Case Summaries

Soon Kok Tiang and others v DBS Bank Ltd and another matter

2 November 2011

Media Summary

Soon Kok Tiang and others v DBS Bank Ltd and another matter
Civil Appeal No 6 of 2011 and Summons No 2274 of 2011

Decision of the Court of Appeal (delivered by Chan Sek Keong CJ)


1     This appeal arose from a lawsuit by 21 investors (“the Appellants”) (representing 192 other plaintiffs, 2 of whom withdrew from the appeal) for the refund of the entire capital sum which they had lost in investing in derivative credit-linked notes called “DBS High Notes 5” (“the HN5”) issued by DBS Bank Ltd (“the Respondent”). Consequent upon the bankruptcy on 15 September 2008 of Lehman Brothers Holdings Inc (“Lehman”), one of the reference entities to which the HN5 were linked, the redemption amount (“the Credit Event Redemption Amount”) for the HN5 was assessed by the Respondent to be zero.

2     The Appellants’ primary argument was that the HN5 contract was void for uncertainty as its pricing statement dated 29 March 2007 (“the Pricing Statement”) contained four different descriptions of the CERA (“CERA Descriptions”), which they interpreted to be inconsistent and irreconcilable with one another.

3     The High Court judge (“the Judge”) held that the third CERA Description was the operative CERA Description, and that the fourth CERA Description contained an obvious clerical mistake as it would give rise to an absurdity. Therefore, applying the third CERA Description, the Judge held that the Appellants were entitled to only a zero payout.

4     The main issues raised in this appeal were:

  1. whether the Judge was right in ruling that the third CERA Description was the operative CERA Description; and
  2. whether the HN5 contract was void for uncertainty because both the third and fourth CERA Descriptions were unworkable in that they did not provide any agreed basis for calculating the CERA.

The operative CERA Description

5     The Court of Appeal found that:

  1. the first CERA Description was in substance the same as the third CERA Description in so far as both would give, for practical purposes, a zero payout;
  2. the second CERA Description, if applied literally, would give the same payout as the fourth CERA Description in the circumstances of this case; and
  3. the first and third CERA Descriptions were therefore inconsistent with the second and fourth CERA Descriptions.

6     The Court observed that that the Pricing Statement stated clearly that the CERA which HN5 holders would receive was the CERA which the Respondent would receive under the two structured notes that were purchased with funds raised from the sale of the HN5 (“the Reference Notes”). Therefore, the question of which of the four (or two sets of) CERA Descriptions was the operative one could be answered by reference to the terms and conditions of the contract applicable to the Reference Notes to see whether the formula for calculating the CERA under the Reference Notes was the same as the formula set out in any of the four CERA Descriptions. As such, the Court directed the Respondent to produce for its consideration the Reference Notes documents, and found that the CERA Description with respect to the Reference Notes was the same as the third CERA Description. Therefore, the Court concluded that the operative CERA Description for the purposes of the HN5 was indeed the third CERA Description, and that the fourth CERA Description did contain a clerical mistake. The result was that owing to Lehman’s bankruptcy, the CERA payable to HN5 holders on their investment was indeed zero.

Whether the operative CERA Description was unworkable

7     The Court held that there was no conceptual uncertainty in the words “expressed as a percentage” in the definition of the term “Final Price” used in the third and fourth CERA Descriptions, as the intended denominator for the percentage could be determined by construing the relevant contractual documents. Therefore, the third, as well as the fourth, CERA Description was not unworkable.


8     For the reasons given above, the Court of Appeal held that the HN5 contract was not void for uncertainty, and dismissed the appeal with costs and the usual consequential orders. 

This summary is provided to assist in the understanding of the Court’s judgment. It is not intended to be a substitute for the reasons of the Court.