Shenyin Wangou-APS Management Pte ltd (formerly known as Shanghai International-APS Management Private Limited) and Another v Commerzbank (South-East Asia) Ltd

• Jurisdiction: Singapore
• Judge: Choo Han Teck JC
• Judgment Date: 05 September 2001
• Neutral Citation: [2001] SGHC 260
• Docket Number: Suit No 1335 of 1999
• Date: 05 September 2001
• Published date: 19 September 2003
• Year: 2001
• Plaintiff Counsel: Fong Kwok Jen (Fong Partners & Associates)
• Citation: [2001] SGHC 260
• Defendant Counsel: Patrick Ang and Andrew Ang (Rajah & Tann)
• Court: High Court (Singapore)
• Subject Matter: Implied terms,Whether contract frustrated,Imposition of exchange control restrictions,Contractual terms,Whether exchange control restrictions amount to 'politically related measures' allowing defendants to suspend payment plaintiffs in Malaysian ringgit on maturity of latter's ringgit-denominated off-shore account,Impossibility of performance of contract on maturity date,Frustration,Contract,Interpretation of clause,Necessity,Eradication of off-shore market in Malaysian ringgit,Whether necessary to imply term allowing payment in alternative currency where Malaysian ringgit unavailable in off-shore market,When frustration arises

Judgment:

Cur Adv Vult

1. The first plaintiffs are an incorporated company carrying on the business of fund managers in Singapore. The second plaintiffs are an investment holding company incorporated in the British Virgin Islands and are clients of the first plaintiffs. The defendants are an off-shore bank in Singapore whose banking activities (reflecting the descriptive term of "off-shore" bank) include the taking of foreign currency deposits for non-residents. The business dealings in question in this case is a typical example. The two plaintiffs who are non-residents of Malaysia deposited Malaysian ringgit ("MYR") in off-shore accounts with the defendants. The total sum of US$162,401.79 deposited by the plaintiffs is not disputed by the defendants. The deposits were made at various times, but for convenience the parties agreed to assume that the maturity date for the total sum was 3 September 1998.

Off-Shore Accounts

2. It is not in dispute that money deposits are normally deposited in accounts in their respective countries of origin. Such accounts are known as on-shore accounts. An off-shore account, on the other hand, is an account opened with and operated by a bank (the off-shore bank) to carry out money transactions on behalf of the customer outside the country of origin of the currency in question. In 1997 the Malaysian government imposed exchange control restrictions. This led to a scarcity of MYR. As a consequence, off-shore banks were offering substantially higher interest rates for the deposits of MYR in off-shore accounts. The plaintiffs legitimately took advantage of this and placed deposits of MYR with the defendants. At the same time, they entered into forward contracts to sell MYR to the Public Bank in Malaysia. In the absence of any default or intervening events, the plaintiffs expected to make some profit from this back-to-back exercise. The off-shore bank on its part, would utilize the deposits of foreign currencies in the foreign exchange market; in the buying and selling of the currencies on the sage principle of "buying low and selling high". Invariably, the banks adopt various counter-measures to minimise the effects of drastic swings in the prices of the currencies due, for example, to currency devaluation or some other phenomenon. Thus, foreign exchange markets and off-shore deposits are capable of spewing generous profits in a process that is laced with risks that commensurating with profits.

The Claim And Defence

3. The nature and basis of the plaintiffs claim are straightforward. They say that when their MYR deposits matured on 3 September 1998 they were entitled to withdraw them in MYR. Payment was, however, made by the defendants on 8 September, not in MYR but in US dollars at the rate of MYR4.00 to US$1.00. The plaintiffs had their own commitments to fulfil, namely to pay various sums in ringgits to the Public Bank in Kuala Lumpur. They were, therefore, obliged to purchase MYR in Malaysia to make good that commitment. Unfortunately for them the exchange rate they paid was MYR3.80 to US$1.00. Their claim in this suit was the difference of 0.20 cents between the rate used by the defendants in payment to the plaintiffs and the rate the plaintiffs had to pay on the re-conversion in Malaysia. This difference amounted to the sum of US$162,401.79 the sum claimed by the plaintiffs in their statement of claim.

4. The defendants resisted the claim with the alternative defences of payment under an express, alternatively, an implied term of the contract, and frustration of the contract. By their first defence (the express term defence), the defendants averred that by cl 12 of the contract with the plaintiffs the defendants were not obliged to effect payment in any specific currency if that currency was not available. Under their second alternative defence (the implied term defence), they averred that the plaintiffs knew or ought to have known that if the defendants were unable to deliver MYR off-shore they were entitled to deliver payment in an alternative currency, in this case, in United States dollars. Thirdly, (the frustration defence) they averred that by reason of exchange control measures instituted by the Malaysian government on 1 September 1998 and subsequently modified, the contract of deposit between the parties was frustrated in law.

The Exchange Control Measures

5. It was common knowledge that in 1998 the MYR as well as some other Asian currencies were subject to substantial capital outflows. If that continued unchecked, the foreign exchange reserves of the country in question would be greatly reduced and, correspondingly, the pressure to devalue that currency would have increased. It is not unusual for governments of an embattled currency to impose exchange control restrictions in its efforts to stabilize the situation. In the present case, however, the exchange control measures of the Malaysian government imposed on 1 September 1998 was described as "sudden, draconian, wide-sweeping in timing and effect, and unprecedented" by Prof. Heinz Riehl an expert witness for the defendants. I refer to "measures" in the plural form because various announcements and clarifications were shortly and subsequently issued thereafter in response to enquiries from the frenzied market institutions. According to the defendants and their experts, the clarifications and subsequent announcements only exacerbated the confusion prevailing in the financial markets after the initial announcement declared by Bank Negara with the heading: "Measures To Regain Monetary Independence". The relevant regulation was stipulated as follows:

"Approval is required for transfer of funds between External Accounts. Transfer to residents accounts are permitted only until 30 September 1998; thereafter, approval is required. Withdrawal of ringgit from External Accounts require approval, except for the purchase of ringgit assets."

It is true that economic measures are not uncommon, but the term "economic measures" is a general term and is of little significance in itself. It is the specific measures themselves that is vital. For example, a government may declare that as an economic measure it will suspend the import of potatoes. That may have little or no impact on private contracts unless the parties, for example, are potato traders, and even so, much depends on what the measures to be implemented were.

6. An External Account strictly speaking, is a MYR account opened by a non-resident in Malaysia with on-shore banks. However, in practice, MYR accounts opened by non-residents with off-shore banks are also regarded as "External Accounts" in the present context because they are affected in the same way by the exchange control notifications; that is because the off-shore bank will have to open an External Account, principally for settlement purposes, with an on-shore bank.

7. On 2 September, Bank Negara announced that the exchange rate for MYR was fixed at MYR3.80 to US$1.00. A further statement of the same date announced that: "All settlement for transactions executed prior 1st September 1998 will only be allowed to be effected until 4th September 1998. Authorised dealers must verify evidences of all transactions before effecting the settlement on behalf of their customers" sic. A third notification was issued also within the day, stating:

"All foreign exchange contracts, contracts for the sale and purchase of securities entered into prior to 1300 hours on 1 September 1998, transfers between External Accounts for settlement of such contracts would be allowed until 9 September 1998. For contracts that are due for settlement after 9 September 1998, Bank Negara Malaysia would be introducing mechanisms to ensure that the ability of market players to fulfil their Ringgit obligations would not be jeopardised following the implementation of the new rules. Bank Negara Malaysia will issue another circular on this matter by the end of the week".

It transpired that no further circulars were issued but a further clarification was made. In this clarification dated 4 September the relevant portion was set out under item 7 as follows:

"All settlement for forex transaction and contracts for the sales of securities executed prior to 1300 hours on 1 September 1998 will only be...