Auston International Group Ltd and Another v Ng Swee Hua

• Judge: Chan Sek Keong CJ
• Judgment Date: 05 August 2009
• Neutral Citation: [2009] SGCA 36
• Published date: 06 August 2009
• Citation: [2009] SGCA 36
• Subject Matter: Allotment,Shares,Convertible securities issued pursuant to general mandate with conversion after expiry of said mandate,Loss of chance,Whether fresh shareholders' authorisation required for conversion,Whether bonds issued at law,Whether shareholder's approval required,Whether damages ought to be assessed on basis of loss of chance,Companies,Section 161(4) Companies Act (Cap 50, 2006 Rev Ed),Failure to deliver shares of listed company,Rules 804 and 812 SGX-ST Listing Manual,Damages,Convertible bond certificates not issued,Director holding convertible debt securities exercising right of conversion,Bonds
• Defendant Counsel: Boey Swee Siang and V Jesudevan (Rajah & Tann LLP)
• Year: 2009
• Court: Court of Three Judges (Singapore)
• Plaintiff Counsel: N Sreenivasan and Valerie Ang (Straits Law Practice LLC)

5 August 2009 Judgment reserved.

Chan Sek Keong CJ (delivering the judgment of the court):

Introduction

1 This is an appeal from the decision of the judge in Suit No 129 of 2007 (“the Judge”) in holding that the appellants, Auston International Group Ltd (“Auston”) and Auston Institute of Management & Technology Pte Ltd (“AIMT”) (collectively, “the appellants”), were in breach of contract under an investment agreement with one Ng Swee Hua (“the respondent”) (see Ng Swee Hua v Auston International Group Ltd [2008] SGHC 241 (“the GD”)).

2 Auston is a company listed on the Singapore Exchange (“SGX”). AIMT was, at the material time, a wholly owned subsidiary of Auston. In early 2005, Auston was in need of funding assistance and its then managing director, one Ricky Ang, sought a loan of $200,000 on behalf of Auston from the respondent. The loan was duly made. By an investment agreement entered into between the respondent, Auston and AIMT on 15 December 2005 (“the Investment Agreement”), it was agreed that the respondent would subscribe for convertible bonds of an aggregate principal of $200,000 (“the Convertible Bonds”). The bonds were convertible into either Auston or AIMT shares, or a combination of both. The Investment Agreement also provided that the respondent’s existing loan of $200,000 would be utilised as consideration for the bonds. Further, the respondent would have the option to subscribe for an additional $400,000 worth of bonds within six months from completion of the Investment Agreement.

3 Under cl 3.3 of the Investment Agreement, AIMT undertook to deliver to the respondent the definitive bond certificates on completion date (defined in cl 1.1 as the day falling on seven days after the execution of the Investment Agreement or such other date as the parties might agree in writing). Clause 6.5 of Schedule 1 to the Investment Agreement provided that:

[t]he delivery of Auston Shares upon the exercise of any right of conversion of any Convertible Bond … shall be effected by crediting the securities account designated by the holder of the Convertible Bond.

4 Clause 3.6 of the Investment Agreement provided for the consequences of non-delivery of the bond certificates:

Rescission: If any of the documents required to be delivered to the [respondent] on the Completion Date are not forthcoming for any reason or if in any other respect the foregoing provisions of this Clause are not complied with, the [respondent] shall be entitled (in addition to and without prejudice to all other rights or remedies available to each of them, including the right to claim damages) to elect to rescind this Agreement or to effect completion so far as practicable having regard to the defaults which have occurred or to fix a new day for completion (not being more than seven days after the original Completion Date in which case the foregoing provisions of this Clause shall apply to completion as so deferred).

5 The respondent was the managing director of AIMT from 3 January 2006 to 13 September 2006, and was also a director of both the appellants from 2 May 2006 to 4 January 2007.

6 On 14 June 2006, the parties amended the Investment Agreement by a supplementary investment agreement (“the Supplementary Investment Agreement”) to add, inter alia, the following clauses:

“Convertible bonds” means the Convertible Bonds of an aggregate principal amount of up to S$600,000, to be issued by [AIMT] to the [respondent], the first tranche of S$200,000, which was issued to the [respondent] on or about 19 December 2005;

…

Clause 3.4 shall be added as follows:-

Conditions Precedent: The issue of the Convertible Bonds and the issue of any Conversion Shares pursuant to the terms of this Agreement shall be subject to the following conditions precedent:-

(i) if required under the Listing Manual of the SGX-ST, the shareholders of [Auston] having passed an ordinary resolution at general meeting of [Auston] to approve the issue of Convertible Bonds as well as the exercise of the Convertible Bonds for the issue and allotment of Conversion Shares to [the respondent];

(ii) the allotment and issue of Conversion Shares not being prohibited by any statute, order, rule, regulation or directive promulgated or issued by any legislative, executive or regulatory body or authority of Singapore which is applicable to the Parties; and

(iii) all consents, approvals, authorisations or other orders of all relevant regulatory authorities required for or in connection with the issue of the Convertible Bonds and upon its exercise, the conversion of the Convertible Bonds into Convertible Shares to be allotted and issued to [the respondent], having been unconditionally obtained and are in full force and effect.

[emphasis added]

7 A few months later, on 3 November 2006, the respondent sent a conversion notice (“the Conversion Notice”) to the appellants directing them to procure the issuance of 5m ordinary shares of Auston (“the Conversion Shares”). Auston did not act on the Conversion Notice, but instructed its then solicitors to draft a shareholders’ circular to seek shareholders’ approval to issue the Conversion Shares on the basis that such approval was required as the respondent was then a director of the company. The draft circular was, however, never finalised. On 4 January 2007, the respondent resigned from his directorships in the appellants. He then commenced the present action on 1 March 2007 claiming specific performance for the issuance of the Conversion Shares or alternatively damages.

The decision below

8 In the court below, the respondent’s case was that AIMT was in breach of its obligations under the Investment Agreement since 14 June 2006 in failing to issue the Convertible Bonds (or the bond certificates to be more precise) and that he was entitled to damages on the basis of the loss of a real and substantial chance of converting the Convertible Bonds into the Conversion Shares. He also claimed interest on his loan pursuant to cl 2.3 of the Investment Agreement and cl 4.1 of Schedule 1 thereto. The respondent claimed separately that Auston was in breach of its contractual obligations in failing to issue the Conversion Shares and in ensuring that AIMT would issue the Convertible Bonds.

9 The appellants denied liability on several grounds, as follows:

(a) The Convertible Bonds had not been issued as completion did not take place as contemplated by the Investment Agreement, and the respondent had rescinded the agreements (viz, the Investment Agreement and the Supplemental Investment Agreement) by his inaction.

(b) Even if the Investment Agreement was not rescinded, the conditions precedent in cl 3.4 (introduced by the Supplementary Investment Agreement) were not fulfilled, viz, the SGX-ST Listing Manual required shareholders’ approval for the issuance of the Convertible Bonds as well as the conversion of the bonds into equity shares and the allotment of such shares to the respondent as he was a director of Auston at the time of the Conversion Notice.

10 At the conclusion of the trial, the Judge made the following findings:

(a) The Convertible Bonds had been issued on or about 19 December 2005 (the GD at [26] and [47]).

(b) The conditions precedent in cl 3.4 (introduced by way of the Supplementary Investment Agreement) had no application to the Convertible Bonds (the GD at [29] and [31]).

(c) Auston was in breach of the Investment Agreement and that damages ought to be assessed on the basis of the loss of chance to convert the Convertible Bonds into the Conversion Shares (the GD at [47]).

The Judge also held that the respondent was entitled to interest at the contractual rate as provided in the Investment Agreement.

11 The basis on which the Judge found that the Convertible Bonds had been issued is set out at [26] – [28] of the GD, as follows:

26 The starting point for a court faced with the task of interpreting a clause or provision in a document in which the parties have sought to record their whole agreement is to examine the document as a whole. It is in the context of the whole agreement between them that meaning has to be given to the words used in the particular clause or provision. It is clear from the recital that the parties entered into the Supplementary Investment Agreement with two aims: (i) to extend the option period for [the respondent] to subscribe to the additional $400,000 worth of convertible bonds; and (ii) to provide for conditions precedent for compliance with the Listing Manual due to [the respondent’s] appointment as executive director on the board of Auston. In my judgment, the amendments in cl 2 of Supplementary Investment Agreement relates only to the additional $400,000 worth of convertible bonds. As stated, it is plain from the language used in the Supplementary Investment Agreement that by 14 June 2006, the parties have accepted that the first tranche of convertible bonds had been issued on or about 19 December 2005. An extension of time up to 15 December 2006 was given to [the respondent] to subscribe for the additional convertible bonds. Clause 2 is clearly specific to the extension of time granted to [the respondent]. Clauses 2(a) and (b) relate to the additional $400,000 convertible bonds. It logically follows that cl 2(c) also applies to the additional $400,000 convertible bonds and not the first tranche of convertible bonds which have already been issued on or about 19 December 2005 as expressly stated in the redefinition of “Convertible Bonds” in the Supplementary Investment Agreement

27 Notably, the parties’ conduct after the execution of the Supplementary Investment Agreement on 14 June 2006 was consistent with and supported the interpretation ascribed here. Lee Liang Ping (DW 2) admitted that the problem was not with issuance of the first tranche of convertible bonds. The quandary was over the conversion into shares without shareholders’ approval. His testimony is consistent with what was stated in the...