Merrill Lynch Pierce, Fenner & Smith Inc v Prem Ramchand Harjani and Another

• Judge: Lee Seiu Kin J
• Judgment Date: 04 June 2009
• Neutral Citation: [2009] SGHC 133
• Citation: [2009] SGHC 133
• Defendant Counsel: Anthony Lee Hwee Khiam, Pua Lee Siang and Shermaine Lim (Bih Li & Lee),Denis Tan (Toh Tan LLP)
• Published date: 10 June 2009
• Plaintiff Counsel: Hri Kumar Nair SC and James Low (Drew & Napier LLC)
• Date: 04 June 2009
• Docket Number: Suit No 773 of 2008 (Registrar's Appeal No 7 of 2009)
• Court: High Court (Singapore)
• Subject Matter: Whether arbitration agreement applicable,Arbitration,Whether customer entitled to set off against its liability,Stay of court proceedings,Mandatory stay under International Arbitration Act (Cap 143A, 2002 Rev Ed),Express terms prohibited set-off from liability,Section 6 International Arbitration Act (Cap 143A, 2002 Rev Ed),Whether mere refusal to pay amount indisputably due constituted dispute

4 June 2009

Lee Seiu Kin J:

1 The plaintiff, Merrill Lynch Pierce, Fenner & Smith Incorporated, is a company incorporated in the United States of America. The second defendant, Renaissance Capital Management Investment Pte Ltd, is a company incorporated in Singapore, and is a customer of the plaintiff. The first defendant, Prem Ramchand Harjani, is the sole shareholder and a director of the second defendant.

2 The plaintiff’s action is for the sum of US$11,712,452.47 in connection with certain transactions entered into by the first defendant on behalf of the second defendant who was a customer of the plaintiff. The plaintiff’s claim against the second defendant is in debt, arising out of the transactions. The first defendant was the authorised representative of the second defendant and the plaintiff’s claim against him is in fraud and conspiracy. The plaintiff also claims that the first defendant is vicariously liable for the debt of the second defendant to the plaintiff.

3 In Summons No 5188 of 2008 (“the Application”), the second defendant applied to stay the action pursuant to s 6 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“IAA”), alternatively under s 6 of the Arbitration Act (Cap 10, 2002 Rev Ed)(“AA”) or under the inherent jurisdiction of the court. This was heard by Assistant Registrar Then Ling (“AR Then”) on 2 January 2009 and she made the following orders:

1. All further proceedings in respect of the Plaintiff’s claim against the second Defendant in fraud in this action be stayed pursuant to Section 6 of the International Arbitration Act (Cap. 143A);

2. The second Defendant’s application for stay of proceedings in respect of the Plaintiffs’ claim against the second Defendant in debt be dismissed;

3. The second Defendant be granted extension of time until 16 January 2009, 4.00 p.m. to file the Defence; and

4. The second Defendant does pay the Plaintiffs costs fixed at $3,000 plus reasonable disbursements.

4 In this appeal, the second defendant appealed against the refusal by AR Then in order 2 to stay the action in debt (and the consequential cost order). On 11 March 2009, after hearing counsel for the parties, I dismissed the appeal with costs fixed at $10,000. The second defendant has appealed against my decision and I now give the grounds of decision.

The Account and Arbitration Agreement

5 On 6 December 2007, the first defendant executed the plaintiff’s account opening form (“Account Opening Form”) for the purpose of applying for an account with the plaintiff in the name of the second defendant, being account number 1EY-07032 (the “Account”). As the plaintiff did not have a place of business in Singapore, the Account was managed in Singapore by Merrill Lynch International Bank Ltd (“MLIB”) on behalf of the plaintiff. At all material times, the first defendant had sole authorisation over the Account and gave all instructions in relation to the Account, on behalf of the second defendant. The Account Opening Form contained, inter alia, the arbitration agreement (the “Arbitration Agreement”) set out in [16] below.

The Credit Facility

6 On 9 April 2008, MLIB granted the second defendant a credit facility of US$6m. On 21 May 2008, the credit facility was increased to US$17m (the “Credit Facility”). The plaintiff’s case was that at all material times, the defendants were aware that as a matter of policy, MLIB did not allow the use of the Credit Facility for the purposes of trading in Indonesian stocks.

The Purchase of PTTI Shares

7 On 23 June 2008, in a telephone conversation between the first defendant and one Jeremy Roy (“JR”), an employee of MLIB, the first defendant instructed the plaintiff to purchase (the “Order”) 120 million shares in PT Triwira Insanlestari (the “PTTI Shares”) for the second defendant at a limit of IDR 1,100 per share. The telephone conversation in which the Order was placed and the conversations prior to and after the Order were recorded, and the defendants do not dispute them. These and other contemporaneous records reveal that the following took place on 23 June 2008:

(a) at around 11.36am, the first defendant called JR and asked him to check on the trading price of the PTTI Shares. JR informed the first defendant that he would check and then call him back in 5 minutes to let him know the same;

(b) at around 11.40am, after checking the system, JR called the first defendant (the “11.40am Telephone Conversation”) to inform him that the indicative trading price of the PTTI Shares was IDR 1,150 per share. The first defendant then told JR that he was keen to purchase 150 million PTTI Shares, and that he would call JR later to place the order. JR responded by asking the first defendant when he would be transferring funds to pay for his intended purchase, to which the first defendant replied that he would do so the following day (ie 24 June 2008);

(c) at around 12.19pm, the first defendant called JR (the “12.19pm Telephone Conversation”) and placed the Order;

(d) at around 12.30pm, JR called the first defendant again (the “12.30pm Telephone Conversation”). The first defendant confirmed what he said at the 11.40am Telephone Conversation, that he would pay for the PTTI Shares by transferring funds into the Account by the following day (ie 24 June 2008);

(e) at around 12.55pm, the Order was put on the open market. It began to be filled by sellers in tranches. The first trade was done at 12.59pm;

(f) at 1.59pm, Rajesh Wilson (“RW”), at the time an employee of MLIB, called the first defendant to inform him that the Order had been placed. The first defendant reiterated his earlier statement that he would pay for the PTTI Shares by transferring funds into the Account by the following day (ie 24 June 2008); and

(g) the last tranche of the Order was filled at 3.18pm.

The second defendant’s failure to pay

8 The second defendant admitted that the Order was placed and fulfilled pursuant to the first defendant’s instructions (see para 46 of the affidavit filed by the first defendant on 31 October 2008 for the purpose of the Mareva Application) (“the first defendant’s MI Affidavit”). It was also not disputed that payment for the PTTI Shares fell due on the settlement date of 26 June 2008 (the “Settlement Date”), and that the total sum payable for the purchase of the PTTI Shares was IDR 132,587,475,000 (the “IDR Settlement Amount”).

9 Between 23 June 2008 and 25 June 2008, JR made enquiries with the first defendant on the transfer of the IDR Settlement Amount into the Account. On 25 June 2008, in response to JR’s enquiries, the first defendant again said that the IDR Settlement Amount would be paid into the Account by the Settlement Date. Amongst other things, the second defendant forwarded a copy of a Standard Chartered Bank remittance application form dated 21 June 2008 which indicated that an amount of US$14,863,200 was to be remitted to the second defendant’s account with Northern Trust International Banking Corporation in New Jersey (the “Remittance Form”). On the Settlement Date, the plaintiff arranged for its custodian bank in Indonesia, the Hong Kong and Shanghai Banking Corporation (Jakarta), to pay the IDR Settlement Amount to the Jakarta Stock Exchange to complete the purchase of the PTTI Shares. However the plaintiff did not receive the IDR Settlement Amount in the Account by the Settlement Date. On the Settlement Date, when the plaintiff attempted to debit US$14,318,301.84 (which is equivalent to the IDR Settlement Amount) from the Account, the plaintiff found that there were insufficient funds in the Account. The Account then went into deficit.

10 Thereafter the plaintiff made repeated demands to the first defendant on various occasions to settle the IDR Settlement Amount. The first defendant repeatedly promised that he would arrange to settle the IDR Settlement Amount. In the event the plaintiff did not receive full payment for the PTTI Shares but the first defendant and the second defendant made part payment of the IDR Settlement Amount. In total, US$2m were paid in two separate payments of US$50,000 on 9 July 2008 and US$1.95m on 10 July 2008.

11 Upon the failure of the second defendant to pay for the PTTI Shares, the plaintiff purported to exercise its rights under the Terms & Conditions of the Account (“Terms & Conditions”) and began to liquidate the PTTI Shares and other assets standing in the Account to reduce the IDR Settlement Amount. By 17 November 2008, the plaintiff had sold 8,214,500 of the 120 million PTTI Shares for a total of US$790,331.75. Accordingly, the amount outstanding to the plaintiff was US$11,712,452.47 (“Outstanding Sum”) as of 20 October 2008. On the same day, the plaintiff filed the writ in this action to recover the Outstanding Sum.

The plaintiff’s case

12 The plaintiff’s basic case is that the second defendant had failed to effect full payment of the IDR Settlement Sum when the same fell due on the Settlement Date (the “Claim”) in breach of the agreement between the parties. There are other causes of action, but they are not relevant as they have been stayed.

13 On 21 October 2008, the plaintiff filed Summons No 4615 of 2008 (the “Mareva Application”) to obtain a Mareva Injunction (the “MI”) against the defendants. On 17 November 2008, Judith Prakash J granted the MI. The defendants’ appeal against that decision in Civil Appeal No 187 of 2008 (the “Mareva Appeal”) was dismissed with costs by the Court of Appeal on 16 January 2009.

The application for stay of proceedings

14 On 25 November 2008, the second defendant filed the Application to stay this suit in favour of arbitration pursuant to s 6 of the IAA or s 6 of the AA. Before AR Then below, the second defendant based its request for the stay on two “disputes” which it said brought the scope of the Claim within the terms of the Arbitration Agreement, namely:

(a) there is a “legal dispute” as to whether in fact the second defendant is liable to pay for the...