RHB-Cathay Securities Pte Ltd v Ibrahim Khan and Other Actions

CourtHigh Court (Singapore)
Judgment Date22 March 1999
Date22 March 1999
Docket NumberSuits Nos 1362

[1999] SGHC 66

High Court

Chan Seng Onn JC

Suits Nos 1362

RHB-Cathay Securities Pte Ltd
Ibrahim Khan and other actions

Andrew Ong and Habib Anwar (Rajah & Tann) for the plaintiff

Rey Foo (K S Chia Gurdeep & Param) for the defendants in Suits Nos 1362 and 1363 of 1997

Khoo Guan Chuan (Khoo Aeria & Partners) for the defendant in Suit No 1364 of 1997.

Barwick v English Joint Stock Bank (1867) LR 2 Exch 259 (refd)

Blue Nile Co Ltd v Emery Customs Brokers (S) Pte Ltd [1991] 2 SLR (R) 962; [1992] 1 SLR 296 (refd)

Chien Chung Ming v Kay Hian and Co Pte [1991] 2 SLR (R) 882; [1992] 1 SLR 242 (refd)

Clough v London & North Western Railway Co (1871) LR 7 Exch 26 (refd)

Dawsons Bank Ltd v Nippon Menkwa Kabushiki KaishaLR 62 Ind App 100 (folld)

Fook Gee Finance Co Ltd v Liu Cho Chit [1998] 1 SLR (R) 385; [1998] 2 SLR 121 (folld)

Greenwood v Martins Bank Ltd [1933] AC 51 (folld)

Kwei Tek Chao v British Traders and Shippers Ld [1954] 2 QB 459 (folld)

Lee Feng Steel Pte Ltd v First Commercial Bank [1996] 3 SLR (R) 64; [1997] 1 SLR 280 (refd)

Lickbarrow v Mason (1787) 2 Term Rep 63 (folld)

Lloyd v Grace, Smith & Co [1912] AC 716 (distd)

Lowe v Lombank Ltd [1960] 1 WLR 196; [1960] 1 All ER 611 (refd)

Pan-Electric Industries Ltd v Oversea-Chinese Banking Corp Ltd [1994] 1 SLR (R) 185; [1994] 3 SLR 695 (folld)

Tan Hood Keng v ARP Aroonasalam Chetty [1934] MLJ 166 (folld)

Tesco Supermarkets Ltd v Nattrass [1972] AC 153; [1971] 2 All ER 127 (distd)

Theresa Chong v Kin Khoon & Co [1976] 2 MLJ 253 (folld)

United Overseas Finance Ltd v Victor Sakayamary [1996] 2 SLR (R) 20; [1997] 3 SLR 211 (refd)

Securities Industry Act (Cap 289, 1985 Rev Ed)s 102 (b) (consd)

Equity–Estoppel–Clients silent after receiving voluminous documents relating to trades under their account–No notification to deny unauthorised tradings–Whether clients estopped from denying authority of dealer to trade in their names–Financial and Securities Markets–Securities–Trading–Charging dealer under s 102 (b)Securities Act for unauthorised trading–Whether stockbroking firm in pari delicto with dealer–Section 102 (b) Securities Industry Act (Cap 289, 1985 Rev Ed)–Financial and Securities Markets–Securities–Trading–Contra losses–Whether trades unauthorised–Whether stockbroking firm vicariously liable for dealer's fraud–Financial and Securities Markets–Securities–Trading–Whether stockbroking firm's failure to comply with SES rules and bye-laws renders the trades void or illegal

The defendants Ibrahim, Said and Zolkepli maintained share trading accounts with the plaintiff RHB-Cathay Sercurities Pte Ltd (“RHB”). They traded through RHB's dealer, Shapy who was brother to Ibrahim and Said. RHB claimed against the defendants for the substantial contra trading losses. The defence was that all the trades in their accounts were unauthorised and were transacted by Shapy without their knowledge. The defendants also averred that RHB's lack of proper supervision as required under the Stock Exchange of Singapore (“SES”) rules and bye-laws enabled Shapy to conduct unauthorised trades with impunity and RHB should be liable for its own employee's fraud.

Held, allowing the plaintiff's claims:

(1) Even if RHB had breached SES rules and bye-laws, its breaches would not render void or illegal the contractual obligations validly entered into between it and clients arising out of the share trading transactions: at [63].

(2) Although Shapy's conviction under s 102 (b) of the Securities Act (Cap 289, 1985 Rev Ed) for unauthorised trading in the defendants' accounts was not conclusive evidence, it was strong admissible evidence in civil proceedings that Shapy had used the defendants' accounts for his own trades. RHB's directors and senior management did not know of the fraudulent transactions and were notin pari delicto with Shapy. In fact the defendants had knowingly turned a blind eye to the transactions in their names which they knew were unauthorised: at [65], [68] and [69].

(3) RHB could not be held vicariously liable for Shapy's unauthorised tradings, as such acts were beyond the scope of Shapy's employment: at [81].

(4) The defendants' silence after receiving the voluminous contract notes, contra statements, quarterly statements and official receipts relating to trades under their account constituted an estoppel at law which precluded their denial of those trades. They were further estopped under the terms of the contract by failing to notify RHB of Shapy's unauthorised trades. They only refuted the trades after RHB commenced legal proceedings against them: at [102], [105] and [111].

(5) RHB was entitled to employ the doctrine of estoppel as a shield to protect its cause of action from destruction by the evidence which the defendants might otherwise have been able to rely on: at [107] and [108].

(6) RHB was contractually entitled to assume that the trades were in order and to claim for the contra losses from them: at [106].

Chan Seng Onn JC


1 The plaintiffs are stockbrokers and a member of the Stock Exchange of Singapore (“SES”). Each of the defendants in the abovenamed three suits (hereinafter referred to as “the defendants” collectively) had opened and maintained a share trading account with the plaintiffs at the material time. They traded through the plaintiffs' dealer, Shapy Khan bin Sher Khan (“Shapy”), who is the brother of two of the defendants, Ibrahim Khan (“Ibrahim”) and Said Khan bin Sher Khan (“Said”). The third defendant, Zolkepli bin Karim (“Zolkepli”), is a friend of Ibrahim.

2 The plaintiffs' case was that the defendants had traded in their accounts with the plaintiffs through Shapy in the months of April 1997 to May 1997 and incurred substantial contra trading losses. Ibrahim and Said sustained losses amounting to RM1,024,195.58 and RM1,063,110 respectively, whereas Zolkepli's losses totalled RM923,404.47 and S$16,593.84.

3 In their respective defences, the defendants basically pleaded that all the trades in their accounts were unauthorised and were transacted by Shapy without their knowledge, with the exception of the 10,000 PM DATA shares purchased on 17 February 1997 by Ibrahim. It was averred by Ibrahim and Said that the plaintiffs had failed to conduct their business in a proper and regular manner, thus enabling the fraud to be perpetrated by Shapy. As such, the defendants could not be held liable by the plaintiffs for the fraud of their own employee.

4 The plaintiffs however averred that the defendants had full knowledge of all the trades and hence, they were estopped from denying the trades in their accounts. A total of 124 contract notes for purchase and sale transactions between April and May 1997 giving rise to the present claim had been sent to Ibrahim. Fifty-nine contra statements forming the contra losses claimed by the plaintiffs were also sent to him. In the case of Said, 121 contract notes and 56 contra statements were sent to him relating to the contra losses in his account. Zolkepli should have received 105 contract notes and 45 contrastatements pertaining to the trades in his account for those two months, which were the subject matter of the plaintiffs' claim against him.

5 Prior to that, the defendants were also sent numerous other contract notes and contrastatements between January 1997 and March 1997, evidencing the voluminous trades done in their accounts.

6 Additionally, the plaintiffs sent to them quarterly statements ending 31 March 1997 and 30 June 1997, which listed all the transactions carried out in their accounts for those quarters.

7 The plaintiffs sent the contract notes, contra statements and quarterly statements to the defendants' residential addresses as reflected in their account opening forms. There was no denial of receipt of these documents.

8 The defendants did not dispute any of the trades until the present proceedings were commenced by the plaintiffs, whereupon the defendants alleged for the first time that they were not liable for the trades and that they were all unauthorised. This was despite the clause in the contract notes stating that if any information was incorrect, they were to notify the plaintiffs immediately of the discrepancies and return the contract notes for cancellation.

9 The plaintiffs further relied on the fact that Ibrahim signed six authorisation forms between 6 March 1997 and 8 April 1997 authorising the plaintiffs' in-house cheques for contra profits to be used to set off contra losses in the other trades in his account. Official receipts to evidence these set-offs pursuant to the defendant's instructions in his authorisation forms were sent to him.

10 Said signed ten authorisation forms between 5 February 1997 and 14 April 1997 for the same reason. Again official receipts were sent to his residential address. Fifteen crossed cheques in Said's name for contra profits totalling S$95,636.65 were issued by the plaintiffs between 17 January 1997 and 24 March 1997. They were presented and cleared into Said's POSBank savings account No 081-11847-7, which was the account stated in his trading account opening form. Said also provided Shapy with pre-signed blank cheques, which facilitated Shapy's withdrawal of the contraprofits from his bank account.

11 Zolkepli signed five authorisation forms between 6 March 1997 and 2 May 1997. Official receipts evidencing the set-offs from the in-house cheques for contra profits against the contralosses for other trades were also sent to his residential address as stated in his account opening form.

12 However, there was evidence that Shapy had intercepted many of these official receipts by instructing the plaintiffs' backroom staff to give them to him so that he could hand them to his clients, which Shapy never did. Shapy conveniently discarded these receipts. I believed that Shapy obtained these receipts fairly readily and hence, I did...

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