Tan Chor Thing v Tokyo Investment Pte Ltd and Another

• Jurisdiction: Singapore
• Judge: Chan Sek Keong J
• Judgment Date: 20 February 1991
• Neutral Citation: [1991] SGHC 28
• Docket Number: Suit No 1844 of 1989
• Date: 20 February 1991
• Year: 1991
• Published date: 19 September 2003
• Plaintiff Counsel: Kenneth Tan (Rajah & Tann)
• Citation: [1991] SGHC 28
• Defendant Counsel: Choo Han Teck (Allen & Gledhill)
• Court: High Court (Singapore)
• Subject Matter: Recovery of property deposited under illegal contract,Derivatives,Whether client entitled to recover security,Staututory illegality,Parties not in pari delicto,Futures,Unlicensed futures trading,Money due under contracts not recoverable,Contract,Illegality and public policy,Financial and Securities Markets,Whether contract void,Contracts void for illegality,Recovery of shares deposited as security for futures trading

This is an appeal by the defendants against the decision of the assistant registrar that the plaintiff was entitled to possession of 290,000 shares (the shares) of seven Malaysian companies which were listed on the Stock Exchange of Singapore, damages and costs.

The plaintiff was the owner of the shares. At the date of commencement of this action, the share certificates were in possession of the Criminal Investigation Department (the CID), they having been seized by the CID in the course of investigating the activities of the first defendants in November 1987. Following the investigation, the first defendants were charged under s 11(1)(d) of the Futures Trading Act (Cap 116) (the Act) for having, between 7 October 1987 to 26 October 1987, carried on the business of trading in the Hang Seng Index futures (HSI futures) without a licence. The first defendants pleaded guilty and were fined. In the statement of facts tendered to the court, the first defendants admitted that they had acted as a futures broker representative of the second defendants, a Hong Kong company, and was paid a service fee of $20,000 a month.

After the criminal proceedings, the plaintiff made a claim for the return of the shares. However, the CID was not prepared to deliver the shares to the plaintiff as the second defendants had also claimed that they were the `equitable owners` of the shares and were entitled to retain them as security for the trading account of the plaintiff`s brother, TCK, with them in connection with dealings in HSI futures.

The second defendants` claim arose in the following circumstances. On 27 July 1987, the plaintiff entered into a trading agreement with a company called Heritage Commodities Pte Ltd (Heritage) to trade in Japanese red beans. On or about 3 September 1987, the plaintiff pledged the shares with Heritage as security for his trading account. The person in Heritage who managed the plaintiff`s account was one SLWL, a director of Heritage.

The plaintiffs version of the subsequent events as deposed in the affidavits filed by him was as follows: he instructed Heritage on 20 October 1987 to close his trading account, settle the amount due to the plaintiff and also return the shares; Heritage closed the account but did not pay him until 2 November 1987 when he was paid $100,404.40 being the amount due to him. He also signed an acknowledgment dated 2 November 1987 in which he certified that he had `no further claim or what-so-ever` against Heritage on the account. He alleged that the shares were not returned to him.

The second defendants` version of how they came to take possession of the shares from Heritage as deposed in the affidavits filed by them was as follows: On 20 October 1987 when the plaintiff stopped trading with Heritage, he allowed TCK to deliver the shares to SLWL as a director of the first defendants to hold for the second defendants by way of security for TCK`s trading account with the second defendants; that the plaintiff had signed a receipt for the shares (which the second defendants admitted they could not produce); and that he closed his account later on 2 November 1987. The second defendants produced in evidence the following documents signed by TCK with or in favour of the second defendants: (a) a customer`s agreement dated 15 October 1987, (b) a pledge agreement dated 20 October 1987 in which the second defendants acknowledged receipt of the shares, and (c) a list of the shares. Both the customer`s agreement and the pledge agreement were signed by SLWL on behalf of the second defendants. Since SLWL was not an officer or attorney of the second defendants, he could only have signed the documents as a director of the first defendants.

TCK, whose evidence would have had a material bearing on the truth of the conflicting allegations of the plaintiff and of SLWL, did not file any affidavit in this action, nor was he made a party to these proceedings. However, it has to be pointed out that although the plaintiff claimed that the shares were not returned to him after the settlement of his account with Heritage, he did not allege that he had made any written or oral demand for the return of the shares after 2 November 1987. He has not given any explanation for allowing his shares to be in the possession of the first defendants until they were seized by the CID.

In the circumstances, counsel for the plaintiff had to concede that there was a triable issue on whether his client had consented to TCK pledging his shares to the second defendants. However, he contended that the pledge was illegal as the underlying transactions were illegal by virtue of s 11(1)(a) of the Act, and that the shares were recoverable from the second defendants.

Counsel for the defendants submitted that the pledge was legal as it secured transactions which were legal. He contended that firstly, TCK`s dealings with the second defendants were effected in Hong Kong and not in Singapore, that although the first defendants had taken orders from TCK and placed them with the second defendants in Hong Kong, they did so as agents of TCK. He said that the second defendants were not TCK`s brokers but the first defendants were TCK`s brokers. In this respect, he contended that the admission of the first defendants that they had acted as agents of the second defendants was not admissible against his clients under the rule in Hollington v Hewthorn [1943] 2 All ER 35. It was contended, secondly, that in any case the shares were not recoverable as the second defendants were not aware that it was illegal for the first defendants to carry on the business of futures trading in Singapore without a licence. Counsel referred to the decision of the Exchequer Chamber in Smith v Lindo (1858) 141 ER 237 where the court had held that although an unlicensed broker in London could not sue for his commission by reason of s 5 of 6 Ann c 16, he could recover...