Monex Group (Singapore) Pte Ltd v E-Clearing (Singapore) Pte Ltd

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 26 February 2010
• Neutral Citation: [2010] SGHC 63
• Court: High Court (Singapore)
• Docket Number: Suit No 54 of 2008
• Year: 2010
• Published date: 02 March 2010
• Hearing Date: 10 November 2009,30 November 2009,09 November 2009,11 November 2009
• Plaintiff Counsel: Low Chai Chong and Suchitra Ragupathy (Rodyk & Davidson LLP)
• Defendant Counsel: Koh Chia Ling and Arthur Yap (ATMD Bird & Bird LLP)
• Subject Matter: Contract,Breach
• Citation: [2010] SGHC 63

Tan Lee Meng J:

The plaintiff, Monex Group (Singapore) Pte Ltd (“MXS”), is a subsidiary of an Irish company, Monex Financial Services Limited (“MXF”). MXF and Xor Technologies Ltd (“XOR”), an Israeli technology solutions provider, own a dynamic currency conversion system (the “Monex system”), which identifies the country in which a credit card is issued and converts different currencies automatically to the card holder’s base currency.

MXS, which entered into a contract with the defendant, E-Clearing (Singapore) Pte Ltd (“ECS”), to exploit the Monex system in Singapore, sued the latter for the amount due to it under the said contract. ECS denied owing MXS any money and counterclaimed for losses suffered as a result of the latter’s alleged breach of contract.

Background

To further its business interests in Asia, MXS’s parent company, MXF, concluded a business cooperation agreement on 14 December 2001 with one Mr Luzi Matzig (“Matzig”), a Swiss gentleman with a Thai name, Lersan Misitsakul. To develop the business of both parties, Monex Thailand Pte Ltd (“MXTH”) was incorporated on 17 June 2002. Matzig holds 51% of the shares of MXTH while MXF holds the remaining 49% of the shares. Matzig is also ECS’s main shareholder. He holds 547,085 shares in ECS while other shareholders, namely Mr Wong Wei Ming and Mr Ma Chun Fai, hold only 86,665 ECS shares and 16,250 ECS shares respectively.

On 5 June 2003, MXF entered into a “Strategic Association Agreement” (“SAA 2003”) with XOR to develop, build and implement the Monex system. According to MXS’s director, Mr Francis Murphy (“Mr Murphy”), XOR’s key man, Mr Yaniv Kimchi (“Mr Kimchi”), designed the Monex system and instructed the programmers on the operation of the system.

Under the SAA 2003, XOR’s role was merely to provide “second level support” and “third level support” for the running of the Monex system. “First level support” for the operation of the Monex system was to be provided by the local partner in each of the countries in which the Monex system is in use. “First level support” was defined in the SAA 2003 as providing to users of the Monex system “online support” and “ascertaining the nature of any mistake, problem, error or defect”, as well as making a “good faith effort” to correct any mistake, problem, error or defect in the system. In Singapore, ECS was the local partner and was thus responsible for “first level support”.

In regard to the scope of XOR’s responsibility under the SAA 2003, “second level support” was defined in the SAA 2003 as the supply of “technical help desk services in the English language… to help locate and correct any mistake, problem, error or defect in the [system], which was not corrected after good faith performance of First Level Support”. “Third level support” was defined in the SAA 2003 as the supply of “online assistance… in the English language, in order to correct bug-fixes and source code modifications to the [system].”

In Singapore, Citibank Singapore Ltd (“Citibank”) agreed to adopt the Monex system and on 19 November 2003, MXS entered into a multi-currency conversion agreement with Citibank (the “Citibank contract”).

MXS and ECS, which had worked together to secure Citibank’s adoption of the Monex system, put their relationship on a more formal footing when they entered into a contract on 12 July 2004. Under this contract, MXS was to provide the Monex software while ECS was responsible for technical services, training services, system support services and marketing services necessary for the implementation of the Monex system in Singapore and in such other countries as may be agreed upon in writing between the parties.

The attempt to introduce the Monex system in Singapore in partnership with Citibank suffered a setback on 12 January 2005 when the bank terminated the Citibank contract.

Things brightened up for MXS and ECS when negotiations with DBS Bank Ltd (“DBS”) with respect to the utilisation of the Monex system bore fruit. It was initially envisaged that MXS would, as in the case of the Citibank contract, be the party that signed the contract with DBS regarding the use of the Monex system by DBS’s clients. However, some 12 days before the contract with DBS was signed on 15 February 2005, ECS informed MXS that it would be more convenient if it signed the said contract with DBS (the “DBS contract”) for reasons which need not be discussed. According to MXS, it agreed to allow ECS to sign the DBS contract because of time constraints.

Under the DBS contract, ECS undertook to supply terminals with access to the Monex system software to merchants identified by DBS. ECS was required to train the merchants’ employees in the use of the terminals and to respond promptly to queries from the merchants in relation to the use, operation and maintenance of the terminals and the Monex software. ECS was also obliged to maintain and repair the said terminals.

It was agreed between ECS and MXS that each party would be entitled to 50% of the “agreed net turnover” under the DBS contract. It was understood that the “net turnover” referred to the gross revenue less applicable taxes and the amounts paid to merchants and third party consultants while the “agreed net turnover” referred to the net turnover less the amount paid to DBS.

By September 2005, the Monex system was in operation in Singapore. During the currency of the DBS contract, some problems with the Monex system as well as with ECS’s hardware surfaced. It is common ground that ECS was responsible for remedying hardware problems. Occasionally, clients of businesses that utilised the Monex system, such as Fullerton Hotel, were double-charged. From September 2005 to December 2006, problems arising from the operation of the Monex system were directed to XOR, which went out of its way to help ECS. In fact, XOR’s personnel even took care of problems that were clearly within the scope of ECS’s responsibility. At this juncture, it is pertinent to note that MXS had an arrangement with XOR to pay the latter 20% of the agreed net turnover out of its own 50% of the agreed net turnover received under the DBS contract.

XOR also provided support services for the utilization of the Monex system in other Asian countries, such as Thailand, India, Vietnam, Sri Lanka and Hong Kong. These support services were mainly directed by Matzig, who dictated where XOR’s resources should be deployed. XOR was rather overstretched. Subsequently, relations between XOR and the Monex group soured for reasons which need not be discussed.

Matzig had his own agenda with respect to the exploitation of the Monex system in Asia. He wanted to take over the intellectual property rights in the Monex system for Asia, excluding China, Taiwan, Korea and Japan. In November 2006, Matzig offered to buy the said rights. He threatened MXS’s director, Mr Murphy, in an e-mail dated 27 November 2006 that if an agreement was not reached before the end of the year, he would most likely cease to cooperate with MXS and would launch his own software. Matzig’s offer to take over the intellectual property rights in the Monex system was rebuffed.

ECS then claimed that MXS was no longer able to provide “essential” support services, which it interpreted as including the provision of “second level support” and “third level support” to it, and that MXS stopped providing such support altogether on 1 January 2007. This was denied by MXS.

ECS contended that to mitigate its losses, it had to engage a third party, MXTH, of which Matzig is the majority shareholder, to provide “essential” support services to it even though MXTH did not have the equipment, office space or expertise to provide the said support at the material time. Matzig had his eyes on the core XOR team, including the project director and main software programmer, Mr Kimchi. He wanted XOR’s key personnel to be absorbed by MXTH. On 5 December 2006, MXTH entered into an agreement with XOR, under which XOR was required to send a team from Israel to train and establish a team of software experts within MXTH to provide “essential” support to ECS and its foreign offices. MXTH was required to bear the cost of the Israeli team.

The costs incurred by MXTH to put it in a position to provide “essential” support to Matzig’s companies were shared between MXTH, ECS and ECS’s foreign offices in Vietnam, Sri Lanka and India. According to ECS, its share of MXTH’s start-up costs totalled $739,496.12. ECS also claimed to have paid $198,135.37 for its “essential” support services in 2007. Having paid MXTH these huge sums, ECS could claim that there were no profits left to share with MXS. Of course, this situation was totally unacceptable to MXS, which alleged that ECS, and more specifically, Matzig, made use of the Monex system to generate profits which were diverted to MXTH under sham arrangements.

In January 2007, ECS unilaterally reduced MXS’s share of the agreed net turnover to 30% on the basis that the latter no longer had to pay XOR 20% of the agreed net turnover. MXS claimed that ECS made it a condition that future payments would be made only if it accepted the downward revision of its share of the agreed net turnover. As MXS refused to do so, ECS stopped paying MXS any part of the revenue earned under the DBS contract. Furthermore, ECS has not paid MXS the sum of $468,819.00 with respect to the agreed net turnover from January 2007 to December 2007. This sum was determined on the basis of the monthly profit sharing summaries, transaction reports and statements forwarded by ECS to MXS.

In January 2007, another company, Mainline Corporate Holdings, which holds Patent No 86037 in relation to another dynamic currency conversion system (the “Mainline patent”), successfully sued another bank in Singapore for infringing its patent. DBS wanted to know whether the Monex system infringed the Mainline patent. MXS was not worried...