CIFG Special Assets Capital I Ltd v Ong Puay Koon

JurisdictionSingapore
JudgeSundaresh Menon CJ,Andrew Phang Boon Leong JA,Steven Chong JA
Judgment Date29 November 2017
Neutral Citation[2017] SGCA 70
Published date06 December 2017
Date29 November 2017
Year2017
Hearing Date29 November 2017
Plaintiff CounselTeo Chun-Wei Benedict and Poon Guokun Nicholas (Drew & Napier LLC)
Defendant CounselTan Chee Meng S.C., Lim Xian Yong Alvin and Ho Wei Jie Vincent (WongPartnership LLP)
CourtCourt of Appeal (Singapore)
Citation[2017] SGCA 70
Docket NumberCivil Appeals Nos 42 and 43 of 2017
Sundaresh Menon CJ (delivering the judgment of the court ex tempore): Parties

These two appeals arise out of a set of Convertible Bond Subscription Agreements (“CBSAs”) that the parties entered into. Given the view we have taken on the first appeal, which is Civil Appeal No 42 of 2017 (“CA 42 of 2017”), it is unnecessary for us to deal with the second appeal, which is Civil Appeal No 43 of 2017 (“CA 43 of 2017”).

The plaintiff in the court below was CIFG Special Assets Capital I Ltd (formerly known as Diamond Kendall Limited) (“CIFG”). CIFG is an investment vehicle that was established in 2007 to enter into the CBSAs with the defendants.

The defendants in the court below were Ong Puay Koon (“Ong”), Lee Sin Peng (“Lee”), Andy Ho (“Ho”), and Yap Tien Sung (“Yap”), collectively referred to as the “Initial Shareholders”. They were the second to fifth defendants in the court below and were the initial shareholders in Polimet Pte Ltd (“Polimet”). Polimet, which is a special purpose vehicle incorporated as a holding company for the Initial Shareholders’ other companies, was the first defendant in the court below. Polimet and the Initial Shareholders were all parties to the CBSAs. We refer to Polimet and the Initial Shareholders collectively as “the Respondents”.

Background

The Initial Shareholders were involved in the business of manufacturing components used to make diodes through four companies incorporated in China and Hong Kong (“the Group Companies”). In 2007, they decided to acquire a company known as “Philips” and tried to find an investor willing to finance the acquisition. Between June and October 2007 the Initial Shareholders met with Kendall Court Capital Partners Limited (“KC”), a fund management company that wholly owned CIFG through a mezzanine fund. Although the parties hotly contested what occurred during those meetings, what is material for the purpose of these appeals is that they did agree to a deal whereby CIFG would finance the intended transactions.

The parties envisioned that Polimet would be incorporated as a holding company of the Group Companies. KC would provide a US$5m loan by subscribing for convertible bonds issued by Polimet with a five-year maturity term and a US$8.33m redemption value. KC wanted security for the loan and this was part of what was discussed. What is material for present purposes is that the provision of an indemnity, which is the subject matter of this appeal, was not specifically discussed in this context of how the loan would be secured. How it came to be included in the agreement is something we will deal with shortly.

A draft term sheet was sent to Lee dated 1 August 2007 (“Term Sheet 1”), containing broad terms of the agreement. Specifically, this included an indemnity clause indicating that KC should be indemnified by Polimet for all losses arising out of or relating to the investment.

Further discussions took place at which the question of personal guarantees (“PGs”) and which of the Initial Shareholders were to provide them was negotiated.

A revised draft term sheet dated 9 August 2007 (“Final Term Sheet”) was sent to Lee on 10 August 2007. It indicated that Lee and Ho would provide joint and several PGs based on their initial 50% shareholding in Polimet. No other terms were changed from Term Sheet 1, including the provision that Polimet would indemnify KC. Chris Chia Woon Liat, the managing partner in KC, and Lee signed the Final Term Sheet.

On 7 September 2007, KC sent Lee drafts of the 2007 CBSA and the PGs. The documents were reviewed by some of the parties on 9 September 2007 in Salzburg. The indemnity clause that is the subject of the present appeals and which found its way into the 2007 CBSA was reviewed for the first time at that meeting. It differed from the provision that was originally contained in the two term sheets at least to the extent that it was not limited to Polimet but extended to the Initial Shareholders. On 5 October 2007, the parties executed the 2007 CBSA and incorporated Polimet. The 2007 CBSA contained the indemnity clause as aforesaid, namely cl 12. CIFG also obtained as security, charges over the assets of all the Group Companies, PGs from Lee and Ho, and the Initial Shareholders’ shares in Polimet (which would be transferred back to them once the facility was fully discharged).

The 2007 CBSA was later supplemented by other CBSAs. The material terms – including cl 12 – remained the same in each of them. By 2011 it became clear that Polimet would not be able to meet its payment obligations.

Polimet eventually defaulted and CIFG issued demands in 2012 and subsequently in August 2013.

The parties eventually entered into a partial settlement agreement (“the Settlement Agreement”) and recorded a consent judgment on 22 August 2016. Polimet was to pay CIFG about US$39m comprising about US$18.6m as the outstanding sum along with facility fees and contractual default interest of 2% per month, and a further 2% interest per month until full payment. Lee and Ho were to pay CIFG about US$8.7m and interest at 5.33% per annum. The Settlement Agreement noted that the parties disputed the scope of cl 12 – whether the Initial Shareholders could be liable for Polimet’s default – and also whether the default interest of 2% per month under cl 5.5 was an unenforceable penalty.

The decision below

The matter was heard before a Judicial Commissioner (“the Judge”) who dealt with various issues in her judgment (which can be found at CIFG Special Assets Capital I Ltd v Polimet Pte Ltd and others (Chris Chia Woon Liat and another, third parties) [2017] SGHC 22) but what is material for present purposes is the construction she placed on cl 12.1 of the CBSAs (which is the indemnity clause) and in particular, whether on its true construction it had the effect of enabling CIFG to claim the entirety of its losses arising from Polimet’s default against each of the Initial Shareholders on a joint and several basis.

The Judge found that the clause was not so wide and for the reasons which follow, we agree with her though we differ somewhat in our reasoning and also in the construction we place on that provision. In relation to cl 12.1, the Judge first found that it appeared to be an unlimited and general indemnity which, on its face, would cover Polimet’s default (at [79]). But the Judge found it odd that there was no reference to the possibility of Polimet’s default in cl 12.1, especially since...

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