Teo Wai Cheong v Crédit Industriel et Commercial

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 11 April 2011
• Neutral Citation: [2011] SGCA 13
• Court: Court of Appeal (Singapore)
• Docket Number: Civil Appeal No 99 of 2010
• Year: 2011
• Published date: 18 April 2011
• Hearing Date: 19 October 2010
• Plaintiff Counsel: C R Rajah SC (Tan Rajah & Cheah) and Sean Lim Thian Siong and Gong Chin Nam (Hin Tat Augustine & Partners)
• Defendant Counsel: Manoj Sandrasegara, Smitha Rajan Menon, Aw Wen Ni and Daniel Chan (WongPartnership LLP)
• Subject Matter: Evidence,Banking,Secrecy
• Citation: [2011] SGCA 13

Chan Sek Keong CJ (delivering the judgment of the court): Introduction

This is an appeal against the decision of a Judicial Commissioner to allow a claim by the respondent, Crédit Industriel et Commercial (“CIC”), a French bank, against the appellant, Mr Teo Wai Cheong (“Teo”), its former private banking client, for sums due under five financial products known as “accumulators” (“the Disputed Accumulators”) (see Crédit Industriel et Commercial v Teo Wai Cheong [2010] 3 SLR 1149 (“GD”)).

Background

Ms Ng Su Ming (“Ng”) was Teo’s banking relationship manager (“RM”) at CIC. Ng and Teo have known each other since 2004. Ng was also Teo’s RM when she was working at Citibank Singapore. Teo became a private banking customer of CIC when Ng moved to CIC in 2006.²

Teo’s financial products made with or through CIC were initially in foreign exchange options, equity linked notes and shares³. In June 2007, Ng introduced Teo to accumulators which were, at that time, new financial products.⁴

The features of an accumulator are not disputed.⁵ An accumulator is essentially a transaction in which an investor agrees to periodically purchase a quantity of shares of a specified counter from a counterparty at a discount to the market price of the counter at the beginning of the transaction. We will refer to the market price of the counter at the beginning of the transaction as “the Spot Price” and the discounted price as “the Forward Price”. The documents sometimes refer to the Spot Price as “the Initial Price” and the Forward Price as “the Strike Price”. The investor’s obligation to periodically purchase shares may be prematurely terminated by agreement. The accumulator will also terminate if the market price of the shares rises above a specified price known as “the Knock-out Price”. The accumulator will, however, continue for a specified period if it provides for a guaranteed purchase (“Guaranteed Purchase”).⁶

The amount of shares that the investor is required to purchase under the accumulator will depend on the market price of the shares at the end of each period. The length of each period may be a day, a week or a month. If the market price at the end of a particular period closes at or above the Forward Price, the investor must purchase a specified quantity of shares at the Forward Price⁷. If, however, the market price on that day falls below the Forward Price, the investor must purchase double the specified quantity of shares at the Forward Price (“the Doubling Feature”).⁸

A numerical example will help in understanding how an accumulator operates. The following table summarises the key terms of a typical accumulator involved in the present appeal:⁹

Table 1

Term	Particulars
Spot Price	S$1.7950
Forward Price	S$1.6335
Knock-out Price	S$1.8489
Share accumulations per day	1,000 shares if the market price closes at or above the Forward Price. 2,000 shares if the market price closes below the Forward Price.

If the market price at the end of a particular period (in this accumulator, the period is a day) is S$1.70, the investor will have to accumulate 1,000 shares at the price of S$1.6335 per share. This is because the market price at the end of the day was higher than the Forward Price but lower than the Knock-out Price. However, if the market price at the end of the day is S$1.60, which is a figure that is less than the Forward Price, the investor will have to accumulate 2,000 shares at the same price of S$1.6335 per share. If the market price at the end of the day is S$1.90, the accumulator will be knocked-out. The obligations of the investor will cease. However, he is entitled to retain any shares that he has accumulated before the accumulator is knocked-out.

Another feature of an accumulator which should be noted is the maximum liability of an investor under an accumulator. Assuming that the accumulator does not knock-out prematurely, the investor’s maximum obligation under the accumulator in dollar terms is the cost of any Guaranteed Purchase plus his cost of purchasing double the specified quantity of shares at the Forward Price for each period (“the Maximum Obligation”).¹⁰

The process for establishing accumulators

CIC did not structure the accumulators that are the subject of this appeal entirely by itself. CIC first entered into accumulators with other banks. CIC then entered into accumulators with its clients. It is necessary for us to describe CIC’s process for establishing accumulators for its clients because the process is relevant to Teo’s defence that he had never authorised the purchase of the five accumulators which is the subject matter of CIC’s claim.

CIC’s order process, so far as relevant to the issues on appeal, is as follows. If a client decides to enter into an accumulator transaction, he will instruct his RM to establish an accumulator at a range of prices and for an approximate range of Maximum Obligation.¹¹ The RM will then place the order with CIC’s private bank advisory office (“PBA”).¹² It should be noted that the RM’s conversations with PBA’s officers are recorded. Before placing the order with PBA, the RM may consolidate orders placed by the client with orders placed by other clients.¹³ Mr Jean Luc-Anglada (“Anglada”), CIC’s regional manager for the Asia Pacific region, deposed that it is common for RMs to consolidate orders placed by their clients because some banks have a minimum order requirement.¹⁴ PBA will then place the RM’s order with CIC’s counterparty.¹⁵ It should be noted that the conversations between PBA’s officers and the officers of CIC’s counterparty are also recorded. If the order is successful, the RM will provide a customer services officer (“CSO”) with a breakdown of the individual orders placed by each of his clients if the order was a consolidated order.¹⁶ The CSO will enter the breakdown into CIC’s database to establish accumulators between CIC and each client.¹⁷ CIC will then generate and send confirmation notes for the transaction to each client.¹⁸

The Disputed Accumulators

Ng entered into 20 accumulators on behalf of Teo. The particulars of those accumulators are summarised in the following table:¹⁹

Table 2

Serial Number	Trade date	Shares to be accumulated	Status
1	20 July 2007	Noble Group Limited	Knocked-out on 23 July 2007
2	25 July 2007	Noble Group Limited	Knocked-out on 24 September 2007
3	1 August 2007	Keppel Corporation Limited	Knocked-out on 3 August 2007
4	13 August 2007	Keppel Corporation Limited	Knocked-out on 27 August 2007
5	15 August 2007	Keppel Corporation Limited	Knocked-out on 23 August 2007
6	10 September 2007	Keppel Corporation Limited	Knocked-out on 12 September 2007
7	13 September 2007	DBS Group Holdings Limited	Knocked-out on 19 September 2007
8	13 September 2007	DBS Group Holdings Limited	Knocked-out on 20 September 2007
9	18 September 2007	DBS Group Holdings Limited	Knocked-out on 19 September 2007
10	25 September 2007	Neptune Orient Lines Limited (“NOL”)	Knocked-out on 1 October 2007
11	25 September 2007	Cosco Corporation (S) Limited (“Cosco”)	Knocked-out on 26 September 2007
12	27 September 2007	China Energy Limited (“CE”)	Knocked-out on 28 September 2007
13	1 October 2007	CE	Knocked-out on 2 October 2007
14	1 October 2007	Cosco	Knocked-out on 2 October 2007
15	2 October 2007	CE	Terminated prematurely; disputed in these proceedings.
16	2 October 2007	CE	Terminated prematurely; disputed in these proceedings.
17	2 October 2007	CE	Terminated prematurely; disputed in these proceedings.
18	2 October 2007	CE	Terminated prematurely; disputed in these proceedings.
19	3 October 2007	Sembcorp Marine Limited (“Sembcorp”)	Knocked-out on 18 October 2007
20	3 October 2007	CE	Terminated prematurely; disputed in these proceedings.

Teo does not dispute that he authorised CIC to enter into 14 of those accumulators (“the Undisputed Accumulators”).²⁰ We should add that Teo claims that Ng entered into two of the Undisputed Accumulators without obtaining his prior instruction.²¹ These were the accumulators on Cosco and NOL shares (serial numbers 10 and 11 in Table 2, above, respectively). However, Teo later accepted those accumulators when they were knocked-out.²² Of the remaining six accumulators, only five are the subject of the present appeal (serial numbers 15, 16, 17, 18 and 20 in Table 2, above). The sixth accumulator was to accumulate Sembcorp shares (serial number 19 in Table 2, above) (“the Disputed Sembcorp Accumulator”).²³ As indicated in Table 2, that accumulator was knocked-out 15 days after it was entered into.²⁴

The five accumulators that are the subject of this appeal were all for the accumulation of shares in CE. These are the accumulators mentioned at serial numbers 15–18 and 20 of Table 2. We will refer to the individual Disputed Accumulators as “the First Disputed Accumulator”, the “Second Disputed Accumulator” and so forth. It should be noted that two of the Undisputed Accumulators were also for the accumulation of shares in CE (“the Undisputed CE Accumulators”).²⁵

The particulars of the Disputed Accumulators are summarised in the following table:²⁶

Table 3

Accumulator	Date when entered into	Spot Price	Forward Price
The First Disputed Accumulator	2 October 2007	S$1.7946	S$1.6017
The Second Disputed Accumulator	2 October 2007	S$1.8109	S$1.6162
The Third Disputed Accumulator	2 October 2007	S$1.7950	S$1.6335
The Fourth Disputed Accumulator	2 October 2007	S$1.7400

...