Ho Mun-Tuke Don and another (liquidators of City Securities Pte) v Oslo Finans AS

JudgeL P Thean J
Judgment Date29 March 1990
Neutral Citation[1990] SGHC 24
Citation[1990] SGHC 24
Defendant CounselChan Kok Chye (Chu Chan Gan & Ooi)
Published date19 September 2003
Plaintiff CounselRajah Chelva Retnam (Tan Rajah & Cheah)
Date29 March 1990
Docket NumberOriginating Summons No 607 of 1987
CourtHigh Court (Singapore)
Subject Matters 329 Companies Act (Cap 50),Words and Phrases,'View',Undue preference,s 53(1) Bankruptcy Act (Cap 20),Whether dominant intention to prefer,Liquidation,Whether transfer of client's money from trust account prior to liquidation was with a view to preferring over other creditors,Companies

Cur Adv Vult

The plaintiffs are the liquidators of an unlimited company, City Securities Pte (in liquidation), and took out this originating summons against the defendant and applied for determination of the following questions:

(1) Whether the moneys presently standing to the credit of City Securities Pte in fixed deposit with Shing Loong Finance Ltd Account No 28016180 is an asset of the defendant entitling the defendant to be paid such amount by the plaintiffs in priority over the other creditors of City Securities Pte.

(2) Whether the plaintiffs are entitled to the return of the 1,000 shares in Malayan Banking Bhd delivered by Mr Chiang Wee Tiong to the defendant on or about 24 November 1986 and the 4,000 shares in Malayan Banking Bhd delivered by the plaintiffs to the defendant on or about 24 November 1986 or payment of damages by the defendant in lieu of such damages.

The application was heard before the assistant registrar, Mr Kenneth Au-Yong, and he decided the questions in favour of the defendant.
Against that decision, this appeal is now brought.

Prior to its liquidation, City Securities Pte (City Securities) was carrying on the business of stockbrokers and dealers in securities in Singapore.
The defendant is a Norwegian company. On 4 June 1985, in response to a telex from the defendant, City Securities, through its director, Chiang Wee Tiong, made a proposal in writing to the defendant for placement by the latter of $1m `for management by City Securities Pte into the Singapore and Malaysian stock market`. According to one Sven Norgaard, the general manager of International Securities Division or Department of the defendant, the arrangement contemplated by the parties involved the placement of $1m by the defendant with City Securities for investment in securities in the Singapore and Malaysian stock markets. Though this arrangement was not clearly spelled out in the proposal, that probably was what was intended by the parties. The proposal also contained terms or stipulations for custodian services to be provided by City Securities in respect of securities bought for account of the defendant. The proposal was accepted by the defendant by telex on 14 June 1985, and subsequently on 26 June the defendant instructed City Securities to establish a trust account in the name of the defendant for the safekeeping of the securities bought by City Securities on behalf of the defendant. Thenceforward, City Securities bought and sold for the defendant securities in the Singapore and Malaysian stock markets, and reports of such transactions were sent every month by City Securities to the defendant, and enclosed in each report was, among other things, a `trust account statement`. In so far as City Securities was concerned, and probably unknown to the defendant, moneys placed by the defendant with City Securities for investment and proceeds of sales of the defendant`s securities effected by City Securities were paid into one or more of the current accounts of City Securities, which were at all material times overdrawn; no separate trus t account was set up for the defendant.

In February 1986 or thereabout, City Securities were in financial difficulties.
On 27 February 1986 in order `to allay the fears of several of its creditor financial institutions`, City Securities appointed a public accountant firm, Peat, Marwick, Mitchell & Co (`Peats`) `to provide assistance in the management, administration and custody of scrips` in the office of City Securities. In that connection, Peats were authorized to open an `escrow account` with Tat Lee Bank Ltd `for the purpose of banking in all proceeds from delivery of scrips to the clients, collection of receivables and disposal of any other assets [of City securities]`, and Peats agreed to `take steps to ensure that all such proceeds are banked into the account and that disbursements from the account [would] only be for bona fide transactions, subject to such guidelines as may be agreed by the banks and [Peats]`. For the purpose of operating the account, any one of the three partners of Peats, namely, Paul KW Ma, Peter MK Chee and Frances Cheang, was authorized to act jointly as a co-signatory with a director of City Securities for all cheques drawn on that account.

Subsequently on 31 March 1986, City Securities entered into what was called the `standstill agreement` with 18 creditor financial institutions under which, among other things, the latter institutions were to hold their hands in the enforcement of their rights against City Securities for a certain period on terms as therein agreed.
The standstill agreement was conditional on two further agreements, which were entered subsequently, namely: (i) an agreement between the financial institutions, City Securities and the directors and shareholders of City Securities (the company agreement), and (ii) the agreement between the financial institutions and Peats (the Peats agreement). It is unnecessary for my purpose to set out and deal with any of these agreements in any detail. Suffice it here to say they were entered into principally for the purpose of preserving and protecting the assets of City Securities for the benefit of the financial institutions and at the same time permitting City Securities to carry on its normal business while proposals for its restructuring were being worked out and considered.

On 29 April 1986, the director of City Securities, Chiang Wee Tiong (Chiang), had a discussion with Frances Cheang in connection with the setting up of a trust account for two clients of City Securities, namely, the defendant and one Robert Shock, who, according to Chiang, had credit balances of $121,587.64 and $43,720 respectively with City Securities.
Following that conversation, Chiang wrote to Frances Cheang a letter dated 29 April 1986 which, so far as relevant, reads:

I refer to our conversation this morning on the above mentioned matter.

I would appreciate if you would kindly proceed with the setting up of the necessary trust account with a non-creditor bank.

For your information, we have the following account with various balances as shown:

Amount with City Securities Pte

1 Oslo Finance AS $121,587.64

(2) Mr Robert Schock $ 43,720.00

As soon as this account is set up, I shall be grateful if the above mentioned amount be transferred.

Having ascertained from City Securities` accounting records that there were such balances, Peats thereupon opened a separate trust account with Bank of China in the name of City Securities and transferred from the escrow account with Tat Lee Bank Ltd to the trust account with Bank of China a sum of $158,985.02.
It is necessary to set out in full the text of the letter from Peats to Bank of China for the opening of the trust account, which is as follows:


30 April 1986

Bank of China

4 Battery Road

Singapore 0104

Attn: Mr Lee Quay Thye

We refer to our teleconversation of today with your Mr Lee Quay Thye, sub-manager of your business department. We enclose the relevant application form for the opening of a current account by City Securities Pte. This account is intended to be a trust account and moneys held in this account will be for the account of the clients of City Securities Pte in compliance with the Securities Industry Act. We enclose a cheque for $158,985.02 which is for the credit of this account.

Kindly acknowledge receipt.

Yours faithfully

sgd Peat Marwick

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