Cherie Hearts Group International Pte Ltd and others v G8 Education Ltd

JurisdictionSingapore
JudgeJudith Prakash J
Judgment Date09 April 2012
Neutral Citation[2012] SGHC 70
CourtHigh Court (Singapore)
Docket NumberSuit No 211 of 2011
Published date18 April 2012
Year2012
Hearing Date20 October 2011,14 September 2011,20 September 2011,21 September 2011,22 September 2011,19 September 2011,21 October 2011,11 September 2011,19 October 2011,09 September 2011,26 September 2011,07 September 2011,08 September 2011,12 September 2011,10 September 2011,16 September 2011,13 September 2011,28 September 2011
Plaintiff CounselAng Cheng Hock SC, Vincent Leow, Jacqueline Lee, Joel Lim and Michelle Yap (Allen & Gledhill LLP)
Defendant CounselHarry Elias SC, Philip Fong, Joana Teo and Vikneswari d/o Muthiah (Harry Elias Partnership LLP) the defendant.
Subject MatterContract,Formation,Breach,Termination
Citation[2012] SGHC 70
Judith Prakash J: Introduction

This case concerns an attempted acquisition of a Singapore business by an Australian listed company. The Australian company still wishes to buy the Singapore business and in fact has taken over the running of much of its operations. The Singaporeans involved, however, no longer want to proceed and wish to take back the business.

Parties to the dispute

The Australian company, which is listed on the Australian Securities Exchange, is G8 Education Limited (“G8”), the defendant in this action. It is in the business of operating childcare centres in Australia. The officers of G8 who generally controlled and conducted G8’s dealings in Singapore are Jennifer Joan Hutson (“Ms Hutson”), the chairman of G8, and Christopher John Scott (“Mr Scott”), G8’s managing director.

The business which G8 wished to acquire was that conducted in Singapore by Cherie Hearts Group International Pte Ltd (“CHG”). CHG is the first plaintiff in this action. The second and third plaintiffs are Yap Soon Guan (“Dr Yap”), and Gurchran J Singh s/o Amer Singh (“Dr Singh”) respectively, who are the founders of CHG and two of its directors and shareholders. The third director of CHG is Wenda Ng Li Ha (“Ms Ng”).

CHG was incorporated in Singapore on 18 September 2007. It is the holding company of a large chain of childcare centres, identified as “Cherie Hearts” childcare centres. Its subsidiaries include the wholly owned Cherie Hearts Child Development Pte Ltd (“CHCD”) which is in turn the sole shareholder of Cherie Hearts Childcare Services Pte Ltd (“CHCCS”). In addition, CHG had franchise arrangements with other childcare centres which were entitled to use the words “Cherie Hearts” as part of their names and to adopt CHG’s style of operation in return for payment of a franchise fee. In the action, the plaintiffs referred to the various entities which operated under the “Cherie Hearts” banner and which were the subject of the transaction with G8 as “the Cherie Hearts Group”.

G8 owns three Singapore companies which were set up for the purposes of its takeover of the business of CHG. The first of these is G8 Education Singapore Pte Ltd (“G8 Singapore”) which was incorporated on 19 October 2010. G8 Singapore in turn has two subsidiaries, Cherie Hearts Corporate Pte Ltd (“G8 CHC”) which was incorporated on 11 November 2010 and Cherie Hearts Holdings Pte Ltd (“G8 CHH”) which was incorporated on 22 October 2010.

Background Negotiations and documentation

In 2001, Dr Yap and Dr Singh set up a childcare centre. This business thrived and in the years that followed they acquired more childcare centres and expanded their business to include franchised childcare centres, childcare teaching and training centres and enrichment centres. In 2007, CHG became the holding company for all their businesses; by that time, they had acquired other directors and shareholders but the majority of the shares remained held by Dr Yap, Dr Singh and Ms Ng.

In June 2010, discussions started between Dr Yap and Mr Scott on the possibility of G8 acquiring CHG. At that time, Dr Yap represented that the Cherie Hearts Group was profitable, although it owed approximately $4.5m to private equity funds namely, Tembusu Growth Fund Limited (“Tembusu”) and The Enterprise Fund II Limited (“Crest”).

Negotiations followed which led to various agreements over the following months. The nature of the transaction changed as the months wore on. The earlier agreements were superseded but it may be helpful, in view of the parties’ submissions, to give an account of them as well as of those that presently govern the parties’ relationship.

The first of these agreements was a document dated 30 June 2010 entitled “Heads of Agreement”. It was made between G8 and Dr Yap in respect of a “Proposed Transaction” (defined as the acquisition by G8 of all the ordinary shares in CHG and its related companies). The Heads of Agreement provided that no legal obligation would arise until transaction documents which would implement the Proposed Transaction were signed. The Heads of Agreement indicated that G8 would pay the following in relation to the Proposed Transaction: a sum of $36.2m for the shares (of which $14.7m would be used to settle certain “Excluded Liabilities” (ie indebtedness of the Cherie Hearts Group)) and a sum of $13.8m to Dr Yap and Dr Singh in consideration of their agreement to remain and manage the operation for three years. The total amount payable by G8 would, therefore, be $50m.

The Heads of Agreement was followed in August 2010 by a “Share Sale Agreement” between G8 as purchaser and Dr Yap and Dr Singh as sellers. By this agreement, the sellers agreed to sell 100% of the ordinary shares in the Cherie Hearts Group for $32m which included a sum of $18.06m to be used to pay the “Excluded Liabilities”. Another $13m was to be paid as bonus to Dr Yap and Dr Singh in the event that certain earnings targets were met. A separate document (the “Bonus Deed”) was signed between the same parties to reflect this agreement. Accordingly, the total value of the transaction was reduced to $45m.

The parties knew that CHG needed funds to pay off Tembusu and Crest so that these parties would no longer have any interest in the Group. Therefore, it was provided by cl 2.1 of the Share Sale Agreement that completion under that agreement was conditional upon, inter alia, G8 advancing $5m to CHG for agreed purposes not later than 21 September 2010 provided that a satisfactory loan agreement and security documents were executed prior to disbursement of the loan. On 17 September 2010, an agreement (“the Loan Agreement”) between CHG and G8 was executed. This agreement provided for G8 to extend a loan facility of up to $5m to CHG for the purpose of repaying its existing liabilities to Tembusu. As security for this facility, on the same day, CHG executed a debenture (the “Debenture”) in favour of G8 whereunder it granted fixed charges and legal mortgages over various specified assets to G8 as well as a floating charge over all its undertaking and its assets, both present and future. The assets pledged included shares in CHG’s subsidiaries. Dr Yap and Dr Singh also provided a personal guarantee to G8 in respect of the indebtedness. The Loan Agreement provided that the loan was to be repaid on the Repayment Date, which was defined as “31 December 2010, or such earlier date as may be agreed in writing between the Parties, or such earlier date pursuant to a notice issued by the Borrower to the Lender to repay the loan”.

On 7 October 2010, CHG and G8 entered a document entitled “Variation of Loan Agreement” (“First Loan Variation”). This document provided, inter alia, that the loan facility would be increased from $5m to $6,888,000. About a week later, on 15 October 2010, another document entitled “Variation of Loan Agreement” (“Second Loan Variation”) was concluded. By the Second Loan Variation, the loan facility was increased to $16,044,000 and further amendments were made to the Loan Agreement.

In the meantime, G8’s auditors were undertaking a review of the accounts of CHG and its related companies in order to satisfy the due diligence requirements of the Share Sale Agreement. It became clear that certain accounts could not be verified and this would make it difficult for CHG to meet the conditions for completion. The parties then renegotiated the terms of the acquisition and it was decided that instead of taking over the shares of the various companies, G8 would purchase the businesses of the Cherie Hearts Group. This agreement was embodied in a document called the “Business Acquisition Contract” (“the BAC”) which was signed sometime in mid October 2010 and dated 28 October 2010. The parties to this document were CHG and 19 other entities listed in Schedule 1 as sellers (collectively, “the Sellers”), G8 as buyer, and Dr Yap and Dr Singh as covenantors. At about the same time, G8, Dr Yap and Dr Singh entered into a separate agreement to assist G8 in acquiring the businesses of childcare centres that were not part of the Cherie Hearts Group. This agreement, the “M&A Deed” was dated 27 October 2010. The premise of the M&A Deed was that Dr Singh and Dr Yap had a business network which would help G8 acquire additional childcare centres. The Share Sale Agreement was thus superseded.

The change in structure and documentation was not intended to affect the maximum consideration to be paid by G8. The BAC provided for the sale of all of the businesses of the Cherie Hearts Group by CHG to G8 for a purchase price of $24,610,027 (the “Purchase Price”). Under the M&A Deed, G8 was to pay Dr Yap and Dr Singh a sum of up to $7.39m for identifying and assisting G8 finalise other childcare centre acquisitions in Singapore. Finally, under the Bonus Deed, amounts of up to $13m would continue to be payable. Under the new arrangements, the total amount to be paid by G8 could still come up to $45m provided certain targets were met.

The Sellers under the BAC were, at the time, operating 18 childcare centres. In the documentation, these were divided into one centre operated by CHCD (referred to as the Limau Centre), 10 Other Centres which were operated by companies in which CHCD had an interest and 7 AO Centres which were operated by companies in which CHCCS had an interest. It was agreed in the BAC that CHCD would acquire the rest of the shares in each of the entities that operated the Other Centres so that they would become wholly owned subsidiaries of CHCD. It was also agreed that CHCCS would acquire the legal and equitable ownership of all the shares in the entities operating the AO Centres so that they would become wholly owned subsidiaries of CHCCS.

The structure contained in the BAC was the final structure adopted by the parties to implement their intentions regarding the sale of the businesses of the Cherie Hearts Group to G8. Later, a number of...

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4 cases
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    ...Victor and others and another appeal [2007] 3 SLR(R) 537 at [35]; Cherie Hearts Group International Pte Ltd and others v G8 Education Ltd [2012] SGHC 70 at [107] and Encus International Pte Ltd (in compulsory liquidation) v Tenacious Investment Pte Ltd and others [2016] 2 SLR 1178 at [22]. ......
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    ...Prakash J: Introduction The trial of this action took place in 2011 and in April 2012, I delivered a judgment ([2012] SGHC 70) in which I granted the defendant, G8 Education Ltd (“G8”), specific performance of a contract dated 28 October 2010 between G8, the first plaintiff, Cherie Hearts G......
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    ...pre-contractual or collateral agreement of legal effect [emphasis added]”. Cherie Hearts Group International Pte Ltd v G8 Education Ltd [2012] SGHC 70 is another case which considered the effect of an entire agreement clause. The plaintiff in that case, a company which ran a chain of childc......
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    ...pre-contractual or collateral agreement of legal effect [emphasis added]”. Cherie Hearts Group International Pte Ltd v G8 Education Ltd [2012] SGHC 70 is another case which considered the effect of an entire agreement clause. The plaintiff in that case, a company which ran a chain of childc......

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