously paid out to the second and fourth respondents respectively; and

(h) that the appellant was entitled to an indemnity from the respondents for any liability that the appellant might incur to the other policyholders.

12 After the Suit was filed on 9 September 2008, the respondents agreed with the appellant on 22 October 2008 to liquidate their positions in the ILPs they held on a “without prejudice” basis. As a result, the proceeds of liquidation amounting to $10,323,621.71, ie, the Stake, were put in a joint stakeholder’s account pending the disposal of the Suit. The appeal before us stemmed from the Application, which was for, inter alia, the following orders:

Without prejudice to the parties’ respective positions in the Suit, the [appellant] do release to the [respondents] an interim payment in the sum of:-

a. $1,579,098.65 being the sums [sought by the respondents through their request for partial withdrawal and/or full surrender of the ILPs they held]; or alternatively

b. $1,059,300 being the [respondents’] capital invested with the [appellant]; or alternatively

c. such other sum as the [c]ourt shall deem fit.

13 The respondents took out the Application as they claimed they needed the money to repay the bank loans which they had taken to invest in the ILPs and that they needed funds to obtain expert evidence on the disputed issues and to pay for legal services to conduct the current litigation.

The rules on interim payment

Order 29 rule 2

14 Before the Judge below, counsel for the respondents decided not to ground his submissions on O 29 r 11 or r 12 of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the Rules”), which pertains specifically to interim payments. Instead, he invoked the court’s inherent jurisdiction, and, in the alternative, O 29 r 2(4). We can immediately dismiss as irrelevant O 29 r 2 (which relates to the detention, custody or preservation of any property which is the subject matter of a cause or matter) since the parties have already placed the...