Tat Lee Securities Pte Ltd v Tsang Tsang Kwong and another action

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 23 October 1999
• Neutral Citation: [1999] SGCA 76
• Docket Number: Civil Appeals Nos 50 and 51
• Date: 23 October 1999
• Year: 1999
• Published date: 19 September 2003
• Plaintiff Counsel: Woo Bih Li and Tan Hui Teng (Bih Li & Lee)
• Citation: [1999] SGCA 76
• Defendant Counsel: Harry Wee and Leong Why Kong (Braddell Brothers)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether summary procedure appropriate,Securities,Summary judgment,Financial and Securities Markets,Whether stockbroker liable for remisier's fraudulent misappropriation of client's shares,Civil Procedure,Whether respondents' claims should be dismissed,Whether liability can be determined by construction of client's letter of authority,O 14 r 12 Rules of Court 1996,Whether liable under agency law or negligence,Construction of letter of authority

(delivering the judgment of the court): These two appeals arise from a judgment of the High Court setting aside a decision of the deputy registrar who granted an order striking out the claim of the plaintiffs-respondents made in two separate actions, in terms of two similar applications made by the appellant-defendant under O 14 r 12 of the Rules of Court 1996.

The facts

The appellant is a firm of stockbrokers. The respondents in both appeals (the plaintiffs in the actions below) were clients of the appellant. The respondents dealt with Koh Lik Jin (Koh), a remisier in the firm. At the time when they opened their trading accounts with the appellant, each of the respondents had also executed a letter of authority (LA). As the contents of this LA is central to the actions and the appeals, we shall set it out in full:

Dear Sirs

Re: (1) SES Bye-Law III, Clause 11:

Communication through/to third party

- Para (a) - ADDRESSING & MAILING

Communication through/to third party

- Para (b) - TAKING DELIVERY

(2) CHEQUE OFFSETTING

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(1) I hereby authorise you to release:

Debit Notes

Credit Notes

Statement of Accounts

Scrips

to the undersigned Dealer/Remisier ... (Koh) ... for transactions executed on my account.

(2) I hereby authorise the undersigned Dealer/Remisier/and/or/the abovenamed to take delivery on my cheque(s) which is/are due to me from the proceeds of my sales(s) and contra gain(s) and that the said cheque(s) is/are to be used for the purpose of offsetting against the amount which may arise from time to time due to you for my purchase(s) and contra loss(es) and interest payable out of my share transactions with you.

In consideration of the above, I will not hold you, your directors, and/or officers responsible for any losses that may result therefrom.

This letter of authority will remain in force until your receipt of a notice of revocation in writing from me.

The respondents averred that by virtue of the bye-laws of the Stock Exchange of Singapore (SES), Koh was an agent of the appellant. Clause 1(a) of bye-law V of SES provides that a remisier is an agent of his stockbroking firm and cl 3(b) provides that:

Every remisier shall, upon appointment by a Member Company enter into an agency agreement with the Member Company, as principal. Such agreement must embody the main substance of the standard agreement at appendix VA.

Shares were purchased on the respondents` behalf by Koh. The scrips of the shares bought were kept in the appellant`s custody. Koh subsequently obtained delivery of the scrips of some of the shares bought by the respondents through him and sold those shares off without the knowledge of the respondents through other client-accounts with the appellant and misappropriated the proceeds of sale. Koh was able to obtain the relevant scrips from the custody of the appellant because under the LA the appellant was authorised to release the scrips to Koh.

The respondents seek to hold the appellant liable for Koh`s fraudulent misappropriation of their shares on the following main grounds:

(i) under agency law, as the principal of Koh;

(ii) in negligence, for failing to have in place internal controls to prevent unauthorised withdrawals of and dealings with clients` shares.

We should add that the respondent in CA No 50/99 has also made a claim against the appellant in respect of Koh`s misappropriation of certain cheques which were issued by the respondent for payment of certain shares which the respondent had purchased. That claim does not come within the scope of the O 14 r 12 application made by the appellant. It will accordingly proceed to trial.

The defence of the appellant is two fold. First, they did not know that Koh had sold the shares in question without the respondents` knowledge or instructions. Second, the appellant had released the relevant share scrips to Koh pursuant to the LA and the appellants could not be held liable for what Koh did with the scrips after delivery was made to him.

Application under O 14 r 12

The appellant applied under O 14 r 12 of the Rules of Court for a determination of the construction of the LA on the ground that if the proper construction was as the appellant had advanced, then it would be a complete defence to the claims. The appellant asked that the claims be dismissed. Rule 12(1) and (2) read:

12(1) The Court may, upon the application of a party or of its own motion, determine any...