Pacific Century Regional Development Ltd v Canadian Imperial Investment Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 06 April 2001
• Neutral Citation: [2001] SGCA 21
• Citation: [2001] SGCA 21
• Defendant Counsel: Davinder Singh SC with Hri Kumar and Siraj Omar (Drew & Napier)
• Published date: 19 September 2003
• Plaintiff Counsel: Kasiviswanathan Shanmugam SC, Edwin Tong with Prakash Pillai and Vikhna Raj (Allen & Gledhill)
• Date: 06 April 2001
• Docket Number: Civil Appeals Nos 130 and
• Court: Court of Appeal (Singapore)
• Subject Matter: Evidence on factual matrix,Whether "tag-along" clause applicable in circumstances of case,Contractual terms,Contract,Rules of construction,Admissibility of evidence of previous negotiations of parties and their declarations of subjective intent,Regard to substance of transactions,Scope of "factual matrix"

(delivering the judgment of the court): This appeal concerns the interpretation of a `tag-along` clause in a Shareholders` Agreement between the appellant and the predecessor company of the respondent, Orient Freedom Property Ltd (`OFPL`).

The appellant, Pacific Century Regional Development (`PCRD`), is a public company listed on the Stock Exchange of Singapore. PCRD is a subsidiary of Pacific Century Group Holding Ltd (`PCG`) of Hong Kong. PCG is a company incorporated in the British Virgin Islands. Both PCRD and PCG are controlled by one Mr Richard Li (`Mr Li`) of Hong Kong.

The respondent, Canadian Imperial Investment Pte Ltd (`CIIP`) is a Canadian company. By way of a novation and amending agreement, the rights and obligations of OFPL under the Shareholders` Agreement have been assumed by CIIP as if CIIP was the original party to the Agreement.

Background to Shareholders` Agreement

Sometime in 1996, the parent company of OFPL saw an opportunity to develop an underground car-park in Shanghai, the People`s Republic of China (`PRC`). It then approached PCRD. They agreed to enter into a joint venture on that development. In pursuance thereof, a company, Quinliven Pte Ltd (`QL`), was incorporated in Singapore to undertake the project. The Shareholders` Agreement, dated 31 January 1997, was entered into under which PCRD was to hold 75% of the shares in QL, and OFPL to hold 25%. QL, in turn, entered into an arrangement with Shanghai Tian Chang Economic Development Co Ltd to jointly undertake the car-park project.

Sometime in early 1999, PCRD decided to restructure its operations, a decision due in part to its desire to enter into a contract with the Hong Kong Government on a Cyber-Port project. PCRD felt that this was a way for it to venture into the Hong Kong technology market. As part of the overall scheme, PCRD also decided to acquire a listed shell company, and in this manner to obtain a `back-door listing` on the Hong Kong Stock Exchange. The arrangement involved the carrying out of a series of transactions whereby assets of PCRD and PCG in the PRC (including Hong Kong) were to be transferred to Newco, a company incorporated in the British Virgin Islands on 28 October 1998. The transfer would also cover all the shares which PCRD held in QL. In return for the transfer of all the assets, PCRD and PCG would receive 100% of the shares in Newco. The next stage of the arrangement would involve the transfer by PCRD and PCG of all their shares in Newco to the listed company, Tricom Holdings Ltd (`Tricom`), and in return PCRD and PCG would receive shares and convertible bonds of Tricom.

The scheme was carried out by way of an agreement dated 30 April 1999 (`the Acquisition Agreement`), entered into between PCRD, PCG, Tricom and Star Telecom International Holding Ltd (`Star`). Prior to this arrangement, Tricom was a subsidiary of Star. Following the execution of the transactions provided in the Acquisition Agreement, PCRD became the controlling shareholder of Tricom. Accordingly, Tricom has become a subsidiary of PCRD.

A useful summary of what was envisaged in this elaborate exercise may be found in a paragraph in a letter dated 7 July 1999 issued by PCRD to its shareholders, which reads:

As part of a corporate restructuring to facilitate the Proposal, PCRD will transfer all its property interests and activities in Hong Kong and the PRC other than the Excluded Properties to a new intermediate holding company, Newco, in exchange for new ordinary shares in Newco amounting to approximately 91 per cent of the enlarged issued share capital of Newco. PCG, the ultimate holding company of PCRD, will also transfer certain property interests in Hong Kong, inter alia, comprising the Hong Kong Computer Centre, to Newco in exchange for which it will also receive new ordinary shares in Newco amounting to approximately 9 per cent of the enlarged issued share capital of Newco. Tricom will then acquire all the issued shares in Newco from PCRD and PCG. PCRD and PCG will transfer their aforementioned assets to Newco for an aggregate consideration of HK$2,460 million which is to be satisfied by the issue of new shares in Newco. PCRD and PCG will then transfer their shares in Newco to Tricom for the same consideration and which is to be satisfied by Tricom through the issue of the Consideration Shares and Convertible Bonds.

In view of the arrangements set out in the Acquisition Agreement, CIIP claimed that PCRD had breached cl 11(E) of the Shareholders` Agreement as PCRD had failed to obtain a corresponding offer from Tricom to acquire the shares which CIIP held in QL. In its response, PCRD averred that cl 11(E) had no application in the circumstances of this case, as the transfer of the QL shares was to a subsidiary, an associated company.

Relevant provisions

Before we proceed any further, it may be useful for us at this juncture to set out cl 11(E) and other clauses which may have a bearing on the matter in hand:

Clause 1(A)

`Associated company` means in relation to any Shareholder, any subsidiary or holding company of such Shareholder and any subsidiary of any such holding company.

Clause 11(A)

Subject to the provisions hereof, no transfer of any Shares shall be made by the Shareholders unless:

(i) the transferee is an Associated Company of the transferor, and the transferee shall remain as such Associated Company after the transfer and the obligations of the transferor under this Agreement shall remain unaffected by such transfer; or

(ii) the provisions contained in Schedule 1 are complied with in respect of such transfer.

Clause 11(B)

It shall be a condition precedent to the right of any Shareholder to transfer any Shares that:-

(i) the transferor (if not already bound by the provisions of this Agreement) executes in such forms as may be reasonably required by and agreed between the other Shareholder(s) a deed of ratification and accession under which the transferee shall agree to be bound by and shall be entitled to the benefit of this Agreement as if it were an original party hereto; and

(ii) the transferor assigns and the transferee accepts an assignment of all or, in the case of a transfer of part of the Shares of a Shareholder, a proportionate part of the loans made to or given on behalf of the Company by the transferor or any of its Associated Companies and for the time being outstanding.

Clause 11(E)

If PCRD receives from a third party an offer to acquire its Shares (together with the related Shareholder`s loans) and such offer when accepted would result in PCRD holding less than 51 per cent of the issued share capital of the Company, before accepting such an offer (the `first offer`) it shall forthwith inform OFPL of the terms and conditions of the first offer and it shall procure for OFPL an offer for an equivalent proportion of the Shares held by OFPL (together with the related Shareholder`s loans) on the same terms and conditions as those contained in the first offer so that after OFPL`s acceptance of the offer, the ratio of OFPL`s shareholding in the Company to PCRD`s shareholding in the Company shall always be 1:3.

Clause 19(A)

This agreement shall take effect from the date of this Agreement without limit in point of time and shall cease and determine upon the dissolution of the Company. If any Shareholder shall transfer the entirety of its Shares, it shall be released from its obligations under this Agreement (except for its obligations under Clause 15) but if at that time there are two or more Shareholders bound by the provisions of this Agreement, this Agreement shall continue in full force and effect as between such continuing Shareholders until the dissolution of the Company.

In the above, we have quoted cll 11(B) and 19(A) because they are relevant to other related issues which are dealt with later in [para ]46-52.

Decision below

The main question, as formulated by the learned judge below, is whether as on the date of the Acquisition Agreement (30 April 1999) PCRD had received an offer from a third party for its shares in QL, which, when accepted, would result in PCRD holding less than 51% of the issued share capital of QL.

In construing cl 11(E), CIIP sought to admit the evidence of one Dr Steven Funk, a director of CIIP, who was involved in the negotiations with Mr Patrick Cheung of PCRD on the terms of the Shareholders` Agreement. The judge, applying the principles enunciated by the House of Lords in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 All ER 98relating to `factual matrix` said that any evidence that would have affected the way in which the language of the document would have been understood by a reasonable man would be admissible as evidence. He ruled that Dr Funk`s oral and affidavit evidence of `the mutual understanding which led to the insertion of clause 11(E)` constituted admissible evidence, and all the more so since that evidence was not even contradicted as PCRD did not call Mr Cheung to rebut what Dr Funk said. That mutual understanding was that CIIP would be afforded the same benefit or opportunity which PCRD would itself obtain in a situation where the requirements of cl 11(E) were satisfied.

Following from that understanding, the learned judge proceeded to address the question as to whether there was an offer from a third party to acquire PCRD`s shares in QL. He held that there was either an actual or notional offer, that it came from Tricom, and that as far as Newco was concerned, it was no more than a vehicle through which Tricom was to acquire PCRD`s shares in QL. He felt that it was the substance of the transactions between PCRD and Tricom that was crucial, not the form in which the transactions were carried out.

The judge also held that in determining whether cl 11(E) was triggered, it...