Wong Leong Wei Edward and another v Acclaim Insurance Brokers Pte Ltd and another suit

JurisdictionSingapore
JudgeSteven Chong J
Judgment Date03 December 2010
Neutral Citation[2010] SGHC 352
CourtHigh Court (Singapore)
Hearing Date13 August 2010,24 September 2010,17 August 2010,16 August 2010,24 August 2010,10 August 2010,06 August 2010,05 August 2010,04 August 2010,18 August 2010,11 August 2010,23 August 2010,03 August 2010,26 August 2010,19 August 2010
Docket NumberSuit No 781 of 2007 & Suit No 106 of 2009
Plaintiff CounselChan Kia Pheng, Noelle Seet and Kishan Pillay(KhattarWong)
Defendant CounselLetchamanan Devadason (Steven Lee, Dason & Partners) andJohn Thomas (David Nayar and Vardan)
Subject MatterEvidence,Employment Law
Published date07 December 2010
Steven Chong J: Introduction

The present case arises out of a dispute between the defendant, an insurance broking company, and the first plaintiff (“Edward”) who was the former head of the defendant’s strategic wealth management (“SWM”) division. Essentially, the plaintiffs are claiming for commissions and remuneration due to Edward and a group of financial advisers who formerly worked for the defendant in its SWM division, while the defendant is claiming for losses arising out of the mass resignations of the financial advisers and the transfers of its clients from its SWM division to another insurance broking company, Leadenhall Insurance Brokers Pte Ltd (“Leadenhall”). The crux of the dispute centres on the propriety of the resignations by the financial advisers and the transfer of the clients to Leadenhall.

Interestingly, this case has also brought to focus some unsavoury practices that were apparently rife within the defendant’s SWM division. At the material time, the defendant’s SWM division provided financial advisory services in the sale of financial products such as unit trusts to its clients. The case speaks of the use of so-called “runners” who would target working-class investors and procure them to purchase unit trusts from the financial advisers using their otherwise inactive Central Provident Fund (“CPF”) monies in exchange for cash-backs. This way, the investors would receive an immediate cash return simply by using their CPF funds to purchase unit trusts from the defendant. Under this arrangement, everyone was supposed to benefit, ie the defendant, the financial advisers, the investors, and of course the all important “runners”; and indeed it worked out just as planned. At the height of the division’s financial success, Edward, as its team leader, earned commissions in the tune of some $3 million in less than one year. One of the advisers reportedly earned about $450,000 in commission in just four months. Astonishingly, the bulk of this particular adviser’s clients were predominantly from the Malay community even though she was unable to speak the Malay language! The defendant also earned attractive commissions. It seemed like a very lucrative business and it was in the financial interest of all parties for the business to continue.

However, as the saying goes “All good things must come to an end” and this was precisely what happened in this case. Some 10 months after the SWM division started its financial advisory business, there was an en masse resignation of all the financial advisers to join Leadenhall. Allegations emerged about backdating of the letters of resignation and the forging of numerous signatures of clients to facilitate the transfer of their investment accounts to the new company. This sudden “breakup” was widely reported in the press with both sides filing police complaints against each other.

Eventually, the undesirable features of this practice came to the attention of the Monetary Authority of Singapore (“MAS”) and resulted in the complete shutdown of the financial advisory business of three insurance broking companies, one of which was the defendant and another was Leadenhall.

Background facts

The defendant is an exempt Financial Adviser Company under the Financial Advisers Act (Cap 110, 2007 Rev Ed) (“FAA”). Sometime around April or May 2006, Edward and the defendant’s managing director, Anthony Lim Gek Seng1 (“Anthony Lim”) agreed to set up a SWM division under the defendant. However, to relieve the defendant from the management of this SWM division, it was also agreed that Edward would incorporate a new company which would be entirely responsible for the SWM division’s administrative matters, eg recruitment and remuneration of the individual financial adviser representatives (“FARs”). Under this arrangement, the defendant would only need to deal with the new company and not the individual FARs in relation to remuneration. On 29 July 2006, Edward incorporated the second plaintiff (“Stralos”) for just that purpose. Three days later, on 1 August 2006, Edward joined the defendant as a Financial Adviser Manager (“FAM”) and was appointed head of the SWM division. Under clause 2(II)(c) of Schedule A of the FAM Agreement entered between Edward and the defendant, it was agreed that any monies due from the defendant to Edward were to be paid to Stralos.

Between August 2006 and July 2007, over 20 individuals joined the defendant’s SWM division as FARs. Under s 12 of the FAA, a FAR can represent only one licensed or exempt Financial Adviser Company. Therefore, every FAR2 who joined the defendant’s SWM division entered into a FAR Agreement with the defendant. In furtherance of the arrangement that was agreed between Edward and the defendant (see [5] above), each FAR also issued a written notice, assigning the FAR’s right to receive remuneration under the FAR Agreement to Stralos; thus permitting Stralos to receive their remuneration from the defendant on their behalf.

At all material times, the defendant was contracted to distribute and promote unit trust products offered by two investment platforms: iFAST Financial Pte Ltd (“iFast”) and Navigator Investment Services Ltd (“Navigator”). After joining the defendant’s SWM division, each FAR was assigned two unique identifier Financial Adviser Codes (“FA Codes”), one for iFast and another one for Navigator, which identified the FAR as a representative of the defendant.

Almost a year after joining the defendant, Edward organised a staff-incentive cum team-building trip for the SWM division to Thailand (the “Thailand trip”). The trip was held from 9 to around 14 July 2007 and was attended by 21 FARs. After the Thailand trip, 26 of the FARs then joined Leadenhall and obtained new FA Codes from iFast and Navigator. They later successfully transferred the clients whom they had been servicing while working for the defendant over to Leadenhall.

After learning of the mass exodus, the defendant took immediate steps to investigate the matter and lodged reports with the police and the Corrupt Practices Investigations Bureau. Not surprisingly, the defendant suspected that Edward was the mastermind behind the en masse resignation. As a consequence, the defendant withheld the commissions and earnings that were otherwise payable to Edward and the FARs. Edward was subsequently terminated from his position with the defendant by letter dated 8 August 2007 for allegedly providing cash-backs to clients, in particular, one Yeo Mui Khee (“Ms Yeo”).

Procedural history

This is a consolidated suit which initially started as an action in Suit No 781 of 2007 (“Suit 781”) to recover outstanding commissions and earnings allegedly due to Edward and the other FARs from the defendant for the period of June and/or July 2007. Stralos claimed as assignees of the commissions and earnings due from the defendant to the FARs. It was not disputed that between Stralos and the FARs, Stralos had already paid to the FARs the commissions and earnings that it was claiming for.

In the case of the FARs, the defendant alleged that all 24 letters of resignation dated 14 June 2007 were back-dated and hence, the FARs had failed to comply with the contractual 30-days notice period. The defendant counterclaimed against Edward for breach of fiduciary duties and against the FARs for breach of contract for failing to provide proper notices of resignation. In all, the defendant claimed a total of 18 months of the average monthly commissions that the defendant had been earning from the sales generated by the SWM division before the FARs’ mass resignation, six months being what the defendant would have earned but for the mass resignation and transfer of the clients (from July until December 2007 when the writ for Suit 781 was filed); and an additional 12 months’ commission for the period that the defendant would have taken to rebuild another SWM division. Relying on set-off clauses in the FAM Agreement and FA Agreements, the defendant sought to set-off its claim for damages against the commissions and earnings due to Edward and the FARs and consequently against Stralos.

Some two years later, Edward commenced a separate and rather belated action against the defendant in Suit No 106 of 2009 (“Suit 106”) for wrongful termination. As Suit 781 and Suit 106 arose from essentially the same factual matrix, it was agreed for both actions to be heard and tried together.

When the trial began, the plaintiffs’ claims in Suit 781 against the defendant were for the following: the sum of $296,186.26 being commissions and earnings due to Edward and Stralos; and the sum of $83,306.83 being on-going fees due to Edward and Stralos.

Initially, the defendant challenged the locus standi of Stralos to claim for the commissions due to the FARs even though it was common ground that from the outset of the relationship, all commissions and earnings earned by the FARs were in fact paid by the defendant through Stralos under the assignments (see [6] above). However, during the oral closing submissions, counsel for the defendant conceded that Stralos had the locus standi as assignees to claim for the commissions and earnings due to the FARs subject to equities. Consequently, whether any sum remains due to be paid to Stralos under the assignment would depend on the quantum of the defendant’s counterclaim. The issue then is the extent of the set-off which the defendant is entitled to assert against the FARs.

During the trial, the parties also agreed on the quantum of the outstanding commissions and earnings at $291,838.23 subject to the defendant’s right of equitable set-off. As regards the claim for commissions and earnings, Edward had already obtained summary judgment on 4 June 2008 against the defendant for the sum of $59,892.13, which was due personally to him. The balance claim amount of $231,946.10 ($291,838.23 - $59,892.13) was the quantum...

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