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Court dismisses fraud claims against CAG, says structure of lawsuit is illegal

Court dismisses fraud claims against CAG, says structure of lawsuit is illegal

Source: Business Times
Article Date: 19 Feb 2021
Author: Kelly Ng

High Court Judge rejected the plaintiff's allegations of fraud and misrepresentation and ruled that the investments were legitimate.

The Singapore courts have dismissed allegations of fraud against Singapore-based marketing consultant Capital Asia Group (CAG) and its sole director brought by more than 1,000 multinational investors over an oil investment scheme.

In ruling handed down on Thursday, High Court judge Choo Han Teck threw out claims that the defendants made fraudulent misrepresentations and were in cahoots with the Canadian companies Proven Oil Asia (POA) and its parent company Conserve Oil Group Inc (COGI), in perpetuating a "ponzi" scheme.

In particular, the judge also noted that the investors who were attempting to sue the three defendants - CAG, Capital Asia Group Oil Management and their sole shareholder and director Yau Kwok Seng - via a special purpose vehicle incorporated specifically for this purpose, has "no legal standing" to bring such a collective action.

Justice Choo agreed with the defendants' lawyers that POA Recovery was but a "shell company", and its attempt to bring legal action on behalf of the investors amounts to an illegal practice under Singapore law.

POA Recovery says it represents 1,102 of over 4,000 investors from Hong Kong, Macau, Malaysia and Singapore.

The judge said: "Structuring the action in this manner is also contrary to public policy in that the defendants would have no one to look to for costs except the solitary shareholder of a S$1 shell company. Beyond the security for costs paid up to the filing of affidavits, the defendants will be chasing shadows across Hong Kong, Malaysia and Singapore, for the bulk of their costs."

Class-action litigation, where lawyers take on claims for large groups of unnamed people, are prohibited in Singapore. However, individuals can commence proceedings on behalf of various people with the same interest under a process known as "representative action".

The defendants in this case, including Mr Yau and his companies, were represented by lawyers from WongPartnership, while the plaintiff, POA Recovery, was represented by lawyers from Rajah & Tann.

POA Recovery had accused Mr Yau and CAG, which was appointed by the Canadian company POA as the exclusive marketing agent for the investments, of structuring and selling a sham investment product and "profiting handsomely in the process".

The plaintiff had claimed that he had promised investors 12 per cent per annum of returns for buying into crude oil barrels, when in fact the product they were supposedly wagering on did not exist.

Justice Choo was not persuaded that POA had promised to use investors' money only to buy oil and not for other purposes, noting that the buyers' purchase orders included an explicit provision that funds invested could be allocated "for development and purchase of oil and gas leases/assets".

Using the funds to purchase oil and gas assets instead of crude oil was a "legitimate means of raising money to fulfil POA's contract obligations", he said.

Justice Choo noted that the investment venture was successful when it started in 2012 till the global collapse in crude oil prices at the end of 2015.

Some C$175 million (S$183 million) was said to have been poured into the scheme between September 2012 and October 2015.

Even if the defendants had falsely represented that investors' money would be used solely for the purchase of actual crude oil, there is no evidence that the investors relied on this in entering into the scheme, the judge said. He found that investors were concerned only with getting their capital refund and profits. "None wanted the barrels of oil, nor is it likely that they would have known what to do with them," he said.

Justice Choo also ruled that CAG, which was responsible for training the sales agents in Singapore, Malaysia and Hong Kong, had "clearly and unambiguously" informed the agents that they could not inform potential buyers that capital returns were guaranteed.

If individual investors were misled by what they claim to be promises of capital protection, the promises were made by the sales agents and not by the defendants, he added.

The judge noted that there is evidence for forgery involved in the discharge of securities, but that points to the landman for POA and COGI, and has nothing to do with the defendants.

Justice Choo further noted that there remains unanswered questions and absent witnesses from all sides, and that important stakeholders who might have been able to better explain the transactions and history of events were not called to testify. But he maintained that the evidence presented before the court is sufficient to find that this was a failed investment, and not a case of fraud.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.

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