Kuala Lumpur City Securities Sdn Bhd v Boston Asset Management Pte Ltd (formerly known as Universal Network Education Pte Ltd) and Another

• Jurisdiction: Singapore
• Judge: Lai Siu Chiu J
• Judgment Date: 06 June 2006
• Neutral Citation: [2006] SGHC 99
• Court: High Court (Singapore)
• Year: 2006
• Published date: 07 June 2006
• Plaintiff Counsel: Siraj Omar (Tan Kok Quan Partnership)
• Defendant Counsel: Zaheer Merchant and Sophine Chin (Madhavan Partnership) and Vincent John (Andrew Yap & Company)
• Subject Matter: Civil Procedure,Judgments and orders,Default judgment,Plaintiff obtaining judgment against first and second defendants in default of appearance and in default of defence respectively,Whether judgments should be set aside,Whether judgment against second defendant regularly obtained,Whether first and second defendants' defence having real prospect of success,Stay of proceedings,Defendants applying for stay of proceedings brought by plaintiff,Defendants alleging that Malaysia the natural forum,Whether documents giving rise to dispute governed by exclusive jurisdiction clause,Whether sufficient grounds for granting stay shown
• Citation: [2006] SGHC 99

6 June 2006

Lai Siu Chiu J:

1 Boston Asset Management Pte Ltd and Tan Hong Liat Ronald, the first and second defendants respectively, appealed in Registrar’s Appeal No 365 of 2005 (“the Appeal”) against the decision of the assistant registrar, in dismissing their application in Summons in Chambers No 5037 of 2005 (“the Application”).

2 The Application was made against Kuala Lumpur City Securities Sdn Bhd, the plaintiff, for, inter alia, the following orders:

(a) for the plaintiff to file (and serve) an affidavit furnishing documents evidencing the outstanding purchases, contra losses and interest bills in a sub-account of the trading account (including the sub-account) referred to at para 10(a) of the writ of summons, upon which the plaintiff claimed RM6,614,039.92 from the defendants, and a copy of the trading account agreement dated 6 August 2003;

(b) that the Application and any subsequent documents filed in respect thereto not to be considered a step taken by the defendants in the proceedings which would prejudice or affect the defendants’ application for a stay of proceedings;

(c) that the judgment entered in default of appearance against the first defendant on 5 August 2005 be set aside on the ground that it was irregular; alternatively, that it be set aside on the merits;

(d) that the first defendant be granted leave to file an appearance to the action within eight days;

(e) that all further proceedings against the first and/or second defendants be stayed pursuant to cl 12 of an agreement in writing between the plaintiff and the second defendant contained in a letter of guarantee and indemnity dated 15 October 2003 by which it was agreed that the guarantee and indemnity shall be governed and construed in all respects in accordance with the laws of Malaysia;

(f) alternatively, that all further proceedings in this action be stayed on the ground that Singapore is not the proper forum for the trial of the plaintiff’s action; and

(g) that there be a stay of execution on the judgment.

3 I dismissed the Appeal with costs when it came up for hearing before me. The defendants have now appealed against my decision (in Civil Appeal No 23 of 2006).

The facts

4 The plaintiff is a Malaysian securities firm based in Kuala Lumpur. The first defendant is a company incorporated in Singapore and is an asset management agent. The second defendant is a fund manager by occupation and was at all material times the Chief Executive Officer and a director of the first defendant.

5 In the later half of 2003, one Joanne Hiew (“Joanne”) (who was a dealer’s representative with another securities company called Avenue Securities in Kuala Lumpur) approached the plaintiff and said she wanted to introduce Dutanamic Sdn Bhd (“Dutanamic”) to the plaintiff as a client. Joanne had indicated she intended to join the plaintiff’s services but did not do so eventually. Joanne explained that the account to be opened was to enable Dutanamic to trade in shares of Fountainview Development Sdn Bhd (“Fountainview”) which company was effectively controlled and managed by one Dato’ Chin Chan Leong (“Chin”) and his wife. Subsequently, Joanne introduced Chin to the plaintiff’s Chief Operating Officer, Roy Winston George (“George”). George agreed to the opening of a trading account by Dutanamic.

6 A business associate had introduced Joanne and Chin to the first defendant in the second quarter of 2003. The second defendant informed Chin of the services he and the first defendant could offer, viz management of clean funds from high net worth individuals and from qualified corporations and institutions, subject to the regulations of Singapore.

7 Subsequently, Joanne inquired of the second defendant whether he would be interested to open an account with the plaintiff so that her clients (including Dutanamic) could buy and sell shares in Malaysia under the first defendant’s name. Using the first defendant to trade would enable Joanne to receive commission indirectly, from rebates given to clients such as the first defendant, whereas, if her clients traded with securities firms other than Avenue Securities, she would not receive any commission. Joanne assured the second defendant there would be no risks involved as more than enough shares and funds would be placed with the first defendant for trading in Malaysian securities. For such services, Joanne offered to pay the first defendant 30% of the rebates received from the securities firms. The second defendant agreed.

8 On or about 6 August 2003, the first defendant entered into an agreement with the plaintiff whereby the plaintiff agreed to open a trading account (“the BAM trading account”) for the first defendant to enable the latter to trade in stock, shares and securities listed on any exchange approved by the plaintiff. The terms and conditions for the BAM trading account were set out in the plaintiff’s account opening form, which the second defendant also executed on 6 August 2003.

9 On 15 October 2003, the second defendant executed a letter of guarantee and indemnity (“the Guarantee and Indemnity”). He guaranteed (as principal debtor and not surety) the due performance and observance by the first defendant of the terms and conditions of the BAM trading account. The second defendant further guaranteed to pay the plaintiff on demand in full all moneys which were due and owing by the first defendant on the BAM trading account. The second defendant claimed he signed the Guarantee and Indemnity relying on Joanne’s representation that it was only procedural as part of the documentation required before clients could start to buy and sell shares under the BAM trading account.

10 At Joanne’s request, a trading account for Dutanamic (“the Dutanamic account”) was opened with the plaintiff on or about 21 November 2003. Trades under the Dutanamic account were carried out between 1 December 2003 and 28 January 2004.

11 Joanne, however, wanted to change the mode of trading by Dutanamic. Under the rules of the Kuala Lumpur Stock Exchange (“the KLSE”) applicable to retail clients, the plaintiff was required to charge Dutanamic a specified brokerage fee. However, if trading on the Dutanamic account was carried out through certain institutions like the first defendant, then the specified brokerage did not apply. Instead, the client could negotiate with the plaintiff on the amount of brokerage payable. This led to the opening of a sub-account for Dutanamic (“the Dutanamic sub-account”) under the BAM trading account on 19 January 2004 following the instructions of the first defendant in its letter dated 1 December 2003, signed by the second defendant. Shortly after the Dutanamic sub-account was opened, trading on the Dutanamic account ceased.

12 At the same time as the opening of the Dutanamic sub-account, Dutanamic opened a margin trading account with the plaintiff (“Dutanamic’s margin account”) for which the plaintiff received a guarantee and indemnity from Chin dated 14 November 2003 (“Chin’s first guarantee”).

13 All contract notes and monthly statements in relation to trades carried out under the BAM trading account (including those under the Dutanamic sub-account) were sent to the first defendant’s address in Singapore at 100 Beach Road #22-19A, Shaw Tower, Singapore 189702. This was acknowledged by the second defendant in his affidavit[note: 1] filed in support of the application.

14 The second defendant, however, claimed that the purpose of sending monthly statements of the BAM trading account to the first defendant was only to determine the rebates payable by Joanne to the first defendant. Indeed, rebates (totalling RM2,209,200.48) were paid by the plaintiff to the first defendant, of which RM1,504,157.58 was in respect of the BAM trading account. According to the affidavit of George (filed on 18 November 2005 to resist the application), the second defendant would contact the plaintiff’s finance department at the beginning of every month and request a list of handling charges from its staff. The plaintiff’s staff would fax to the second defendant a document called “brokerage performance report download” which set out all the relevant details under the BAM trading account for the previous month and pay the first defendant accordingly. Payment would be made in accordance with the standing instructions given by the first defendant.

15 The second defendant contended that in relation to the Dutanamic sub-account, neither he nor the first defendant gave the plaintiff any instructions on trades or placed any orders for trading. Further, he never paid for any of the trades under the Dutanamic sub-account; it was a matter between the plaintiff and Dutanamic.

16 Besides Dutanamic, at least six other sub-accounts were opened under the BAM trading account on the instructions of the second defendant to the plaintiff. The contracts and monthly statements of these sub-accounts were also sent to the first defendant’s Singapore address. Trades under these other sub-accounts were not the subject of complaint by the defendants.

17 On 24 March 2005, Chin provided a second guarantee (“Chin’s second guarantee”) to the plaintiff in relation to the Dutanamic sub-account. The plaintiff wanted to reduce its exposure and wind down its trading on Fountainview shares but Joanne repeatedly requested the plaintiff to delay its decision. The plaintiff agreed to allow trading in Fountainview shares to continue, provided additional security was furnished; hence the need for Chin’s second guarantee. This was a prudent step as the price of Fountainview shares fell from RM4.88 to RM0.87 (a drop of 82%) in four trading days between 28 April 2005 and 4 May 2005. From a high of RM5.15 on 26 October 2004, the share price fell to RM0.32 on 10 November 2005.

18 Not unexpectedly, the volatility in the price of Fountainview shares caused substantial losses to be incurred on the Dutanamic sub-account. According to George, several meetings...