DBS High Notes case ends as investors lose appeal

Published November 3, 2011

Court of Appeal upholds High Court's ruling that DBS owes investors nothing


By MICHELLE QUAH


(SINGAPORE) The 213 investors who brought a lawsuit against DBS Bank over its DBS High Notes 5 product have lost their case before the Court of Appeal, along with the possibility of reclaiming their investment.


The Court of Appeal yesterday issued its written judgment, upholding the High Court's decision in December 2010 that the bank owes the investors nothing.

This closes a claim that has been ongoing for more than two years - and ends the hopes of the investors who collectively lost some $18 million when the structured product unravelled with the collapse of Lehman Brothers in September 2008.

'In view of our decision in this appeal, we think it apposite and timely to remind the general public that, under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract,' the Court of Appeal said in its judgment.

Twenty-one investors, represented by Siraj Omar of Premier Law LLC, had sued the bank on behalf of 192 others in July 2009, arguing that the DBS High Notes 5 were void at the time they were issued.

One of the conditions of the notes was that none of the eight reference entities - of which Lehman was one - would default in the notes' 51/2-year lifetime. If they did, DBS Bank would redeem the investors' investments, that is, pay them back, based on a certain method of calculation.

After Lehman collapsed, DBS Bank decided that the repayment amount - termed the credit event redemption amount (CERA) - was zero.

The investors argued that, in the DBS High Notes 5 pricing statement, the calculation of the CERA had been defined differently in four separate instances. They said that this inconsistency made a material term of the contract - the repayment amount - uncertain, rendering the notes void for uncertainty.

The High Court judge, Lee Seiu Kin, had agreed with the arguments put forth by DBS Bank, represented by Senior Counsel Davinder Singh and Una Khng of Drew & Napier, that there was no uncertainty about how the CERA was to be calculated; Justice Lee said the third definition in the pricing statement - which provided a detailed equation - was expressly designated as the prevailing one, and that the payout to the investors should be zero as laid out in that definition.

The investors appealed against that decision in March, saying they had 'faith in the court system'.

The Court of Appeal heard their arguments and found that there were inconsistencies between the four definitions of CERA in the DBS High Notes pricing statement. It, therefore, decided to look at the definition laid out in the product's reference notes - and found that the definition there was the same as the third CERA description in the pricing statement.

'The result was that owing to Lehman's bankruptcy, the CERA payable to HN5 holders on their investment was indeed zero,' the Court of Appeal ruled.

'For the reasons given above, we agree with the (High Court) judge that the HN5 contract is not void for uncertainty. Accordingly, we dismiss the appeal with costs and the usual consequential orders,' it added.

About 9,900 people here lost most, if not all, of their investments totalling about $520 million in Lehman-linked products, such as the DBS High Notes, Minibonds, Merrill Lynch Jubilee Series 3 LinkEarner Notes and Morgan Stanley Pinnacle Series 9 and 10 Notes, distributed by DBS and other financial institutions.