Bayerische Hypo- und Vereinsbank AG v C K Tang Ltd

• Jurisdiction: Singapore
• Judge: MPH Rubin J
• Judgment Date: 18 November 2004
• Neutral Citation: [2004] SGHC 254
• Court: High Court (Singapore)
• Year: 2004
• Published date: 19 November 2004
• Plaintiff Counsel: Philip Jeyaretnam SC, Rodney Keong and Charmaine Cheong (Rodyk and Davidson)
• Defendant Counsel: Steven Chong SC and Sim Kwan Kiat (Rajah and Tann)
• Subject Matter: Contract,Breach,Defendant engaged plaintiff as lead manager and underwriter in proposed securitisation transaction,Whether termination of transaction by defendant was a breach of contract,Contractual terms,Bifurcation of the phrase "due diligence",Whether plaintiff completed its due diligence,Rules of construction,Whether defendant entitled to terminate only within a reasonable time after plaintiff's completion of its due diligence or whether defendant could terminate at any time before completion of transaction,Implied contracts,Quantum meruit,Obligations of defendant upon termination clearly stated,Whether plaintiff entitled to reasonable remuneration for work done,Waiver,Whether defendant waived or elected not to exercise its right to terminate
• Citation: [2004] SGHC 254

18 November 2004 Judgment reserved.

MPH Rubin J:

Background facts and pleadings

1 The plaintiff, Bayerische Hypo- und Vereinsbank Aktiengesellschaft (“HVB”) is reportedly the second largest bank incorporated in Germany. It carries on business as an offshore bank through a branch in Singapore. The defendant, C K Tang Limited (“CKT”), is a household name in Singapore. It is a public listed company incorporated in Singapore and owns the building at 310 and 320 Orchard Road (“the property”). It is in the business of department stores and wholesale trade.

2 The dispute at hand revolves around a contract (“the contract”) entered into between the parties as constituted or evidenced by a letter of engagement (“the mandate letter”) dated 24 January 2003 with an indicative term sheet attached (“the Indicative Term Sheet”).[1] The said letter bears the signatures of one Mr Nicholas Hamilton (“Hamilton”), Head of Securitisation & Credit Engineering, Asia of HVB, currently holding the position of Managing Director, Asia Management Committee Asia of HVB, and Mr Foo Tiang Sooi (“Foo”), the Chief Operating Officer of CKT. Under the terms of the contract, CKT engaged HVB as the lead manager and underwriter (“the arranger”) to a proposed $136.8m CKT Commercial Rental Receivables Backed Securitisation Transaction (“the transaction”).

3 The transaction contemplated the issuance of notes which would be secured by commercial rental receivables arising from the property. The purpose of the transaction was to refinance the entire corporate debt and existing debt obligations of CKT at a lower borrowing cost. CKT’s corporate debt at that time consisted of:

(a) a transferable loan facility of $68m from the United Overseas Bank (“UOB”) and $42m in principal amount of secured bonds; and

(b) a working capital line of $39m granted by a consortium of banks comprising the Oversea-Chinese Banking Corporation (“OCBC”), the Development Bank of Singapore (“DBS”), UOB, Bank of China and the Hongkong and Shanghai Banking Corporation (“HSBC”).

In so far as is material, the mandate letter provides as follows:

January 24, 2003
C K Tang Limited
310 & 320 Orchard Road
Singapore 238864
Attention: Mr Foo Tiang Sooi

Dear Mr Foo,

Proposed SGD 136.8 Million C K Tang Commercial Rental Receivables Backed Securitisation Transaction

This letter (hereafter known as the “Letter Agreement”) will confirm the engagement of Bayerische Hypo-und Vereinsbank AG (“HVB”), Singapore Branch by C K Tang Limited (“C K Tang”) as C K Tang’s exclusive Lead Manager and Underwriter (“Arranger” and “Underwriter”) to the proposed S$136.8 million C K Tang Commercial Rental Receivables Backed Securitisation Transaction due 2008 (“Notes”). In connection with this engagement, HVB may retain the services of any of its subsidiaries to assist it in the performance of any of its obligations hereunder, in consultation with C K Tang. HVB will perform the following services as the Arranger for the said Transaction:

Structuring

(a) Assist C K Tang in evaluating and determining the optimal financing structure based on C K Tang’s objectives, the analysis of the receivables data and forecasts related thereto.

(b) HVB will advise and assist C K Tang in negotiation with:

(i) the rating agency(ies);

(ii) legal counsel;

(iii) accountant and tax advisor;

(iv) the credit enhancement structure of the said Transaction;

(v) Trustees and related entities required for the establishment of the Special Purpose Companies for the said Transaction; and

(vi) Relevant authorities and regulatory agencies.

Underwriting

(c) HVB will act as the sole Underwriter for the Rated A, A2, A3 and B Notes (as stated in the attached Indicative Term Sheet dated January 24, 2003). The underwriting agreement for the Notes will be signed by C K Tang and HVB on or before February 28, 2003 or such time as may be mutually agreed before the closing of the Notes. The coupon level for the Notes will be determined based on the market clearing spread at the closing date, however we have set out indicative spreads for your information in the Indicative Term Sheet dated January 24, 2003. The estimated closing date of the said Transaction is March 10, 2003 or such other date as may be mutually agreed, subject to (among other things) satisfactory documentation, HVB’s underwriting approval, and the absence of any material adverse change in the domestic and international financial markets or in the financial condition or operation of C K Tang, including, without limitation, material adverse changes in the regulatory and/or business environment.

Placement Agreement

(d) HVB will act as sole placement agent to place the junior unrated Notes on a best effort basis. The placement agreement for the junior unrated Notes will be signed by HVB and investors on or before February 24, 2003 or such time as may be mutually agreed before the closing of the Notes.

…

Fees

(f) Please refer to the attached Indicative Term Sheet dated January 24, 2003. All fees including structuring, underwriting and placement fees are payable upon settlement of the transaction, withholding from the total note proceeds by the Lead Underwriter.

Break-up Fee

(g) In the event C K Tang decides to terminate the transaction after HVB has completed the due diligence process, and provided that HVB has not indicated that the funding spreads to apply to each Class of Notes will be higher than 10 basis points above the respective estimated funding spreads as set out on the Indicative Term Sheet dated January 24, 2003, C K Tang will be required to pay HVB a break-up fee of S$165,000.

Operating Expenses

(h) All reasonable initial and ongoing costs and fees including legal, rating agency, trustee, administration, printing and out-of-pocket expenses will be subject to prior approval by C K Tang and for the account of C K Tang. HVB will assist in negotiations with all the related parties.

Out of Pocket Expenses

(i) All out-of-pocket expenses incurred by HVB in connection with the performance of its services hereunder will be subject to prior approval by C K Tang and reimbursed by C K Tang regardless of whether the transaction is completed and will be due and payable by C K Tang to HVB, or other relevant parties upon the presentation of the invoice (supported by the necessary receipts or other evidentiary proof of the expenses) on a monthly basis. These out-of-pocket expenses will include, but will not be limited to, travel, accommodation, copying, faxing and couriers. All such expenses incurred by after the closing of the Transaction or termination of this agreement will not be reimbursed by C K Tang.

Structure of the Notes

(j) Please refer to the attached Indicative Term Sheet dated January 24, 2003.

…

INDICATIVE TERM SHEET

Proposed S$[136.8] million C K Tang Commercial Rental Receivables Backed Securitisation Transaction

Purchaser : Special purpose company (“SPC 1”) to be incorporated as a public limited company in Singapore, wholly owned subsidiary of C K Tang.

Issuer : Special purpose company (“SPC 2”) to be incorporated as a public limited company in Singapore.

Originator : C.K. Tang Limited

Seller : SPC1

Lead Manager & : Bayerische Hypo-und Vereinsbank AG
Underwriter Singapore Branch (“Arranger”)

Securities : Up to S$[136.8] million Commercial Rental Receivable Backed Debt Securities due 2008 (“Notes”).

Issue Amount : A Notes ‘AA/Aaa/AAA’ S$[62.4] Million
Fixed Rate Notes
A2 Notes ‘Aa2/AA’ S$[19.2] Million
Fixed Rate Notes
A3 Notes ‘A2/A’ S$[13.2] Million
Fixed Rate Notes
B Notes ‘Baa2/BBB’ S$[17.2] Million
Fixed Rate Notes
C Notes ‘Unrated’ S$[13.0] Million
Fixed Rate Notes
D Notes ‘Unrated’ S$[11.8] Million
Fixed Rate Notes

Related Property : No 320 Orchard Road

Purpose : The proceeds of the Note issuance will be used by the Issuer to fund the Loan by the issuer to SPC 1.

Issue Date : [March] 2003

Issue Price : 100%

Redemption Price : 100%

Expected Maturity : [5] years from Issue Date

Legal Final Maturity : [6.5] years from Issue Date

Expected Coupon : A Notes – SOR + [0.57]%
A2 Notes – SOR + [0.75]%
A3 Notes – SOR + [1.40]%
B Notes – SOR + [3.50]%
C Notes – SOR + [3.80]%
D Notes – SOR + [4.40]%

Step Up Coupon : If Notes extend beyond expected maturity, coupon for each tranche will be increased to 3 month SOR + [150] bps for the Notes

Interest Payment Date: Coupon is payable quarterly/semi-annually in arrears.

Principal Repayment : Bullet Payment at Maturity

Underwriting & : Structuring Fee: S$550,000
Structuring Fees

Underwriting Fee:
A Notes – 0.40%
B Notes – 1.55%

Selling Commission:
C Notes – 1.75%
D Notes – 2.00%

Estimate Funding Spread:

(up to B Notes) SOR + [1.15%]
(up to C Notes) SOR + [1.42%]
(up to D Notes) SOR + [1.68%]

Estimate All-in Costs:

(up to B Notes) SOR + [1.71]%
(up to C Notes) SOR + [1.92]%
(up to D Notes) SOR + [2.14]%

Expected Net Proceeds: S$ [131.1] million

Net Proceeds is net of funds in:
1. SPC Management Expense Reserve
Account;
2. Note Interest Reserve;
3. Capital Expenditure Reserve Account; and
4. Upfront Expenses.

Form : The Notes will be issued in bearer form drawn without recourse to and without warranty by the Issuer.

Denomination : A temporary Global Note will be issued and be subsequently split into definitive Notes with denomination of S$250,000 each.

Status : The Notes will constitute direct, unconditional and secured obligations of the Issuer.

Distribution : The Notes will be placed via private placement to selected investors [pursuant to Section 274 and 275 of the Securities and Futures Act].

4 Whilst HVB was on course and pushing ahead with the transaction, CKT decided to terminate the appointment of HVB. The notice of the termination was contained in CKT’s letter dated 8 May 2003. In so far as is material, the said letter reads:

We have decided not to proceed with the Securitisation Transaction and wish to inform you of our decision to terminate your appointment.

Notwithstanding the...