Kim Eng Securities (Pte) Ltd v Ong Eng Poh

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 31 January 2001
• Neutral Citation: [2001] SGHC 18
• Court: High Court (Singapore)
• Published date: 14 March 2013
• Year: 2001
• Plaintiff Counsel: Joseph Ang & Marina Chin (Tan Kok Quan Partnership)
• Defendant Counsel: Tan Cheng Han (as counsel) and Oommen Mathew (Tan Peng Chin & Partners)
• Citation: [2001] SGHC 18

JUDGMENT:

Cur Adv Vult

Introduction

1. Kim Eng Securities Pte Ltd (the plaintiffs) are a company incorporated in Singapore and were/are at all material times a member of the Stock Exchange of Singapore Ltd (SES) and a dealer in securities quoted on the SES.

2. Ong Eng Poh (Ong) the defendant in Suit No. 1412 of 1999 (the first suit) and a chartered accountant by training was, at the material time, a partner with the accounting firm of Ernst & Young (EY) and was its audit manager. Ong had joined EY's predecessor Arthur Young (AY) in 1985; after its merger with Ernst & Whinney, AY became EY. While he was with AY in or about 1983, Ong had as a colleague one Charles Chua Kuan Lim (Charles) who was the firm's administration manager and later its financial controller.

3. Chu Li Fuen (Chu) the defendant in Suit No 600265 of 2000 (the second suit) is the wife of Ong while Ching Sok Gek (Ching) the defendant in Suit No 600266 of 2000 (the third suit) was secretary to Ong while he was with AY and for less than a year, after he joined EY.

The facts

4. After becoming the financial controller of AY, Charles changed jobs and profession. He became a dealer's representative (remisier) some time in 1987. In or about 1991, he joined the stockbroking firm of Lee & Company (Lee & Co) after joining and leaving two (2) other securities firms. According to Charles, while he was with Lee & Co in 1998 (which office was in the same building as AY), Ong approached him to open a trading account. Ong's version was, that it was Charles who wanted his business to which Ong's response was, if Charles wanted his business, then Charles must be prepared to grant Ong a (longer) credit period of 10 days which grace period another remisier at Lee & Co used to extend to Ong. Charles agreed to Ong's condition and the latter opened a trading account with Lee & Co. Ong traded with the firm through Charles until Charles left Lee & Co in December 1998.

5. According to Charles, when he joined the plaintiffs in January 1999, he did not inform Ong but the latter tracked him down and requested to open an account with the plaintiffs. Ong's version was, that he was told by Charles that the latter would be joining the plaintiffs and in addition to the extended 10 days' credit period, Charles offered to grant to Ong (if he became a client) an additional 2 days' credit period by not booking out any purchase of shares until the third day through the plaintiffs' 'suspense' account. Accordingly, Ong opened an account with the plaintiffs on 25 January 1999 under trading account no. 21/26/170148. Besides that account, Charles said Ong also opened a margin account no. 21/26/170221 with the plaintiffs; this was denied by Ong. Charles understood from Ong that the latter did not trade exclusively through the plaintiffs as, Ong had trading accounts with other broking houses. This part of the testimony was confirmed by Ong.

6. In early January 1999, Ong requested Ching to open an account with the plaintiffs. Ching filled in her particulars on the plaintiffs' application form at home, signed it and handed it to Ong together with a copy of her identity card. Ong in turn handed the documents to Charles. Ong said Ching did not meet Charles or liaise with him on her account until after July 1999.

7. As he was busy with his work at EY, Ong said he relied on Charles for advice to trade. In his affidavit, Ong described Charles as a conservative broker who sometimes advised Ong against investing in counters which other stockbrokers recommended. Before May-June 1998, Ong's trading volume was low. However, as was reflected in the plaintiffs' statements of accounts produced in court, Ong's trading volume increased dramatically from about mid-1998 onwards, after he left EY in May 2000. In particular, Ong concentrated on and traded in large quantities in, a number of counters amongst which were Hotung and Labroy.

8. Some time in April 1999, Ong (who had made a huge profit on the stock market) decided to make a gift to his wife of about $250,000. Rather than give the sum to her in cash, Ong decided to buy some 'blue chip' shares in her name. To that intent and purpose, Ong (after consulting Charles) decided to buy the foreign (F) shares of Overseas Union Trust (OUT) which were apparently undervalued. Chu opened a trading account with the plaintiffs on 20 April 1999 under account no. 21/26/170281 (Chu's account) by signing the plaintiffs' account opening form at home as requested by Ong, which he then passed back to Charles together with a photocopy of Chu's identity card. Charles bought 66,000 OUT (F) shares on Ong's behalf in May 1999 and the same were deposited into Chu's Central Depository Pte Ltd (CDP) account.

9. In mid-1999 (according to Ong), Charles asked Ong for some shares to be pledged to the plaintiffs so that Ong's credit facilities could be increased. Ong acceded to the request and his credit facilities were indeed increased. To facilitate the pledge, Ong said he pre-signed blank share transfer forms to enable the plaintiffs to transfer to themselves Ong's shares in his CDP account. Ong also claimed that Charles assured him that he/the plaintiffs would not use the pre-signed forms without Ong's prior consent and authority which assurance Charles/the plaintiffs apparently breached subsequently.

10. On or about Wednesday 7 July 1999, the stock market took a sudden turn for the worse. A few days prior thereto, Ong had purchased through Charles substantial quantities of Labroy and Hotung shares which however were not booked into his but into, Chu's account and Ching's with the plaintiffs, for reasons which will be set out in the next paragraph. The stock market worsened the next day causing anxiety to Ong. However, on Friday 9 July 1999, the stock market recovered reasonably strongly and Charles advised Ong to wait until the following week to gauge the market sentiment before closing out his outstanding positions, save for those shares which Ong had bought earlier and on which he had already made a profit.

11. 600,000 Hotung shares and 200,000 Labroy shares were booked into Chu's account because, according to Ong, Charles said the plaintiffs would not allow Ong an extended credit period for those few counters he had purchased in such large quantities; it was at Charles' suggestion that those trades were booked into Chu's account. For the same reason, Ong's purchase of 600,000 Hotung shares on 8 July 2000 were booked into Ching's account. However, neither Chu nor Ching were aware of these purchases until well after their execution.

12. I should add that when he was with AY and Charles was with Lee & Co, Ong had also asked Ching to open a trading account which he used for his own trades. He explained that the nominee account was opened for 'sensitive reasons' on Charles' recommendation as Ong did not want his friends/acquaintances to know he was a substantial shareholder in certain public companies -- otherwise his name would appear in annual reports if he was one of the companies' top 20 shareholders. Hence, Ong would use Ching's account with Lee & Co to trade whenever he did not want his name to be featured. It was Ching's testimony however that only 2 small trades (in Inchcape and KepFel shares) were done by Ong on her account with Lee & Co.

13. According to Ong, he telephoned Charles on Monday 12 July 1999 to check on market conditions. He was told that the market was trading sideways and was a bit volatile. However, Charles advised Ong not to be hasty and assured him that he (Charles) would negotiate a financial arrangement for Ong with the plaintiffs just as he had done for Ong when Ong bought shares in Inchcape Marketing (Inchcape) which counter became the subject of a take-over offer. Ong alleged that Charles represented to him there would be a standstill arrangement (the standstill agreement) whereby the plaintiffs would allow Ong a certain grace period in which to sell the shares on his outstanding positions at a higher price.

14. Ong claimed that later that same day, Charles reverted to say he had discussed the matter with the plaintiffs' finance director Ms Gee Gek Leng (Gee) who had agreed to hold Ong's outstanding positions (including those purchases which Charles had booked into the accounts of Chu and Ching) until such time as the market turned around. This claim was denied by both Charles and Gee.

15. Ong said he met Charles on Saturday 17 July 1999 and they discussed the grace period for the standstill agreement. While Ong felt that the market might rebound around end September 1999, Charles thought it would only do so at end November 1999. It was at this meeting that Charles, upon being informed by Ong that the latter would receive his 1999 profits from EY, proposed that Ong should effect an assignment to the plaintiffs of those profits; Ong agreed to assign half of his profits (after tax) provided that the plaintiffs substantiate the outstandings due from him. Charles suggested a letter of undertaking (the letter of undertaking) from Ong to that effect; Ong agreed provided that the same was not disclosed to EY as he did not want his partners there to know about his financial affairs. Ong alleged (but which was denied) that Charles agreed the letter of undertaking would not be revealed to EY; he said Charles assured him (which was also denied) that the letter of undertaking was unlikely to be called upon in any event because with the standstill arrangement, Ong should be able to realise higher prices on the shares on his outstanding positions and the sale proceeds would be sufficient to settle Ong's outstandings, together with the shares which Ong had pledged to the plaintiffs.

16. There then followed a meeting between Ong, Charles and Gee on 19 July 1999 at which the outstanding positions of Ong, Chu and Ching were discussed. Ong alleged that after the meeting, he was told by Gee and Charles that they would speak to the plaintiffs'...