Cheah Geok Tuan (alias Seah Geok Tuan) and Another v Lie Khin Sin and Another

JurisdictionSingapore
CourtHigh Court (Singapore)
JudgeChoo Han Teck J
Judgment Date11 November 2005
Neutral Citation[2005] SGHC 210
Citation[2005] SGHC 210
Plaintiff CounselBernard Doray and Foo Soon Yien (Bernard Rada and Lee Law Corporation)
Date11 November 2005
Published date19 December 2005
Defendant CounselLoo Ngan Chor and Yeo Lih Wei (Lee and Lee)
Docket NumberSuit No 213 of 2005
Subject MatterDividends and bonus shares issued during option period transferred to vendor,Credit and Security,Loans of money,Agreement for sale of shares with buyback option,Whether agreement amounting to loan under guise of sale and purchase of shares,Vendor paying stamp duties,Money and moneylenders

11 November 2005

Judgment reserved.

Choo Han Teck J:

1 When is an elephant a bird? The principal issue in this case concerned the nature of a disputed contract: Was it an investment agreement or a loan? The contract was given a descriptive name – Purchase of 154,103 Asia General Holdings Ltd shares with Buy Back Option”. But the plaintiffs claimed that it was in substance a loan agreement. It is important to set out the contract in full because of the nature and importance of the issue in dispute. The agreement was written out as follows:

May 11, 2001

To: Mdm NG SIOK LAY
107 MARSHALL ROAD
SINGAPORE

RE: PURCHASE OF 154,103 ASIA GENERAL HOLDINGS
LIMITED SHARES WITH BUY BACK OPTION.

Kindly confirm by signing below that you have agreed to transfer the subject shares at terms and condition set out below:-

1. CONSIDERATION: S$255,000. However, for stamp duty purposes, the sum will be stated as S$693,463.50 on the Transfer Form.

2. All STAMP DUTIES RELATING TO THIS TRANSACTION SHALL BE BORNED [sic] BY YOU.

3. ALL THE DIVIDEND AND BONUS ISSUES IF ANY DURING THE OPTION PERIODS SHALL BE TRANSFERRED OR PAID (NET OF COST) TO YOU ACCORDINGLY SOONESS [sic].

4. OPTION TO BUY BACK: DATE OF EXERCISED [sic] – AUGUST 15, 2001

CONSIDERATION PAYABLE: S$297,750.00

5. FURTHER 3 MONTHS EXTENTION [sic] OF OPTION TO BUY BACK (UP TO NOV. 15) FOR CONSIDERATION PAYABLE TO ME OF S$45,000.00

6. AND FURTHER 3 MONTHS EXTENTION [sic] OF OPTION TO BUY BACK PERIOD WITH SAME TERMS AS POINT 5 ABOVE.

Yours truly,

__________Sgd_________

LIE TURNG PHUNG KEN

AGREE:_____Sgd_______ WITNESS:_____Sgd________

NG SIOK LAY ONG KHIAM POH

2 The agreement was ostensibly a signed contract between the second plaintiff and the second defendant. The second plaintiff is the wife of the first plaintiff and the second defendant is the son of the first defendant. It was obvious from the evidence that the two contracting parties were not the real parties to the transaction that actually took place. The second plaintiff was a necessary party because the subject matter of the transaction was shares in Asia General Holdings Ltd and the second plaintiff was the registered owner of the shares. The second defendant became a party because his father decided that he (the second defendant) should sign the contract as a trustee. The defendants’ evidence at trial was that the second defendant signed as trustee for one Darma Tanuwidjaya (“Darma”), allegedly, his uncle.

3 The contract, as it appeared on the written agreement, was straightforward. The contract title stated that it was a purchase of 154,103 shares in Asia General Holdings Ltd. The purchase price, described as the “consideration” was $255,000. The contract was signed on 11 May 2001 and stipulated a date for the vendor to buy back the shares at $297,750, namely, on 15 August 2001. The buyback or redemption sum of $297,750 was calculated after a deduction of 5% from each of the $15,000 instalments (that came to $2,250). The agreement also gave the “vendor” a three months’ extension to repurchase the shares, provided that she pays another $45,000 (which works out to $15,000 a month). Finally, another three months’ extension for the repurchase would be granted on the payment of yet another sum of $45,000.

4 The plaintiffs’ case was that the document was only the security arrangement for a loan of $300,000, of which $45,000 was deducted upfront as interest for the first three months of June, July and August at $15,000 a month. However, the plaintiff received a cheque for only $250,000 because the first defendant had used $5,000 for payment of stamp fees. The stamp fees came up to $1,387 so a separate cheque for $3,613 being the balance was subsequently given to the first plaintiff. The three remaining terms were also relevant. Firstly, the agreement provided that the stamp duties payable for the transfer would be paid by the vendor. Conventionally, however, the obligation of paying the stamp duty in a sale of shares transaction is the obligation of the purchaser. Secondly, it was provided that the consideration would be stated as $693,463.50 for the purposes of stamp duty. The plaintiffs say that the defendants found this to be necessary because the loan amount was much lower than the real value of the shares, and therefore, the appearance of legitimacy for the transaction that the defendants wanted, namely, a properly stamped contract, might be frustrated by a rejection from the stamp office. In any case, the plaintiffs say that they did not know that the defendants had inscribed the figure $693,463.50 until after the event. Thirdly, it provided that all dividends and bonus issues during the interim would be transferred to the vendor. This was also contrary to conventional practice. In a conventional sale of shares with a buyback option, dividends and bonus issues belong to the purchaser. He could, of course, sell the bonus issues to the vendor as part of the buyback option. But in the present case, the transfer of bonus issues back to the vendor was subject only to cost.

5 The contract was witnessed by Ong Khiam Poh who is also known as Peter Ong. In this regard, a typewritten telefax dated 9 May 2001 sent by the first defendant to Peter Ong is relevant. The telefax stated:

SPOKEN TO DARMA & WILL DO THE DEAL WITH SOME MODIFICATION ON TERM PROPOSED BY YOU & SUBJECT TO TAKE A LOOK AT THE CO’S AUDITED ACCOUNT.

INSTEAD OF TWO MONTH INTEREST PRE-DEDUCTED FROM THE ADVANCE, WILL DEDUCT THE WHOLE THREE MONTH [sic] IE. $45,000. HOWEVER, 3 MONTHS INTEREST (15%) ON THE $15,000 WILL ALSO BE DEDUCTED FROM THE REPAYMENT IE. INSTEAD OF REPAYING $300,000, WILL REPAY $297,750 ($15,000 x 15%) AT THE END OF THIRD MONTH, MATURING DATE.

BORROWER WILL PAY $45,000 FOR THE EXTENTION OF 3 MONTHS OPTION TO BUYBACK THE SHARES IF REQUIRED.

IF NEED FURTHER...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT