Soon Kok Tiang and others v DBS Bank Ltd and another matter
Jurisdiction | Singapore |
Judge | Chan Sek Keong CJ |
Judgment Date | 02 November 2011 |
Neutral Citation | [2011] SGCA 55 |
Court | Court of Appeal (Singapore) |
Docket Number | Civil Appeal No 6 of 2011 and Summons No 2274 of 2011 |
Year | 2011 |
Published date | 09 November 2011 |
Hearing Date | 27 May 2011 |
Plaintiff Counsel | Siraj Omar, Dipti Jauhar and Rachel Tan Swee Hua (Premier Law LLC) |
Defendant Counsel | Davinder Singh SC and Una Khng (Drew & Napier LLC) |
Subject Matter | Contract |
Citation | [2011] SGCA 55 |
The appellants (“the Appellants”) are a group of 21 investors in derivative credit-linked notes called “DBS High Notes 5” (“the HN5”) which were issued by the respondent, DBS Bank Ltd (“the Respondent”). In Originating Summons No 774 of 2009 (“the OS”), they brought proceedings against the Respondent, on behalf of themselves as well as 192 other plaintiffs listed in the Schedule to the OS (“the 192 other plaintiffs”), for the refund of the entire capital sum which they and the 192 other plaintiffs had lost in investing in the HN5 (less the amount of interest received thereon) consequent upon the bankruptcy on 15 September 2008 of Lehman Brothers Holdings Inc (“Lehman”), one of the reference entities to which the HN5 were linked. The High Court judge (“the Judge”) dismissed the Appellants’ action (see
The material facts as pleaded by the parties are not in dispute. The Respondent launched the sale of the HN5 on 30 March 2007 in two tranches, one in Singapore dollars (“the SGD Tranche”) and one in US dollars (“the USD Tranche”). The Respondent’s offer of the HN5 was expressed to be made on the basis of the information contained in a 93-page pricing statement dated 29 March 2007 (“the Pricing Statement”) and a 168-page base prospectus dated 22 December 2005 as amended by a supplementary base prospectus dated 5 April 2006 (collectively referred to hereafter as “the Base Prospectus”). These documents set out in great detail,
The sale of the HN5 was effected by the Respondent accepting applications made by prospective HN5 holders on prescribed application forms (“Application Forms”). Each Application Form contained an acknowledgement by the prospective HN5 holder that he:
The Pricing Statement described the HN5 as “structured notes”3 and warned prospective HN5 holders that “if a Credit Event [as defined at
… ensure that they understand the nature of the [HN5] and should carefully study the matters set out in the Base Prospectus (and in particular, the section on “Risk Factors” in the Base Prospectus) and the contents of [the] Pricing Statement (and in particular, the section on “Risk Factors” in [the] Pricing Statement) before they invest in the [HN5]. [emphasis in original omitted]
The Pricing Statement described the HN5 as “5.5-year structured credit notes designed for investors seeking enhanced yield by providing exposure to a first-to-default basket of geographically diversified investment grade credits”.6 The credit basket (“the HN5 credit basket”) consisted of seven banks and one sovereign entity as follows:
These eight reference entities (collectively, “the Reference Entities”) were stated to have been selected with the following objectives:7
The HN5 were structured such that the Respondent would use the funds raised from the sale of the HN5 to purchase two structured notes issued by Constellation, a special purpose Cayman Islands trust company established by the Respondent in 2003. These two structured notes (collectively, “the Reference Notes”) were:
Constellation is a special purpose trust company established by [the Respondent] in 2003. It is owned by a charitable trust and incorporated under the laws of the Cayman Islands. Its primary objective is the issuing of various credit-linked and other structured notes to both retail and institutional investors.
Constellation uses the funds raised in issuing notes to invest in high quality bonds or structured securities with a rating of AA or better (as rated by Standard & Poor’s, Moody’s or Fitch) to secure its obligations under its notes and enters into derivative contracts with [the Respondent] in order to generate the relatively high yields under its notes. Constellation has issued 70 different structured notes to investors in Hong Kong over the past 4 years under its US$5,000,000,000 Limited Recourse Structured Note Programme (the Constellation Programme). To date, no credit event has occurred in respect of any of its issuances and all interest payments under its notes have been paid in full to investors.
The proceeds of the [HN5] will be used to purchase … the Reference Notes … to be issued by Constellation under the Constellation Programme. The performance of the [HN5] is directly linked to the Reference Notes. Therefore, in addition to the Reference Entities [as defined at
[5] above], the [HN5 holder] is exposed to the credit risk of Constellation in relation to the Reference Notes, in particular, to the high quality bonds or structured securities purchased by Constellation to secure its obligations under the Reference Notes.[emphasis in original omitted]
It should be noted that although the Pricing Statement stated that Constellation would use the funds raised from the issue of the Reference Notes (“the Reference Notes funds”) to invest in “high quality bonds or structured securities with a rating of AA or better (as rated by Standard & Poor’s, Moody’s or Fitch)”9 to secure its obligations under the Reference Notes, it did not say that those funds would be used to purchase, specifically, what we will hereafter term “the Reference Obligations” (
The Pricing Statement stated that HN5 holders would receive:
If a Credit Event...
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