Teng Wen-Chung v EFG Bank AG, Singapore Branch

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 04 October 2018
• Neutral Citation: [2018] SGCA 60
• Plaintiff Counsel: Pereira Kenneth Jerald and Lai Yan Ting Francine (Aldgate Chambers LLC)
• Date: 04 October 2018
• Docket Number: Civil Appeal No 96 of 2017
• Hearing Date: 16 August 2018
• Subject Matter: Illegality and public policy,Foreign illegality,Contract
• Year: 2018
• Defendant Counsel: Andre Maniam SC, Chou Sean Yu, Leo Zhen Wei Lionel, Pereira Russell Si-Hao and Daniel Lee (WongPartnership LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2018] SGCA 60
• Published date: 09 October 2018

Andrew Phang Boon Leong JA (delivering the grounds of decision of the court): Introduction

Should this court refuse to enforce a lawful contract on the basis that it is allegedly connected to a contract that is illegal and unenforceable in a friendly and foreign country? This was the question that arose in an appeal against the decision of the High Court judge (“the Judge”) in EFG Bank AG, Singapore Branch v Teng Wen-Chung [2017] SGHC 318 (“the GD”). After considering the parties’ submissions, we dismissed the appeal and now give the detailed grounds for our decision.

Background facts

The facts of the dispute were canvassed in detail by the Judge in the GD, and it suffices for us to set out only the facts relevant to the appeal. The appellant is Mr Teng Wen-Chung, who was the chairman, director and majority shareholder of a Taiwanese insurance company, Singfor Life Insurance Ltd (“Singfor”), until it was placed under government receivership in 2014. The respondent is the Singapore branch of EFG Bank AG, a bank incorporated in Switzerland.

This matter revolved around two loan facilities (“the Loan Facilities”) that the respondent had extended to Surewin Worldwide Limited (“Surewin”), a company incorporated in the British Virgin Islands. The first facility (“the First Surewin Facility”) was originally dated August 2007 and provided for a loan of up to US$30m. According to the appellant, this limit was increased over time. Most significantly, it was increased to US$205m in January 2012 before being increased to US$240m in November 2012. The second facility (“the Second Surewin Facility”), originally dated December 2011 and revised in November 2012, allowed Surewin to draw down up to US$30m on the facility. It was expressly provided in the Loan Facilities that they were to be governed by Singapore law.

On 19 January 2012, shortly before the loan limit of the First Surewin Facility was increased to US$205m, the appellant and the respondent entered into an indemnity agreement (“the Indemnity Agreement”). Under the agreement, which was expressly governed by Singapore law, the appellant agreed to pay the respondent all sums of money owing or payable to the respondent by Surewin. This included all sums that Surewin owed the respondent under the Loan Facilities.

The Loan Facilities were also secured by four pledges, of which two are noteworthy for our purposes. The first pledge was made by Singfor Tactical Asset Allocation Portfolio SA in September 2007 over its assets held in an account with the respondent, and the second pledge was entered into by Volaw Corporate Trustee Ltd in March 2008 over the assets of SFIP-1 Unit Trust, of which Singfor was the sole unit holder. Like the Loan Facilities and the Indemnity Agreement, both pledges were expressly governed by Singapore law.

In August 2014, Singfor was placed under government receivership. This constituted an event of default under the Loan Facilities and led the respondent to terminate the Loan Facilities and demand repayment of the outstanding amounts, as it was entitled to do. After failing to realise its security, the respondent issued a letter of demand in December 2015 to the appellant demanding repayment of approximately US$199.7m as the sum outstanding under the Loan Facilities, and US$12.7m as costs expended in connection with the enforcement of the Loan Facilities.

The respondent subsequently commenced this action against the appellant. About a year later, in December 2016, the respondent filed an application for summary judgment, which was granted by the Registrar of the Supreme Court in February 2017. The appellant sought to resist summary judgment on the basis that the Indemnity Agreement was unenforceable as a result of foreign illegality. It turned out that he had been convicted for breach of trust and money laundering with respect to Singfor in June 2016 by the Taipei District Court, which observed in its judgment (“the Taiwanese Judgment”) that the pledges were illegal and of no effect under Taiwanese law.

The appeal against the Registrar’s decision was dismissed by the Judge, whose decision was appealed against by the appellant to this court. At this juncture, we ought to point out that the respondent sought to enforce only the Indemnity Agreement in relation to the First Surewin Facility. Approximately US$32.1m had been realised from the collateral securing the Loan Facilities, and the respondent had put that sum towards repaying the amount owed under the Second Surewin Facility. The appellant did not contest the respondent’s entitlement to do so, and we were thus concerned only with the First Surewin Facility in this appeal.

The decision of the court below

In dismissing the appeal, the Judge found that the respondent had established a prima facie case for judgment, and that the appellant thus bore the burden of establishing a fair or reasonable probability that he had a real or bona fide defence. To that end, the appellant’s only defence was that the Indemnity Agreement was unenforceable for illegality because it was part of a fraudulent scheme that caused Singfor to provide its assets as collateral for loans extended to an unrelated third party (ie, Surewin). In support of this contention, the appellant relied on the Taiwanese Judgment and argued that the pledges contravened a Taiwanese law that prevented an insurance company from providing its assets as collateral for another party’s debt (see the GD at [50] and [74]–[75]).

The Judge determined that the contractual place of performance for the First Surewin Facility and the Indemnity Agreement was Singapore, and that neither involved the pledging of assets by an insurance company as security for an unrelated third party’s debts (see the GD at [54]–[57]). There was thus nothing on the face of these contracts that revealed an intention to do an illegal act in Taiwan or to circumvent Taiwanese law (see the GD at [61]). Accordingly, he held that they were not directly affected by foreign illegality. He then proceeded to examine whether the contracts were tainted by foreign illegality by applying Euro-Diam v Bathurst [1990] 1 QB 1 (“Euro-Diam”) and endorsed the following principles from Staughton J (as then was) (Euro-Diam at 23–24):

… when an English claim is said to be tainted by foreign illegality, one must first inquire whether, applying the appropriate connecting factor, the transaction from which the taint is said to arise would be enforceable here. If not, one has next to decide whether there is sufficient connection between that transaction and the claim to amount to taint within the Bowmaker or Beresford principle. If the answer to that second question is yes the claim is unenforceable here.

We will elaborate on the principles in Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 (“Bowmakers”) and Beresford v Royal Insurance Co Ltd [1938] AC 586 (“Beresford”) (as referred to by Staughton J in the passage above) later in this judgment (see [19] below). It suffices to note for now that, applying Euro-Diam, the Judge held that the pledges from which the taint was said to arise were enforceable in Singapore, and it followed that both the First Surewin Facility and the Indemnity agreement were enforceable (see the GD at [73]–[75]). Even on the assumption that the pledges were unenforceable in Singapore, the present claim on the contracts was enforceable because the contracts were not sufficiently proximate to the “proceeds of crime” and because the respondent did not need to plead or prove illegal conduct in order to establish its claim (see the GD at [77]–[79]).

The issue

The law in relation to summary judgments is well-established, and the parties did not dispute that the respondent had established a prima facie case for summary judgment. The parties also did not dispute the Judge’s findings that the First Surewin Facility, the Indemnity Agreement, and the pledges were all legal and enforceable under Singapore law. The only issue before us was thus whether the Indemnity Agreement was unenforceable on the basis of foreign illegality.

Our decision Whether the appellant demonstrated a prima facie case of illegality

In every case involving...