Allplus Holdings Pte Ltd and others v Phoon Wui Nyen (Pan Weiyuan)

• Jurisdiction: Singapore
• Judge: Foo Tuat Yien JC
• Judgment Date: 22 July 2016
• Neutral Citation: [2016] SGHC 144
• Court: High Court (Singapore)
• Docket Number: Suit No 638 of 2015 (Registrar’s Appeal Nos 276 and 277 of 2015)
• Year: 2016
• Published date: 26 July 2016
• Hearing Date: 03 November 2015,29 March 2016,30 November 2015
• Plaintiff Counsel: Chacko Samuel and Yeo Teng Yung Christopher (Legis Point LLC)
• Defendant Counsel: See Chern Yang and Joanna Chew (Premier Law LLC)
• Subject Matter: Contract,Settlement agreement,Equity,Relief against penalties
• Citation: [2016] SGHC 144

Foo Tuat Yien JC: Introduction

These appeals involved the construction of a clause in a settlement agreement entered into between Allplus Holdings Pte Ltd, Hanabi Holdings Inc, Leng Huat Private Limited, Teoh Teck Shin Anson (collectively, “the Plaintiffs”), the defendant (“Phoon”) and Zenna Overseas Ltd (“Zenna”), a company incorporated in the British Virgin Islands.

The main issue before me was whether this clause was a penalty clause and therefore unenforceable. If so, the Plaintiffs’ action against Phoon (ie, Suit No 638 of 2015 (“Suit 638”)), which was premised upon the enforceability of this clause, should be dismissed. On 29 March 2016, I delivered oral judgment and held that the clause was a penalty clause and thus unenforceable. Accordingly, I dismissed the Plaintiffs’ claim. The Plaintiffs have since appealed against my decision and I now set out my reasons.

Facts Background to the settlement agreement

The facts were largely not in dispute. In August 2008, the Plaintiffs entered into a loan agreement with Zenna under which the Plaintiffs lent a total of $2.5m to Zenna (“the Loan Agreement”). The monies were to be injected as capital contribution into a joint venture involving a Chinese incorporated company. The Loan Agreement contemplated what was termed as a “reverse takeover exercise”, under which Zenna’s shares were to be acquired by a company listed on the Singapore Exchange.¹ The monies under the Loan Agreement were to be repaid either upon completion of the reverse takeover exercise or the repayment date (set on 18 August 2009), whichever was earlier. If the reverse takeover was completed before the repayment date, the monies were to be repaid without interest through the issuance of shares in the listed company. If not, the monies were to be repaid with interest at 12% per annum from the date of disbursement of the monies on 20 August 2008 to the repayment date, ie, 18 August 2009.² Phoon was the sole shareholder and director of Zenna.

The reverse takeover did not materialise. Zenna was therefore obliged to repay $2.5m with 12% interest per annum with effect from 20 August 2008 to the Plaintiffs. When no payment was made,³ the Plaintiffs filed Suit No 868 of 2011 (“Suit 868”) on 25 November 2011 against Zenna and Phoon. The Plaintiffs alleged that Zenna had breached the Loan Agreement⁴ and/or was holding the monies disbursed under that Agreement as constructive trustee for the Plaintiffs.⁵ With respect to Phoon, the Plaintiffs alleged that Phoon, the sole shareholder and director of Zenna, exerted effective and complete control over Zenna.⁶ Phoon was accordingly the alter ego of Zenna and all transactions conducted by Zenna should be taken as transactions of Phoon, for which Phoon was responsible and liable in the same way as Zenna.⁷ The Plaintiffs also alleged that Phoon held the monies on constructive trust for the Plaintiffs and/or that Phoon had wrongfully induced/procured Zenna to breach its obligations under the Loan Agreement.⁸

Zenna did not file a defence. On 1 June 2012, the Plaintiffs entered judgment in default of defence against Zenna for $2.5m with relevant interest.⁹ In Phoon’s Defence (Amendment No 1) filed on 1 November 2013, Phoon stated that the reverse takeover exercise had been unsuccessful because Zenna had not been able to raise the required capital contribution for the joint investment as the Plaintiffs and some others had not been able to fulfil their promised funding. Phoon denied any misappropriation or improper use of the loaned monies and averred that all loaned monies had been transferred to a designated bank account as required under the Loan Agreement. He also denied that he was the alter ego of Zenna and that he was personally liable for the amounts owed by Zenna. He averred that he did not even meet or negotiate with any of the Plaintiffs in respect of the Loan Agreement.¹⁰

The settlement agreement

On 6 June 2014, a few days before the affidavits of evidence-in-chief were due to be filed, the parties attended a full-day mediation at the Singapore Mediation Centre. The parties were all legally advised. At the conclusion of the mediation, the Plaintiffs, Zenna and Phoon entered into a settlement agreement (“the Settlement Agreement”). The terms were as follows:

SETTLEMENT AGREEMENT

SUIT NO. 868 OF 2011/C (the “Suit”)

MEDIATION NO. 2083(2291)-101 OF 2014

Whereas the above suit has come up for mediation this day, the 6th June 2014, before Mr Lawrence Tan Shien-Loon and the parties having agreed to settle the above suit, a Settlement Agreement is made on the following terms:

1. The Defendants [Zenna and Phoon] shall pay the sum of Singapore Dollars One Million (S$1,000,000.00) (the “Settlement Sum”) to the Plaintiffs as follows: (a) S$500,000.00 by way of a cheque dated 23 June 2014; and (b) S$500,000.00 by way of a cheque dated 5 June 2015. 2. Within 7 days of the Defendants paying the Plaintiffs the sum of Singapore Dollars Five Hundred Thousand (S$500,000.00) pursuant to paragraph 1(a) above, the Plaintiffs shall file: (a) Notice of Discontinuance of their claim in the above Suit against the 1st and 2nd Defendants with no order as to costs; and (b) Consent to Entry of Satisfaction of Judgment Debt against the 1st Defendant. 3. Save in the event of any breach of this Settlement Agreement, the amount referred to in paragraph 1 herein is paid in full and final settlement of all or any claims whatsoever arising out of or in connection with the Loan Agreement relating to the loan of up to S$4,000,000 to ZENNA OVERSEAS LIMITED dated 19 August 2008 and/or the matters raised in the Suit (collectively, the “Subject Matter”) and the Plaintiffs hereby waive any existing or future claims against the 1st and/or the 2nd Defendants arising out of or in connection with the Subject Matter. 4. In the event the Settlement Sum or any part thereof is not paid on or before the date stipulated in paragraph 1 above, the Settlement Sum shall be increased to the sum of S$2,500,000 along with interest accrued thereon at 12% per annum from 20 August 2008 to date of full payment (the “Aggregate Sum”). The Aggregate Sum less any amounts already paid under this Settlement Agreement, shall become jointly and severally immediately due and payable by the Defendants to the Plaintiffs and the Plaintiffs shall be entitled to forthwith file proceedings to recover the Aggregate Sum against the Defendants less any amounts paid under the Settlement Agreement. 5. Each party shall bear their own costs in this matter.

Dated 6th June 2014.

Events after the conclusion of the Settlement Agreement

On 12 June 2014, Phoon issued two post-dated cheques. The first, for the sum of $500,000, was dated 23 June 2014, while the second, also for the sum of $500,000, was dated 5 June 2015 (pursuant to cl 1 of the Settlement Agreement (“Clause 1”)).¹¹ The first cheque was successfully cleared for payment. The second cheque presented for payment on 5 June 2015 was dishonoured. On 8 June 2015, Phoon’s solicitors wrote to the Plaintiffs’ solicitors stating that Phoon had not transferred sufficient funds for payment of the second cheque due to an “inadvertent administrative oversight”¹² and asked that the second cheque be presented for payment on or after 30 June 2015. The Plaintiffs’ solicitors replied the following day that the second cheque had been dishonoured and formally demanded payment of $3,633,074.33 based on cl 4 of the Settlement Agreement (“Clause 4”).

On 29 June 2015, Phoon’s solicitors replied denying liability for the larger sum on the ground that Clause 4 was a penalty clause and unenforceable. They also said that Phoon would make payment of $500,000 on 30 June 2015. A fresh cheque dated 30 June 2015 for $500,000 was then delivered to the Plaintiffs’ solicitors the following day. The Plaintiffs returned the cheque to Phoon’s solicitors on 7 July 2015 and insisted that they would only accept the 30 June 2015 cheque if Phoon confirmed that the payment was made in part payment of his liability under Clause 4.¹³

Phoon did not accept the Plaintiffs’ condition. On 8 July 2015, his solicitors informed the Plaintiffs that he was “ready, willing and able” to pay the $500,000 via the 30 June 2015 cheque.¹⁴ On 16 July 2015, the Plaintiffs’ solicitors replied that they were prepared to accept that cheque in payment of the undisputed portion of Phoon’s liability, ie, the remaining $500,000 pursuant to Clause 1, without prejudice to their rights to proceed under Clause 4 for the full $2.5m plus interest at 12% per annum with effect from 20 August 2008, less the $1m that Phoon would have already paid.¹⁵ The 30 June 2015 cheque was duly cleared.¹⁶

Plaintiffs’ commencement of Suit 638

On 26 June 2015, the Plaintiffs commenced Suit 638 against Phoon for the sum of $3,644,252.41 based on Clause 4.¹⁷ Zenna was not made a defendant. On 21 July 2015, Phoon filed an application under O 14 r 12 of the Rules of Court (Cap 322, R 5, 2014 Rev Ed) for the court to determine whether Clause 4 was void by reason of it being a penalty clause (Summons No 3493 of 2015 (“SUM 3493”)). The Plaintiffs in turn filed an application under O 14 r 1 of the Rules of Court for summary judgment on 14 August 2015 (Summons No 3954 of 2015 (“SUM 3954”)).

On 22 September 2015, the learned assistant registrar dismissed Phoon’s application on the grounds that Phoon was estopped by representation from asserting that Clause 4 was a penalty clause, and that in any event, Clause 4 was not a penalty clause. The assistant registrar then granted summary judgment to the Plaintiffs for the sums due under Clause 4. Phoon then brought the present appeals (ie, Registrar’s Appeal Nos 276 and 277 of 2015) against the decisions of the assistant registrar for SUM 3493 and SUM 3954 respectively.

My decision

In my view, Clause 4...