Telemedia Pacific Group Ltd v Credit Agricole (Suisse) SA (Yeh Mao-Yuan, third party)

George Wei J:

[2] I start by providing a brief factual background, highlighting only the key facts. I adopt the detailed facts and the abbreviations found in the Telemedia Decision.

[3] The plaintiff company, Telemedia, was a customer of the defendant bank, Crédit Agricole. Telemedia commenced S 379/2012 to recover the losses it claimed to have suffered from Crédit Agricole’s transfer of 225m NexGen shares out of Telemedia’s bank account.

[4] The transfer of the NexGen shares was executed by Crédit Agricole on the instructions of the third party, Mr Yeh. Telemedia’s main claims were that Crédit Agricole transferred the 225m NexGen shares without authority and in breach of its duty of care. Telemedia denied that Mr Yeh had the authority to handle its bank account on its behalf.

[5] Crédit Agricole’s defence was that Mr Yeh had been authorised from the outset of the account opening as a signatory with the power to sign on his own. That being so, the defence was that the transfer was carried out on the instructions of Mr Yeh whose authority had never been revoked.

[6] Before trial, Crédit Agricole commenced third party proceedings to join Mr Yeh as a third party. Crédit Agricole was seeking an indemnity from Mr Yeh in the event that Crédit Agricole was found liable to pay Telemedia damages for its transfer of the 225m NexGen shares. The basis of Crédit Agricole’s third party claim against Mr Yeh was that Mr Yeh had fraudulently misrepresented to Crédit Agricole that he was singly authorised to operate Telemedia’s bank account. Crédit Agricole had been induced by those misrepresentations to transfer the 225m NexGen shares out of Telemedia’s account on Mr Yeh’s instructions.

[7] In the Telemedia Decision, I found that Mr Yeh did have actual authority to order the transfer of the 225m NexGen shares on behalf of Telemedia. I therefore dismissed Telemedia’s claim against Crédit Agricole entirely, and concomitantly held that the third party claim brought by Crédit Agricole against Mr Yeh did not arise for consideration.

[12] I will deal with each of these issues in turn.

[15] Crédit Agricole relies on two contractual clauses. The first is cl 7.15 of Crédit Agricole’s General Conditions, which has been incorporated as part of the contractual documents signed by Telemedia and Crédit Agricole (see the Telemedia Decision at [192]). It states as follows:

[16] The second is cl 7 of the Certified Extract of Board Resolution, which is a board resolution passed by Telemedia authorising its agents to enter into business relations on its behalf with Crédit Agricole. More details of the Certified Extract of Board Resolution can be found at [28] of the Telemedia Decision. Clause 7 states as follows:

[17] I pause to note that the Certified Extract of Board Resolution sets out a Telemedia Board resolution stating that Telemedia is authorised to enter into business relations with Crédit Agricole. The Board Resolution names Mr Yeh as one of the two persons entitled to singly instruct Crédit Agricole on behalf of Telemedia. The Board Resolution also states that it constitutes Telemedia’s mandate to Crédit Agricole. Crédit Agricole submits that the Certified Extract of Board Resolution is part of the terms and conditions binding on Telemedia.

[19] That being so, I shall proceed to consider cl 7.15 of the General Conditions as well as cl 7 of the Certified Extract of Board Resolution.

[20] Telemedia’s submissions in reply are twofold.

[37] Telemedia does not dispute that it is bound by cl 7.15 of Crédit Agricole’s General Conditions. However, it submits that cl 7.15 is not broad enough to cover the present proceedings.

[38] For convenience, cl 7.15 is set out again:

[40] While there is some force in Telemedia’s argument, I do not agree that cl 7.15 of Crédit Agricole’s General Conditions must be limited in the manner proposed by Telemedia.

[42] Second, I find it useful to repeat V K Rajah JA’s observation (as he then was) in Zurich Insurance (Singapore) Pte Ltd v B-Gold. Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029 (“Zurich Insurance”) at [46] that when engaging in contractual interpretation, “the court is explaining the equivocal language of a contract by assigning one of a range of possible meanings to its terms.” [emphasis in original]. In this regard, for the purposes of the present discussion, I highlight five of the ten principles of contractual interpretation summarised by the Court of Appeal in Zurich Insurance at [131] (as non-exhaustive guides on interpretation):

(a) The aim of construction: The aim of the exercise of construction of a contract or other document is to ascertain the meaning which it would convey to a reasonable business person.

(b) The objective principle: The objective principle is therefore critical in defining the approach the courts will take. They are concerned usually with the expressed intentions of a person, not his or her actual intentions. The standpoint adopted is that of a reasonable reader.

(c) Business purpose: Within this framework due consideration is given to the commercial purpose of the transaction or provision. The courts have regard to the overall purpose of the parties with respect to a particular transaction, or more narrowly the reason why a particular obligation was undertaken.

(d) Contra proferentum: Where a particular species of transaction, contract, or provision is one-sided or onerous it will be construed strictly against the party seeking to rely on it.

(e) Avoiding unreasonable results: A construction which leads to very unreasonable results is to be avoided unless it is required by clear words and there is no other tenable construction.

[43] In the present case, I agree with Telemedia that the parties cannot have intended that the indemnity clause should entirely negate the borrower’s/customer’s fruits of litigation, and effectively grant full immunity to the bank against any litigation by the borrower/customer even if the bank was truly guilty of wrongdoing. Interpreting the clause so broadly would be uncommercial and unfair, and the courts should prefer an interpretation of the contractual clause that avoids this very unreasonable result (the principle of avoiding unreasonable results). Far clearer and more express language would have to be used to achieve that effect.

[46] Clause 7.15 of Crédit Agricole’s General Conditions is complex. It is essentially in two (connected) parts.

[61] Third party proceedings are normally viewed as a separate action from the main proceedings between the plaintiff and the defendant; the defendant is the plaintiff and the third party is the defendant in the third party action: GP Selvam, Singapore Civil Procedure 2015 vol 1 (Sweet & Maxwell, 2015) (“Singapore Civil Procedure”) at para 16/0/2.

[69] Crédit Agricole submits that the test of inevitability does not require a defendant to prove that it had no choice but to commence third party proceedings. This sets the bar too high. Rather, the authorities suggest that Crédit Agricole satisfies the test of inevitability if it demonstrates either that (i) Telemedia has sued the wrong party because the real issues in dispute are between Telemedia and Mr Yeh (not Crédit Agricole), or (ii) it was reasonable and necessary for Crédit Agricole to commence third party proceedings to protect its interests.

(a) The real issue in the suit was whether Mr Yeh had authority to act on behalf of Telemedia in relation to its accounts with Crédit Agricole. This was an issue between Telemedia and Mr Yeh, who is the proper party Telemedia should have sued.

(b) Crédit Agricole’s third party claim of fraudulent misrepresentation arose entirely from Telemedia’s pleadings that Mr Yeh had acted fraudulently.

(c) Telemedia failed to disclose relevant documents in discovery. These documents only surfaced after Mr Yeh was joined as a third party. This demonstrates the inevitability of third party proceedings.

[71] Telemedia and Mr Yeh also accept the principles laid down in Raffles Town Club. However, they submit that the third party claim brought by Crédit Agricole was not inevitable for the following reasons:

(a) First, they submit that Crédit Agricole’s defence was premised on facts which are inconsistent with its third party claim. In its defence, Crédit Agricole took the position that based on its communications with representatives from Telemedia and the relevant documents, Mr Yeh was actually authorised by Telemedia to execute transactions on its behalf. However, in its third party claim, Crédit Agricole took the position that Mr Yeh fraudulently misrepresented that he had actual authority.

(b) Second, they submit that there were other ways Crédit Agricole could have obtained the documentary and oral evidence from Mr Yeh. These include third party discovery or issuing a subpoena.

(c) Third, they submit that it is incorrect to say that Mr Yeh, rather than Crédit Agricole, was the proper party to the suit. Telemedia’s claims against Crédit Agricole are for breach of mandate and negligence. The real issue was whether Telemedia represented to Crédit Agricole that Mr Yeh was an authorised signatory of Telemedia’s accounts. This was not an issue solely between Mr Yeh and Telemedia.

[72] In response to the point that Crédit Agricole’s defence and third party claim were premised on inconsistent facts, Crédit Agricole submits that this is not true. Both the defence and third party claim were premised on Mr Yeh having represented himself to be a person with the actual authority to transfer the 225m NexGen shares. Should the court’s findings in the suit between Telemedia and Crédit Agricole render these representations false (notwithstanding Crédit Agricole’s evidence and belief that Mr Yeh had actual authority), then Crédit Agricole’s claim for fraudulent misrepresentation would become live.

[75] It is accepted by all parties that Raffles Town Club is the main Singapore authority on this issue. Having considered several English and local authorities, the High Court held (at [46]):

[77] The focus of the court’s inquiry should be on the plaintiff’s conduct, and whether he properly and reasonably instituted the action against the defendant. The focus should not be on the reasonableness or propriety of the defendant’s actions in taking up the third party proceedings.

[80] In Edginton v Clark, it is clear that the only issue that had to be decided to resolve the substance of the action was whether the freehold owner or the squatters were the owners of the land. The “real issue” did not involve the defendant tenants at all.

[84] It may thus be concluded that one way third party proceedings become inevitable as a direct result of the plaintiff’s claim is if the “real issue” at the heart of the plaintiff’s claim (and which would resolve the litigation one way or the other) is one that ought properly be litigated between the plaintiff and the third party, rather than the plaintiff and the defendant.

[87] In the present case, I noted at [263] of the Telemedia Decision that the claim by Telemedia against Crédit Agricole failed and that it was not necessary to consider the claim by Crédit Agricole against Mr Yeh for deceit. That said, I held at [265] that in view of the primary findings, the third party claim was dismissed.

(a) The overarching principle is that the plaintiff may be made to bear the costs of third party proceedings when those proceedings are inevitable as a direct result of the plaintiff’s claim.

(b) One clear way in which inevitability may be demonstrated is if the real issue at the heart of the action is one that ought to be properly litigated between the plaintiff and the third party, rather than the plaintiff and the defendant. In such a case, it may be said that the defendant should never have been embroiled in the litigation in the first place (unless it wishes to be heard on the issues). While it may not always be possible to reduce the real issue at the heart of the action into a single issue between only two parties, the court exercising its discretion to award costs in those circumstances must consider how this general principle may be suitably adapted.

(c) A second scenario in which a plaintiff may be ordered to bear third party costs is if the plaintiff’s claim against the defendant is clearly against the wrong party and there is clearly another party that the plaintiff should have sued. In such circumstances, if the defendant acted properly in instituting third party proceedings, and the third party claim does not arise following the failure of the plaintiff’s claim against the defendant, the court may exercise its discretion to order the plaintiff to bear the costs of the third party proceedings. Whilst the issue does not arise in the present case, I pause to comment that it may not follow that the third party must always be the party that the plaintiff should have sued. Whether this is so depends on the facts of each case.

(d) The order that the plaintiff should be made to bear the costs of third party proceedings should be seen as a highly exceptional order. The burden is on the defendant to demonstrate that such exceptional circumstances exist.

(e) In my view, the touchstone is whether the plaintiff’s conduct justifies a costs order that exceptionally makes the plaintiff bear the costs of proceedings instituted by the defendant. It goes without saying that the third party proceedings must have been properly instituted by the defendant. However, that alone is insufficient to visit costs on the plaintiff. Something about the plaintiff’s conduct as well must justify the costs order, for example where the real issue is between the plaintiff and the third party or where it is clear that the plaintiff sued the wrong person as a result of which it was inevitable for the defendant to institute third party proceedings.

(f) Finally, I reiterate that costs are ultimately in the discretion of the court. As such, the above principles are laid down only as guidelines for the exercise of a court’s discretion to award costs in this context. They are not meant to be hard and fast rules. There may be special circumstances which justify not requiring the plaintiff to bear the costs of third party proceedings even in the scenarios described above. Similarly, I must not be taken to have exhaustively laid down the categories of cases in which the plaintiff may be made to bear the costs of third party proceedings. New circumstances may arise in future cases which justify such a costs order. It is ultimately in each court’s discretion to make the order it deems most appropriate on the particular facts before it.

[90] I shall now apply the principles articulated above to the present facts.

[91] I first consider if the present case is akin to the situation in Edginton v Clark or Thomas v Times, such that it may be said that the real issue ought to be litigated between the plaintiff and the third party, rather than the plaintiff and the defendant.

[92] According to Crédit Agricole, the real issue in the litigation is whether Mr Yeh was actually authorised to transfer the 225m NexGen shares on Telemedia’s behalf; this is an issue between Telemedia and Mr Yeh, and does not involve Crédit Agricole. While I agree that Mr Yeh’s actual authority to act on behalf of Telemedia may be an issue between Telemedia and Mr Yeh, I do not agree that the real (and sole) issue in the litigation was Mr Yeh’s actual authority to execute the said transfer. While a finding that Mr Yeh was actually authorised to execute the transfer of the 225m NexGen shares would finally resolve the litigation (as it did in the Telemedia Decision), an alternative finding that Mr Yeh had no actual authority to execute the said transfer on behalf of Telemedia would still have left open the question whether vis-à-vis Crédit Agricole, Telemedia had clothed Mr Yeh with authority such that Crédit Agricole acted properly in taking instructions from Mr Yeh. Indeed, it will be recalled that Telemedia also raised issues relating to whether Mr Yeh’s authority had been revoked such as to affect Crédit Agricole or to give rise to a claim in negligence by Telemedia against Crédit Agricole.

[94] This, however, is not the end of the inquiry. I must still consider if Telemedia may be said to have sued the wrong party because its claim against Crédit Agricole was clearly unmeritorious (wrong party), and because there was a more appropriate party (ie Mr Yeh) to sue. While Telemedia’s claim against Crédit Agricole did fail, my findings in the Telemedia Decision make it difficult to conclude that Crédit Agricole was clearly sued as the wrong party given the range of issues that arose. I thus am of the view that the exception in SAL Industrial Leasing does not apply in the present case either.

(a) Important evidence only surfaced when Mr Yeh was joined as a third party. This was the case because Telemedia did not properly fulfil its discovery obligations.

(b) Crédit Agricole’s third party claim was based on Telemedia’s pleadings that Mr Yeh was the real fraudster in the entire transaction.

[99] In conclusion, I order that:

(a) Telemedia bears Crédit Agricole’s costs in relation to the proceedings between Telemedia and Crédit Agricole on an indemnity basis;

(b) Crédit Agricole bears Mr Yeh’s costs on a standard basis; and

(c) Crédit Agricole bears its own legal costs incurred in relation to the third party proceedings.