Koh Kim Teck v Credit Suisse AG, Singapore Branch

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 26 February 2015
• Neutral Citation: [2015] SGHC 52
• Court: High Court (Singapore)
• Docket Number: Suit No 942 of 2013 (Registrar’s Appeal No 301 of 2014)
• Year: 2015
• Published date: 02 March 2015
• Hearing Date: 23 December 2014
• Plaintiff Counsel: Sarjit Singh Gill SC, Edmund Eng and Tan Su Hui (Shook Lin & Bok LLP)
• Defendant Counsel: Alvin Yeo SC, Chua Sui Tong, Michelle Neo (WongPartnership LLP)
• Subject Matter: Civil procedure,Pleadings,Striking out,Tort,Negligence,Breach of duty
• Citation: [2015] SGHC 52

Aedit Abdullah JC: Introduction

Mr Koh Kim Teck (“the Plaintiff”) is suing Credit Suisse AG, Singapore Branch (“the Defendant”) for, among other things, losses incurred by him because of what he alleges were breaches of duty by the Defendant in advising him on investments. On paper, the Plaintiff was not the Defendant’s client. For various reasons, the Plaintiff carried out his investments and banking with the Defendant through a trust company, Smiling Sun Ltd (“SSL”). The Plaintiff filed a fairly lengthy statement of claim. The Defendant sought to strike out his claim. This was refused by the Assistant Registrar. The Defendant then appealed.

Background

The Defendant is the Singapore branch of a global banking institution. When the Plaintiff opened an account with the Defendant, he did so in the name of the trust company set up for this purpose, SSL. His banking and investment activities with the Defendant were also conducted using the same offshore corporate vehicle as an intermediary. Thus, the Defendant’s client – on paper at least – was SSL, and not the Plaintiff.

However, on the Plaintiff’s version of the facts, the Defendant’s employees rendered advice to the Plaintiff directly and took instructions from the Plaintiff. Everyone was well aware that the Plaintiff’s money funded the investments made in SSL’s name. The Plaintiff was made to believe he could rely on the advice rendered to him. In fact, it was the Defendant who advised that the banking relationship be structured in an indirect way. Moreover, the sole shareholder, sole director and registered agent of SSL at all material times were agents and/or nominees of the Defendant.

Unfortunately, the investments made in SSL’s name turned sour, causing heavy losses to the Plaintiff. The Plaintiff now sues the Defendant on the basis that the Defendant had breached the duty of care owed to the Plaintiff personally. The writ of summons was filed on 16 October 2013, and the statement of claim (“the SOC”) was filed and served on the Defendant on 4 March 2014.

The Defendant took the position that if anybody at all is entitled to sue, it would be SSL, ie, the party in a direct contractual relationship with the Defendant. The Defendant characterised the Plaintiff’s suit as an unprincipled attempt to circumvent this “carefully chosen and constructed contractual relationship”. The Defendant applied to strike out the Plaintiff’s claim pursuant to O 18 r 19(1) of the Rules of Court (Cap 322, R 5, 2006 Rev Ed) (“the ROC”) and/or the inherent jurisdiction of the court in Summons No 1330 of 2014 (“Summons 1330”). Summons 1330 was filed on 14 March 2014.

Summons 1330 refers to all four grounds under O 18 r 19(1), ie, that the SOC (a) discloses no reasonable cause of action; (b) is scandalous, frivolous or vexatious; (c) may prejudice, embarrass or delay the fair trial of the action and/or (d) is otherwise an abuse of process by the Court.

Summons 1330 was heard by the Assistant Registrar (“the AR”), who dismissed the Defendant’s application to strike out the SOC and ordered the Defendant to pay the costs fixed at S$14,000. The Defendant appealed. After hearing the parties on 23 December 2014, I reserved judgment.

The Plaintiff’s account of the facts

The facts pleaded by the Plaintiff in the SOC run to 116 paragraphs and 43 pages. The extent to which the Defendant joins issue with the SOC is unclear, since no defence has yet been filed. From the affidavits filed on behalf of the Defendant, it is likely that many of the allegations in the SOC will be disputed should the case go to trial.

Between 2002 and 2003, an employee of the Defendant, Ms Jullie Kan (“Ms Kan”), approached the Plaintiff to try to obtain his custom as a private wealth investor. The Plaintiff was not initially interested in opening a private banking account with the Defendant. This was because of (at least in part) his aversion to risk and his lack of time to properly oversee his investments or even to conduct the necessary research and due diligence. Ms Kan represented that the Defendant had specialised personnel who could advise the Defendant’s clients and attend to matters related to their investments. This failed to sway him at first. However, he was attracted to her subsequent suggestion that the Plaintiff should create a “safe haven” for his funds, and that the Defendant would advise him on the creation of a corporate trust structure. He was also told that the Defendant would set up the trust company and invest the Plaintiff’s funds according to the Plaintiff’s investment objective of wealth preservation. It was on this basis that the Plaintiff decided to engage the Defendant’s services.

The trust company, SSL, was incorporated on 5 September 2003 in the British Virgin Islands (“BVI”). At the material time, SSL’s sole director and sole shareholder were both agents and/or nominees of the Defendant, and the Defendant had full control of SSL through its agents and/or nominees. The Plaintiff was the beneficial owner of SSL’s shares. At around the same time, an account (“the Account”) was opened with the Defendant in the name of SSL. The Plaintiff was conferred a “Limited Power of Attorney” by SSL on 23 September 2003 in respect of “any transaction of an administrative nature”. The Plaintiff also claims that SSL was the Plaintiff’s nominee and/or alter ego in its dealings with the Defendant vis-à-vis the operation of the Account.

The Plaintiff proceeded to deposit his funds into the Account. Further, on the advice of one of the Defendant’s employees, the Plaintiff applied for a US$5m facility with the Defendant in 2006. This led to the creation of a charge over all of SSL’s assets as security for the debt. However, the Plaintiff allegedly had no knowledge of the charge. This facility was subsequently increased to US$20m in April 2008, and increased again to US$30m in September 2008 after the Defendant made a “mistake” in managing the Account, resulting in the breach of the previous limit. For convenience, I will refer to each of the facilities by its limit, eg, I will refer to the facility for US$30m as the “US$30m Facility”.

Various investment products, including Knock-out Discount Accumulators (“KODAs”) and Dual Currency Investments (“DCIs”), were purchased on the Defendant’s advice. The Defendant knew that the Plaintiff had no familiarity with both KODAs and DCIs.

The SOC also details his instructions to the Defendants’ employees, as well as the various representations made to him by the Defendants’ employees with respect to the movement of monies into the Account, the purchase of the KODAs and DCIs, and the various facilities on the Account. It is sufficient to say that the advice they rendered is alleged to have involved both material omissions and untruths.

On 21 October 2008, the Plaintiff was advised by the Defendant to sell down and close out the Account’s then “open” DCIs and to sell certain shares. This was the first time that the Plaintiff had been warned of the risk of the DCIs. By that time the value of the portfolio had dropped precipitously. Nevertheless, the Plaintiff instructed the Defendant to wait for the DCIs to mature over the next few days instead of terminating them.

On 24 October 2008, the Defendant issued a fax addressed to SSL and copied to the Plaintiff, stating that, inter alia, the facility to collateral ratio had reached a level where the Defendant is entitled to close out SSL’s trade positions. The notice further intimated that the Defendant would do so unless SSL deposited cash worth US$5.7m or its equivalent in the Account by 2pm on the day of the letter. The Plaintiff was caught unaware as he had not been previously informed that the US$30m Facility would allow the Defendant to “close out” the portfolio in the manner described, or even that there were pre-set limits to the facility to collateral ratio.

The Plaintiff was unable to provide the required additional collateral in time. The Defendant then closed out all of the Account’s open investment positions, including the KODAs and the DCIs still in place, and liquidated all the assets in the Account pursuant to the charge. The result was that the assets and/or funds held in the Account were eliminated and the Account was placed in negative balance.

Duties alleged to be owed to the Plaintiff

The Plaintiff claims that the Defendant owed the Plaintiff a common law duty to take reasonable care in the following respects: when giving advice and/or providing information and/or in advising the Plaintiff on the management of his wealth; to advise the Plaintiff in respect of the Account (including, eg, identifying and limiting risk, and keeping him informed on key aspects of the running of the Account); and to not act in a way inconsistent with the Defendant’s contractual duties to SSL and/or the Plaintiff under an implied term that the Defendant would give the Plaintiff a reasonable period for the provision of additional collateral.

The Plaintiff claims that the Defendant breached the abovementioned duty in relation to its investment advice rendered (or not rendered) to the Plaintiff, the running of the Account, and in failing to provide a reasonable period for the provision of additional collateral prior to the close out.

The Plaintiff therefore claims for the loss of US$26m (which is the amount the Plaintiff claims he credited into the Account from the date which Account was open to about 2009) and/or damages to be assessed.

The law on striking out

Pleadings should only be struck out in plain and obvious cases, not requiring detailed and lengthy examination. This is expressed in the Court of Appeal’s decision in Gabriel Peter & Partners (suing as a firm) v Wee Chong Jin and others [1997] 3 SLR(R) 649 (“Gabriel Peter”) at [18]:

18 In general, it is only in plain and obvious cases that the power of striking out should be invoked. This was...