Malaysian International Trading Corporation Sdn Bhd v Interamerica Asia Pte Ltd and Others

• Judgment Date: 30 August 2002
• Date: 30 August 2002
• Docket Number: Suit No 280 of 2000
• Court: High Court (Singapore)

Malaysian International Trading Corp Sdn Bhd

Plaintiff

and

Interamerica Asia Pte Ltd and others

Defendant

[2002] SGHC 198

Lai Kew Chai J

Suit No 280 of 2000

High Court

Equity–Fraud–Conspiracy to defraud–Dishonest behaviour that would make person part of a fraud–Tracing–Equity–Having knowingly received property transferred in breach of trust–Trusts–Breach of trust–Constructive trusts–Conspiracy to defraud–Dishonest assistance of breach of trust–Whether permissible to prove conspiracy through circumstantial evidence–Circumstances under which person liable for dishonest assistance–Circumstances under which person liable as accessory to breach of trust–Combined test of dishonesty–Liability for traceable proceeds, increase in value of trust property and interest on trust property

The plaintiff (“Mitco”) sold huge quantities of palm olein by way of 137 contracts of sale. Several of the defendants perpetrated fraud on a massive scale including buying high from Mitco and selling low, with no intention of honouring the contract price, issuing spurious and inoperable letters of credit and bribing employees of Mitco. The palm olein was then sold to various third parties who in turn on-sold them. Mitco sued the defendants on grounds of conspiracy to defraud and dishonest assistance of breach of trust.

Held, granting judgment in the plaintiff's favour except in relation to the fourth, ninth, tenth, 13th and 14th defendants, and dismissing the first defendant's counterclaim:

(1) While fraud cases rarely left behind a documentary trail, evidence of overt acts and omissions together were available to prove the fact of a conspiratorial combination or agreement: at [59].

(2) It was unnecessary for a person charged with dishonest assistance in a fraudulent and dishonest scheme to be aware of the precise nature of the fraud or even the victim's identity. By consciously assisting others through making arrangements which he knew were calculated to conceal what was happening from a third party, he took the risk that he was part of a fraud practised on that party. Further, by not making any inquiries or taking steps to satisfy himself of the arrangements, he was acting dishonestly which was enough to make him liable as a constructive trustee: at [60].

(3) A person was liable as an accessory to a breach of trust if he had acted dishonestly by the ordinary standards of reasonable and honest people, and was aware that he was acting dishonestly by those standards: at [68].

(4) Whether a person acted dishonestly was to be measured by the combined tests of an objective standard tempered by a subjective element based upon that person's characteristics and knowledge: at [67].

(5) Any traceable proceeds of sale or equivalent, appreciation, and interest earned by the party found to be liable were held on constructive trust for Mitco: at [73].

Agip (Africa) Ltd v Jackson [1990] Ch 265 (refd)

Attorney-General for Hong Kong v Charles Warwick Reid [1994] 1 AC 324; [1994] 1 All ER 1 (refd)

Kuwait Oil Tanker Co SAK v Al Bader (No 3) [2000] 2 All ER (Comm) 271 (refd)

Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378; [1995] 3 All ER 97 (refd)

Sumitomo Bank Ltd v Thahir Kartika Ratna [1992] 3 SLR (R) 638; [1993] 1 SLR 735 (refd)

Twinsectra v Yardley [2002] 2 AC 164; [2002] 2 WLR 802; [2002] 2 All ER 377 (refd)

Williams v Barton [1927] 2 Ch 9 (refd)

Vinodh S Coomaraswamy, David Chan Ming Onn and Chua Sui Tiong (Shook Lin & Bok) for the plaintiff

Thomas Tan, Bernadette Balen and Kueh Ping Yang (Haridass Ho & Partners) for the first, second, sixth, 12th and 27th defendants

Sheela Lopez (Sheela Lopez & Co) for the fourth defendant

Mak Kok Weng (Mak & Partners) for the fifth defendant

Belinda Ang SC, Foo Maw Shen, Ng Wai Hong and Deborah Koh (Ang & Partners) for the eighth, ninth, tenth, 13th and 14th defendants.

Judgment reserved.

Lai Kew Chai J

Introduction

1 This action is about a massive fraud perpetrated against Malaysian International Trading Corp Sdn Bhd (“Mitco”) which suffered a loss of US$75.1m plus financing and other charges and losses, as specified, which Mitco had suffered. Mitco entered into 137 individual contracts of sale of palm olein, particulars of which are set out in Sched I annexed hereto. [Editorial note: Schedule I is not annexed to this report of the judgment.] Two international fraudsters, an American citizen and a Japanese, deployed the strategy of “buying high (from Mitco) and selling low” a huge quantity of palm olein (a derivative of palm oil) with no intention to pay Mitco anything like the contracted prices. They were assisted by a Taiwanese who caused to be issued or opened spurious letters of credit. Payments, if and when made, were only made to ensure that Mitco would as they did enter into more contracts of sale. They are respectively William Lindsay Cannon (“Cannon”, the 17th defendant), Shunichi Nonaka (“Nonaka”, the third defendant) and Tsai Cheng Wen (“Tsai”, 23rd defendant). Cannon and Nonaka used Inter-America's Group LLC (“IAG”, the 15th defendant) as a corporate vehicle to carry out the fraud. Tsai was instrumental in opening inoperable letters of credit or fraudulent letters of credit. He received over US$29m from the proceeds of sale. I shall refer to Nonaka, IAG, Cannon, IAG and other companies related to them, and Tsai collectively as “the IAG Parties”.

2 As part of the fraud, Nonaka and Cannon bribed an employee of Mitco, Mohammed Amin Najib (“Najib”, the fifth defendant). He was initially senior trader and at the crucially-relevant period he was the covering manager of a department of Mitco. That was a key post. Having compromised him, they were able to obtain deliveries of many shipments of palm olein without having to open valid letters of credit to pay for them and, astonishingly, they were also permitted, without any regard for Mitco's interest, to take deliveries of many shipments of palm olein without having to pay or securing payment to Mitco for the original bills of lading. In effect, millions of drums of palm olein were delivered on credit to a first-time customer, instead of parting with documents of title against confirmed negotiable letters of credit to ensure that payment would be assured and made by a reputable bank. This mode of payment is basic to any seller of goods in international trade who wants to ensure payment. Further, at the material times the system of controls within Mitco was lamentably wanting at nearly all critical points.

3 If the simple decision had been taken that the bills of lading would not be delivered to the buyer's agents except against payment or assurance of payment by a reputable bank, the fraud would have been exposed and shipments would have been stopped as soon as it was found out that the first letter of credit purportedly opened was not good for negotiation and, certainly, when later letters of credit were found to be suspicious. They were in terms obviously inoperable and were no guarantee for payment against any tender of valid negotiating documents. Mitco's risk management unit was in its embryonic stage and that unit also failed to carry out its duties to detect the serious failures and weaknesses in the general merchandise department (“GMD”) of Mitco. On the other hand, it has to be noted that very often a dishonest and compromised insider can help outside fraudsters to bypass internal checks and balances and such scams with insider assistance are more difficult to detect or prevent.

4 Mitco, at the trial, made the claim that its Chief Executive Officer, Azalan Mior Zainadi (“Azalan”, the fourth defendant) had also conspired with the fraudsters to defraud Mitco. A great deal of evidence was led. The question is whether Azalan was one of the principal parties who had conspired with the principal conspirators to cheat Mitco.

5 Further, a large part of the evidence was also led which related to the roles of certain other defendants who had arranged for the onward sales of the palm olein to buyers in China and India. The question of fact in this connection is whether they were genuine buyers themselves in a series of arm's length commercial transactions and they had on-sold the palm olein to the end-buyers in China or India or whether they had conspired with the other fraudsters to cheat Mitco or had committed some equitable wrongs. In relation to these parties, Mitco further assert that they had “dishonestly assisted” their employee or employees in breaching their contractual and/or fiduciary duties in such a manner and to such an extent that there was dishonest assistance when analysed under the combined tests as set out in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378; [1995] 3 All ER 97 and as recently clarified by the majority of the House of Lords in Twinsectra v Yardley [2002] 2 All ER 377; [2002] 2 WLR 802. The latter speeches were delivered by the law lords on 21 March 2002 after parties in this action had filed with me all their written submissions and at their requests further submissions were filed on the impact of Twinsectra in the application of the facts as found by me on the evidence. In short, who of the other defendants were implicated in and had rendered the dishonest assistance, which caused the enormous loss to Mitco, is also a substantial area of enquiry and adjudication which this judgment has to address.

6 In addition to the IAG Parties and the two high-level executives of Mitco, there were essentially three downstream groups of persons and their related companies who or which had successively dealt with the IAG Parties in the disposal of the palm olein. In the end, the basic questions of fact are whether both or each of the last two groups of persons and their companies had dealt with the IAG Parties, principally Nonaka, bona fide and commercially at arm's length without notice of the conspiracy or were they fellow...