A private wealth client has failed in his $33 million High Court claim against Swiss banking giant UBS for losses he suffered during the 2008 global meltdown.
Justice Belinda Ang, in judgment grounds released yesterday, found that Mr Stanley Tan had agreed to the "unwinding" of his investment in accumulators in an effort to cut his losses. Mr Tan is the chief executive officer of Global Yellow Pages.
Accumulators are structured products in which investors buy shares at regular intervals at a price below the prevailing market value for a predetermined period of time, usually a year. Investors make a profit if the market price rises within a certain range. But if the price falls steeply, losses can be huge.
Mr Tan had initially sued UBS for more than $133 million, but in the course of the trial, he dropped the claim to $33 million.
The judge held the "upshot"of his dropping the sum was that it showed he acknowledged the bank was entitled to sell the shares and did so "competently".
UBS, represented by Drew and Napier Senior Counsel Hri Kumar and lawyer James Low, had argued that Mr Tan had been trying to cover the shortfall in his account as the markets spiralled downwards in 2008.
On Oct 22, 2008, UBS sent him a letter telling him to either deposit collateral, terminate or deal with the transactions in his account.
Over the next two days, UBS unwound the accumulators and continued to sell the shares in his account.
After Mr Tan's entire portfolio was sold off, he still owed liabilities, which were worked out in an agreement with the bank in 2009. He paid them all off in April 2011.
In the court suit, Mr Tan, through his lawyer, Mr Ng Lip Chih, had alleged that UBS had unwound the accumulators without prior notice or authorisation and acted wrongfully.
But the court found evidence that his claim that he could have held on to the accumulators and waited for the "inevitable" price rise made "no sense" and was "a fallacy".
Justice Ang found Mr Tan did not have the cash or unencumbered shares to make good the shortfall on Oct 22, 2008.
She added that the logical thing for an " experienced, savvy and at the material time illiquid investor" like Mr Tan was to stop his losses from ballooning - which meant disposing of the accumulators and capping the losses.
"Drawing the line under his losses would (and did) salvage Mr Tan from bankruptcy as what remained was for him to work out a schedule for repayment," said Justice Ang.
"Exposing himself to further market risk might have left Mr Tan in an irreparable financial state.He chose the former and his choice was well made," she added.
Among other things, the court found Mr Tan did not protest when the accumulators were being unwound.
The court added that even if he had not agreed to the termination, UBS was entitled under the terms and conditions of the accumulators and Mr Tan's account with UBS to terminate the accumulators without notice.
In addition, UBS acted reasonably in the manner in which it unwound the accumulators.
Mr Tan had argued that UBS was obliged to give notice under the International Swap Dealers Association (ISDA) Master Agreement in order to terminate and unwind the accumulators.
But "the ISDA notice does not afford an opportunity to remedy a default", ruled Justice Ang.