Hongkong and Shanghai Banking Corp Ltd v United Overseas Bank Ltd

• Jurisdiction: Singapore
• Judge: Michael Hwang JC
• Judgment Date: 13 March 1992
• Neutral Citation: [1992] SGHC 61
• Docket Number: Originating Summons No 730 of 1991
• Date: 13 March 1992
• Published date: 19 September 2003
• Year: 1992
• Plaintiff Counsel: Quek Mong Hua (Lee & Lee)
• Citation: [1992] SGHC 61
• Defendant Counsel: Alan Thambiayah and Goh Su Lin (Cooma Lau & Loh)
• Court: High Court (Singapore)
• Subject Matter: Conflict of Laws,Tracing,Equity,Plaintiffs made a personal claim against third party for repayment of sums misappropriated,Election of alternative remedies,Choice of law,Obligation to restore the benefit of an unjust enrichment,Moneys deposited in account with defendant bank,Plaintiffs' moneys misappropriated by third party,Misappropriation of moneys,Whether plaintiffs have proprietary entitlement to the moneys,Moneys deposited with defendant bank,Cross-border transfers of moneys into bank accounts,Test applied,Election,Whether plaintiffs precluded from asserting a proprietary claim against defendants,Restitution

Cur Adv Vult

This case raises a number of textbook problems which have not so far been raised directly in the courts.

The facts

Between 25 October and 13 November 1989, Emma G Untalan (`Untalan`), a long-serving telex officer employed by the plaintiffs in their Manila branch, fraudulently caused several sums belonging to the plaintiffs amounting to a total of US$536,000 to be transferred by telegraphic transfer from the plaintiffs` Manila branch to the joint account of Untalan and her husband with the plaintiffs at their New York branch. She was able to make these fraudulent transfers because she had full control of and access to the cables room of the Manila branch from which she emanated these unauthorized transactions. She also had access to the confidential testing arrangement by which the telex transactions were authenticated.

On or about 17 November 1989, Untalan instructed the plaintiffs` New York branch to make a telegraphic transfer of US$515,000 from her New York joint account to the Singapore branch of the plaintiffs to await her collection of the funds in Singapore. The plaintiffs made the transfer to their Singapore branch as instructed.

On or about 20 November 1989, Untalan obtained payment of the US$515,000 in Singapore in the following manner. Three demand drafts were issued by the plaintiffs` Singapore branch for:

(a) US$200,000 payable to the defendants for the account of Untalan and/or her husband;

(b) US$200,000 payable to the Australia and New Zealand bank for the account of Untalan and/or her husband; and

(c) US$100,000 payable to a third party.

The balance of US$15,000 was paid in cash to Untalan.

The draft for US$200,000, payable to the defendants, was in fact used to establish an Asian Currency Unit (`ACU`) account in the sole name of Untalan on or about 20 November 1989. The deposit was on terms that it would be renewed automatically on a monthly basis at the interest rate prevailing at the time of renewal, and with interest added to principal on each renewal.

At this point, the plaintiffs discovered the fraud and commenced proceedings against Untalan and her husband in Singapore High Court Suit No 2293 of 1989, claiming the recovery of all sums misappropriated. The primary legal basis for the plaintiffs` claim was unclear, but an alternative claim was pleaded for money had and received.

The plaintiffs obtained a Mareva injunction freezing (among other things) Untalan`s ACU account with the defendants. Although Untalan and her husband entered appearance in this suit, judgment in default of defence was eventually obtained against Untalan and her husband for all the sums misappropriated by her. The plaintiffs then issued separate garnishee proceedings against the defendants and the Australia and New Zealand bank. The garnishee proceedings against the latter banks were successful but the defendants resisted the garnishee proceedings against them on the grounds that:

(a) such proceedings were incompatible with the Mareva injunction which was still in force;

(b) the ACU account could not be garnished as it had been deposited on terms that it would be automatically renewed on each maturity and the moneys were not payable except upon production of the ACU receipt which was in the possession of Untalan; and

(c) in any event, the ACU account was the subject of a seizure order by the Commercial Affairs Department (`the CAD`) under s 68 of the Criminal Procedure Code (Cap 68) (`the CPC`).

The garnishee proceedings were therefore adjourned sine die.

Faced with these obstacles, the plaintiffs took the following actions:

(1) They obtained an order in Suit No 2293 of 1989 that:

All moneys in the joint account for the first and second defendants [Untalan and her husband] and/or in their individual accounts including any fixed deposits in their joint or several names in the United Overseas Bank Ltd together with all interests therein be paid to the plaintiffs forthwith.

(2) Armed with this order, they persuaded the CAD to obtain an order from the magistrate to make an order under s 392 of the CPC in the following terms:

It is hereby ordered that the money in the ACU account, no 3111180-001, at the United Overseas Bank, Bonham Street, Singapore, be released to the account holders [Untalan and her husband] to be dealt in accordance with the said judgment of the High Court [the judgment referred to in (1) above].

(3) They then asked the defendants to pay over all moneys in the ACU account to them pursuant to these orders of court. The defendants, however, contended that these orders were not binding on them as they were not parties to the orders nor did the orders specifically direct the defendants to make payment to the plaintiffs. (I observe in passing that the latter argument illustrates the dangers of drafting court orders in the passive voice.)

The plaintiffs accordingly issued this summons, seeking the following reliefs:

(1) A declaration that the plaintiffs are entitled to the moneys in the joint account of Emma G Untalan and Tomas A Untalan and/or their individual accounts including any fixed deposits in their joint or several names with the defendants together with all interests therein.

(2) An order that the defendants do forthwith pay the sum of US$200,000 together with all interest in the joint account of Emma G Untalan and Tomas A Untalan and/or their individual accounts including any fixed deposits in their joint or several names with the defendants together with all interests therein.

There were also claims for interest and costs.

Although the plaintiffs issued the summons under the misapprehension that the ACU account was in the joint names of Untalan and her husband, it is now clear that Untalan in fact established the account in her name only.

The defendants` main contentions in this summons were as follows:

(a) they were not bound by the orders of court I have mentioned previously and were not a party to the applications for these orders;

(b) they were opposed to the claim of the plaintiffs because of the possibility of an action for breach of contract by Untalan or any assignee of Untalan, particularly as actions could be brought in other countries where the defenhad offices;

(c) Untalan had not been made a party to this summons and would not be bound by any order of this court; and

(d) the plaintiffs had not offered to indemnify the defendants against any loss, costs and expenses which the defendants might suffer or incur arising out of any claim made by Untalan.

The position taken by the defendants` counsel at the hearing was that the plaintiffs were trying to obtain execution by a mode which was not a recognized form of execution, and suggested that the plaintiffs should apply to restore their previously adjourned garnishee proceedings for further argument. However, if an order were to be made on the plaintiffs` claim, then an order should be made for the plaintiffs to indemnify the defendants.

Counsel for the plaintiffs explained that the claim as formulated in this summons was essentially a proprietary claim and the remedy sought was a tracing order, whether at common law or in equity. However, as the factual basis for this claim was not clearly disclosed in the plaintiffs` supporting affidavit, I directed that the plaintiffs file a further affidavit setting out the history of how the moneys claimed had found their way from the plaintiffs to the defendants.

The issues

The facts of this case are not in dispute and on these facts, it is necessary to examine two questions:

(a) what law governs the plaintiffs` claim to the moneys (`the conflicts issue`); and

(b) what the rights of the plaintiffs are against the defendants under the governing law (`the substantive issue`).

The conflicts issue

What happened in this case was that Untalan fraudulently transferred funds from Manila to New York, and then from New York to Singapore, where (as far as the present claim is concerned) she established an ACU account with the defendants on a monthly roll-over basis. There are therefore three possible candidates for the lex causae :

(a) the law of the Philippines;

(b) the law of New York; and

(c) the law of Singapore.

This is an area unexplored by judicial authority and I must therefore refer to the leading textbook for guidance. Dicey and Morris on The Conflict of Laws (11th Ed, 1987) state (at p 1350):

Rule 203

(1) The obligation to restore the benefit of an enrichment obtained at another person`s expense is governed by the proper law of the obligation.

(2) The proper law of the obligation is ( semble ) determined as follows:

(a) [dealing with contracts];

(b) [dealing with immovables];

(c) If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.

This rule was accepted by both counsel as authoritative in Chase Manhattan Bank NA v Israel-British Bank (London) Ltd [1981] Ch 105 at pp 109 and 112, and was judicially approved in Re Jogia; Trustee in Bankruptcy v Pennellier (D) & Co [1988] 1 WLR 484[1988] 2 All ER 328 at p 495.

Under this rule, it is clear that the law of the Philippines cannot be the lex causae as Untalan was not enriched there. The question then arises as to whether the enrichment took place in New York or Singapore. In the absence of any case law to guide me, I refer again to Dicey and Morris for a hypothetical example set out at p 1354:

Thus if A who is resident in England owes money to B, but by mistake pays it to X who is resident in France, X`s enrichment and therefore A`s claim for its restitution are likely to be most closely connected with French law. In this case the proper law of the obligation is that of the country in which the immediate benefit was received. If the payment had been made at the Paris branch of an English bank to be credited to the

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