Case Summaries

Teng Wen-Chung v EFG Bank AG, Singapore Branch [2018] SGCA 60

SUPREME COURT OF SINGAPORE

4 October 2018

Case summary

Teng Wen-Chung v EFG Bank AG, Singapore Branch [2018] SGCA 60
Civil Appeal No 96 of 2017

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Decision of the Court of Appeal (delivered by Judge of Appeal Andrew Phang Boon Leong):

Outcome: CoA dismisses appeal against High Court’s finding that indemnity agreement is not unenforceable for foreign illegality.

Pertinent and significant points of the judgment

  • Euro-Diam v Bathurst [1990] 1 QB 1 (“Euro-Diam”) should no longer be accepted without qualification. To begin with, the test in Euro-Diam applies the concept of “reliance” from Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 (“Bowmakers”), and a “conscience test” from Beresford v Royal Insurance Co Ltd [1938] AC 586 (“Beresford”). These principles have been clarified in recent cases concerning local illegality, including the recent case of Ochroid Trading Ltd v Chua Siok Lui (trading as VIE Import & Export) [2018] 1 SLR 363. In particular, the “conscience test” is clearly not part of Singapore law and has also been rejected in England by the House of Lords in Tinsley v Milligan [1994] 1 AC 340. Moreover, it is not clear that Bowmakers and Beresford, both cases dealing with local illegality, have any role to play in cases concerning foreign illegality. Accordingly, Euro-Diam will have to be revisited in a future case (at [20]–[25]).

     

    Background facts

     

  1. 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”). The respondent is the Singapore branch of EFG Bank AG.

     

  2. The matter essentially revolved around two loan facilities (“the Loan Facilities”) that the respondent had granted to Surewin Worldwide Limited (“Surewin”). The first loan facility (“the First Surewin Facility”) was made in 2007 and provided a loan of up to US$30m, a limit that was increased to US$205m in January 2012. The second loan facility (“the Second Surewin Facility”) was made in November 2012 and provided a loan of up to US$30m. Shortly before the First Surewin Facility limit was increased to US$205m, the parties executed an indemnity agreement (“the Indemnity Agreement”), under which the appellant agreed to pay the respondent all sums of money owing or payable to the respondent by Surewin. In addition to the Indemnity Agreement, the Loan Facilities were also secured by two pledges that were made in 2007 and 2008. It was noteworthy that the Loan Facilities, Indemnity Agreement and pledges were expressly stipulated to be governed by Singapore law.

     

  3. Thereafter, things quickly unravelled for Singfor and the appellant. In August 2014, Singfor was placed under government receivership, which constituted an event of default under the Loan Facilities. The respondent thus terminated the Loan Facilities and demanded repayment of the outstanding amounts. After failing to realise its security, the respondent issued a letter of demand in December 2015 to the appellant demanding approximately US$199.7m as the sum outstanding under the Loan Facilities. Subsequently, in June 2016, the appellant was convicted by the Taipei District Court for breach of trust and money laundering in relation to Singfor. In its judgment, the court observed that the pledges were illegal and of no effect under Taiwanese law.

     

  4. In December 2016, the respondent applied for summary judgment against the appellant, who argued that the Indemnity Agreement was tainted by foreign illegality and was thus unenforceable. In the event, the Registrar of the Supreme Court granted summary judgment in favour of the respondent, and the Registrar’s decision was upheld by the High Court judge (“the Judge”). It was noteworthy that the respondent sought only to enforce the Indemnity Agreement in relation to the First Surewin Facility because the sums that had been realised from the collateral securing the Loan Facilities had been put towards repaying the sums owed under the Second Surewin Facility.

     

    Court of Appeal’s decision

     

  5. The Court of Appeal (“CoA”) dismissed the appeal on the basis that the appellant had failed to demonstrate a prima facie case of illegality. The appellant had sought to argue that the First Surewin Facility was part of the respondent’s scheme to illegally extract Singfor’s assets by having Singfor pledge its assets as collateral for Surewin’s loans. But the CoA found that the evidence did not support the appellant’s case that the Indemnity Agreement was part of a fraudulent scheme. It also did not demonstrate that the pledges were linked to the Indemnity Agreement, or that the respondent was behind the alleged scheme. At best, the evidence only demonstrated that the pledges were illegal under Taiwanese law, and there was nothing on the face of either the First Surewin Facility or the Indemnity Agreement that revealed an intention to commit an illegal act in Taiwan (at [13]–[16]).

     

  6.  That was sufficient to dispose of the appeal. But the CoA also opined that the Judge had erred in applying and endorsing Euro-Diam v Bathurst [1990] 1 QB 1 (“Euro-Diam”) without qualification. To begin with, the test in Euro-Diam invokes the concept of “reliance” from Bowmakers Ltd v Barnet Instruments Ltd [1945] KB 65 (“Bowmakers”), and a “conscience test” from Beresford v Royal Insurance Co Ltd [1938] AC 586 (“Beresford”). These principles have been clarified in recent cases concerning local illegality, including the recent case of Ochroid Trading Ltd v Chua Siok Lui (trading as VIE Import & Export) [2018] 1 SLR 363. In particular, the “conscience test” is clearly not part of Singapore law and has also been rejected in England by the House of Lords in Tinsley v Milligan [1994] 1 AC 340. Moreover, it is not clear that Bowmakers and Beresford, both cases dealing with local illegality, have any role to play in cases concerning foreign illegality. Accordingly, Euro-Diam will have to be revisited in a future case (at [20]–[25]).

 

 

This summary is provided to assist in the understanding of the Court’s grounds of decision. It is not intended to be a substitute for the reasons of the Court. All numbers in bold font and square brackets refer to the corresponding paragraph numbers in the Court’s grounds of decision.

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