Andrew Phang Boon Leong JA (delivering the judgment of the court):
Introduction
These are appeals against the decision of the High Court judge (“the Judge”) in MF Global Singapore Pte Ltd (in creditors’ voluntary liquidation) and others v Vintage Bullion DMCC (in its own capacity and as representative of the customers of the first plaintiff) and another matter [2015] 4 SLR 831 (“the Judgment”). There are four appeals in total. The first two, Civil Appeal No 142 of 2015 (“CA 142”) and Civil Appeal No 143 of 2015 (“CA 143”), are appeals on substantive issues. The remaining two, Civil Appeal No 216 of 2015 (“CA 216”) and Civil Appeal No 217 of 2015 (“CA 217”), are appeals on the issue of costs. CA 142 and CA 143 turn on whether there is either a statutory trust under the Commodity Trading Act (Cap 48A, 2009 Rev Ed) (“the CTA”), the Securities and Futures Act (Cap 289, 2006 Rev Ed) (“the SFA”) and their Regulations and/or an express trust, either of which would render the customers concerned secured (as opposed to unsecured) creditors now that the company concerned has gone into liquidation.
Essentially, the appeals concern the treatment of certain sums of money in MF Global Singapore Pte Ltd’s (“the Company”) bank accounts. These bank accounts are known as the “Customer Segregated Accounts”. The sums of moneys reflect certain forms of profits arising from leveraged foreign exchange (“LFX”) and leveraged commodity (“Bullion”) transactions (collectively, “LFX and Bullion transactions”) that the customers had entered into with the Company as direct counterparty to the transactions. The customers assert proprietary claims in relation to these sums of money either by way of a statutory trust and/or an express trust. On the other hand, the Company and its liquidators claim that these sums of money are beneficially owned by the Company because they were not due and payable to the customers on the date the Company went into liquidation and the Company did not have the intention to create a trust over those moneys. If the Company and its liquidators are correct, the customers would stand as unsecured creditors, and would have to prove these unsecured debts in the winding up of the Company. We now turn to the facts before us in the present appeals.
The facts
The facts of this case are comprehensively (and helpfully) set out by the Judge in the Judgment. The Company is a commodity broker as defined under s 2 of the CTA and is authorised as the holder of a Capital Markets Services (“CMS”) licence to carry out, inter alia, LFX trading under the SFA. On 1 November 2011, the Company went into liquidation. The liquidators of the Company (“the Liquidators”) and the customers of the Company brought Originating Summons No 289 of 2013 and Originating Summons No 578 of 2013, respectively, under s 310 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Companies Act”) for the court to determine questions arising out of the winding up of the Company.
Vintage Bullion DMCC (“Vintage”) had, prior to 1 November 2011, entered into LFX and Bullion transactions with the Company. In these appeals, Vintage acts both in its personal capacity and as the representative of 57 other customers of the Company who had similarly entered into LFX and Bullion transactions with the Company as a direct counterparty (collectively referred to as “the Customers”). In the LFX and Bullion transactions, the Customers would buy or sell currencies and commodities, respectively, in a bid to profit from fluctuations in exchange rates or fluctuations in the prices of commodities. Neither the LFX nor the Bullion transactions involved the physical delivery of the currencies or the commodities involved (see the Judgment at [6]). In respect of the LFX and Bullion transactions, a customer concluded the transaction with the Company which acted as principal on its own behalf. This was not always the case for the Company, however, as it did act as the customers’ agent in other types of transactions. The Liquidators submit that this distinction is important. They take the position that the Company only holds customer profits on trust for the customer when it acts as an agent for the customer, but not where it acts as principal on its own behalf.
To facilitate trades in the LFX and Bullion transactions, the Customers would transfer funds to the Company to enable trades to be executed and to maintain open trades by way of “margin” (ie, trading by placing a certain percentage of the value of the position concerned with the Company) (see the Judgment at [8]). Each time a customer wished to enter into a trade, an order could be placed with the Company either by calling the Company’s desk dealers or by utilising an online platform, so long as a customer had sufficient margin to enter into the transaction. Trading by way of “margin” meant that the customer concerned did not need to advance the full value of an open position to the Company in order to enter into a transaction; he merely needed to pay the required “margin” (a percentage of the value of the position concerned) to establish an open position and the remainder would essentially be “borrowed” from the Company. At all times, the Customers needed to meet both the Initial Margin Requirement and the Maintenance Margin Requirement imposed by the Company. The Initial Margin Requirement referred to the margin required to enter into a transaction. This was determined by the volatility of the position concerned, and could be adjusted from time to time. The Maintenance Margin Requirement stipulated the minimum margin required to maintain an open position subsequent to the deposit of the initial margins for that open position – essentially, this was “the floor” against which a customer’s cash position may fall as a result of unfavourable price movements during the lifespan of a transaction before the customer was required to deposit more margins to prevent involuntary liquidation of his open position or the closing of his open position (also referred to as a “margin call”).
The moneys that the Customers transferred to the Company to facilitate trades were required, under certain Regulations, to be segregated from the Company’s own funds. For example, money received from a customer to margin, guarantee or secure contracts in commodity trading had to be segregated from the funds of a commodity broker under regs 21 and 22 of the Commodity Trading Regulations 2001 (Cap 48A, S 578/2001) (“the CTR”). Similarly, money received on account of a customer in LFX trading (which could be from the customer himself) had to be segregated from the funds of a CMS licence holder under reg 16 of the Securities and Futures (Licensing and Conduct of Business) Regulations (Cap 289, Rg 10, 2004 Rev Ed) (“the SFR”) (collectively referred to as “the Regulations”). The Regulations specified that commodity brokers and CMS licence holders were to account for such moneys in a separate trust account and were not to commingle those moneys with other funds, including their own. In the present case, the funds transferred by the Customers to the Company were deposited into the Company’s bank accounts which the Company classified as “Customer Segregated Accounts” and were largely separate from the Company’s own funds. The nature of the LFX and Bullion transactions was such that the funds transferred from the Customers to the Company were not onward-placed with any other party but remained in the Customer Segregated Accounts at all times. The subject of the dispute in the present case, however, does not concern the funds that were transferred from the Customers to the Company per se – it is undisputed that such funds were beneficially owned by the Customers. Rather, the dispute concerns the funds set aside by the Company from its own funds which represented the aggregate value of the profits arising after the LFX and Bullion transactions had been entered into.
During the lifespan of an LFX or Bullion transaction, one of three distinct types of profits may, at various times, arise if the movement of the underlying currency or reference bullion favoured the customer. These are: (1) the Unrealised Profits; (2) the Forward Value; and (3) the Ledger Balance. The Company would record the daily LFX and Bullion trade activity for each customer and the respective values of the three different types of profits arising from the trades entered into in individual Daily FX Activity Statements produced by the Company’s back-end office operations system. We will now elaborate on each type of profit in turn.
As previously noted above at [4], the LFX and Bullion transactions are all speculative contracts that trade on differences. During the initial stage of an LFX or Bullion transaction when a transaction is entered into, the customer is taking a position in the market. At this stage, the customer has an “open position” as indicated in his Daily FX Activity Statement. As long as his position remains open, the customer is still speculating and exposed to movements in the market. His exposure will depend on whether the market is moving in the direction he has betted on or not. If the movement of the underlying currency or reference bullion favours the customer, the customer would have “Unrealised Profits” corresponding to the value of the open position for that particular day. On the contrary, if the movement of the market is against the customer’s bet, the customer would have “Unrealised Losses”. Therefore, although a value is assigned to the Unrealised Profits on a day-to-day basis, this was a purely notional rather than an actual figure − for what could be construed as Unrealised Profits one day would not only almost certainly be subject to variation the next according to the fluctuations in the market, but could very well morph into Unrealised Losses instead (there would then, in effect, be no longer any...
