Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and another and another appeal

• Judge: Chan Sek Keong CJ
• Judgment Date: 19 May 2011
• Neutral Citation: [2011] SGCA 22
• Plaintiff Counsel: Sundaresh Menon SC, Rebecca Chew, Sim Kwan Kiat, Nigel Pereira, Paul Tan, Douglas Chi and Tan Liang Ying (Rajah & Tann LLP),Alvin Yeo SC, Monica Chong, Loo Ee Lin, Koh Swee Yen and Simran Toor (WongPartnership LLP)
• Docket Number: Civil Appeals Nos 121 and 122 of 2009
• Hearing Date: 27 April 2010
• Citation: [2011] SGCA 22
• Year: 2011
• Published date: 25 May 2011
• Subject Matter: Banking,Tort,Agency,Restitution
• Defendant Counsel: the second respondent in Civil Appeal No 121 of 2009 absent.,Davinder Singh SC, Hri Kumar SC, Yarni Loi, Jaikanth Shankar, Benedict Teo, Bhavish Advani, Alecia Quah and Delphia Lim (Drew & Napier LLC)
• Court: Court of Three Judges (Singapore)

Chan Sek Keong CJ (delivering the judgment of the court): Introduction

These two appeals stem from the elaborate fraud perpetrated over a period of more than four years by Chia Teck Leng (“Chia”), the second respondent in Civil Appeal No 121 of 2009 (“CA 121/2009”). They tell a cautionary tale of how two foreign banks, in their eagerness to secure a banking relationship with Asia Pacific Breweries (Singapore) Pte Ltd (“APBS”), a prominent local blue-chip company, failed to exercise due diligence and extended substantial credit facilities to APBS relying merely (and almost entirely) on representations made by Chia, APBS’s finance manager at the material time. Those representations were subsequently found to be fraudulent.

The appellant in CA 121/2009 is Skandinaviska Enskilda Banken AB (Publ), Singapore Branch (“SEB”), while the appellant in Civil Appeal No 122 of 2009 (“CA 122/2009”) is Bayerische Hypo-Und Vereinsbank Aktiengesellschaft (“HVB”). APBS is the first respondent in CA 121/2009 and the sole respondent in CA 122/2009. Chia did not play any active part in either the proceedings in the court below or the proceedings before this court, having been convicted of 14 charges of (inter alia) cheating (with 32 other charges taken into consideration) and sentenced to 42 years’ imprisonment (see Public Prosecutor v Chia Teck Leng [2004] SGHC 68 (“PP v Chia Teck Leng”)).

APBS is the Singapore subsidiary of Asia Pacific Breweries Limited (“APBL”), the holding company of a group of companies engaged in the production and distribution of beer and other alcoholic beverages throughout the region (“the APBL group of companies”). APBL was set up as a joint venture between Heineken NV of the Netherlands (“Heineken”) and Fraser and Neave Limited (“F&N”), a Singapore company. Both APBS and F&N are well-known blue-chip companies in the region, while Heineken is a Dutch global company that is familiar to all European banks.

Chia was an inveterate gambler and had been visiting casinos since 1994. APBS was not aware of Chia’s gambling history when it employed him as its finance manager in January 1999. Using his position as APBS’s finance manager, Chia devised and successfully implemented an ingenious scheme to cheat four foreign banks (including SEB and HVB, the appellants in the present appeals (“the Appellants”)) of about S$117.1m (of which about S$34.8m has been recovered). In the present proceedings, SEB is seeking to recover from APBS a sum of either US$26,559,371.94 or S$29,468,723.30, while HVB is seeking to recover a sum of US$32,002,332.85. The position of the Appellants is that they lent these sums to APBS, which had authorised Chia to borrow the same. The position of APBS, in contrast, is that Chia had no authority whatsoever to borrow money on its behalf.

Chia’s wily deception of the Appellants for more than four years was facilitated by a combination of APBS’s failure of oversight over Chia’s activities and the gullibility and/or trusting blindness of the Appellants’ officers. The evidence at the trial showed that Chia was able to carry on his fraudulent activities for such a long time without being detected by his superiors because they left him to run APBS’s Finance and Accounting Department (“APBS Finance”) without any supervision. We should point out at this juncture that although there is, in our view, no doubt that the senior management of APBS was derelict in its corporate governance duties, that is not the focus of the present appeals. The question before us is instead who, as between the Appellants and APBS, should bear the losses occasioned by Chia’s fraud. This involves an examination of four areas of law, namely, agency, vicarious liability, negligence and restitution.

The trial in the court below lasted for more than 47 days. It involved 11 witnesses of fact and seven expert witnesses who testified on banking practice and procedure, internal corporate and financial controls, pre-employment screening and computation of accounts. The trial judge (“the Judge”) reserved judgment at the end of the trial, and eventually dismissed the claims of both the Appellants, except for a sum of S$347,671.23 in respect of SEB’s restitutionary claim. Dissatisfied with that outcome, the Appellants have appealed against the whole of the Judge’s decision. The Judge’s factual and legal evaluation, findings and analysis are set out in a comprehensive 219-page judgment accompanied by a further ten-page appendix on the material facts (jointly reported in Skandinaviska Enskilda Banken AB (Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd and another and another suit [2009] 4 SLR(R) 788 (“the HC Judgment”)). We acknowledge the assistance which the Judge’s carefully-reasoned judgment has given us in our examination of the legal issues raised in the present appeals.

Background Appointment of Chia as APBS’s finance manager

Chia is an accountant by training who worked in various finance-related positions for both international and local companies from 1983 to 1999 prior to joining APBS in January 1999. He moved from being a tax assistant to being a finance manager within the short span of a decade, and was described by the judge at his criminal trial as a “financial wizard” (see PP v Chia Teck Leng at [33]). Unfortunately, he was also a compulsive gambler. By 1998, Chia had accumulated gambling debts exceeding S$1m. It was in those circumstances that Chia applied for the post of Finance Manager of APBS on 25 November 1998. After several rounds of interviews, Chia was offered the job on 23 December 1998 and was to officially start work on 20 January 1999. His new job gave him the opportunity to plan how to defraud various banks (all of which, it may be noted, were foreign banks) by relying on APBS’s corporate standing and on his title of Finance Manager. The title “Finance Manager” is not an established title in the corporate sector, unlike corporate titles like “Finance Director”, “Chief Financial Officer”, “Managing Director”, “Chief Executive Officer”, “Chairman of the Board of Directors”, “President” or “Director”. In the present case, the Appellants were aware that Chia was not a director of APBS, but only a finance manager, a position which prima facie connotes that the office-holder carries out managerial, rather than executive, functions.

Functions of Chia as APBS’s finance manager

As Finance Manager of APBS, Chia had two broad functions: operational and financial. Operationally, he reported directly to the general manager of APBS, a position held by Mr Ton Blum (“Mr Blum”) until November 1999 and, thereafter, by Dr Les Buckley. Chia had two broad areas of operational responsibilities in APBS. First, he was Head of APBS Finance, which had a team of 22 employees engaged in the accounting, costing, budgeting, bookkeeping and cash management activities of APBS. In this regard, Chia, as Finance Manager, was expected to: (a) ensure that there were adequate controls within APBS Finance to comply with APBS’s financial policies; and (b) manage APBS’s relationships with financial institutions. Second, Chia was in charge of the Management Information Systems and Purchasing Department of APBS, which had 11 employees.

Vis-à-vis his financial functions, Chia reported to APBL’s group finance director. Chia’s duties and functions as Finance Manager were set out in two internal documents of APBS, namely: (a) a document entitled “Position Description” (“the Position Description”); and (b) a document entitled “Group Treasury Policy” (“the GTP”), which was first implemented in 1998 and subsequently updated in 2000. Under the GTP, responsibility for borrowing funds for and investing surplus funds of APBS was distributed among the following entities: (a) F&N’s Group Treasury Department (“F&N Group Treasury”), which oversaw all treasury activities within the APBL group of companies; (b) APBL’s Group Finance Department (“APBL Group Finance”); and (c) APBS Finance.

In relation to the investment of APBS’s surplus funds, cl 6 of the GTP provided as follows:1See the Appellant’s Core Bundle dated 9 January 2010 filed by HVB for CA 122/2009 (“ACB (CA 122)”) at vol 2, Pt 1, p 342. 6.0 INVESTMENT OF SURPLUS FUNDS 6.1 [APBS’s] Finance Manager shall be responsible for proper cash management. In general, no funds should be left idle. Any surplus funds should be used to reduce liabilities (of [the] same currency) first if the liabilities carry a higher interest cost than what the surplus funds can earn. 6.2 Surplus funds in excess of working capital requirements will be: a. Converted to foreign currency to match both the amount and [the] tenor of any foreign currency denominated loans and other net liabilities. b. Kept in the local currency in time deposits or other appropriate instruments for such duration no longer than 6 months until the funds are required, unless there is explicit instruction f[ro]m the [APBS] Board to convert such funds to a hard currency in anticipation of a potential devaluation of the local currency. 6.3 Remaining surplus funds denominated in local currency are to be invested in the following: a. Call and Term Deposits in banks and financial institutions as listed [i]n Appendix B. b. Investment Grade Commercial Papers of minimum “A-Rating”. c. Treasury Bills and Bonds[.]

[underlining in original]

In relation to the borrowing of funds for APBS, cll 3.4 and 3.5 of the GTP provided as follows:2Id at pp 338–340. 3.0 CREDIT FACILITIES

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3.4 Procedures for sourcing [for] credit facilities 3.4.1 [APBS’s] Finance Manager (with approval from the General Manager) will forward request[s] for new or increase in credit facilities to [F&N] Group Treasury (via [APBL] Group Finance) for review. 3.4.2 [F&N] Group Treasury will evaluate [APBS]’s proposal. If the proposal is...