Tan Chong Koay v Monetary Authority of Singapore

• Judgment Date: 22 July 2011
• Date: 22 July 2011
• Docket Number: Civil Appeal No 186 of 2010
• Court: Court of Appeal (Singapore)

Tan Chong Koay and another

Plaintiff

and

Monetary Authority of Singapore

Defendant

[2011] SGCA 36

Chan Sek Keong CJ

,

Andrew Phang Boon Leong JA

and

VK Rajah JA

Civil Appeal No 186 of 2010

Court of Appeal

Financial and Securities Markets—Fund management—Appellants instructing remisier to purchase shares close to end of trading day on last three trading days of the year—Purchases having effect of raising price of that share and therefore increasing the year-end net asset value of certain funds holding those shares managed by appellants—Whether purchases were for primary purpose of setting price of that share—Whether such purchases reflected genuine demand at those prices—Whether purchases violated s 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed) —Section 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed)

Financial and Securities Markets—Regulatory requirements—Market conduct—Appellants instructing remisier to purchase shares close to end of trading day on last three trading days of the year—Purchases made by accepting ‘sell’ bids on market and without making ‘buy’ bids—Whether acceptance of genuine sellers' offers to sell for primary purpose of setting closing price constituted genuine demand—Whether purchases violated s 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed) —Section 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed)

Financial and Securities Markets—Regulatory requirements—Market conduct—First and third limbs of s 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed) not specifying any mens rea requirements—Whether liability under first and third limbs of s 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed) required proof of mens rea—Section 197 (1) (b) Securities and Futures Act (Cap 289, 2007 Rev Ed)

Dr Tan Chong Koay (‘Dr Tan’) was the founder, chief executive officer and chairman of the investment committees for Pheim Asset Management Sdn Bhd (‘Pheim Malaysia’) and Pheim Asset Management (Asia) Pte Ltd (‘Pheim Singapore’) . These companies (collectively ‘the Pheim Group’) are licensed to carry on fund management business in Malaysia and Singapore respectively.

Pheim Malaysia started investing in shares in United Envirotech Ltd (‘UET’) from April 2004 and continued purchasing UET shares until 17 September 2004. On 15 December 2004, a meeting of its investment committee decided to increase investment in UET shares for three of its accounts. However, Pheim Malaysia did not purchase UET shares after this meeting until 29 to 31 December 2004 (‘the Relevant Period’) even though UET shares were traded on the Singapore Exchange Limited (‘SGX’) in the intervening time.

In the Relevant Period, which covered the last three trading days of 2004, Dr Tan and Pheim Malaysia were in contact with one Tang Boon Siah (‘Tang’) , a remisier. Following telephone conversations with Dr Tan, Tang made a number of purchases of UET shares for Pheim Malaysia by accepting ‘sell’ bids placed by independent sellers on the SGX's board. All except one of these purchases were made between three seconds and 35 minutes before the close of trading on each day, with Tang making the last purchase of UET shares on each day a few seconds before the close of trading. During the Relevant Period, Tang purchased a total of 360,000 UET shares costing a total of $152,470.95 for Pheim Malaysia.

Following these purchases, the closing price of UET shares rose from $0.38 on 27 December 2004 to $0.445 on 31 December 2004, a rise of about 17%. This increase in price resulted in (a) the net asset value (‘NAV’) of accounts managed by the Pheim Group holding UET shares increasing by a total of $1,086,989; (b) three of Pheim Singapore's accounts outperforming their year-end benchmark returns for 2004 (which would not otherwise have occurred) ; and (c) Pheim Singapore earning an additional $50,000 in fees arising from the outperformance. On the basis of these facts, the Monetary Authority of Singapore (‘MAS’) commenced proceedings under s 197 (1) (b) of the Securities and Futures Act (Cap 289, 2007 Rev Ed) (‘SFA’) against Dr Tan and Pheim Malaysia (‘the Appellants’) .

The High Court held that the second limb of s 197 (1) (b) of the SFA had been made out as the Appellants had acted with the intent to create a false or misleading appearance with respect to the price of a security (UET shares) and imposed a civil penalty of $250,000 on each of them. The judge below (‘the Judge’) did not accept the Appellants' argument that they purchased the UET shares for legitimate commercial purposes with Tang deciding on the price at his own discretion. She also rejected the argument that they could not purchase UET shares before the Relevant Period due to equity limits on the relevant accounts. The Appellants appealed against the Judge's decision on both liability and the quantum of the civil penalty. MAS argued in response that the Appellants should be held liable not only under the second limb of s 197 (1) (b) of the SFA but also the first and third limbs which prohibited the creation of a false and misleading appearance with respect to the price of securities and the doing of anything likely to create such a false or misleading appearance respectively.

Held, dismissing the appeal:

(1) The pattern of Pheim Malaysia's purchases during the Relevant Period showed that the Appellants intended to set the price of UET shares for the end of the year 2004. The Appellants' primary purpose was to bolster the year-end valuation of certain funds holding UET shares managed by the Pheim Group: at [19] and [20].

(2) Just because the Appellants accepted genuine ‘sell’ offers made by independent investors did not mean that their purchases reflected genuine demand. The Appellants' primary purpose was to increase the NAV of certain funds managed by the Pheim Group holding UET shares and thereby meet the performance benchmark for those funds for the year ending 31 December 2004. Applying the majority reasoning in Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd(1998) 28 ACSR 58, such purchases were not motivated by genuine demand as they were not done for legitimate investment purposes. The manner of the Appellants' purchases showed that they intended to create a false or misleading appearance with respect to the price of UET shares: at [21] and [28] to [30].

(3) Based on the aggravating factors in this case, including the deliberate nature of the breach, the benefits experienced by the Pheim Group as a result of the breach, and the significant earnings of the Pheim Group, the Judge's decision on the quantum of civil penalty imposed on the Appellants was upheld: at [59].

(4) Pheim Malaysia and Dr Tan were equally culpable in the commission of the breach. This, along with the deterrent purpose of the SFA's legislative framework, justified the imposition of the same civil penalty on both Appellants. A reduction in the quantum of the civil penalty would set back MAS's efforts to promote Singapore as a well-regulated and trusted fund management hub: at [60].

[Observation: In practice, the approach taken in Australian Securities Commission v Nomura International plc(1998) 160 ALR 246 (in interpreting the third limb of the Australian equivalent of s 197 (1) of the SFA as not requiring proof of mens rea to establish liability) had the result of rendering the first limb of the prohibition redundant. This was because any act that had actually created a false or misleading appearance in relation to the market for or the price of securities had to perforce have been an act likely to do so: at [38].

The Australian courts reached a general consensus that liability under the third limb of their equivalent of s 197 (1) (b) of the SFA did not require proof of mens rea.However, no consensus was reached in relation to the first limb of the prohibition. There was a common law presumption that a statute did not impose criminal liability without mens rea unless the purpose of the statute was not merely to deter a person from engaging in prohibited conduct but to compel him to take preventive measures to avoid the external elements of the offence occurring (even non-deliberately) . However, the express provisions of defences of a lack of mens rea in ss 197 (4) and 197 (6) of the SFA suggested that s 197 (1) imposed strict liability except where a defence was expressly provided. No final view on the mens rea requirements of the first and third limbs of s 197 (1) was expressed in this judgment, although Chua Li Hoon Matilda v Public Prosecutor [2009] SGHC 116, which stated that liability under the first limb required proof of intention, remained good authority until and unless it was overruled: at [41], [42], [45] and [51] to [53].]

Australian Securities and Investments Commission v Soust (2010) 77 ACSR 98 (refd)

Australian Securities Commission v Nomura International plc (1998) 160 ALR 246 (refd)

Chua Li Hoon Matilda v PP [2009] SGHC 116 (refd)

Donald v Australian Securities and Investments Commission [2000] FCA 1142 (refd)

Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd (1998) 28 ACSR 58 (folld)

Gammon (Hong Kong) Ltd v AG of Hong Kong [1985] AC 1 (refd)

He Kaw Teh v R (1985) 157 CLR 523 (refd)

JTMJ v Australian Securities and Investments Commission [2010] AATA 350 (refd)

Lim Chin Aik v R [1963] AC 160 (refd)

Monetary Authority of Singapore v Tan Chong Koay [2011] 1 SLR 348 (folld)

North v Marra Developments Ltd (1981) 148 CLR 42 (refd)

Tan Kiam Peng v PP [2008] 1 SLR (R) 1; [2008] 1 SLR 1 (refd)

Securities and Futures Act (Cap 289, 2006 Rev Ed) ss 197 (1) , 197 (1) (a) , 197 (1) (b) , 197 (2) , 197 (3) , 197 (4) , 197 (6) (consd) ;ss 197 (3) (a) , 201 (b) , 232 (2) , 232 (3) , Pt XII, Pt XII Div 3

Securities and Futures Act 2001 (Act 42 of 2001)

Securities Industry Act (Cap 289, 1985 Rev Ed) s 97 (1) (consd) ;s 97

Corporations Act...