Tokyo Investment Pte Ltd and Another v Tan Chor Thing

• Jurisdiction: Singapore
• Judge: Chao Hick Tin J
• Judgment Date: 13 July 1993
• Neutral Citation: [1993] SGCA 48
• Docket Number: Civil Appeal No 28 of 1991
• Date: 13 July 1993
• Published date: 19 September 2003
• Year: 1993
• Plaintiff Counsel: Andre Yeap (Allen & Gledhill)
• Citation: [1993] SGCA 48
• Defendant Counsel: Kenneth Tan (Rajah & Tann)
• Court: Court of Appeal (Singapore)
• Subject Matter: Civil Procedure,Whether transactions and security furnished rendered illegal and unenforceable,Whether leave to defend should be granted,Summary judgment,Parties not in pari delicto,Pledge of shares to broker as security for trading account,Contract,Futures trading carried out by unlicensed futures broker in contravention of statute,Appeal,Transactions carried out by unlicensed futures broker in contravention of statute,Construction of statute,Financial and Securities Markets,Futures,Whether pledge and underlying transactions illegal and unenforceable,Staututory illegality,ss 2, 11(1)(a), (b), (d), (3), 14, 16 & 22 Futures Trading Act (Cap 116),O 14 Rules of the Supreme Court 1970,Complex points of law,Whether court should assist owner of shares in recovering shares,Illegality and public policy,Financial markets

This was an appeal against a decision of Chan Sek Keong J [see [1991] 3 MLJ 87 ] who confirmed a decision of the assistant registrar granting to the respondent on an O 14 application a declaration that the respondent was entitled to possession of 290,000 shares of seven Malaysian companies listed on the Stock Exchange of Singapore, damages and costs. Having heard the appeal, we dismissed it. We now give our reasons.

The respondent was trading in Japanese red beans through a company, called Heritage Commodities Pte Ltd (Heritage). For that purpose a written agreement dated 27 July 1987 was entered into between them. On or about 3 September 1987 the respondent pledged the 290,000 shares (with executed blank transfer forms) which he owned to Heritage as security for his trading. Some one and a half months later, on 20 October 1987 he instructed Heritage to close his trading account, settle the amount due to him and return the shares. On 2 November 1987 Heritage duly closed the account and paid the respondent the sum of $100,404.40. He signed an acknowledgment on the same day stating that he had `no further claim or whatsoever` against Heritage on the account. The respondent alleged that the shares were never returned to him although he had requested them.

Some two weeks later, on or about 18 November 1987, the police raided the offices of Heritage and seized documents, including those relating to the 290,000 shares. The police were investigating the trading activities of the first appellants, Tokyo Investment Pte Ltd.

Following the police investigations the first appellants were charged under s 11(1)(d) of the Futures Trading Act (Cap 116) (hereinafter referred to as `the FT Act`) for having, between 7 and 26 October 1987, carried on the business of trading in the Hang Seng Index Futures (`HSI futures`) without a licence. The first appellants pleaded guilty to the charge and were fined. The first appellants admitted that they had acted as futures broker representatives of the second appellants and were paid a service fee of $20,000 a month.

At the conclusion of their investigations, the Singapore Police were prepared to release the shares. However, the first appellants claimed to be entitled to those shares on behalf of the second appellants which were a Hong Kong company and a licenced dealer there. At that point of time the respondent had settled all outstandings due from him to Heritage and had absolutely ceased trading with Heritage. Thus, the respondent instituted this action to establish his entitlement to the possession of those shares.

The basis of the second appellants` claim to the shares was that the shares were pledged to them as security for the trading account of the respondent`s brother, one Tan Chor Koon (`TCK`). They claimed to be the equitable owners of those shares.

One Steve Lee Woon Lou (`SL`) was the person in Heritage who handled the respondent`s account. He was a director in both Heritage and in the first appellants. SL stated that on 20 October 1987 when the respondent stopped trading with Heritage, (i) he allowed TCK to deliver the shares to SL as a director of the first appellants to hold for the second appellants by way of security for TCK`s trading account with the second appellants; (ii) he signed a receipt for the shares (but no receipt could be produced by SL); (iii) he closed his account on 2 November 1987. In further support of their case the second appellants produced the following documents signed by TCK: (a) a customer`s agreement dated 15 October 1987;

(b) a pledge agreement dated 20 October 1987 in which the second appellants acknowledged receipt of the shares; and (c) a list of the shares. Both the customer`s agreement and the pledge agreement were signed by SL on behalf of the second appellants.

TCK did not file any affidavit in the proceedings. Neither was he made a party thereto. We further noted that neither did the respondent explain why he left the shares in the possession of Heritage until 18 November 1987 when the police seized them.

In the light of the foregoing and quite rightly so, counsel for the respondent had conceded before the learned judge and before us that there was a triable issue on whether the respondent had consented to TCK pledging the shares to the second appellants. That concession notwithstanding, the learned judge accepted the argument, which we also accepted, that this was not an obstacle to judgment being given for the respondent because even if there had been consent on the part of the respondent, the pledge was illegal because the underlying transaction was illegal by virtue of s 11(1)(a) of the FT Act.

The learned judge found that the first appellants acted as the agents of the second appellants in carrying on the business of futures trading in Singapore. In coming to this finding he relied on these facts. One, the admission of the second appellants that the first appellants were their service agents in Singapore. Two, copies of the second appellants` printed buying and selling order forms duly signed by SL in Singapore with respect to TCK`s transactions with the second appellants; these documents with the executed prices indicated thereon showed that SL was taking buying and selling orders from TCK as agent of the second appellants. Although the appellants denied that the second appellants were carrying on futures broking business in Singapore through the first appellants, this denial per se could not found a defence upon which leave to defend should be given. As Ackner LJ observed in Banque de Paris et Des Pays-Bas (Suisse) SA v Costa de Naray , at p 23:

... the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendant`s having a real or bona fide defence.

It was common ground that neither the first nor the second appellants were licensed futures brokers under the FT Act. Counsel for the appellants submitted that there were the following triable issues: firstly, whether the transactions were transactions to which the FT Act applied; secondly, whether the first appellants were authorized to act for the second appellants in the manner in which they did; thirdly, whether the first appellants could or could not have been authorized in law to act in an illegal manner; fourthly, even if all the foregoing issues were to be ruled against the appellants, whether the trading agreement and/or the pledge of the shares by TCK to the second appellants should be rendered unenforceable.

In elaboration of the fourth issue, counsel for the appellants submitted that licensing regulations, and the FT Act was such a licensing law, were primarily regulatory in nature and that a failure by the first appellants and/or the second appellants to obtain a licence under the FT Act should not render the contract or security illegal. He said unlike s 15 of the Moneylenders Act (Cap 188), the FT Act did not state that a contract entered into or a security furnished to an unlicensed futures broker was not enforceable.

The FT Act applies to any person whether as principal or agent, who carries on the business of soliciting or accepting orders for the purchase or sale of any commodity under futures contracts. The term `commodity` is defined to mean, inter alia, a financial instrument, which expression is in turn defined to include share indices or a group or groups of share indices. In our view, on the evidence before the learned judge there was ample undisputed evidence for him to find that the second appellants, through the first appellants, were carrying on the business or holding themselves out as carrying on the business of futures brokers. There was documentary proof to show that TCK traded with the second appellants through the first appellants - the trading order slips were executed and completed in Singapore by the first appellants on behalf of the second appellants. There was also an admission by the second appellants that the first appellants were the service agents of the second appellants for whose services the second appellants paid the first appellants a substantial sum of $20,000 per month. The first appellants were authorized by the second appellants to hold on the latter`s behalf the securities furnished by TCK to the second appellants for purposes of trade. The first appellants solicited orders from TCK for the second appellants.

The assertion by the second appellants that the first appellants were also the service agents of TCK in the transactions was entirely without any foundation whatsoever. It was just a bare assertion. The second appellants did not even attempt to explain what was a service agent or the powers or functions of such an agent. In our opinion, there was simply no merit in the first three triable issues advanced by the appellants` counsel.

Counsel for the appellants attempted to raise the point that it was a triable issue whether the respondent was the owner of the shares. On the affidavits filed it was never...