Crédit Industriel et Commercial v Teo Wai Cheong

• Jurisdiction: Singapore
• Judgment Date: 20 May 2010
• Date: 20 May 2010
• Docket Number: Suit No 626 of 2008
• Court: High Court (Singapore)

Crédit Industriel et Commercial

Plaintiff

and

Teo Wai Cheong

Defendant

[2010] SGHC 155

Philip Pillai JC

Suit No 626 of 2008

High Court

Banking—Advice—Client claiming that bank did not inform him that he had to acquire double the number of shares of each accumulator when market price of shares fell below forward price or that he had to pay closing out costs if he were to terminate accumulators prior to their expiry—When a private bank was acting as trusted advisor of its client—

Banking—Private banking—Bank claiming sums payable for shares delivered pursuant to accumulator agreements and for closing out costs—Whether client purchased disputed accumulators from bank

The plaintiff was the Singapore branch of a French bank. The defendant was one of its private banking clients. The plaintiff claimed, inter alia,payment of a balance sum remaining payable for shares delivered pursuant to certain disputed structured equity products known as accumulators as well as closing out costs for those disputed accumulators. The dispute between the parties turned upon whether or not the defendant had purchased the disputed accumulators from the plaintiff. The plaintiff's case was that the defendant had instructed its relationship manager to purchase the disputed accumulators during two telephone calls on 2 and 3 October 2007 respectively. The defendant, whilst acknowledging the telephone calls, disputed that he gave instructions or authority to the relationship manager to purchase the disputed accumulators. In support of his case, he further asserted (a) that he had all along instructed the relationship manager to ensure that his total exposure to equity accumulators should not exceed S$1m and was to be confined to ‘blue chip’ shares (a criteria which the disputed accumulators did not meet), (b) that he was not told beforehand that he was obliged to acquire double the number of shares in each of the disputed accumulators for the duration when the market price of the shares fell below the forward price, (c) that he was not told that if he were to terminate the disputed accumulators prior to their expiry he would have to pay closing out costs, (d) that his losses, if any, could not exceed the amount of his deposits with the plaintiffs, and (e) that the transcripts of the plaintiff's backroom execution process did not reveal an exact match between the defendant's alleged orders and the orders placed by the relationship manager, revealing that she had mistakenly placed orders for a larger number of shares than the defendant had allegedly ordered and had allocated the excess to him.

Held, allowing the claim:

(1) The defendant had provided no substantiating evidence that he had instructed the relationship manager to ensure his total exposure to equity accumulators at any one time should not exceed S$1m and be confined to ‘blue chip’ shares. He also did not define what he meant by ‘total exposure’ and ‘blue chip’. In any event, he had on record purchased accumulators whose maximum obligation far exceeded S$1m and his previous accumulator purchases included a wider range of shares than might commonly be regarded as ‘blue chip’: at [30].

(2) The term sheets of the disputed accumulators expressly set out that where the closing price of the shares exceeded the strike price, the number of shares to be accumulated per day would double: at [31].

(3) The plaintiff was under no contractual obligation to ensure that the defendant understood the full import and implications of all the terms of the accumulators. The term sheet of the disputed accumulators set out the relevant disclaimers relating to the defendant's need to make his own risk assessments. It was up to the defendant to request information or clarification about terminating the accumulators should he have required such: at [32].

(4) Considering that the defendant had signed and accepted banking facilities for up to US$15m which was several times the amount of his deposits, his averment that his losses, if any, could not exceed the amount of his deposits with the plaintiffs had little merit: at [33].

(5) The apparent discrepancy between the defendant's alleged orders and the orders placed by the relationship manager was satisfactorily explained by the relationship manager's evidence that she consolidated the orders of her clients before placing orders with the plaintiff's counterparties and only allocated confirmed transactions at the end of each day to each of her clients, including the defendant: at [45] and [46].

(6) The defendant's allegation that the relationship manager had placed orders which exceeded his price range could not be accepted given that it was made in abstract without taking into account the market practice that the average prices of the total number of accumulators purchased, and not the price of the individual accumulators, was the relevant point of reference: at [45] and [46].

(7) On the evidence, the defendant had instructed the relationship manager during the telephone calls of 2 and 3 October 2007 to purchase the disputed accumulators. What was most significant was the defendant's inability to explain satisfactorily his version of the contents of the telephone calls: at [47] and [82].

(8) A private bank was not acting as a trusted advisor of its client when its account opening form and risk disclosure statement highlighted to the client that he was responsible for the risks in his transactions, recommended that he took advice from other professional advisers, and stated that the bank did not make recommendations or give advice, and when this was borne out by the evidence of conduct: at [84].

Consmat Singapore (Pte) Ltd v Bank of America National Trust & Savings Association [1992] 2 SLR (R) 195; [1992] 2 SLR 828 (refd)

JP Morgan Chase Bank v Springwell Navigation Corp [2008] EWHC 1186 (refd)

L'Estrange v F Graucob Ltd [1934] 2 KB 394 (refd)

Manoj Sandrasegara, Sheryl Wei, Mohamed Nawaz Kamil and Nuraisah Ruslan (Drew & Napier LLC) for the plaintiff

Chelva R Rajah SC (instructed), Sean Lim and Gong Chin Nam (Hin Tat Augustine & Partners) for the defendant.

Judgment reserved.

Philip Pillai JC

Introduction

1 The 2008 international financial crisis, like previous financial crises, has been followed in Singapore by regulatory actions (see, eg, Monetary Authority of Singapore: Investigation Report on the Sale and Marketing of Structured Notes linked to Lehman Brothers(7 July 2009)) and civil litigation. The financial products in each successive financial crisis have become more complex, in tandem with the financial institutions, their discrete services and the varying capacities, sometime proprietary, sometimes agency, in which they transact with their clients. The outcome in each civil litigation case, however, remains to be determined by the applicable common law or statutory causes of action and the evidence adduced. The implications of the common law and statutory causes of actions available and the hurdles to be overcome have been extensively canvassed in the recent English case JP Morgan Chase Bank (formerly known as The Chase Manhattan Bank) v Springwell Navigation Corporation [2008] EWHC 1186 (‘JP Morgan’) (see also Melanie Ryan & Andrew Yong, ‘Springwell - are the English courts the venue of last resort for complex investor claims?’ (2009) 24 (1) Journal of International Banking Law and Regulation 54; Christa Band, ‘Selling complex financial products to sophisticated clients: JP Morgan Chase v Springwell:Part I’ (2009) 24 (2) Journal of International Banking Law and Regulation 71; and Christa Band and Karen Anderson, ‘Selling complex financial products to sophisticated clients: JP Morgan Chase v Springwell: Part II’ (2009) 24 (5) Journal of International Banking Law and Regulation 233).

2 The present case raises a core question of law about private banking and sophisticated clients. When is a private bank acting as a trusted advisor of its client and when is it not? The answer to this question of law falls to be determined by the particular contractual documentation and conduct adduced in evidence in each case.

Summary of this particular dispute

3 The plaintiff, Crédit Industriel et Commercial (‘CIC’), the Singapore branch of a French bank, carries on the business of private banking in Singapore. The defendant, Mr Teo Wai Cheong, is a private banking client of the plaintiff. The present dispute between the parties turns upon whether or not the defendant purchased certain accumulators. Accumulators are complex over-the-counter structured equity products (a structured product apocryphally called ‘I'll kill you later’ by financial professionals). The plaintiff's amended statement of claim against the defendant is for (a) payment of the balance sum of S$2,782,803.66 remaining payable for the China Energy shares delivered pursuant to the terms of five disputed accumulator agreements, namely the Third to Seventh China Energy Accumulators (‘the Disputed CE Accumulators’) and/or (b) payment of the sum of S$3,625,393.11 for the closing out cost for the Disputed CE Accumulators. Alternatively, the plaintiff claims the sum of S$6,408,196.77 for loans extended by the plaintiff to the defendant for payment of (a) and (b) above. The plaintiff also claims payment of the sum of S$51,323.06 as interest on the sum allegedly owed to it by the defendant as of 29 August 2008.

4 The heart of this dispute is as follows: It is the plaintiff's case that the defendant instructed the plaintiff's relationship manager, Ms Ng Su Ming (‘Relationship Manager’), to purchase the Disputed CE Accumulators during their telephone calls on 2 and 3 October 2007. The defendant, whilst acknowledging the telephone calls, disputes that he gave instructions or authority to the Relationship Manager to purchase the Disputed CE Accumulators.

5 The defendant seeks to further corroborate his case that he did not instruct the Relationship...