Gao Bin v OCBC Securities Pte Ltd

• Jurisdiction: Singapore
• Judge: Choo Han Teck J
• Judgment Date: 20 October 2008
• Neutral Citation: [2008] SGHC 178
• Docket Number: Suit No 224 of 2008 (Registrar's Appeal No 341 of 2008)
• Date: 20 October 2008
• Year: 2008
• Published date: 17 November 2008
• Plaintiff Counsel: Deborah Barker SC and Ang Keng Ling (KhattarWong)
• Citation: [2008] SGHC 178
• Defendant Counsel: Edwin Tong and Kristy Tan (Allen & Gledhill LLP)
• Court: High Court (Singapore)
• Subject Matter: Unfair contract terms act,Contractual terms,Civil Procedure,Whether court should order stay,Stay of execution,Contract,Whether anti-setoff clause subject to Unfair Contracts Terms Act (Cap 396, 1994 Rev Ed),Client having subsisting claim against brokerage house,Brokerage house entering summary judgment against client,Summary judgment,Anti-setoff clause

20 October 2008 Judgment reserved.

Choo Han Teck J:

1 The plaintiff/appellant, Gao Bin, is the Chairman of Zhonghui Holdings Ltd (“Zhonghui”), a company listed on the Singapore Exchange (SGX-ST). The defendant/respondent, OCBC Securities Private Limited, is a well-known brokerage house in Singapore. At all material times, the plaintiff maintained the following securities accounts with the defendant:

a. Securities Borrowing Account (“SBL Account”);

b. Share Margin Account (“Margin Account”); and

c. Securities Trading Account.

2 The SBL Account is a credit facility which allows the account holder to borrow shares and execute trades as the account holder chooses. The share borrowings must be secured, and the account holder is contractually required to maintain the ratio of the value of security provided, to the market value of the total share borrowings at not less than 150%. As for the Margin Account, it is likewise a credit facility and allows the account holder to borrow funds and execute trades on the security of collateral deposited into the Margin Account. Here, the account holder is contractually required to maintain the ratio of the value of security to the value of loans at not less than 140%.

3 The Margin Account was opened on 10 July 2006 while the SBL Account was opened on 4 October 2006. From 5 October 2006 onwards, the plaintiff pledged a portion of his shares in Zhonghui to the defendant as security in respect of both the SBL Account as well as the Margin Account. Thereafter, the plaintiff carried out trades on both the SBL Account and the Margin Account through his remisier.

4 The defendant provided daily reports to the plaintiff’s remisier in respect of the SBL Account (“Daily Holdings Report(s)”). These Daily Holding Reports detailed, inter alia, the number of shares held, the marginable value of the share collateral, the amount of cash held and whether any cash and security top up was required. Prior to 17 September 2007, the Daily Holding Reports indicated that no cash or security top ups were required in respect of the SBL Account. The Daily Holding Report issued on 17 September 2007 however showed that the SBL Account was in a deficit position and that cash or security top ups were required. In this regard, the defendant had acknowledged that its administrative staff had made certain data entry errors in recording share trades in relation to the SBL Account, although its position was that the plaintiff was not entitled to and did not actually rely on the Daily Holding Reports. The plaintiff, on the other hand, claimed that he had relied on the Daily Holding Reports and had accordingly brought an action against the defendant alleging, amongst others, breaches of contract and duty of care.

5 On its part, the defendant counterclaimed for $344,501.80 outstanding under the Margin Account (“the Margin Claim”) and for $1,470,469.33 outstanding under the SBL Account (“the SBL Claim”). Subsequently, the defendant applied for summary judgment on its counterclaims against the plaintiff. The defendant’s application was heard by an assistant registrar, who gave judgment to the defendant. The plaintiff appealed against that decision.

Quantification of defendant’s counterclaims

6 One of the issues raised by the plaintiff was the quantification of the defendant’s counterclaims. The plaintiff submitted that the burden of proving the quantum of the defendant’s counterclaims lies with the defendant, and further asserted that the reporting errors in relation to the SBL Account would have an impact on the defendant’s computation of its claims. The first point to note is that there were no errors in relation to the Margin Account. Thus, any dispute in respect of the quantification of the counterclaims would have to be confined to the SBL Account. The computation provided by the defendant for the SBL Claim is as follows:

(1) Market purchase of borrowed securities	$1,708,296.99
(2) Cash deficit accrued	$138,518.89
(3) Less: Proceeds from sale of collateral	($376,346.55)
Total	$1,470,469.33

7 It is settled law that a claimant must be able to prove his loss. As can be seen from the above, the SBL Claim consists of three parts. There can be no dispute over the computation of (3), it being the proceeds from the sale of the pledged collateral. As for (1), the defendant avers that the sum was arrived at as a result of market purchases of 62,000 SGX and 191,000 CapitaLand shares borrowed but unreturned by the plaintiff. The loans of these shares were reflected in the SBL Account’s Statement of Account for the month October 2007. No further trades were executed in this account since that month (save for the subsequent buy-ins). Head (2) relates to the cash deficit accrued on the SBL Account. Altogether, the deficit of $1,470,469.33 was reflected in the Daily Holding Report dated 17 April 2008, and the defendant’s Head of Credit Risk had confirmed in an affidavit that the plaintiff was liable to the defendant for the amount of $1,470,469.33. Prima facie, there is therefore evidence on record that the plaintiff was indebted to the defendant for the sum of $1,470,469.33.

8 The main weakness in the plaintiff’s case was his failure to challenge the sum arrived at by the defendant. As the defendant had pointed out, the plaintiff had actual knowledge of the trades done under the SBL Account and would have received contract notes from SGX-ST in respect of each day’s shares transactions on a contemporaneous basis. These contract notes would have confirmed the plaintiff’s own knowledge of the trades done and the details thereof. The plaintiff would therefore have known the position of his holdings in the SBL Account on a day-to-day basis. This meant that at any time after receipt of the contract notes, the plaintiff would be in a position to challenge the computations arrived at by the defendant. The plaintiff could also have reconstructed his own accounts from the contract notes. That being the case, a bare denial of the defendant’s claim on the plaintiff’s part would clearly be futile. Thus, while there might be a possibility that the defendant’s computations might have been tainted by the earlier reporting errors, without any input from the plaintiff, I am of the view that the defence raised by the plaintiff was at best a shadowy one.

Anti-setoff clause

9 The other substantive issue raised by the plaintiff was that its claim against the defendant meant that it had a right of equitable set-off against the defendant’s counterclaim. There are however several obstacles that the plaintiff must surmount in order to succeed. The first is that it must show that its claim and the defendant’s counterclaims arose from the same transaction or are closely connected with one another: see Pacific Rim Investments v Lam Seng Tiong [1995] 3 SLR 1.

10 In Abdul Salam Asanaru Pillai v Nomanbhoy & Sons Pte Ltd [2007] 2 SLR 856 at [28], Sundaresh Menon JC made the following observations which I thought are apposite:

… The question of whether a sufficient degree of closeness is established in the connection between...