Bayerishche Landesbank Girozentrale v Peh Teck Quee

• Jurisdiction: Singapore
• Judge: Tay Yong Kwang JC
• Judgment Date: 31 May 1999
• Neutral Citation: [1999] SGHC 151
• Court: High Court (Singapore)
• Year: 1999
• Published date: 06 March 2013
• Plaintiff Counsel: K Shanmugam S C with Jasmine Tan (Allen & Gledhill)
• Defendant Counsel: Low Tiang Hock with Sunita Parhar (Chor Pee & Partners)
• Citation: [1999] SGHC 151

Judgment:

GROUNDS OF DECISION

1 The Plaintiffs are bankers carrying on business in Singapore. The Defendant, a Malaysian, was a customer of the Plaintiffs. By a facility letter dated 26 September 1996 and accepted by the Defendant on 16 October 1996, the Plaintiffs granted a "Multi-Currency Revolving Credit Facility" to the Defendant subject to the maximum of 16 million Malaysian Ringgit ("RM"). As at 4 June 1998, the sum of RM 13,055,737.09 (inclusive of contractual interest) was due from the Defendant to the Plaintiffs and this formed the subject of the claim.

2 The Defendant did not deny owing that sum claimed but denied liability on legal grounds. He averred that Malaysian law was the proper law of the contract despite Singapore law being the apparent chosen law in the contractual documents. Under Malaysian law, it was argued, the contract was illegal and void by virtue of the Malaysian Exchange Control Act (read with Section 24 of the Contracts Act 1950) and the Moneylenders Act.

THE PLAINTIFFS’ CASE

3 The only witness as to fact was Mr Jorg Hansen, Assistant Vice President, Recovery. The facility was granted for the purpose of extending funds to the Defendant for investment in Malaysian shares. It was granted on the terms stated in:

(1) the facility letter dated 26 September 1996;

(2) the Plaintiffs’ Standard Terms and Conditions Governing Banking Facilities;

(3) the Memorandum of Deposit of Securities (First Party);

(4) the Plaintiffs’ Private Banking Services Agreement;

(5) the Plaintiffs’ Charge Over Cash Deposits and Credit Balances; and

(6) the Letter of Set-Off.

All the above contractual documents were duly executed by the Defendant.

4 Clause 3 of the facility letter provided as follows:

"3 Amount

Subject to the terms and conditions of this Facility, the Bank agrees to make advances of credit (individually an "Advance" and collectively the "Advances") to the Borrower in Malaysian Ringgit and one or more optional currencies ("Optional Currencies") except Singapore Dollars on a revolving basis in an aggregate principal amount at any one time outstanding not to exceed MYR16,000,000.00 (Malaysian Ringgit Sixteen Million Only) or the equivalent thereof as determined by the Bank subject to availability."

5 Clauses 4 and 5 of the facility letter stipulated the interest rate and interest period. Under Clause 6, the Defendant agreed to repay each advance in full on the maturity date of that advance together with the unpaid interest accrued thereon. The Standard Terms and Conditions provided for all costs and expenses, including legal costs on a solicitor and client basis, incurred in connection with the facility to be borne by the Defendant.

6 Clause 20 of the Standard Terms and Conditions was in the following terms:

"20 Governing Law

This Agreement shall be construed and have effect in all respects in accordance with the laws of Singapore, and the Borrower hereby submits to the jurisdiction of the Singapore Courts, but such submission shall not be construed so as to limit the right of the Bank to commence proceedings in the courts of any other country

The service of any writ of summons or any legal process in respect of any action or proceeding hereunder may be effected on the Borrower by forwarding a copy of the writ of summons and statement of claim or other legal process by registered post to the Borrower’s address herein stated or to the last known address of the Borrower. It is hereby further agreed that service of such legal process in the manner aforesaid shall be deemed to be good and effectual service of such legal process on the Borrower."

Similarly, various clauses in the other contractual documents provided that the agreement between the Plaintiffs and the Defendant shall be governed by, and construed and interpreted in accordance with, the laws of Singapore.

7 On 10 December 1996, the Defendant began to draw down on the facility in RM. Although he had the option of drawing down in various other currencies, he did not do so throughout the entire period in question.

8 The Defendant’s shares deposited as security for the facility were held in a custodian account in Multi-Purpose Bank Berhad ("MPB") in Malaysia pursuant to a Custodian Agreement dated 18 July 1996 made between the Plaintiffs and MPB. MPB was the Plaintiffs’ agent in Malaysia. It was the usual practice to use a Malaysian bank as a custodian for Malaysian shares purchased by a customer. MPB was also used by the Plaintiffs as its clearing house for RM. This again was usual banking practice.

9 Monthly Position Statements, letters and notices were sent to the Defendant to keep him updated about the various transactions in respect of the facility.

10 In September 1997, the Defendant’s outstandings under the facility exceeded the agreed 60% of the value of the shares kept in the custodian account at MPB. On 26 September 1997, the Plaintiffs informed the Defendant that they would dispose of some of the Defendant’s shares on 30 September 1997 to regularize the excess position. The Defendant appealed to the Plaintiffs to withhold the disposal of the shares but the Plaintiffs proceeded to sell some of them on 1 October 1997.

11 On 20 February 1998, pursuant to their rights under the contractual documents, the Plaintiffs cancelled the facility and demanded payment of all outstanding advances and interest. No payment having been made by the Defendant, two other letters of demand followed in March and May 1998. When no payment was received inspite of the letters of demand, the Plaintiffs exercised their rights to sell the shares in such manner and for such consideration as they deemed fit and to apply the sale proceeds towards the discharge of the outstanding amounts and costs.

12 As at February 1999, slightly more than one million Mercury Industries Shares remained in the Custodian account to the credit of the Defendant.

13 Although the Plaintiffs are a branch of a German bank, the Singapore branch functions as a separate entity for banking purposes. The bank has a management office in Kuala Lumpur for marketing purposes. That management office is not controlled by the Singapore branch but reports to the head office in Munich. The Plaintiffs also have a branch in Labuan. If a client goes to the Kuala Lumpur management office, he would be told that the bank has branches in Singapore and Labuan and the client can go directly to the branch he chooses.

14 The loan in question was a Singapore loan because there was an express choice of law clause in the contractual documents. Further, the loan was funded in Singapore by the Treasury Department here. The administration of the loan was done from Singapore and all the personnel handling the services were located here. All the material documents were kept in Singapore and the loan was booked and taxed here.

15 The Malaysian shares held as security were held by MPB because the Malaysian Central Depository Regulations required the shares to be held by an authorised custodian. There was no physical cash flow in either direction. Although payment out was in RM, it was not made to a client. Where repayment at maturity was concerned, the loan confirmation notes required payment to be made to MPB because the cheques in RM wherever issued would have to be cleared in Malaysia eventually.

16 If the Defendant had wanted the RM to be credited to his Singapore bank account, that could have been done through MPB. If the Defendant had an account in New York, it would also have been possible to credit it to New York. However, since September 1998, RM was no longer legal currency outside Malaysia. Before that, there were RM offshore markets worldwide.

17 It was common practice for foreign banks in Singapore to lend money to Malaysians and Indonesians. Such loans were subject to the supervision and regulations of the Monetary Authority of Singapore and that authority has not raised any question as to the legality of the loan to the Defendant. The Plaintiffs had not applied to the Malaysian authorities for any permission concerning the giving or the repayment of the loan.

18 The Plaintiffs also relied on expert evidence as to the relevant Malaysian law. They called Mr Cecil Abraham, a partner in the Malaysian law firm of M/s Shearn Delamore & Co., who has been in practice for almost 30 years. His opinion appears sufficiently in my decision later on in this judgment.

THE DEFENDANT’S CASE

19 Like the Plaintiffs, the Defendant also adduced expert evidence. Mr Stephen Quah Hoe Phang, a partner of the Malaysian law firm of M/s Kumar Jaspal Quah & Aishah, testified for the Defendant. Mr Quah has been in active practice in Malaysia for the past 13 years. Again, his evidence will be subsumed as part of my decision later.

20 The Defendant testified that the Plaintiffs’ former Head of Private Banking (Asia Pacific), Mr Richard Yong, approached him in September 1996 and asked him whether he was interested in having a Multi-Currency Revolving Credit Facility with the Plaintiffs. The Defendant expressed interest and was asked to fill up a form declaring his net worth. This was faxed over to the Plaintiffs.

21 The facility letter dated 26 September 1996 was prepared and signed by the Plaintiffs and delivered by Richard Yong personally to the Defendant in Kuala Lumpur who signed it on 16 October 1996. The Defendant knew that he was dealing with the Singapore branch of the Plaintiffs. He did not request to come to Singapore for the signing of the documents.

22 All the drawdowns by the Defendant were in RM. He never asked for the RM to be paid anywhere else in the world. Although he never quite understood the mechanism of computing the outstanding amounts, he did not raise any issue about it.

23 The Defendant received the Plaintiffs’ Standard Terms and Conditions (in which Clause 20 concerning the governing law of the agreement appeared) only sometime later, possibly...