Tan Kin Lian's Blog: Allow lawyers to act on contingency fee

Sunday, July 05, 2009

Allow lawyers to act on contingency fee

Many investors of the credit linked notes (i.e. Minibonds, High Notes, Pinnacle Notes, Jubilee Notes) had, as a last resort, sought to take a class action against the issuers and/or distributors of these financial products. However, they are daunted by the huge legal cost of a class action.

Many lawyers are not willing to take up the class action as they have existing relationships with the financial institutions and they do not wish to jeopardise their future dealings.

A few lawyers who are willing to act for the investors required a large sum of money to be collected to pay for their case preparation and for their fees and expenses to represent the investors in court. Most of these lawyers are not even prepared to write down their legal arguments and give any assessment of the chance of winning the case, prior to their formal appointment.

Many investors were reluctant to join the class action as they were not sufficiently assured about the credibility of the lawyers or the strength of their case. Some said, “We have been cheated by the banks. We do not now wish to be cheated by the lawyers. We do not want to pay large legal fees, when the chance of winning is unclear or quite remote.”

It is useful for a contingency fee system to be introduced in Singapore for such cases. The lawyers are in the best position to assess the strength of the case, and to take the commercial risk of the litigation. They cannot expect the ordinary folks to make this assessment, especially as the decision has to be taken by many investors with different financial circumstances and understanding of the law.

There are some possible abuses of a contingency fee system, but these abuses can be mitigated. This system provides the positive benefit of allowing ordinary people to seek redress against abuses by large companies.

Tan Kin Lian

11 comments:

Anonymous said...: Mr. Tan,
It would even be better if we have a proactive regulator and comsumer protection group.

The problem I see it is that despite what you feel it is a clear case, I think the government has a different viewpoint and hence both the regulator and the consumer group choose not to intervene as likely they do not feel that the FIs are doing anything wrong.

Who is rightt? I dont know but I know as a small investor, I just need to write off my losses as I do not have the money to find out in a oourt of law.; July 05, 2009 11:47 AM
Anonymous said...: we singaporean investors of minibonds are a pitiful bunch. Was lied to by RMs, but cannot demonsrate, cannot sue for fear of the scary legal fees, and cannot complain to the government which doesn't seem to care. what can we do?; July 05, 2009 1:04 PM
Anonymous said...: This is just one of the things we can't change.
Whether small or large amount of money is involved, it is still our hard-earned money.
Maybe for those with relatively small amount of money involved is easier to write off than to pursue further, imagine those who have put in their whole life savings into these toxic products.; July 05, 2009 3:41 PM
Anonymous said...: All Singaporeans cannot demonstrate, have no resource to take on big companies and face the same problems with our govt bureacracies. You probably did not exercise care with your electoral vote when the time came. Now you are suffering the effects of your choice. Too late to do anything now. Those who made money from you will be exercising their votes in future carefully to ensure perpetual prosperity. (for themselves of course); July 05, 2009 3:41 PM
Anonymous said...: If big lawyers connected to big banks do not want to take up the class action suit, would investors want to throw their bet on small lawyers fighting their case against these big law firms employed by the banks?

I think daunted by the huge cost is one thing, confidence in winning is another. Talk about throwing good money after bad.

Singaporeans are a pitiful lot.

Lost Citizen; July 05, 2009 4:14 PM
Anonymous said...: Why not lodge a police report on cheating by RMs and FIs? Mis-selling and misrepresentation are cheating. Breaching the section 27 of the FAA is a criminal offence, why MAS doesn't take up the case?; July 05, 2009 8:26 PM
Anonymous said...: The way they sell the structured products is that they show you the referenced entities bond interest rates. So you think you are buying into the referenced entities. Now we all know it is not. So what to do? Go in with eyes wide open but then look at the wrong thing!; July 05, 2009 10:43 PM
Anonymous said...: "The way they sell the structured products is that they show you the referenced entities bond interest rates. So you think you are buying into the referenced entities. Now we all know it is not. So what to do? Go in with eyes wide open but then look at the wrong thing!"

This is mis-represenation. Because it was misrepesented, even if you open yr eyes big big, you still see the wrong things.; July 05, 2009 10:58 PM
Anonymous said...: Looks like no matter what short term or long term solution we have all come up with, we are ultimately still fighting a losing battle :(; July 05, 2009 11:44 PM
Steve Wu said...: By now, it should be clear that at least some FIs misrepresented the products. While the authorities avoid the issue by inventing a non-existent concept of mis-selling, it remains unconvincing that this episode is merely a civil/contractual dispute. There is certainly a criminal dimension to the ongoing saga (cf. the criminal investigation of Lehman Brothers and Bear Stearns activities in the US).

In the Singapore context, the criminal code (Penal Code) is plain and clear:
415. Whoever, by deceiving any person, whether or not such deception was the sole or main inducement, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit to do if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to any person in body, mind, reputation or property, is said to “cheat”.

420. Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment for a term which may extend to 10 years, and shall also be liable to fine.

We may draw a parallel. The recent collapse of a condominium building in Shanghai. At one level, the developer did not provide a "safe" product to the buyer and hence failed in its contractual obligation. At the same time, there is a criminal case against the developer for shoddy construction which is expected to endanger lives. It is unclear if the Chinese authorities will do the right thing (cf. the shoddy constructions exposed by the Sichuan earthquake but the authorities DECIDED to fail the people and to cover up). In contrast, the crowded Sampoong Department Store complex (a shopping mall) in South Korea collapse catastrophically in 1995. The owner of the mall was immediately arrested, pending criminal investigation and prosecution. He received a jail sentence of 10.5 years.

Overall, the point is this. If the aggrieved investors have the relevant evidence for misrepresentation tantamount to cheating as defined above (note: the word "person" may also refer to an organization), file a police report; it is free.

The police (particularly the CAD) is obliged to respond, although it may still decide not to investigate. The key is persistence. It came to light in late 2008 that it took almost a decade to expose the incompetence and obstruction at the Security Exchange Commission (SEC in the US) in relation to the Madoff scam.

If the aggrieved investors are not keen to fight for their own rights, then it is indeed difficult for others to fend for them.; July 06, 2009 9:32 AM
Anonymous said...: As mentioned many times before, it is a waste of time and money to try and pursue the case in Singapore.

With all of the supposed legal effort by the investors to try and recoup their losses, I am somewhat surprised that no one has more aggressively pursued a course of legal action outside of Singapore.

One possibility of course is the Alien Tort Statute of the United States (http://en.wikipedia.org/wiki/Alien_Tort_Statute).

This allows non US citizens to pursue court cases in the United States against individuals/companies resident in the United States. For example DBS has registered offices in the United States. Under the Alien Tort Statute, they can be sued in a US court under US laws.; July 06, 2009 1:29 PM