EFG Bank AG, Singapore Branch v Surewin Worldwide Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 12 November 2021
• Docket Number: Suit No 732 of 2016
• Court: High Court (Singapore)

EFG Bank AG, Singapore Branch

and

Surewin Worldwide Ltd and others

[2021] SGHC 227

Vinodh Coomaraswamy J

Suit No 732 of 2016

General Division of the High Court

Agency — Principal — Holding out — Second defendant's chairman making representations in account-opening booklet — Scope of representations in account-opening booklet — Whether second defendant's chairman had authority to issue consent letters

Arbitration — Enforcement — Foreign award — Second defendant arguing plaintiff was precluded from relitigating certain issues by issue estoppel arising from award issued in arbitration in Taiwan — Whether issue estoppel established

Banking — Lending and security — Plaintiff bank implementing credit structure and investment structure for defendants — Parties executing “SFIP-1 Pledge” as continuing security for plaintiff — Plaintiff declaring events of default under credit facility and terminating it — Whether SFIP-1 Pledge valid and enforceable

Civil Procedure — Pleadings — Parties objecting to each other's reliance on certain grounds that were allegedly unpleaded — Whether pleadings sufficient to inform opposing party of case it had to meet

Contract — Illegality and public policy — Illegality under international and foreign law — Plaintiff establishing dedicated unit trust and second defendant subscribing for all units in that unit trust — Second defendant arguing that its act in subscribing for all units was illegal under Taiwanese law — Whether plaintiff's security under “SFIP-1 Pledge” unenforceable by reason of such illegality under Taiwanese law — Whether disproportionate in all circumstances to hold plaintiff's security to be invalid or unenforceable

Personal Property — Priorities — Time of attachment of plaintiff's security interest over assets in bank account — Whether plaintiff was bona fide purchaser for value without notice of security interest over assets in bank account

Held, allowing the claim and dismissing the counterclaim:

Issue estoppel did not bar litigation of the ground of challenge under (a)

(1) To establish transnational issue estoppel, among other requirements, there had to be no defence to the recognition of the foreign judgment in Singapore. For this purpose, the Taiwanese Award was to be treated as the equivalent of a final and conclusive judgment of a foreign court: at [49] and [66].

(2) There was a defence to the recognition of the Taiwanese Award in Singapore. The tribunal exceeded its jurisdiction to the extent that its findings went beyond the SFIP-1 Mandate as a matter of Taiwanese law. This was because the arbitration agreement in the SFIP-1 Mandate confined the tribunal's jurisdiction to disputes arising out of or in connection with the SFIP-1 Mandate. The arbitration agreement did not give the tribunal jurisdiction to make any determinations binding on the plaintiff and the second defendant with regard to the Trust Deed or the SFIP-1 Pledge. The court was free to consider the two grounds on which the second defendant challenged the SFIP-1 Pledge free of any issue estoppel: at [81] to [85].

The plaintiff's security interest was not subject to the second defendant's beneficial interest

The second defendant did not give its prior consent to the SFIP-1 Pledge

(3) Article 16 of the Company Act 1929 (Taiwan) (“TCA”) and Art 143 of the Insurance Act 1929 (Taiwan) (“TIA”) neither prohibited the SFIP-1 Pledge nor deprived the second defendant of the power and capacity to consent to the SFIP-1 Pledge. By virtue of certain provisions in the TCA, Mr Teng also had the actual authority to issue the Consent Letters on the second defendant's behalf consenting to the SFIP-1 Pledge. However, Mr Teng did not have ostensible authority to issue such consent merely because he was the chairman, a director and the majority shareholder of the second defendant. Further, the second defendant's execution of an account-opening booklet for the Singfor Account was not a representation that any of the authorised signatories listed therein (including Mr Teng) were authorised to consent to the SFIP-1 Pledge. The signatories in the booklet were authorised merely to give instructions to the plaintiff in relation to maintaining or operating the Singfor Account. Nonetheless, as Mr Teng had actual authority, the second defendant was bound by Mr Teng's consent to the SFIP-1 Pledge and did itself consent to the pledge: at [104] to [106], [113], [117], [124], [131] and [140].

(4) However, Volaw executed the SFIP-1 Pledge without the second defendant's prior consent. Volaw executed the SFIP-1 Pledge on 7 March 2008, one day before Mr Teng issued the Consent Letters on 8 March 2008. Neither cl 2.10(e) of the Trust Deed nor a resolution by Volaw dated 7 March 2008 amounted to a record in writing of the second defendant's prior consent to the SFIP-1 Pledge under the Trust Deed. At most, cl 2.10(e) and Volaw's resolution recorded the second defendant's intention to consent to the pledge or an obligation to do the same at some time in the future: at [141] and [145] to [147].

(5) The lack of prior consent by the second defendant meant that Volaw acted in breach of trust by executing the SFIP-1 Pledge: at [149].

The Plaintiff was a bona fide purchaser for value without notice

(6) The plaintiff did not take its security interest under the SFIP-1 Pledge subject to the second defendant's beneficial interest in the assets underlying the SFIP-1 Pledge. Although Volaw executed the SFIP-1 Pledge before the second defendant gave its consent through Mr Teng, the plaintiff was a bona fide purchaser of its security interest without notice that the second defendant had yet to give its consent: at [255].

(7) Singapore law governed the issue of whether the plaintiff took its security interest under the SFIP-1 Pledge subject to the second defendant's beneficial interest in the underlying assets. The relevant connecting factor was the lex situs of the assets in the SFIP-1 Account. The situs of the assets was Singapore because the SFIP-1 Account was a liability to the second defendant on the books of the plaintiff's Singapore branch: at [154].

(8) The plaintiff was a purchaser for value as it purchased a security interest over the assets in the SFIP-1 Account on 7 March 2008: at [166] and [168].

(9) The only date that needed to be considered to assess whether the plaintiff acted in good faith or had notice was 7 March 2008. That was the date on which the plaintiff's security interest under the SFIP-1 Pledge attached to the SFIP-1 Account. That interest attached once and for all on 7 March 2008 and not as and when the second defendant transferred fresh assets into the SFIP-1 Account or as and when the plaintiff made fresh advances under the Facility: at [181].

(10) The tests for actual and constructive notice were framed in terms of notice of the pre-existing equitable interest. The second defendant's submission that notice of some six matters would in turn establish that the plaintiff had notice that the second defendant did not consent to the SFIP-1 Pledge created two levels at which notice could be found, which broadened the doctrine of notice beyond its proper bounds: at [185].

(11) The plaintiff neither knew nor was put on inquiry that the first defendant transferred the proceeds of the loans it drew under the Facility for Mr Teng's personal benefit and not for the second defendant's corporate benefit: at [190].

(12) The second defendant's subscriptions to 100% of the units in the SFIP-1 Unit Trust violated Art 146-4 of the TIA. Subscriptions to the SFIP-1 Unit Trust did not fall within the categories of foreign investments permitted under Art 146-4 of the TIA read with the Regulations Governing Foreign Investments by Insurance Companies 1993 (Taiwan). The plaintiff nevertheless acted in good faith in acquiring its security interest. The plaintiff obtained three Taiwanese legal opinions from Chien Yeh Law Offices (“Chien Yeh”) on the legality of a prior similar investment structure and the plaintiff had given Chien Yeh the information necessary for it to provide its advice. The review of Chien Yeh's legal opinions by the plaintiff's Mr Frederick Link (“Mr Link”) was not cursory. Mr Link gave his approval that the SFIP-1 transaction appeared to be legal based on the Chien Yeh opinions and a Jersey legal opinion: at [217], [223], [224], [227] to [229] and [239] to [241].

(13) Mr Teng had no actual authority to subscribe for the units in the SFIP-1 Unit Trust on the second defendant's behalf because acts prohibited by the law did not constitute “affairs pertaining to the business of the company”, which directors were authorised to conduct under Art 57 read with Art 208-5 of the TCA. However, the fact that the letter which Mr Teng signed instructing the plaintiff to subscribe for units in the SFIP-1 Unit Trust for the second defendant was issued on plain paper, and not on the second defendant's letterhead, did not in itself suggest that Mr Teng lacked authority any more than the use of the letterhead would have suggested that he had the second defendant's authority: at [245], [252] and [254].

Denying the plaintiff relief was disproportionate to the foreign illegality

The rule inFoster v Driscollwas inapplicable

(14) Under that rule, a contract would be held invalid on account of illegality if the real object and intention of the parties necessitated them joining in an endeavour to perform in a foreign and friendly country some act which was illegal by the law of such country notwithstanding the fact that there might be, in a certain event, alternative modes or places of performing which permitted the contract to be performed legally: Foster v Driscoll[1929] 1 KB 470 (“Foster v Driscoll”). The rule in Foster v Driscoll applied only where the act in question was to be performed in a country in which it was illegal. Although the second defendant submitted that the...