HONGKONG AND SHANGHAI BANKING CORP LTD V UNITED OVERSEAS BANK LTD [1992] 2 SLR 495

• Date: 01 December 1993
• Author: JOAN E. SETHUPATHY
• Citation: (1993) 5 SAcLJ 342
• Published date: 01 December 1993

HONGKONG AND SHANGHAI BANKING CORP LTD V UNITED OVERSEAS BANK LTD [1992] 2 SLR 495

Introduction

This is the first case in which the Singapore courts have had to deal with the problem of money fraudulently obtained through telegraphic transfers. The plaintiffs’ action raised the question as to whether a tracing claim could succeed, and if so, whether the plaintiffs were entitled to trace in equity or at common law. It will be seen that the opportunity to liberalise the common law right to trace was presented to the Singapore court. On the facts, the learned judicial commissioner could have allowed common law tracing instead of tracing in equity.

Facts

Between 25 October and 13 November 1989, U, an employee of the plaintiffs’ Manila office fraudulently caused several sums belonging to the plaintiffs amounting to US$536,000 to be transferred by telegraphic transfer from the plaintiffs’ Manila branch to the joint account of U and her husband with the plaintiffs at their New York branch. On or about 17 November U 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. She collected a substantial part of the funds by means of separate demand drafts, one of which was for the sum of US$200,000. This draft was used to establish an Asian Currency Unit (“ACU”) account with the defendants in U’s name. On discovering the fraud, the plaintiffs commenced proceedings against U and her husband in Singapore and obtained a Mareva injunction freezing, inter alia, U’s ACU account with the defendants. The defendants contended, inter alia, that the orders obtained by the plaintiffs 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. The substantive issue in this case was what the rights of the plaintiffs were against the defendants under the governing law (which the court found to be Singapore law as the place where the ultimate enrichment occurred).1

Hwang JC held, inter alia, that U and her husband were constructive trustees of the money misappropriated. The plaintiffs had a beneficial title to the money in the ACU account. On the facts, equitable tracing was available because (a) there was a fiduciary relationship between the plaintiffs and U; (b) the money in the ACU account with the defendants were identifiable

proceeds of the misappropriation arising from U’s breach of fiduciary duty; and (c) the defendants did not provide any valuable consideration for the payment of the money into the ACU account.

Commentary

There are four issues to be considered here.

First, was Michael Hwang JC right in stating that the defendants were constructive trustees of the money? Beyond making such a holding, his honour did not give any basis for this holding.

Secondly, did the plaintiffs have a beneficial title to the moneys held in U’s ACU account with the defendants? Hwang JC held that they did, basing his decision on the case of Banque Belge pour L’ etranger v Hambrouck & Ors,2 although he stated that this case was not exactly in point.

Thirdly (and this is dependant on the second issue), were the plaintiffs entitled to trace? If so, could they have done so at Common Law?

Fourthly, is there any future for Common law tracing as a restitutionary remedy?

First issue

The personal remedy of accounting would have been available to the plaintiffs. However, this would be an inadequate remedy as U and her husband were “men of straw”. In the present case, Hwang JC had to hold that U and her husband were constructive trustees so as to make available a remedy in rem for the plaintiffs. This would then allow the plaintiffs to trace the money to the defendants.3

Were U and her husband constructive trustees? It is difficult to see on what basis they were held to be constructive trustees. To argue that they fell within the knowing receipt category of receiving trust property in breach of trust would mean that one would have to first find the existence of a trust. Money paid into a bank becomes the property of the banker and the relationship between the bank and and its customer is that of debtor and creditor.4 There is no creation of trust. Even if one could find a trust arising

from money deposited into a bank,5 in the present case, the money here was the plaintiff’s own. There was no trust. U could hardly be said to have received trust property in breach of trust.

However, the more recent case of The Sumitomo Bank Limited v Kartika Ratna Thahir & Ors6 (more popularly called “the Pertamina case”), Lai J stated that constructive trusts may be grouped under three well-defined categories. One of these is where a person has obtained as advantage by acting fraudulently or unconscionably or in certain situations inequitably.7 U in the present case would certainly fall within this category. Hwang JC would therefore be right in holding U and her husband were constructive trustees.8

Second Issue

Hwang JC held that the facts of the case showed an equitable title by the plaintiffs to the moneys held in U’s ACU account with the defendants. He based this on Banque Belge pour l’Etranger v Hambrouck & Ors.9 In this case, an employee of Banque Belge, H, fraudulently obtained over £6000 from Banque Belge by means of cheques payable to himself which were drawn without the authority of his employers. H handed over the money to his...