Grossey v Chartered Bank

• Jurisdiction: Singapore
• Judge: A P Rajah J
• Judgment Date: 18 November 1988
• Neutral Citation: [1988] SGHC 91
• Docket Number: Suit No 3141 of 1984
• Date: 18 November 1988
• Published date: 19 September 2003
• Year: 1988
• Plaintiff Counsel: HE Cashin (Murphy & Dunbar)
• Citation: [1988] SGHC 91
• Defendant Counsel: Dennis Singham (Rodyk & Davidson)
• Court: High Court (Singapore)
• Subject Matter: Customer suffering loss due to bank's failure to give notice of redemption of bonds,Extent and nature of damage incurred,Banking,Credit and Security,Mortgage of personal property,Convertible bonds placed with branch in Singapore,s 2 Banking Act (Cap 19),Bank's breach of duty to customer,Stocks and shares,Lending and security,Bank failing to give notice of redemption of bonds to customer,Whether giving notice part of 'banking business',Bank extending overdraft facilities to customer on security of convertible bonds

The defendant is a company incorporated in England with limited liability under a Royal Charter of 1853 with a registered branch office in Singapore carrying on, inter alia, a banking business and related financial services under licence issued by the competent authorities of Singapore. It was and is a member of the Standard Chartered Bank Group of which the Standard Chartered Merchant Bank Ltd, London (SCMB) was also a member and it has been carrying on banking business and other related financial services in Singapore for well over a century. Section 2 of the Banking Act (Cap 19) defines `banking business` as `the business of receiving money on account or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act`.

The plaintiff, a citizen of the UK, was at all material times a customer of the defendant (the bank) at its main office in Singapore since 1966, when he arrived in Singapore and where he has been resident since and is now a permanent resident.

The plaintiff is a businessman of standing in Singapore being involved in the affairs of a number of foreign international companies, of which he was and is a director. The plaintiff maintained with the bank a current account on which it has advanced the plaintiff various sums of money from time to time by way of overdraft against marketable securities lodged with it by the plaintiff.

On 5 February 1979 the bank wrote to the plaintiff as follows (AB1):

Banking arrangements

We advise that the total value of all your shares held by us to secure your guarantee and overdraft line amounts to S$591,425. Under the terms of the banking facilities extended to you, our commitments under both lines of credit should not exceed 65% and 50% respectively of the current market value of the shares.

Your account is currently overdrawn to the extent of S$65,281.27 and there is thus an overall shortfall in our security.

Under the circumstances, we shall be pleased if you will arrange to lodge further shares with us, or alternatively, reduce your overdraft to within the limit of S$40,000.

We await your advice on the matter.

On 6 April 1979 the manager of the defendant wrote to the plaintiff as follows (AB2):

Banking arrangements

We have reviewed the banking arrangements currently made available to you and are pleased to advise that we have extended the credit line for a further period on the following terms and conditions, with a reduction in the level of the overdraft facility to conform with our normal margin requirements.

£75,000 For the issue of a guarantee favouring Lloyds. Counter indemnity to be held.

S$7,700 For the issue of a guarantee to M/s Hock Seng Enterprises Pte Ltd. Counter indemnity to be held.

S$30,000 Overdraft facilities in current account. Interest will be levied at (reduced 11/2% above our prime lending rate which is currently 8% pa. Changes in prime from rate are notified to the press and featured on our counters and in current account statement. S$40,000)

Security

We hold marketable securities supported by blank transfers and a letter of lien. Our commitment under the guarantee lines should not at any time exceed 65% of the current market value of the shares deposited and 50% on the overdraft facility.

Subject to review on 30 April 1980.

We trust that the foregoing arrangements are satisfactory to you.

These arrangements, it would appear, continued until late November 1981 when Mr Northrop, the advances manager of the bank, wrote to the plaintiff on 23 November 1981 to the effect that it was time to review the banking arrangements as the quantum of his overdraft had increased and the cover for his facilities had eroded. To this the plaintiff responded on 7 December 1981 as follows:

Dear Mr Northrop,

Many thanks for your letter B467 of 23 November. I was aware that the cover for my facilities had eroded somewhat, and in fact am in the process of rearranging my assets to provide adequate cover. One of my difficulties is to determine which shares/bonds etc will be relatively immobile as it is, of course, awkward for both parties if the collateral is frequently changed. If you can bear with me a little longer I shall develop a plan which we can then discuss and agree - may I contact you again shortly on this? (AB3)

It is the plaintiff`s evidence that in the course of a number of discussions with Northrop, he discussed with him sometime in April 1982 or thereabouts the possibility of offering convertible bearer bonds as security for credit facilities by the bank. The difficulty for the bank here, it would appear, was two-fold: (1) that as a holder of convertible bearer bonds the plaintiff`s name would not appear in the register of the issuing company, and (2) that the bank as then organized would not be able to keep track of the notices of conversion as and when given by the various issuing companies.

At that time as indeed of now, in respect of Eurobonds, which are internationally traded securities, the major part of Eurobond clearing and settlement was and is conducted through two centralized clearing systems, namely, Euroclear in Brussels and CEDEL in Luxembourg. Each of the two systems provided an efficient, risk-free settlement system for internationally traded securities, avoiding the costs and delays caused by physical delivery of certificates. Participants in both systems had to be institutions. Euroclear was established in 1968 and at the end of 1986, Euroclear had over 2,050 participants. (See p 590 of International Finance and Investment edited by Brian Terry (1987).)

The plaintiff`s agent in the UK in respect of his Eurobond holdings was a firm of stockbrokers by the name of Charlton Seal Dimmock & Co operating in Manchester, England (agent). Member banks of the Euroclear System would hold the convertible bearer bonds on behalf of his agent. Interest coupons would be attached to these bonds and the institution holding the bonds would present these interest coupons to the Euroclear System which would then collect the interest on the coupons and remit it to his agent on whose behalf the member institution would be holding the bonds. These interest payments collected on behalf of the plaintiff had always been remitted by his agent to Hongkong where the plaintiff had a bank account. As and when the companies issuing the convertible bearer bonds gave notices of redemption the issuing companies would inform the Euroclear System who would then inform the custodian institution of such notices. The custodian institution in turn would inform the agent who would in turn inform the plaintiff of such notices. The plaintiff would finally instruct his agent as to what was to be done with the bearer convertible bonds.

It was against this background that the feasibility of placing these convertible bearer bonds with the bank by way of security for the plaintiff`s banking arrangements with it was discussed. What was discussed and finally agreed upon by the bank and plaintiff are crucial to this case. The plaintiff`s evidence is that as a result of the discussions, agreement between the bank and himself was reached culminating in a letter dated 12 April 1982 from the bank to himself (AB4) which reads:

Banking facilities

(1) Further to our recent discussions we are pleased to advise that our London merchant bank, Standard Chartered Merchant Bank Ltd, 33-36, Gracechurch Street, London...